Malampaya Consortium plans to spend $600 million on SC 38 drilling

THE Department of Energy said on Tuesday that the Malampaya Consortium is expected to spend around $600 million on new drilling within Service Contract (SC) 38, after the expiring SC was granted a 15-year extension.

“In total for the two wells and tieback for production, this amounts to about $600 million,” Energy Undersecretary Alessandro O. Sales said in a briefing.

The Malampaya Consortium’s members are Prime Energy Resources Development B.V., UC38 LLC; and PNOC Exploration Corp.

On Monday, President Ferdinand R. Marcos, Jr. signed an agreement renewing SC 38, which includes the Malampaya gas field, for 15 years, or until Feb. 22, 2039.

SC 38 was initially set to expire on Feb. 22, 2024.

The renewal will be the last one granted as the Constitution caps at 50 years all agreements to explore, develop and use natural resources.

“SC 38 actually had its beginnings in 1989, so the 50 years will expire in 2039. The extension is final,” he added.

The renewal agreement involves a commitment to drill for two new wells at the gas field, which was deemed by its original developers as approaching commercial depletion, Mr. Sales said.

“(The Consortium is) indicating (preparations) to drill for three wells and this is above the committed program for the renewal contract,” he said.

Mr. Sales said that the cost of drilling a production well is roughly between $80 million to $90 million.

“If these wells are successful, we move to connecting them back to production in the Malampaya facilities. We would require an additional $330 [million] to $360 million for the tieback and subsea facilities to allow these near field wells to produce,” he said.

Mr. Sales said the best estimate for the additional production is about 210 billion cubic feet (BCF) of gas.

Based on “rough calculations,” estimated output is “about a hundred BCF per year and supplying the First Gen plants (in Batangas) which are about 2,000 megawatts (MW),” he said.

The Malampaya gas field is the Philippines’ only indigenous commercial source of natural gas.

Malampaya’s output is fully contracted to the four mainland Luzon power plants of First Gen. Corp., with a combined capacity of 2,011 MW.

Mr. Sales said according to the renewal agreement, the share between the contractor and the government remains 60% in favor of the government, in compliance with Presidential Decree (PD) 87.

PD 87 governs the development of the petroleum industry, and introduced the service contracting system, through which blocks of Philippine territory are allocated to private parties for exploration.

“We have agreed to a 60:40 split given the situation of the Malampaya field. We recognize that the field is depleting, there are limited resources left in the main field and following other jurisdictions, we term this kind of field as brownfield or a ‘dying field,’” he said. — Ashley Erika O. Jose