PNOC-EC income declines 63% to P400M

PNOC Exploration Corp., the petroleum and coal exploration of state-owned Philippine National Oil Co. (PNOC), is expecting a continued drop in earnings due to lower revenues from the Malampaya project.

In a disclosure to the Philippine Stock Exchange, PNOC-EC said its net income of P400.12 million in the first quarter this year was 63 percent lower than in the same period last year due to the decline in cost recovery from Service Contract 38 or the Malampaya deep water gas-to-power project. 

“The unfavorable variance was due to the decrease in the Malampaya project’s net income brought about by the diminished cost available for recovery on the project,” it said.

Income from operations for the first three months of the year also declined to P824.45 million from P1.214 billion in the same period in 2006.

For the period under review, PNOC-EC generated total gross revenues of P1.547 billion, lower than the P1.848-billion revenues in 2006. Gross revenues consisted of P1.17 billion from Malampaya; P344 million from coal project operations; P27.5 million from the energy supply base, a private commercial port in Batangas; and P5.37 million from the San Antonio gas project. 

Under the cost recovery program, the Malampaya consortium could recover 70 percent of the cost incurred in the $4.5-billion project. PNOC-EC has a 10-percent interest in the natural gas project. 

Once the project proponents have recouped their costs, the government and the consortium will divide the remaining 30-percent revenues generated from the project. Of the 30 percent, 60 percent will go to the consortium while the remaining 40 percent will go to the National Government. 

Upon full cost recovery, the formula would then shift with the whole 60 percent going to the government and 40 percent to the consortium. With this set-up, it is expected that government’s royalties in the project would increase while PNOC’s share in the proceeds will go down.

Since the Malampaya consortium has already recovered fully its costs, PNOC-EC is entitled to only a 10-percent share of the 40-percent revenues that will be divided between the consortium. 

The estimated royalties of the National Government from the Malampaya project could reach $9 billion to $13 billion over the period of 20 years, depending on the price of oil in the world market.

PNOC-EC has already raised the possibility of issuing an additional 38.3 percent of its shares through a secondary offering at the stock exchange this year to raise funds for its projects in the pipeline. 

The drop in earnings had already been experienced by PNOC-EC since end-2006 when the company’s total sales revenue dropped seven percent to P6.2 billion due mainly to the diminished cost available for recovery in the Malampaya Project. 

The full recovery of PNOC-EC’s investments in the Malampaya project substantially reduced its cost recovery entitlement from P4.1 billion in 2005 to P2.4 billion in 2006.

“Since the expenditures that can be subjected to cost recovery from the government have already been significantly reduced, PNOC-EC expects lower cash remittance from the operator of the Malampaya Project to its partners in the succeeding years,” it said.

In 2006, PNOC-EC contributed P831.40 million  to government coffers from its 10-percent share on the Malampaya project.