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Philippine Daily Inquirer: DOE orders Shell, Chevron to decide on Malampaya

Philippine Daily Inquirer: DOE orders Shell, Chevron to decide on Malampaya

“THE DEPARTMENT OF ENERGY HAS GIVEN members of the Malampaya Deep Water Gas-to-Power Project consortium until Sept. 30 to decide whether they will extract and develop oil from the natural gas find off northwest Palawan.”

29 September 2005

Abigail L. Ho

Sep 29, 2005

THE DEPARTMENT OF ENERGY HAS GIVEN members of the Malampaya Deep Water Gas-to-Power Project consortium until Sept. 30 to decide whether they will extract and develop oil from the natural gas find off northwest Palawan.

Energy Undersecretary Guillermo Balce said discussions on the Malampaya oil rim were on hold until tomorrow, after which it would ask consortium members Shell Philippines Exploration BV (Spex) and Chevron Texaco Malampaya on their definite plans.

Well look at the bigger picture after that, he told reporters yesterday.

The DOE is pushing for the extraction and development of the Malampaya oil to help ease the countrys dependence on imported oil.

Eduardo Manalac, president of Malampaya consortium member Philippine National Oil Co., had earlier said that the state firm remained open to the idea of extracting the Malampaya oil if no other party would do it.

The project, should it be given to PNOC to undertake, would be done outside of the consortium contract.

PNOC has a 10-percent stake in the Malampaya gas find.

The remaining 90 percent is split evenly between Spex and Chevron Texaco Malampaya.

The two multinational oil firms had earlier refused to bankroll the project as the potential oil yield from the Malampaya reserves was much smaller than their other offshore projects.

A third party could not just step into the picture and do the oil extraction, however, as Spex and Chevron Texaco required any new developer to set up a $12-billion indemnity fund to guarantee compensation for any damage to the profitability of the natural gas business.

Manalac said the DOE would have to negotiate with the consortium members regarding this indemnity provision in the contract.

The DOE will need to settle the issue of the indemnity clause. If theyll agree that the indemnity needs to be paid, then no one will develop (the oil rim), he said.

Although PNOC is part of the Malampaya consortium, he said this might not be enough to exempt the state firm from setting up an indemnity fund should it be tasked to extract and develop the Malampaya oil reserves.

An industry source said it was but fair for the Malampaya investors to require the set-up of an indemnity fund as any wrong move in extracting the oil from the gas find could jeopardize their nearly $4.5-billion investment.

The source added that extracting the Malampaya oil was not even feasible as it would cost between $700 million and $800 million to do so, yet yield only about 28 million barrels of crude oil.

This yield, the source said, would be good for only 80 days, considering the countrys average requirement of 350,000 barrels a day.

Considering the (oil extraction projects) risk-reward profile, its really not commercially viable to undertake, the source said.

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