PNOC-EC eyes equity hike up to 33% - Malampaya license extension

Published November 12, 2016, 10:00 PM By Myrna M. Velasco
http://business.mb.com.ph/2016/11/12/pnoc-ec-eyes-equity-hike-up-to-33/

State-owned Philippine National Oil Company-Exploration Corporation (PNOC-EC) is seeking increase in equity of up to 33.3-percent in the Malampaya gas field project if its Service Contract (SC) 38 will be extended by the Philippine government.

This has been the proposal lodged by PNOC-EC in a correspondence sent by PNOC-EC Chairman Gemiliano C. Lopez Jr. to President Rodrigo Duterte relating to the long-delayed bid of the Malampaya consortium to stretch the gas field’s license for another 15 years from its expiry date in February 2024.

But Energy Secretary Alfonso G. Cusi indicated that he is not aware yet of the proposal, and from the Department of Energy’s (DOE) side, they have not firmed up any plans yet on the matter.

Two scenarios were presented by Lopez to President Duterte – one delves with option to extend the Malampaya license; while the other is denial of the plea.

If the final decision is to lengthen the contractual longevity of SC 38, “we recommend that PNOC-EC’s interest in the project be increased from 10-percent to 33.1/3 percent,” the company said.

It reckoned that with such arrangement, “parties will have equal sharing at 33.1/3-percent.” PNOC-EC currently has 10-percent equity in the project; while Chevron Malampaya LLC and Shell Philippines Exploration B.V. have 45-percent shareholdings each.

For the hiked equity, Lopez noted that it will pay “for additional interest acquired which will be paid from the corresponding additional income that will be generated because of a bigger stake.”

It added that with this, PNOC-EC “can better protect the interest of the Philippine government in the project as it will have a ‘swing vote’ in all decisions of the consortium.”

The company also cited the divestment processes of assets recently being undertaken by Chevron and Shell in other markets, being one core justification for PNOC-EC cornering higher stake in the next contractual cycle of the Malampaya gas field project.

“Of late, both Shell and Chevron have been disposing their assets globally because of the low crude prices. This may be the opportune time to convince them to partially divest,” PNOC-EC said.

Nevertheless, if the decision is not to extend, the state-run company would want to take over the field and will just operate it by tapping its own strategic partner.

PNOC-EC said it wants “to retain up to a maximum of 49 percent interest only with 51 percent going to strategic partner.

It reasoned that with PNOC-EC holding minority interest, “the operations will not be subject to stringent government regulations, thus, ensuring smooth and efficient operations of the project.”