Razon firm eyes control of Malampaya gas field

MANILA, Philippines — Prime Infra Holdings Inc., the infrastructure arm of tycoon Enrique Razon, is eyeing a controlling stake in the Malampaya deep-water gas-to-power project as it begins negotiations with Davao businessman Dennis Uy’s Udenna Corp., which controls 90 percent of the country’s biggest commercial gas project.

Prime Infra kicked off the acquisition process yesterday for a majority stake in Malampaya.

The company has yet to determine how big the stake and  how much it will acquire in the gas-producing asset as negotiations just started, a company official said.

The transaction will be subject to the consent of various parties including the Department of Energy (DOE) and the Philippine National Oil Co. Exploration Corp. (PNOC-EC), as well as the approvals of regulatory agencies and lenders of Prime Infra.

The potential deal is seen to extend the Malampaya project, as its service contract is set to expire in 2024.

Prime Infra said its entry would allow the critical gas project to continue operating while applying for an extension so it can invest in its expansion, which will sustain the economic and social benefits that Malampaya is providing for the country.

As a new operator taking over from Shell Philippines, the Razon-led firm will need to immediately plan for the expansion to ensure the continuity of production as long as the reserves support it.

“There is a sense of ownership to achieving national energy independence when you bring in Filipino companies to handle the reins of a critical power infrastructure and this is what Prime Infra aims to do with our participation in Malampaya. We will invest and sustain the development and production of domestic gas as long as the terms of the operating license and the natural resources permit,” Razon, who chairs Prime Infra, said.

Meanwhile, Udenna said it is optimistic about the participation of the Razon Group in Malampaya, further strengthening the capability of Filipino-run companies to meet the power demand that picked after COVID-19 restrictions were lifted which resulted in the resumption of economic activities.

“We look forward to this opportunity to partner with Prime Infrastructure and PNOC EC, as we explore more ways to fulfill our common vision to make Malampaya sustain its capability to meet the urgent energy security need of the Philippines,” said Udenna chairman and CEO Dennis Uy.

Through UC Malampaya Philippines Pte. Ltd. and Malampaya Energy XP Pte. Ltd. (MEXP), Udenna controls 90 percent of Service Contract (SC) 38, the license which covers the Malampaya project.

UC Malampaya acquired the shares of Chevron Malampaya LLC in October 2019, which was approved by the DOE on March 26.

MEXP purchased Shell Petroleum N.V.’s 100 percent shareholding in Shell Philippines Exploration B.V. the operator of Malampaya, in May 2021, but PNOC-EC did not give its consent to the deal.

The Malampaya acquisition also marks Prime Infra’s entry into the natural gas industry, which aligns with its purpose to create better lives and resilient economies through critical infrastructure coupled by its aspiration to help its customers transition to cleaner energy resources to fuel the economic growth of the Philippines.

“Natural gas is a critical transition fuel and the modern, state-of-the-art infrastructure built to harness this valuable transition fuel attracted us to pursue this deal – all aspects of the project ticks off our environmental, social, and governance (ESG) check list that will allow us to contribute more to the country’s transition from expensive and volatile coal and imported fuel prices to affordable cleaner and domestic energy resources like natural gas,” Razon said.

Sen. Sherwin Gatchalian said Prime Infra’s offer to buy into Malampaya is a welcome development since the company abides by the laws and recognizes the importance of the process of getting government approval first.

“I want to commend Prime Infra for abiding with Presidential Decree (PD) 87 and abiding with DOE department circular 2007. That is the right direction because these are well established laws and the jurisprudence will tell us that these laws have been followed in the past,” he said.

The lawmaker, who chairs the Senate committee on energy, led hearings on the deals involving the Malampaya project, wherein DOE Secretary Alfonso Cusi allegedly favored Udenna without passing an evaluation process and despite questionable financial capacity.

“I don’t know if Prime Infra is qualified or not, but the mere fact that they are subjecting themselves to evaluation of government is the right step. It gives us comfort that they themselves want to be evaluated,” Gatchalian said.

SC 38 is the country’s most successful petroleum service contracts (PSC) of 23 active projects. As the largest natural gas industrial project in the Philippines, it recovered all costs in four years.

Operating since 2001, the Malampaya project is the only local producer of indigenous natural gas. It supplies fuel to around 40 percent of gas-fired plants in Luzon, powering around 3,457 megawatts (MW) of power plants that provide power supply to the Luzon grid.

While the contract will end in 2024, supply from the Malampaya gas field is projected to be depleted by early 2022 or latest by 2027.