PNOC-EC likely to partner with Uy - Malampaya stake acquisition

Published November 25, 2019, 10:00 PM By Myrna M.Velasco

https://business.mb.com.ph/2019/11/25/pnoc-ec-likely-to-partner-with-uy/

State-run subsidiary Philippine National Oil Company-Exploration Corporation (PNOC-EC) will likely turn up as a strategic partner of Udenna Corporation in its target to acquire the 45 percent stake of American energy giant Chevron Corporation in the multi-billion Malampaya gas field project.

That was hinted by Energy Undersecretary Jesus Cristino Posadas during an open forum at the Arangkada 2019 event, with him noting that the government-owned firm is predisposed to prospects of partnering with businessman Dennis Uy on that particular deal.

Posadas said “PNOC is open,” but he qualified that a decision on that has yet to be firmed up; while similarly qualifying that it will likely be PNOC-EC that will enter into a partnership deal with Udenna because its use of available financial resources will not need to go through the usual route of budget scrutiny by Congress.

With the emerging PNOC-EC and Udenna tie-up in the Malampaya project, this tandem would already corner the majority stake of 55 percent; dwarfing the 45 percent equity of Shell Philippines Exploration B.V, (SPEX), which is currently the field’s operator.

PNOC-EC currently has minority stake of 10 percent in Service Contract (SC) 38 of the Malampaya venture; and Energy Secretary Alfonso G. Cusi has always been forthright of the government’s target to increase its shareholdings in the gas field project or takeover the operatorship of the Malampaya field after its contract expiration in 2024.

Posadas, nevertheless, steered clear on answering queries as to where the Udenna-PNOC tandem will be securing the cash for that sizeable transaction; and on whether or not a Chinese partner in the Malampaya equity purchase will eventually come in.

In Dennis Uy’s targeted upstream investments in the oil and gas sector, his other company Dennison Holdings has standing partnership with China National Offshore Oil Corporation (CNOOC), a state-owned company.

Uy’s UC Malampaya Philippines Pte Ltd signed a sale and purchase agreement (SPA) with Chevron Malampaya LLC last month on the latter’s targeted sale of 45 percent equity in the Malampaya project, the only commercially-producing gas field of the Philippines but of which contract will expire in the next four years. The transaction is subject to terms and closing conditions, including the ‘right of first refusal’ of Chevron’s existing partners in the gas field venture.

As previously indicated, the offer of Udenna Corporation is “at a premium” despite the gas field’s anticipated production decline and the nearing contract lapse, so it is turning to be a guessing game if Uy’s entry will persuade government to extend Malampaya’s contract or it will be a strategic investment entry point for CNOOC.

By edict, when an interest-holder farms out in a petroleum block, prior information has to be submitted to the government being the counter-party to all oil and gas service contracts. The formal correspondence is typically channeled to the Department of Energy.

Chevron’s exit in the Malampaya project will be one of the major farm-in/farm-out deals that will happen so far in the country’s upstream oil and gas sector.

The Malampaya project normally brings in US$800 million to US$1.0 billion in annual revenues – split between the Philippine government and the service contractor on a 60:40 royalty sharing arrangement.