President Ferdinand R. Marcos Jr. on Monday renewed the production contract for the Malampaya gas field in northwest Palawan, extending it for 15 years until Feb. 22, 2039.
“Today we mark a very significant milestone as we pursue another huge endeavor that will promise monumental rewards for our country and our people,” Marcos said at the signing ceremony for the contract renewal at the Palace.
The President said that the agreement was consistent with the Constitution and the state policy of hastening the discovery and production of the country’s indigenous petroleum.
The Department of Energy (DoE) said the extension of Service Contract 38, which was to expire on Feb. 22, 2024, would allow for the continued production of the gas field, ensuring that the remaining gas reserves are further explored and utilized.
“The DOE has meticulously evaluated the SC 38 Consortium. The assessment encompassed legal, technical, and financial capabilities, and confirmed the consortium’s capacity to sustain the production operations and meet its obligations under the renewal agreement,” Energy Secretary Raphael Lotilla said.
The DoE recommended the renewal of the service contract, anchored on the commitment of the SC 38 consortium led by Prime Energy Resources Development B.V. to actively explore and evaluate additional gas resources.
“Through the stringent due diligence observed, the government aims to uphold responsible and sustainable energy practices while effectively managing the valuable resource that is the Malampaya gas field,” Lotilla said.
Energy Undersecretary Alessandro Sales said the Malampaya service contract extension has no impact on China’s claims and potential exploration deals in the West Philippine Sea.
“[The] field was discovered in 1989. We have been producing from the Malampaya field since 2001,” Sales said.
Following the President’s approval, the Malampaya Deep Water Gas to Power Project is moving full speed ahead for new exploration and development.
“This is a significant development for our national energy security and independence. The Malampaya asset will continue what it has started in operating this world-class installation for further exploration and utilization of the country’s remaining gas reserves, as well as open up the other potential near field areas for future production,” said Prime Infrastructure Capital, Inc. chairman Enrique K. Razon Jr.
The renewal agreement was signed by President Marcos and representatives of the SC 38 consortium: Prime Energy managing director and general manager Donnabel Kuizon Cruz, Prime Energy board member and senior adviser Sebastian C. Quinones, Jr, UC38 LLC president Belinda Racela and PNOC Exploration Corp. president Franz Josef George E. Alvarez. Lotilla signed the agreement as a witness.
Prime Energy, a subsidiary of Prime Infrastructure Capital Inc., is a natural gas exploration and development company. It is the operator and owner of a 45-percent operating interest in SC 38. UC38 and PNOC EC own the remaining 45 percent and 10 percent, respectively.
“On behalf of the SC 38 consortium, we are very grateful for the renewal and for the opportunity to continue to operate and develop the Malampaya asset and facilities. Once again, we commit to doing our very best to help ensure a stable, cleaner, and dependable energy supply for the Philippines,” Cruz said.
The agreement also requires the SC 38 Consortium to conduct a minimum work program consisting of geological and geophysical studies and the drilling of at least two deep water wells during sub-phase 1 from 2024 to 2029.
The work program is geared towards unlocking the potential both in the existing gas field and nearby prospect areas to provide incremental production.
The DoE also said the conduct of exploratory drilling further away from the Malampaya production area within the service contract is a requirement for the SC 38 Consortium to retain the exploration areas.
It said that should there be a failure to comply, the SC 38 consortium is obligated to relinquish a portion of the exploration areas.
Lotilla said the discovery of additional reserves in the Malampaya gas field will boost the country’s quest for energy security.
It is also expected to encourage opportunities for further exploration in the country, which to date remains under-explored, and to add to the country’s energy portfolio.
The SC 38 consortium is further required to submit a Decommissioning Plan and Budget covering the abandonment of wells and decommissioning of facilities in accordance with applicable international standards, including timing and costs, within 30y calendar days from the effectivity of the agreement for approval by DOE.
Within the framework of the Oil and Petroleum Development Act of 1972, the Malampaya gas field was discovered in 1989. It began production in 2001, significantly contributing to the country’s economic growth.
The Malampaya Project supplies natural gas to power four power generation plants in Batangas (Santa Rita, San Lorenzo, San Gabriel, and Avion) with a combined capacity of 2,011 megawatts.
This accounts for 20 percent of Luzon’s power needs.
The major components of the Malampaya Project include subsea wells and flowlines, a shallow water platform to process natural gas, a depletion compression platform, a catenary anchored leg mooring buoy (CALM buoy) for the export of liquid condensate, a 504-kilometer long gas export pipeline on the seabed, and an onshore gas plant in Batangas City.
Under SC 38, the consortium has been remitting 60 percent of the net proceeds from its petroleum operations to the government.
The consortium has remitted more than $13.14 billion from October 2001 to December 2022.
Speaker Ferdinand Martin G. Romualdez lauded the renewal of SC 38, saying it should help stabilize the prices of electricity and prevent brownouts that result in business losses and causes suffering.
Romualdez was among the government officials who witnessed the President sign the renewal agreement.
“This is a welcome development as the Malampaya gas field provides a significant portion of our country’s energy requirement,” Romualdez said.
Deputy Speaker and Batangas Rep. Ralph Recto also hailed the renewal of the production contract. “Malampaya gas is a bulwark of our energy security. It fuels base-load power plants in my home province of Batangas,” he said.
“The extension of the Malampaya Service Contract for 15 years not only guarantees our supply of that strategic fuel but retains our presence in an area regarded as harboring big oil and gas deposits,” he added.
Senator Francis Escudero said it was well within the President’s power to renew the Malampaya contract even without congressional approval.
But he said he was interested to find out the details of the extension.
Before President Gloria Macapagal-Arroyo extended the contract during her incumbency, the country was receiving billions in dividends, Escudero said.
“So how much did we forgo this time around, if any?” he asked.
“Also, why hasn’t the government been able to muster enough expertise to operate it after its expiration? Or if not in the government’s plan or interest? Was it renegotiated to the advantage of the people?” he asked.