DOE to bid out Camago-Malampaya oil leg in April

The Department of Energy (DOE) plans to push through with the bidding for the development of the Camago-Malampaya Oil Leg (CMOL) in Palawan by April, a ranking DOE official said.

Energy Undersecretary Guillermo Balce said they are set to announce next month the details of the bidding process.

"It will push through. By mid-April, we can expect PNOC-EC to make a bidding announcement," Balce said. PNOC-Exploration Corp. is the oil and gas exploration subsidiary of state-owned Philippine National Oil Co. (PNOC).

Balce also confirmed that new bidding rules are now being finalized by the DOE and the PNOC-EC.

The DOE assurance came in the midst of apprehensions that the government may delay the CMOL bidding due to the prevailing lower world oil prices.

It was noted that a delay in the bidding of the CMOL project could also be due to issues involving insurance or indemnity.

Before the Malampaya consortium decided to relinquish its right to develop the oil rim, it wanted to make sure that the Malampaya gas project would be properly protected. The Malampaya consortium, led by Shell Philippines Exploration B.V., decided to let go of the project as it noted that oil reserves underneath the Malampaya gas reservoir is "sub-commercial."

The development of the oil rim is expected to cost between $360 million to $500 million. The Malampaya oil rim is estimated to contain up to 40 million barrels of oil.

The CMOL is located beneath the existing natural gas infrastructure development under Service Contract (SC) 38 of the Malampaya consortium composed of Shell Philippines Exploration B.V. (SPEX), Chevron Texaco and PNOC-Exploration Corp.

After considering the initial oil tests as commercially unviable, the SPEX group did not pursue the oil rim project, prompting the government, through the PNOC-EC, to look for other parties to develop the potential oil field.

The development of CMOL has also been a subject of controversies.

Though SPEX group relinquished its right to develop the oil rim, it has to review the credentials of the new partner of PNOC-EC in developing the oil rim to ensure that the natural gas platform above the oil leg will not be compromised once the oil drilling exploration commenced. SPEX also wants to get a form of insurance bond that would cover any damages, if there would be any, to the Malampaya structure during the CMOL development.

Another setback on the CMOL, is the issuance of Executive Order (EO) 556, which amended EO 473, that embodies government policy to promote a competitive and transparent process for selecting joint venture partners of PNOC in the development of its oil and gas service contract areas.

Prior to the issuance of the new EO, PNOC-EC had apparently selected Malaysia’s Mitra Energy Ltd. as partner in the CMOL development.

But with the EO, PNOC-EC decided to call off any ongoing negotiations with Mitra Energy to pave the way for a public bidding as prescribed under the new ruling.

Before the issuance of the EO, service contracts issued by the DOE are mostly "farm in" agreements which are entered into on the basis of the financial and technical capabilities of the exploration firms.

In EO 556, President Arroyo apparently revoked Mitra Energy’s contract, saying that "there shall be no farm in or farm out contracts awarded by any government agency including contract for the exploration development, and production of crude oil from Camago-Malampaya reservoir."