DoE urged to bid out O&M contract for Malampaya’s continued operations

By Myrna M. Velasco – July 21, 2021, 4:01 PM
from Manila Bulletin

The Department of Energy (DOE) is being urged to bid out an operation and maintenance (O&M) agreement for the Malampaya project, so the gas field can continue operating without hitches beyond the expiration of its service contract in 2024.

According to Senate Committee on Energy Chairman Sherwin T. Gatchalian, undertaking a competitive auction for Malampaya’s O&M or technical contractor will be the most prudent step that the government can take – “and the DoE must already start preparing for that bidding process now,” while it still has that leverage to select the most technically qualified operator, prior to the return of the Malampaya asset to the State in the next two years.

He opined that tapping a technical operator, including highly experienced international exploration and production (E&P) players, will be “the most feasible option”, rather than extending the license for buyer Malampaya Energy XP Pte. Ltd. of the Udenna Group, “since the plan of Udenna anyway is to also engage a technical contractor to operate the facility, because it lacks experience and the expertise when it comes to upstream facility operations.”

Once the sale of the 45-percent stake of Shell Philippines Exploration B.V. (SPEX) will be consummated on or before the end of this year, Udenna will already take over the operation of the gas field from 2022-2024; but the Uy-led firm sounded off in a recent Senate hearing that it will be relying heavily on the services of consultants and technical contractors.

Gatchalian further stated that if the DOE will award the Malampaya license extension to Udenna by yearend or early next year (after finalizing its acquisition deal with Shell); that may raise legal questions because it can already be construed as a ‘midnight deal’ of the outgoing administration.

The lawmaker said “by 2024, all components of the Malampaya project – including the rigs, pipeline will already be turned over to the government – and the best entity to assume ownership shall be PNOC (Philippine National Oil Company)” – or its upstream subsidiary PNOC- Exploration Corporation.

“Then if PNOC feels that it still lacks the technical capacity to operate the field and also in drilling the additional wells to extend Malampaya’s production life, then what it can do is to have a technical contractor to operate the field and do the exploration activities,” he noted; and the arrangements it can have with consultants can either be done through O&M or technical services agreement.

He pointed out if the government, through PNOC, will already assume ownership or take control of the Malampaya field after 2024, then the full revenues of at least P20 billion annually will already flow directly into the State coffers – instead of sharing a sizeable portion of that to Udenna which will also be relying on consultants and third party contactors anyway in operating the field.

Compared to Udenna, Gatchalian indicated that PNOC-EC has comparatively deeper knowledge and wider expertise when it comes to upstream operations, because the state-run company already had previous experience in running the San Antonio gas field – albeit, that was of smaller scale compared to Malampaya.

On perturbation of bureaucratic processes or red tape in procurement that was raised by PNOC-EC President Rozzano D. Briguez, the lawmaker emphasized that “those concerns can be remedied by pushing legislative amendments to the Charter of PNOC and with advance planning that must be mastered by government.”

He added that “procurement of technical services or materials and equipment can be done ahead of time – possibly one year ahead or even longer, so at the time that specific services or materials are needed in the operations of Malampaya, these would be ready.”

Gatchalian stressed “bureaucracy or red tape will only be a concern if people in government are lazy or if they are not planning ahead. But if they will plan ahead and carry out their job seriously, that will not be a problem.”