As the Department of Energy reviews the technical, legal and financial ramifications of the Chevron-Udenna sale—prior to final approval—business leaders Ramon S. Ang and Manuel V. Pangilinan pitch offers for SPEX’s 45-percent stake in Palawan’s critical gas-to-power project.
By LENIE LECTURA – MARCH 6, 2021
from Business Mirror
SHELL.COM
BUSINESSMAN Ramon S. Ang has formalized an offer to acquire the 45-percent stake of Shell Philippines Exploration B.V. (SPEX) in the Malampaya gas-to-power project, which provides fuel to power plants that deliver about one-fifth of the country’s electricity demand.
Ang affirmed, via text message, that San Miguel Corp. submitted a nonbinding offer to the operator of the gas field. It was in September last year when Ang confirmed the company’s interest to buy the entire stake of SPEX, which said that the divestment is part of an “ongoing portfolio rationalization.”
Ang joins the group of Manuel V. Pangilinan in making an offer. The latter said last week that First Pacific Co. Ltd. and Philex Mining Corp. submitted a nonbinding offer on February 26. There is no word yet if SPEX is considering either offers.
“We made an offer. Actually, it’s not just First Pacific, but also Philex Mining was part of that group that made a joint offer, and one or two banks. It’s a group effort that made an offer,” Pangilinan said.
Both groups have the financial muscle to compete, but Dennis Uy’s Udenna Malampaya LLC is expected to exercise its contractual rights under Service Contract (SC) 38.
SC 38 was awarded to SPEX, Chevron Corporation (45 percent) and PNOC Exploration Corp. (10 percent). The service contract will expire in 2024 unless the DOE extends it. With only three years left, the government is faced with such a daunting task to discover another petroleum field the size of the Malampaya gas field in Palawan.
Udenna stake
Udenna Malampaya bought Chevron’s stake for $565 million, but the deal has yet to be approved by the DOE. Lawmakers are alarmed by Udenna’s sizable stake in the gas field, which may have implications on the security of the country’s power supply.
Now, Udenna wants to acquire the 45-percent operating interest of Royal Dutch Shell’s domestic exploration unit in Malampaya, alongside the Philippine National Oil Co.-Exploration Corp. (PNOC-EC).
The keen interest of Ang, Pangilinan and Uy to buy into the Malampaya gas field has renewed calls for the DOE to thoroughly evaluate their technical, legal and financial capacities.
“There is a lot of interest in the gas sector. We have to be more stringent because the next stake up for sale already involves the operational aspect of the Malampaya gas project,” Sen. Sherwin Gatchalian, who leads the Senate Committee on Energy, said in an interview.
Gatchalian’s concern
If and when Udenna Malampaya once again secures an additional 45 percent, the senator is worried how the Uy-led firm would be able to operate the multibillion-dollar deep-water gas-to-power project considering its lack of technical capability and experience in the oil and gas industry. Udenna Malampaya’s corporate papers showed the company was established only last year.
“The goal is to assure the country’s energy security. How do you do that? One, make sure the operator is technically qualified. Two, it must also be qualified to look for future gas resources because the Malampaya gas field is running low. In short, it should be qualified to operate the existing gas platform and qualified to explore and develop future gas resources. These are the two most important goals,” stressed Gatchalian.
DOE Secretary Alfonso Cusi, in an interview, gave assurances that UC Malampaya is technically capable because, for one, it has retained Chevron’s technical personnel, which has years of experience and knowledge in the upstream oil and gas business. Moreover, Chevron’s previous consultant company, VGS and Associates, Pty and RISC, would still provide UC Malampaya with technical assistance related to decision opportunities.
Gatchalian is not disputing this. He pointed out that while UC Malampaya would take in former Chevron technical experts, the decision makers would come from a totally different group.
“For example, what if the operating company says it needs this amount of money to finance capex [capital expenditure] projects that underscore energy security, but the new owners would not approve the proposed amount because it’s too high. That will surely affect the operation.
“My point here is major decisions will have to be made by a new set of board that will be composed of the new owners. Their decisions must be right to assure us, Filipinos, of uninterrupted supply from the facility,” said Gatchalian.
Other issues
Other senators shared the same view. Moreover, they pointed out in recent hearings that Malampaya faces a number of issues, such as the “lack of direction from the government” on the expiration of SC 38.
Energy Assistant Secretary Leonido J. Pulido III, who represented the agency in the Senate hearings that tackled the gas industry, said the Chevron-Udenna sale is not considered final and concluded without DOE approval.
“Our legal services held that it would fall squarely within that Department Circular and we should require an evaluation of the technical, legal and financial capacity of the transferee, so the DOE may approve such transfer,” Pulido said, adding that the sale is voidable if the agency would not approve it.
Gatchalian said the committee might schedule another hearing in two weeks to get updates on the ongoing review of the Chevron-Udenna deal by the DOE. “We will definitely call on them again,” said the lawmaker, who earlier expressed a view that there was a violation in the sale and purchase agreement (SPA) as it had no prior approval from the DOE.
A check with the DOE has it that the review—meant to determine if the sale contract between Chevron and Udenna is voidable or not—is still ongoing.
“I am still awaiting the final report of the review, which is being conducted very carefully,” said Cusi in a text message.
The said transaction is governed not only by a DOE Circular but also by Presidential Decree 87, which requires the agency’s approval on such transfer of shares in upstream petroleum ventures.
The DOE was urged to craft rules on the entire sale process, including a timeline as to when it would hand down its decision on whether or not to approve similar transactions and, most importantly, the capabilities of a gas operator must be spelled out.
“There must be an IRR [Implementing Rules and Regulations] that will govern the review process. For our part, the committee’s primordial concern is that the country’s energy source is secured,” said Gatchalian.
Meanwhile, a government takeover of the Malampaya gas field is not possible. “Technically and financially, we are not yet ready to take over such magnitude of operations,” said PNOC-EC President Rozzano Briguez, adding that PNOC-EC’s planned gas field projects must take off first for it to gain the experience needed.
The energy industry awaits the next move. Will Udenna Malampaya exercise its right of first refusal to buy Shell’s Malampaya stake and eventually take over the gas project? Will government approve the Chevron-Udenna deal? But more importantly, will the country find and develop another petroleum field that could turn in commercial scale discovery that is of the magnitude of Malampaya?
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