EO 556: Huling bulong syndrome

The issuance of the back dated EO 556 shows what’s wrong with the management style of Ate Glue, one that’s going to be seen as a disincentive for foreign investors. This is what I call, the huling bulong syndrome… the last one who managed to whisper.

Actually, all Presidents are subject to the huling bulong. I remember an Erap Cabinet member telling me that the so-called "midnight Cabinet" specialized in that… a we bulong brigade. But what differentiated Erap from Ate Glue is that before acting on the huling bulong, Erap consulted the Cabinet member concerned. And if the Cabinet member satisfactorily explained why it cannot be done, Erap dropped it.

Apparently, not so with Ate Glue! She feels intellectually superior to her Cabinet members, even the technical aspects of their work. Piecing together published reports with what I have heard from my sources in the oil industry, it seems EO 556 was inspired by a company called Burgundy Global, which is really a real estate concern.

It would be recalled that when PNOC started discussions with a number of prospective companies to handle the Camago-Malampaya oil rim, published reports recalled local firm Burgundy Global Exploration Corp. requested the Solicitor General for a ruling and opinion to uphold the mandate of the Constitution regarding the granting of rights to Filipinos when it comes to national patrimony. Burgundy claimed that it has the right to match any offer by a foreign company to be a partner in the project, citing the "Filipino First" doctrine.

That doctrine was last used to scuttle the award of Manila Hotel to a foreign consortium led by Sheraton, which planned to restore the historic hotel to its old grandeur as the country’s top hotel. Instead, the Supreme Court ordered the Manila Hotel sold to Emilio Yap of the Bulletin using this same patrimony doctrine. Anyone who visits the hotel these days can only sigh with a sense of loss at how badly it now looks. Yap didn’t have the resources and the good taste of Sheraton. It is clear in this case, a foreign group could have done more for our national patrimony than a Filipino company.

Anyway, Burgundy is not generally known in the oil exploration industry. It has no track record. Yet, it has supposedly committed to invest over P4 billion for exploration activities in Palawan. DOE recently awarded Service Contract 61 and 62 to Burgundy for oil and gas explorations in Northeast and Southeast Palawan. That might seem like a lot of pesos but that’s nowhere near what is needed in this big time gamble known as oil exploration. The lack of action here is probably because Burgundy is waiting for a rich foreign partner to spend for it.

There are no indications how much money Burgundy has to back up its bid to develop the Camago-Malampaya Oil Rim, but I doubt if any local group can, on its own, muster the large amount of money needed for this delicate (it could damage the gas development if they are not careful) project in deep waters. It would definitely require expensive state-of-the-art technology similar to what Shell and Chevron is now using for the gas project. But I am sure, on its own, Burgundy’s financial resources are no match to that being mustered by Mitra Energy – Standard Chartered Bank and British Petroleum.

To drill one oil well in Malampaya costs over $35 million and that’s if all goes well. Anything can happen in the difficult conditions of deep water drilling, the difficult geology as well as the need to protect the natural gas production now going on. Cost can easily double or triple, specially if an accident happens. This is why PNOC sought to share out the risk by seeking a farm-in agreement with qualified parties.

Mitra has in fact, spent over a million dollars so far for various technical requirements in pursuance of its proposal. It has spent over 16 months and thousands of man hours studying Camago-Malampaya and establishing a development plan to safely extract the oil at the earliest time.

Mitra’s offer submitted to PNOC in March 2006 contained over 10 large boxes of documents providing in great detail its development plan, its financial capability to fund the development, and the names and details of every major offshore sub contractor to be involved. Total project cost, which includes capital and operating costs, is estimated at just under $700 million.

Hopefully, the Burgundy group is not thinking of just using its apparently considerable clout with Ate Glue to get a percentage of the action without any real cash contribution. This is often what local groups do, not just in petroleum projects but also in mining and in public utilities like telecommunications. The controversial EO 556 was issued, it seems, without the knowledge of the Secretary of Energy and PNOC officials, who should have been consulted first by Malacañang.

From what I have heard, PNOC has apparently done a proper tender of the Camago-Malampaya Oil Rim project not only to local Philippine companies, but to companies based in the United Kingdom, Norway, Malaysia, Singapore, USA, China and Indonesia. Over 12 companies were invited to submit offers and eight companies chose to do so. If there was anything funny going on in the PNOC process, the very competitive international oil industry would have cried foul.

So the process was going on in full swing from March to May 2006. Mitra Energy Ltd. was given a preliminary letter of Award to enter into talks with PNOC, after an extensive review of the offers, for a Farm-in Agreement, last May 31. Weekly meetings with PNOC have been held to complete the Farm-in Agreement in July but extended into August 2006. All of these talks were held in PNOC’s office at Fort Bonifacio.

For background, farm-in and farm-out agreements are standard practice used by oil and gas companies worldwide. Governments and National Oil Companies use these too, to attract and obtain partners to join in either an exploration or development of an oil or gas field.

Farm-in and Farm-out Agreements have stood the test of time. Almost all major oil and independent oil and gas companies use farm-in and farm-out agreements to share the risk of exploration or offshore development. In fact, even Shell farmed-out 45 percent of the Malampaya Gas field to Chevron, as Shell did not want to take the sole risk.

The Malampaya Oil Rim development is not an easy project. It is in 3,000 feet of water, has high gas pressure and a very complex geological structure. At the same time, the development has to be very careful not to disrupt the existing gas to power program facilities. The estimated oil reserves are just 40 or less million barrels.

I am told that Mitra’s submission to PNOC was the most detailed and comprehensive submission received for the development. It contained the specific details of the equipment to be used or installed, how it was to be installed, and each of the sub-contractors also had to provide their financial statements and records showing they had the financial capability of undertaking and completing their scope of work. In addition, each company had to provide their entire health and safety manuals and safety track record, and name the specific key personnel who would be in charge of their scope of work.

Let us see Burgundy match all of that.

Actually, if the EO successfully scares off Mitra and other proponents infinitely more qualified than Burgundy, the country would be the loser. The Mitra proposal estimates over US$100 million being directly infused in the local economy, for goods and services coming from local companies. Ninety percent of the offshore labor force would be from the Philippines. Onshore small and large companies from those selling foodstuff to steel makers and carpenters across the country would have benefited starting in 2007.

If the project is re-tendered, it will be a lost opportunity for the Philippines as the process will be delayed six months or so and all the equipment vendors already lined up will be lost. The EO also would have scared most potential bidders, so that only the Burgundy group, with no demonstrated ability to pursue the project on its own, will be left to bid.

It would be a pity if we lost the technically competent and financially sound company that was selected by PNOC to undertake project after painstakingly demonstrating its ability to carry it out.

But what else is new? Dis is da Pilipins… wer da las bulong to Ate Glue counts.

Wonder why?

Here’s a quickie from Sonny Mendoza.

Why is it so hard for women to find men who are sensitive, caring, and good-looking?

Because those men already have boyfriends!

Boo Chanco ‘s e-mail address is [email protected]