Razon’s Malampaya acquisition gets nod, with conditions

MANILA, Philippines — Tycoon Enrique Razon has obtained the green light from the Department of Energy (DOE) to acquire a controlling stake in Dennis Uy’s Udenna-led Malampaya deep-water gas-to-power project in offshore Palawan, touted as the country’s energy crown jewel.

The DOE gave its approval to the transfer of shares by Shell Petroleum N.V. of all shares in Shell Philippines Exploration B.V. to Malampaya Energy XP Pte. Ltd. (MEXP), a subsidiary of Razon’s Prime Infrastructure Capital Inc.

As a a result of the transaction, SPEX will become a wholly owned subsidiary of Prime Infra.

“Prime Infra was found to be technically, financially and legally qualified as a transferee and as successor to Shell as operator of the Malampaya natural gas project. SPEX, as a Prime Infra subsidiary, will continue to be technically competent and financially capable to operate the Malampaya Service Contract 38,” the DOE said.

Prime Infra will assume full ownership and control of SPEX once the transition process for a safe and seamless handover of operations from Shell is completed, currently targeted on Nov. 1, 2022, the company said.

Energy Secretary Raphael Lotilla said the DOE approved the transaction on the condition that SPEX and MEXP would remain to be indirect subsidiaries of Prime Infra.

Another condition is that Prime Infra’s commitments and undertakings submitted to the DOE remain binding.

Lotilla also stressed that the DOE review and evaluation of the transfer of shares is independent of and should not preempt any required approvals or consent from the SC 38 joint venture partners under the joint operating agreement dated Jan. 1, 1999.

Prior to the DOE’s approval, state-owned Philippine National Oil Co.-Exploration Corp. (PNOC-EC), which holds a 10 percent stake in the Malampaya consortium also gave its consent to the deal.

The twin approvals have removed all major regulatory hurdles for Prime Infra’s acquisition of its Malampaya stake.

“We welcome DOE’s thorough review and subsequent approval of the SPEX sale given the urgency to sustain the operations of Malampaya – a vital energy installation and symbol of national pride – and to plan for the further development of the existing reserves in light of the current power under supply. We will contribute by doing all that can be done to produce as much gas as possible to sustain production in support of the power demand in Luzon,” said Razon, chairman of Prime Infra.

“Prime Infra’s energy portfolio has always been aligned with the national government’s objective towards attaining energy independence and security, while reducing the country’s reliance on fossil fuels. Prime Infra is well-positioned to carry on the world renowned track record of the Malampaya asset and therefore, the next urgent step for the company is to sustain and expand gas production while we promptly address the license extension for SC38,” said Prime Infra president and CEO Guillaume Lucci.

It was last June when Prime Infra kicked off the Malampaya acquisition process, which included obtaining the consent of PNOC-EC and the DOE.

The Malampaya deep-water gas project in offshore Palawan ushered the natural gas industry into the Philippines. At present, it supports up to 20 percent of the country’s electricity requirements using indigenous resources of natural gas, the cleanest-burning hydrocarbon, and reduces the need for imported oil.

For the longest time, it was operated by the consortium of SPEX which held a 45 percent stake in the project and Chevron Philippines, which held the other 45 percent but both SPEX and Chevron sold their respective stakes to Uy’s

UC-Malampaya. PNOC-EC holds the remaining 10 percent.

The next move for Prime Infra is to immediately plan for the expansion of the project to ensure the continuity of production.

Prime Infra also needs  to apply for an extension of Malampaya’s service contract, which is set to expire in 2024.

Industry sources said an extension of the Malampaya contract by at least five years would be crucial to the country’s power supply.

“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.

Prime Infra is a holding company focused on the ownership of infrastructure companies across four core industrial sectors -- water, energy generation, construction, and waste and sustainable fuels -- in the Philippines and other emerging markets.

It plans to debut in the Philippine stock market this year, possibly in November if market conditions are favorable.