DENNIS UY-LED Udenna Corp. could take over the 45-percent interest of Malampaya operator in Shell Philippines Exploration B.V. (SPEX) in December this year amid disapproval from a lawmaker who said that SPEX should have been more prudent in selecting its successor.
Malampaya Energy XP Pte Ltd., a unit of UC, said foreign experts would help in the operation of the gas field, which delivers a fifth of the Philippines’s growing electricity requirements through the supply of natural gas to five power plants in Luzon.
Malampaya Energy Chief Executive Officer Raouf Kizilbash said during a Senate Energy Committee hearing on Wednesday that the new shareholders are expected to take over by late November or early December this year.
“There are two layers to this transition. One is the orderly takeover of the new shareholder and next is the regulatory process. The one that Shell and I have control of is the first.
“The target date where the new shareholder will start making decisions would be end November or December 1, that’s the target. Based on very detailed plans, as a new shareholder, we can effectively support the business,” said Kizilbash.
SPEX managing director Don Paulino confirmed this. He said during the hearing that based on the transition plan it would take six months for a smooth turnover. He said the technical expertise of the new operator would come from the existing workforce of SPEX, new consultants and contractors who have years of experience in the same field.
The $380-million deal between SPEX and UC are still subject to approval by the Department of Energy (DOE), which said that it would take 21 days for the agency to evaluate the deal once all documents are submitted.
“This will be presented to us and we will evaluate to make sure that it is compliant with the standards required on the legal, financial and technical aspects. These are the basis of our evaluation… If it will affect the technical operation and it’s not legal then we have reason to disapprove it,” said Energy Secretary Alfonso Cusi.
PNOC-EC waiver irks Win
If and when the DOE approves it, the group of the Davao businessman would effectively control 90 percent of the gas project. UC38 LLC, another subsidiary of UC, earlier bought the 45-percent stake of Chevron Malampaya LLC for $562 million.
State-owned PNOC Exploration Corp. (PNOC-EC), which controls the remaining 10 percent, has waived its right to match the offer of Malampaya Energy.
“Yes, we issued it and sent it to SPEX but not the consent for the sale to proceed,” said PNOC-EC President Rozzano Briguez during the hearing. Briguez said PNOC-EC had considered exercising its right of first refusal and even discussed financing options with banks. However, he said government would still have to shell out half of the amount because the banks were only willing to lend up to 50 percent.
Pursuing this would have caused a financial dent on PNOC-EC’s existing exploration projects. “The remaining 50 percent is barely enough for us to sustain because that time, our cash is just probably over a little above our in-house valuation of the 50 percent that the banks will not support.
“If we do that, we will compromise the three remaining operated blocks that we have and the other four non-operated blocks that we have because in our pursuit of energy security and efficiency, we need to support other exploration activities not withstanding that we’ve donated P3 billion for our fight against Covid-19…. So, we recommended not to exercise our right to match,” Briguez said.
This caught the ire of Senate Energy chairman Sherwin Gatchalian who said that government gave up its chance “to truly become an oil and gas company and not just a paper holding company.”
Gatchalian said there are ways to address PNOC-EC’s financial concerns. “We can remedy that through law. My point here is lost opportunity. It was sold at a discount, the payback period is quite short and you’re already there, already a part of the operational entity,” the senator pointed out.
According to Briguez, $375 million of the total deal would be paid via bank loans and $157 million from the so-called Malampaya net entitlement proceeds. The remaining $33 million would be sourced from borrowings.
“So, what value did the buyer bring in? How much did it come up with? Financial, it’s not there. Technical, wala din [none also]. You don’t bring in anything [to] the table, any value, so might as well let the government do it,” said Gatchalian.
But Briguez said PNOC-EC did not receive advance notice from SPEX regarding its plan to divest its Malampaya stake. “We didn’t have previous notice because all notice will come from the mother company of Shell. The only time we will know is when there is an agreement. So, we were not informed.”