No formal extension of Malampaya contract yet - DOE

MANILA, Philippines - The Department of Energy (DOE) said yesterday it has not formally granted an extension of Service Contract 38 or the Malampaya deep water gas-to-power project, DOE Secretary Jose Rene Almendras said.

 “We are still studying it,” he said.

According to Almendras, the SC 38 consortium’s application for a 15-year extension of its service contract, however, is within the maximum allowable term of the service contract under Presidential Decree 87.

Almendras said the Malampaya Phase 2 and 3 projects are part of the SC 38 Consortium’s work program to ensure operational efficiency, and enhance natural gas production from the wells, subsequently promoting continuity of supply until the end of its term in 2024.

He pointed out though that throughout the life cycle of a natural gas field, it is common to experience depletion and pressure reduction in the reservoir as production progresses.

The Malampaya Phase 2 and 3 intend to reduce the impact of such occurrence in order to sustain current production levels and guarantee the continued remittance of the National Government’s share from the output of the project.

He said the contract that was originally signed has favored the National Government, since it does not bear any risk.

Under PD 87, the DOE acts merely as the ‘collector’ of the government’s share in the Malampaya natural gas sale, after which it is then remitted to the National Treasury.

Earlier, the SC 38 consortium expressed interest to extend its license to explore for oil and gas in northwest Palawan until 2039. The consortium’s license will expire by 2024.

The Malampaya consortium, led by Shell Philippines Exploration B.V. which owns a 45-percent stake, signed the agreement with Fluor Daniel, a unit of Fluor Corp. of the US, for the basic engineering design package of the Malampaya expansion.

The consortium is composed of SPEX as operator, Chevron Malampaya LLC with a 45-percent stake and PNOC Exploration Corp. holding the remaining 10 percent.

It was learned that the consortium sought for an extension of SC 38 after deciding to proceed with the second and third phase of the Malampaya project estimated to cost $1 billion.

The project was earlier estimated to cost $1.5 billion but has been downscaled after the design package was finalized.

The Malampaya’s next phase development aims to maintain the level of production and maximize the recovery of natural gas from the Malampaya and Camago reservoirs.

The gas field has proven reserves of 2.7 trillion cubic feet to 3.2 TCF, of which around one TCF has already been consumed.

The Malampaya field fuels three power plants with a combined capacity of 2,700 megawatts, equivalent to about 36 percent of Luzon‘s power generation requirements.