DOE wants new study on Camago oil well viability

MANILA, Philippines - The Department of Energy (DOE) has urged Shell Philippines Exploration B.V. (SPEx) to examine anew the viability of the Camago well in the Malampaya gas field in Palawan.

“We are still discussing the conduct of a new study,” said Energy Undersecretary Jose M. Layug Jr.

“We need to do the study first and consult Malacañang on how we will proceed with it. We are talking with Malampaya now and we are asking them how long they can do it,” he added.

The consortium for the Malampaya gas-to-power project or Service Contract (SC) 38 is composed of SPEx as the operator, Chevron Malampaya LLC with a 45-percent stake and state-led Philippine National Oil Co.-Exploration Corp. (PNOC-EC) holding the remaining 10 percent. The license for SC 38 that allows the exploration of the Malampaya gas field in northwest Palawan will expire in 2024.

For the Camago-Malampaya oil leg, Layug said: “We were hoping that oil would be extracted, but over time the pressure depletes and makes it difficult to extract the oil, particularly when the reservoir is being used.”

After the study, the DOE will consult Malacañang regarding the development of the oil rim.

“But I think it would be better if we do a public bidding. The oil rim was awarded via a court decision from Mitra [Energy Ltd.] to Burgundy [Global Exploration Corp.],” Layug said.

Last year, the DOE cancelled the contract of PNOC-EC and its partner Burgundy for the oil rim due to its alleged “non-compliance” of the terms and conditions of its work commitments.

PNOC-EC, the oil and gas exploration unit of state-owned Philippine National Oil Co., signed a participation agreement with Burgundy on July 2, 2008.

Burgundy partnered with PNOC-EC after filing and winning a case that prevented PNOC-EC from awarding the oil rim project to Malaysian firm Mitra Energy. Burgundy had said it is the most qualified Filipino corporation pursuant to the “Filipino First” policy of the Constitution.

Given the cancellation of PNOC-EC’s contract, Layug said the DOE now has the legal basis to bid out the oil rim anew if proven commercially viable.

The Camago-Malampaya oil leg is a 56-meter thick oil zone located right below the 600-meter thick gas cap being produced by the SC 38 consortium as part of the Malampaya deep water gas-to-power project.

It was initially discovered with the drilling of Malampaya-1 well in 1991 but was considered as a separate development from the much larger natural gas reserves in northwest Palawan.

The Malampaya consortium earlier dropped the oil rim as it is not commercially viable. 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.

Camago-Malampaya is estimated to contain 41 million barrels of oil and will cost around $1 billion to develop.