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VERA FILES FACT SHEET: Four things you need to know about Malampaya

A reader recently requested VERA Files Fact Check to clarify the ownership status of the Malampaya gas field in offshore northwest Palawan following reports that the group of billionaire Enrique Razon Jr., through development arm Prime Infrastructure Holdings (PIH), Inc., is “poised to acquire a controlling stake” in the project through an agreement with Davao-based businessman Dennis Uy’s Udenna Corp., and in view of projections that its gas reserves would run dry by 2027.

The Malampaya gas field, which produces 429 million standard cubic feet of natural gas per day as of 2015, generated 3,200 megawatts of electricity by supplying the Avion, Ilijan, San Lorenzo, San Gabriel and Sta. Rita power stations in Batangas. It provided 20% of the country’s electricity requirement until June, 2022, when its supply agreement with the Ilijan power station lapsed.

A consortium composed of private corporations Shell Philippines Exploration B.V. (SPEx) and Udenna Corp., and state-owned Philippine National Oil Co.-Exploration Corp. (PNOC-EC), owns and operates Malampaya through a government contract set to expire in 2024.

But amid concerns of depletion by 2027, Malampaya, the primary source of non-renewable natural gas in the country, has been conserving its supply. The consortium hopes to extend Malampaya’s life by a few more years by bankrolling infrastructure to improve access to gas reserves below the seabed.

However, Udenna Corp. is in a legal squabble after lawmakers raised “red flags” about its financial capability and expertise to operate the gas field.

Sen. Sherwin Gatchalian, former chairman of the Senate Committee on Energy, said in a May 15 press release: Kung napasakamay ng hindi maayos na kumpanya ang Malampaya, tayong lahat ang magiging dehado dito.” (If Malampaya fell into the hands of a company that is not competent, we will all be at a disadvantage).

Who owns Malampaya now? What is at stake? How will households be affected? Here are four things you should know about the project:

1. What is the Malampaya gas-to-power project?

The Malampaya deepwater natural gas project was meant to reduce oil imports and produce a stable and cleaner energy supply for the country.

It was discovered in 1992 and began commercial operations in 2002 through Service Contract (SC) 38 among three parties: SPEx and Chevron Malampaya LLC, with 45% of shares each, and PNOC-EC with 10%.

SC 38, signed by then-president Corazon Aquino in 1990, originally licensed SPEx and Occidental Philippines Inc. (OXY) to explore and extract petroleum resources in the Malampaya area using their own financial and technical resources.

OXY left the project in 1998 while Texaco and PNOC-EC joined in 1999 and 2000, respectively. Texaco merged with Chevron in 2001, forming the consortium that developed and operated Malampaya until 2019.

According to DOE, the Malampaya gas field has “proven reserves of about 2.7 trillion cubic feet of natural gas and 885 million barrels of condensate.” Its location is at the deeper section of the Camago-Malampaya trench, 820 meters deep and 80 kilometers off the coast of Palawan island.

“[Malampaya] is the biggest and by far only the second commercial gas discovery in the Philippines,” the department added.

2. Why is the closure of Malampaya critical?

Should the Philippines fail to produce more electricity amid Malampaya’s projected depletion, the DOE’s 2021 Energy Resource Guide warns that the country “will face a huge energy crisis.”

Analysts have forecast potential blackouts and even higher energy prices as the country would have to import liquefied natural gas.

The drawdown of Malampaya’s supply drove electricity price hikes of P0.06 to P0.50 per kilowatt hour (kWh) last March, April and June in Meralco’s service areas. It covers Metro Manila and the provinces of Batangas, Bulacan, Cavite, Laguna, Pampanga, Rizal and Quezon, where power stations that depend on Malampaya resorted to using pricier liquid fuel to meet demand.

During these three months, a typical household saw an increase in monthly bills of P13 to P107. Meralco classifies typical households as those that consume around 200 kWh of electricity a month.

The depletion of Malampaya would also mean the loss of a major financial asset for the government. Malampaya generated P290.8 billion in revenues from 2002 to 2021, according to a Feb. 2 Senate report.

In anticipation of Malampaya’s shutdown, the government authorized the development of the Sampaguita gas field on Recto (Reed) Bank, believed to have an estimated 3.1 trillion cubic feet of gas reserves. Under SC 72, Forum Energy Ltd. began drilling in Recto Bank in 2011, which was supposed to be completed by 2018, long before projections of Malampaya running dry.

But then-president Benigno Aquino III issued a moratorium in 2014, halting oil and gas exploration in the area due to rising tension with China, which continues to claim it despite a 2016 arbitral ruling from The Hague declaring the area as part of the Philippines’ 200-nautical mile exclusive economic zone.

China refused to recognize the Philippines’ arbitral award. Drilling in Recto Bank remained in limbo until 2020, when the DOE lifted the moratorium following the 2018 signing of a joint oil and gas exploration document by the two countries.

(Read: The PH-China MOU on cooperation on oil and gas development)

3. What are the legal issues surrounding the project? 

Udenna Corp. bought Chevron’s 45% non-operated interest in the Malampaya project on Nov. 13, 2019 for $565 million. The purchase was through Udenna’s subsidiary UC Malampaya Philippines Pte Ltd., founded just two months prior to the sale. UC Malampaya renamed Chevron’s share in the project to UC 38 LLC.

According to Energy Secretary Alfonso Cusi, the Joint Operating Agreement of SC 38 requires that shareholders “must first consent to a sale of any or all participating interest” in the Malampaya project. The DOE then reviews incoming private entities for their legal, financial and technical capabilities before awarding the shares.

Sale of Chevron’s shares to UC Malampaya was completed in March 2020, and DOE approved the buyout the following year.

In May 2021, Udenna signed another deal to acquire Shell’s 45% interest in Malampaya, this time for $460 million. It assigned its other subsidiary, Malampaya Energy XP Pte. Ltd., to take over Shell’s operations. Malampaya Energy was incorporated just a month before the purchase deal with Shell.

But PNOC-EC, the only public party involved in the project, withdrew its consent from the buyout on Dec. 13, stalling the completion of the transaction.

In an email to VERA Files Fact Check, PNOC-EC said it is “legally constrained by [c]onfidentiality obligations to the parties involved” from commenting on the reason for this move.

Cusi and Uy, along with PNOC-EC executives, face graft charges filed in the Office of the Ombudsman on Oct. 18, 2021 over alleged conspiracy and other anomalies in Udenna’s acquisition of Chevron’s shares.

The complainants accused Cusi, who also serves as PNOC’s ex-officio chairman, of committing “gross negligence” after he “facilitated the transfer of Chevron’s rights and obligations to Udenna despite knowledge that the transaction had no prior approval from the DOE.”

Udenna insists that its deal with Chevron and Shell “did not require” DOE’s approval because it is a private business transaction that does not involve the “transfer of any rights of obligations.”

For its part, the Senate urged the Ombudsman last February to file graft and administrative cases against Cusi and other DOE officials for “railroading” the sale of Chevron’s stake to UC Malampaya, which was suffering from alleged financial troubles. In a Sept. 28 hearing, Gatchalian said that UC Malampaya was “financially unqualified” because its working capital was negative $137 million when it bought Chevron’s stake.

The Senate also questioned Udenna’s technical expertise, noting its lack of experience in oil and gas exploration.

4. What is the situation now? 

Cusi, in a June 3 statement, said Udenna is still “in the process” of buying Shell’s interest in Malampaya.

But while the purchase is up in the air, PIH of tycoon Enrique Razon Jr. announced on June 2 that it was “poised to acquire a controlling stake” in Malampaya. There were no details about the deal provided, but PIH said the transaction would “ensure the continuity of production as long as the reserves support it.”

Three weeks later, the Philippines pulled out of talks on joint energy exploration with China in the West Philippine Sea. Former Foreign secretary Teodoro Locsin Jr.’s announcement on the decision came three months after the DOE again suspended drilling activities in Recto Bank last March due to harassment by China of survey vessels hired by service contractors.

(Read: Energy crisis looms as PH drops joint oil and gas exploration with China)

When preparations for the joint deal were underway three years ago, then-DFA chief Alan Peter Cayetano said the agreement with China would be “equal or better” than the one for the Malampaya project.

To explain the government’s decision to drop the talks on joint exploration, Locsin, who succeeded Cayetano in the DFA, said, “Three years on and we had not achieved our objective of developing oil and gas resources so critical for the Philippines — but not at the price of sovereignty; not even a particle of it.”

 

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(Guided by the code of principles of the International Fact-Checking Network at Poynter, VERA Files tracks the false claims, flip-flops, misleading statements of public officials and figures, and debunks them with factual evidence. Find out more about this initiative and our methodology.)