Malampaya consortium to invest $630 M

The Malampaya consortium led by field operator Prime Energy of the Razon group will cough up $600 million to $630 million in fresh capital outlay for the first phase of its committed work program that will include the drilling of 2-3 production wells.

In a briefing with the media, Energy Undersecretary Alessandro O. Sales said the investment would be used for the drilling of two to three wells which will cost between $80 million to $90 million each or $180 million to $270 million combined.

Once these production wells become successful, the consortium would need to spend another $330 million to $360 million for the tieback and subsea facilities.

“In total, for the two wells and the tieback for production, this would amount to about $600 million,” he stressed.

Additional investments would be injected when the new well drilling would yield commercial gas find to connect the producing wells to the existing production platform.

As explained, a subsea tieback is an engineering process that will connect any new gas or petroleum discovery to an existing production facility, that will typically include a subsea wellhead, Christmas tree as well as flowline that will carry the hydrocarbon output to the facility.

In terms of the committed investment, Sales noted that “In the renewal contract itself, the programmed commitment for the first phase is at least two new wells; when in fact, in their submissions to us they’re indicating that they are preparing to drill for three wells.”

He further noted “there’s a reason for this because it works out cheaper if you drill more wells and they want to exercise this option.”

On the royalty sharing covenant for the 15-year Renewal Agreement covering Malampaya’s extended gas production until February 2039, the energy official stated that this was sustained at 60:40 in keeping with the prescription of Presidential Decree 87 or the Oil and Gas Law, with the bulk of the revenue stream flowing to the government coffers being the owner of the resource, while the balance of 40 percent will be pocketed by the contractor.

“We have agreed to a 60:40 split given the situation of the Malampaya field,” he added.

He underscored “We recognize that the field is depleting, there are limited resources left in the main field and following other jurisdictions, we treat this kind of field as brownfield or the dying field.”

Sales added “normally, you actually increase the incentive to allow the operator or contractor to work on these fields and what we have done here is to retain the previous split in order to allow the contractor some leeway in pursuing new opportunities in and around the Malampaya gas field.”

Energy Secretary Raphael P.M. Lotilla highlighted that the renewed Malampaya contract “is the first extension ever granted to a natural gas producing service contract in the Philippines,” as he qualified that the two other service contracts previously extended were for oil-producing fields.

“We hope that it would not be the last of its kind – that there are attractive prospects within the same service contract area where beyond the extension of the initial period shows promise in exploration activities in the Philippines,” he asserted.

He specified that the new Malampaya consortium is the first to be “backed up entirely by Filipinos and run entirely by Filipinos – a remarkable milestone in the maturation of the Philippine petroleum industry.”

The energy chief enthused that their visit to the Malampaya platform in December 8, 2022 was primarily intended to stress the “government’s appreciation for the work of the professional men and women operating the Malampaya platform and other aspects of the enterprise.”

He conveyed that the operator and its personnel have shown their technical competence over the last six months by managing the decline of the gas supply and undertaking successfully a maintenance activity.

“This confirms the findings of the DOE last year on the operator’s technical, financial and legal qualifications,” he said.