Razon buying Uy’s controlling stake in Malampaya field

By Myrna M. Velasco – June 2, 2022, 10:27 AM
from Manila Bulletin

Razon-led Prime Infra Holdings Inc. has announced plan to acquire majority shares of the controlling stake held by Davao businessman Dennis Uy in the depleting Malampaya gas field project, of which Service Contract 38 (SC 38) will also expire in February 2024.

Uy has 45 percent shareholdings in Malampaya via his subsidiary firm UC38 LLC in a $565-million controversial purchase that was concluded in March 2020 on the equity previously held by American energy giant Chevron Corp. in the gas field.

The Department of Energy (DOE) leaders of the outgoing Duterte administration has attempted to renew the operating license of the Malampaya gas field, but that did not progress successfully because of the legal questions thrown on the government’s approval of the transaction between Uy’s Udenna Corp. and Chevron.

Around May last year, Uy also purchased the 45-percent operating stake of Shell Philippines Exploration B.V. (SPEX) in the gas field venture for $460 million via his other subsidiary Malampaya Energy XP (MEXP), but that was not consummated after minority shareholder Philippine National Oil Co.-Exploration Corp. (PNOC-EC) withheld its consent on that particular sale process.

In a statement, Prime Infra indicated that it will buy into Uy’s company that has controlling shareholdings in the Malampaya project, but it was not specified if this will just cover UC38 LLC for the Chevron shares or if it will also include the previously stalled divestment of the SPEX shareholdings. The combined shares of Chevron and SPEX in Malampaya sum up to 90-percent.

The Prima Infra statement stipulated though that Prime Infra and Udenna will be “the new operators taking over from Shell Philippines,” hence, it is viewed that even Shell’s stake will be part of the merger and acquisition (M&A) deal being pursued by Razon. Both Prime Infra and Udenna are first-time investors in technically-laden exploration and production (E&P) segment of the gas sector.

There are no details given yet on the acquisition cost being negotiated, as well as on the timeline of the deal’s targeted closing.

Prime Infra Chairman Enrique K. Razon Jr. said “there is a sense of ownership to achieving national energy independence when you bring in Filipino companies to handle the reins of a critical power infrastructure and this is what Prime Infra aims to do with our participation in Malampaya.”

He added that his company “will invest and sustain the development and production of domestic gas as long as the terms of the operating license and the natural resources permit.”

Uy, for his part, stated that “we look forward to this opportunity to partner with Prime Infrastructure and PNOC EC, as we explore more ways to fulfill our common vision to make Malampaya sustain its capability to meet the urgent energy security need of the Philippines.”

At this stage, the Malampaya field is already nearing full depletion – that even the power generating facilities it has been supplying fuel to, have always been problematic of the ‘recurring gas restriction’ being suffered by the gas field since 2020.

The country’s gas-fired power plants – primarily those owned by First Gen Corporation and SMC Global Power Holdings Corp. of the San Miguel group – has also moved on already into utilizing imported liquefied natural gas (LNG) as their offshore terminals are now prepping for commercial operations by third to fourth quarters this year.

For Malampaya to have an extended production life cycle, it will need a license extension; and then it will need to undertake fresh round of drilling to determine if there are remaining indigenous gas that can be extracted from the gas field.

Prime Infra thus emphasized that it will apply for license extension “so it can invest in its expansion, which will sustain the economic and social benefits that Malampaya is providing for the country.”

The Razon firm further conveyed that “the transition of the operations of Malampaya is critically urgent. Prime Infra and Udenna, as the new operators taking over from Shell Philippines, will need to immediately plan for the expansion to ensure the continuity of the production as long as the reserves support it.”