CONTRACT EXTENSION | President Ferdinand Marcos Jr. receives from tycoon Enrique Razon Jr., chair of Prime Infrastructure Capital Inc., a scale model of a rig at Malampaya natural gas field in Palawan province during the signing on Monday, May 15, 2023, of the 15-year extension of the Malampaya service contract. (MALACAÑANG PHOTO)
MANILA, Philippines — President Ferdinand Marcos Jr. on Monday signed the service contract (SC) renewal agreement allowing the Malampaya gas-to-power project consortium to operate for another 15 years, easing fears of a power crisis caused by the original expiration of the deal in 2024 and the expected depletion by 2027 of the reserves in the field in offshore northwest Palawan.
“As we renew Service Contract (SC) 38, we optimistically look forward to the continued production and utilization of the remaining reserves of the Malampaya gas field, as well as further exploration and development of its untapped potential,” the president said in his remarks during the signing ceremony in Malacañang.
The Malampaya gas field, which covers 830 square kilometers, has been supplying natural gas to four power plants — Santa Rita, San Lorenzo, San Gabriel, and Avion — in Batangas province that generate a fifth of the country’s electricity needs.
The signing extends the 25-year production contract, which was originally set to expire on Feb. 22 next year, until 2039. The Malampaya Consortium had applied for a contract renewal as early as 2010, repeatedly warning that output from the field was getting depleted.
Aside from producing gas, the consortium is required to draw up a work program consisting of geological and geophysical studies and the drilling of at least two deepwater wells from 2024 to 2029 to unlock the potential of the existing gas field and adjacent areas to beef up Malampaya’s dwindling output.
“Should there be failure to comply, the SC 38 consortium is obligated to relinquish a portion of the exploration areas,” the Department of Energy (DOE) said in a statement.
According to the president, the continued operation of the Malampaya project will reduce the country’s dependence on oil imports and ensure a more stable supply of cleaner energy from an indigenous source.
“Because of the contract renewal, the government will continue to generate revenues from the project through a favorable sharing scheme,” the president added, noting that the government has so far generated P374 billion in revenues from the project.
In 2022 alone, he said Malampaya yielded about P26 billion in government revenues.
Marcos expressed confidence in the capability and competence of the SC 38 consortium in handling the project, saying: “You have committed yourself to a firm work program, geared toward developing resources both in the existing and nearby gas fields to provide incremental production.”
The agreement to develop the Malampaya gas field was first awarded to Shell Philippines Exploration in 1990. In 2022, Shell sold its 45-percent stake and the right to operate the project to ports tycoon Enrique Razon Jr.’s Prime Infrastructure Capital Inc. Davao-based businessman Dennis Uy’s Udenna Corp. holds another 45-percent stake that it bought for $565 million from Chevron in 2020, and the state-owned PNOC Exploration Corp. (PNOC-EC) owns the remaining 10 percent.
MAJOR SUPPLIER The Malampaya gas field off Palawan has been supplying natural gas to four power plants in Batangas province that generate a fifth of the country’s electricity needs. —INQUIRER FILE PHOTO
Energy Secretary Raphael Lotilla welcomed the renewal of SC 38, pointing out that the extension restored “some certainty in our indigenous gas supply.”
Razon, Prime Infra chair, welcomed this development as significant for the country’s energy security and independence.
Stabilize supply, prices
“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,” he said in a statement.
House Speaker Martin Romualdez, who was present during the signing in Malacañang, said the renewal of the Malampaya contract would help prevent brownouts, reduce the country’s dependence on imported oil to run power plants, boost the country’s electricity reserves and stabilize the price of electricity.
Romualdez said the extension of SC 38 will provide a steady supply of electricity as the government secures additional energy sources to lower power costs and prevent outages.
House Deputy Speaker Ralph Recto said the extension “not only guarantees our supply of that strategic fuel but retains our presence in an area regarded as harboring big oil and gas deposits.”
“Malampaya gas is a bulwark of our energy security. It fuels base-load power plants in my home province of Batangas. At one point, it provided 40 percent of the energy needs of the almost 57 million people living in the world’s fourth most populous island,” he said.
The lawmaker noted that the extension “provides the stable business climate that will ensure that this national resource will be harnessed for the greater good.”
“When Malampaya goes dry, Luzon goes dark — that is how important it is,” Recto added.
Also witnessing the signing in the Palace were Sen. Raffy Tulfo, Executive Secretary Lucas Bersamin, Chief Presidential Legal Counsel Juan Ponce Enrile, Presidential Communications Secretary Cheloy Garafil, Department of Defense officer in charge Carlito Galvez Jr., PNOC-EC president Franz Josef George Alvarez, and Razon.
Shell had originally planned to sell its stake to Uy, but this was aborted after the Senate energy committee investigated the deal in 2021 and in February 2022 called on the Office of the Ombudsman and the Civil Service Commission to file criminal and administrative charges against former Energy Secretary Alfonso Cusi and his subordinates for their allegedly anomalous approval of the deal.
That proposed sale was also hampered after PNOC-EC withheld its consent to the $460-million sale.
In October last year, the DOE announced that it cleared Shell’s sale of its stake to Prime Infra instead.