First Gen sees ‘business as usual’ mode once Udenna buys Chevron’s Malampaya stake

By Lenie Lectura - November 25, 2019

https://businessmirror.com.ph/2019/11/25/first-gen-sees-business-as-usual-mode-once-udenna-buys-chevrons-malampaya-stake/

FIRST Gen Corp., which sources most of its supply from the Malampaya gas field, expects a “business as usual” scenario once the sale of Chevron Malampaya Llc.’s entire 45-percent stake in the gas field to Udenna Corp. of businessman Dennis Uy is finalized.

“I think it would continue to be business as usual, as far as I am concerned. We are the biggest customer of Malampaya gas, and so we expect to continue that delivery,” said company President Francis Giles Puno.

First Gen’s gas plants have contracts with the Malampaya consortium, which consists of Chevron, Shell Philippines Exploration BV (SPEx) with 45 percent, and state-led Philippine National Oil Co. Exploration Corp. (PNOC-EC) with the remaining 10 percent.

The consortium, in turn, has a contract with the Department of Energy (DOE) under Service Contract 38 set to expire in 2024. They expressed interest to extend the license to explore for oil and gas in northwest Palawan until 2039, but this was stalled due to the tax issue raised by the Commission on Audit.

Just recently, Chevron and UC Malampaya Philippines Pte. Ltd., a unit of Udenna, signed a sale and purchase agreement. The deal is still up for approval with the Philippine Competition Commission (PCC).

“We asked for clarifications on the news, but there is nothing official yet from the DOE and the stakeholders. We don’t know exact details yet because we only read it in the newspapers. What I understand is transactions of that size goes to the PCC,” said Puno when asked to comment on the sale.

The buyer and the seller did not disclose the price tag.

“Recall that it’s already in the history of ownership changes when Shell and Occidental Philippines Inc. had transactions before. The common party is Shell,” said Puno.

To date, SPEx leads the consortium as the project operator of the Malampaya gas-to-power project, which supplies fuel to First Gen’s gas plants—Santa Rita, San Lorenzo, Avion and Ilijan plant.

First Gen has 3,492 megawatts (MW) of installed capacity in its portfolio, which accounts for 21 percent of the country’s gross generation.  The company is also involved in liquefied natural gas (LNG).

First Gen’s LNG partner, JGC Corp. of Japan, is currently completing a study focused on modifying First Gen’s existing jetty that would allow the company to receive large- and small-scale LNG vessels.

Puno said that given the attractiveness of LNG prices today, it will allow First Gen to bring in a Floating Storage Regasification Unit (FSRU) on an interim basis to enable us to deliver LNG supply earlier.

“The price of LNG today is quite attractive and even cheaper than Malampaya. If we can bring in gas lower than Malampaya, it is really good for consumers.

“Right now, current Malampaya prices are at $9 per million BTU [British thermal unit]. India for example has auctioned LNG. As estimated by Bloomberg, a it will be ranging from $6.30 to $6.70 per million BTU.

“That is already cheaper than Malampaya and we can compete with coal even in a baseload basis at that price. If I could also get at that same amount,” said Puno.

The company is currently in talks with FSRU providers to bring in LNG earlier than 2024. The company, he said, may set aside “roughly $300 million” as budget for the FSRU.