Malampaya oil project to endanger gas field

MANILA, Philippines—Shell Philippines Exploration (SPEx) BV has warned that the proposed development of the Camago-Malampaya oil leg (CMOL) might “potentially” put in danger the existing operations of the Malampaya natural gas field in offshore Palawan.

SPEx managing director and Malampaya asset manager Sebastian Quiniones said in a briefing that the company was no longer considering the oil rim, which is also covered by Service Contract 38. The development of the CMOL will supposedly yield some 45 million barrels of recoverable oil, while oil-in-place estimates stand at about 150 million barrels.

“We’ve already proven it’s not technically feasible to do that. The oil rim study was done in 2003, so it’s not something that we would go into. The Malampaya is a reservoir that will produce gas until 2024 so you don’t want to mess around with it,” Quiniones explained.

It is critical to ensure the safety of the Malampaya gas field as it is the source of fuel for the 1,200-megawatt Ilijan plant of Korea Electric Power Corp. (Kepco), the 1,000-MW Sta. Rita and 500-MW San Lorenzo plants, all in Batangas. The combined electricity generated by these three facilities constitutes about 40 to 45 percent of the power generated in Luzon.

SPEx and Chevron Malampaya LLC of the SC 38 consortium earlier gave up their right over the Camago-Malampaya oil leg to enable them to concentrate on operating the gas fields. The government then awarded the contract to develop the CMOL to the state-run Philippine National Oil Co. (PNOC), which assigned the right to its the upstream oil and coal arm, PNOC Exploration Corp.

The Malampaya consortium—composed of SPEx, Chevron and PNOC EC—is embarking on a $1-billion two-phase development program that will allow it to maintain current production levels amid depleting resources.

For Phase 2, the SC 38 consortium is reportedly investing $250 million for the drilling and development of two additional wells. This is expected to be completed by February 2014. Phase 3 of the Malampaya project will require an investment of $750 million for the installation of the yard where additional equipment and facilities will be housed by December 2015.

According to Quiniones, both phases have already been fully approved and the consortium was on the “execute phase.” For phase 2, a rig is set to arrive within the first quarter of 2013 to drill the two production wells within the Malampaya area. It was estimated that it would take 100 days to drill each well, he added.

Quiniones said he was also optimistic that the consortium would be able to complete the two phases by 2015. “It’s a tight schedule but we will make it.”

Quiniones also said that the SC 38 consortium remained hopeful that it would be awarded by the Department of Energy a 15-year extension of its license up to 2039.

“That has always been the case. Our service contract ends in 2024 and there will still be gas remaining. So we’re asking the government what we’re going to do with the gas that will still be there. We’re still around and if they wish, it can still be the consortium that can continue operating the Malampaya gas field. But the Philippine government can do that as well,” he said.

The Malampaya gas field is considered one of the biggest and most significant industrial endeavors in Philippine history. It began producing natural gas in October 2001, helping to meet Luzon’s clean power generation requirements, reduce oil imports and increase government revenues.