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DoE says claims of West Philippine Sea exploration contracts ‘speculative’

THE Department of Energy (DoE) described as “speculative” claims by a senator that the agency recommended the awarding of two service contracts to a unit of Udenna Corp. to explore areas in the West Philippine Sea.

“The resolution is speculative, but [the DoE] will be ready to answer at the appropriate time,” Energy Assistant Secretary Gerardo D. Erguiza, Jr. told BusinessWorld on Tuesday in a text message.

“There are many allegations that need factual validation,” he added, noting that several companies had already been awarded service contracts to explore oil and gas in the West Philippine Sea.

The DoE said the government previously awarded Service Contract (SC) 54 and 58 to Nido Petroleum Philippines Pty. Ltd.; SC 59 to Philippine National Oil Co. Exploration Corp. (PNOC-EC); SC 72 to Forum (GSEC101) Ltd; and SC 75 to PXP Energy Corp.

Under the Philippine Conventional Energy Contracting Program (PCECP), companies can apply and bid to explore identified petroleum blocks in the country. They may also nominate areas for exploration.

In a document obtained by BusinessWorld, the DoE has evaluated proposals which it eventually endorsed to the Office of the President for the award of service contracts.

The companies that have applied for a service contract, and were said to be endorsed for an award, to explore areas in the Philippines are PNOC-EC for 932,000 hectares in East Palawan; PXP Energy for 1.43 million hectares in the Recto Bank in the West Philippine Sea; SK Liguasan Oil and Gas Co. for 72,000 hectares in Cotabato; and Udenna Energy Corp. for two areas in the Recto Bank — one spreading 1.5 million hectares and the other 1.4 hectares.

The DoE confirmed the endorsement, but declined to comment further. BusinessWorld sought a statement from Udenna Energy Corp. but did not get a response as of deadline.

Mr. Erguiza’s remarks came after Senator Ana Theresia N. Hontiveros-Baraquel on Thursday filed Senate Resolution 950 urging the Senate energy committee to conduct an inquiry on Udenna’s acquisition of assets in the waterway and its impact on the nation’s security and economic interests.

“The Malampaya project is very important to the daily lives of Filipinos. We should make sure that no law was broken, and that the public’s interests are not prejudiced in transactions related to these vital national assets,” Ms. Hontiveros said in a statement on Friday.

The lawmaker was referring to separate deals between Udenna’s units and the two consortium partners that each held a stake of 45% in the Malampaya gas-to-power project.

Udenna, a company led by Davao City businessman Dennis A. Uy, is poised to control 90% of the deepwater gas field if the government approves the takeover. State-led PNOC-EC holds the remaining 10%.

The Energy department earlier cited geological surveys that said there was a good probability that the Malampaya-Camago gas field contains untapped sources of fossil energy.

Ms. Hontiveros pointed out that Udenna paid for the Malampaya shares not with existing assets, but with loans from various banks. In return, she said Udenna is set to earn a projected income of nearly $1.2 billion from its stake.

She said that the Energy department also recommended the award of two service contracts covering areas in the Recto Bank — an underwater formation said to contain most of the oil and natural gas in the West Philippine Sea — to the Udenna group.

Ms. Hontiveros said that by allowing Udenna to control both the Malampaya project and its gas pipeline, as well as fossil energy resources in the Recto Bank, the DoE and PNOC “not only deprived the government of a substantial source of revenue, but also allowed private — and possibly foreign — interests an undue advantage over the nation through the possession of its vital strategic assets.”

The proposed measure stated that despite the number of requests from private joint venture partners to extend SC 38 to allow the exploration and development of untapped sources, the DoE has thus far failed to act on them, making it unlikely that these resources can be brought online before their expected depletion starting in 2024.

SC 38 is the agreement between the Malampaya consortium partners with the government. It covers the offshore gas field.

“If the government had matched Udenna’s offer, it would have been guaranteed a net income of around $275 million for around four years, until the existing wells are depleted by 2024,” said Ms. Hontiveros.

“By failing to exercise its right of first refusal, the government was deprived of hundreds of millions of dollars which we could have used to meet the people’s needs,” she added.

The DoE earlier said that PNOC-EC did not exercise its right to match Udenna’s offer because doing so runs counter to its mandate. — Marielle C. Lucenio and Alyssa Nicole O. Tan

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