File photo courtesy of Joint Task Force Malampaya

The Integrated Bar of the Philippines (IBP) expressed grave worry over the latest developments regarding the sale of the Malampaya natural gas project by Chevrom Malampaya LLC and Shell Philippines Exploration B.V.

The IBP, in a released statement November 24, said there have been various claims against the assignment of Chevron’s 45 percent stake to a subsidiary of Udenna Corp., as well as the continuing divestment of SPEX’s 45 percent in favor of another Udenna subsidiary.

Signed by Antonio Pido, executive vice president and governor for Eastern Visayas, and four others, the statement said the assignment of interests, which will ultimately enable Udenna to takeover the Malampaya facility is allegedly detrimental to national security and interest.

The alleged transfer of Chevron’s 45 percent interest to Udenna’s subsidiary, UC Malampaya, is the subject of a criminal complaint filed with the Ombudsman on October 18, 2021, against officials of the Department of Energy (DOE), Udenna, Chevron, SPEX, and the state-owned Philippine National Oil Corporation (PNOC) and its subsidiary PNOC-Exploration Corporation.

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The complaint was allegedly filed on the grounds that Udenna’s subsidiary is financially and technically unqualified to be the assignee of the interest; that the DOE and PNOC grossly and inexcusably neglected the government’s right to match Udenna’s offer to buy out Chevron’s 45 percent interest; and that officials of the DOE and PNOC criminally conspired with private respondents to provide unwarranted benefits to Udenna and its subsidiary, causing undue injury to the government arising from the questioned sale transaction.

“In light of the strategic importance of the Malampaya energy resource to national security and economic interest, the Integrated Bar of the Philippines supports the ongoing Senate Committee on Energy’s investigation in aid of legislation on the interest divestments to the Udenna subsidiaries,” it said.

The IBP said while the Senate inquiry is ongoing to evaluate if the DOE was transparent in determining the financial and technical credentials of the Udenna firms to buy the 90% stake in Service Contract (S) 38, it is requesting the energy department to:

  • Rescind its approval of Chevron’s transfer of its 45% interest in Malampaya to Udenna’s subsidiary, UC Malampaya; and
  • Hold in abeyance, its approval of SPEX’s transfer of its 45% to another Udennna subsidiary, Malampaya Energy XP.

The IBP further requests that the DOE extensively analyze, research, and consider extending SC 38 in favor of the original Malampaya consortium, which includes SPEX, Chevron, and PNOC EC.

“In this way, the original consortium will be able to conduct further exploration on SC 38 in light of the forthcoming depletion of the Malampaya natural gas field,” the IBP said.

It said further that in contrast to a buyer with no demonstrated expertise managing a highly technical and capital-intensive operation, the extension will motivate the original consortium to continue operating SC 38 with their proven technical and financial track record in petroleum exploration and development.

In the event that Chevron and SPEX proceed with their plans to divest their respective interests in Malampaya, the IBP calls for the PNOC to exercise its right to match any offer laid before Chevron and SPEX under the Joint Operating Agreement (JOA).

“The IBP believes that PNOC being a state-owned petroleum company has the mandate and wherewithal to raise funds for acquiring the controlling interests in Malampaya. A PNOC takeover of SC 38 will be financially advantageous to the Philippine government since Malampaya is a producing field with existing infrastructure for other petroleum discoveries. In view of this, the IBP calls on Philippine legislators to review and amend the possible legal restrictions imposed by various legislations on PNOC-EC as a government-owned and controlled corporation, such as Republic Act (RA) 9184 or the Procurement Law, and RA 10149, or the Government-Owned and Controlled Corporations Governance Law,” it added.

The 500-kilometer Malampaya gas pipeline connecting mainland Luzon to probable natural gas deposits in the Recto Bank, which is part of the disputed West Philippine Sea maritime territory, is critical, according to the IBP. With PNOC in charge of the Malampaya operations, the Philippines may rest certain that its energy resources would be safe from foreign interference that might jeopardize national security and interests.

A buyer that is not technically or financially competent of running Malampaya may tap corporations from other nations with a stake in the West Philippine Sea conflict to finance additional exploration and development. This will give hostile foreign interests access to our key energy resources and infrastructure, the IBP said.

“Finally, the IBP calls on the Office of the Ombudsman to expeditiously resolve the complaint against the officials of the DOE, Udenna, Chevron, SPEX, and PNOC in light of the fact that this matter is of utmost economic urgency since the Malampaya field is nearing its depletion and the DOE appears to have no viable alternative to replace a major source of power for Luzon. The DOE must exercise transparency in evaluating transactions in relation to critical energy resources and ensure that developers are financially and technically competent. In this way, the government can forge a sustainable balance in creating a stable investment climate and establishing good governance practice in the management of the country’s energy resources,” the IBP said.

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