‘Delay in CMOL operation was costly’

BIDDING is not the best way to get a farm-out, farm-in partner, especially for the highly technical and complicated Malampaya oil development project, resigned Philippine National Oil Co. (PNOC) president Eduardo Mañalac said.
           
At the same time, Mañalac said that Malacañang erred in floating in the media that PNOC and Mitra Energy did not have a deal yet for the development of the oil rim when President Arroyo issued Executive Order 556 in the middle of the year.
           
Mañalac said finding a partner for the extraction of an estimated 41 million barrels of oil at the Malampaya natural gas reserve—the Camago Malampaya Oil Leg or CMOL—requires several layers of scrutiny on the prospective partners’ capabilities that bidding may not provide.
           
In this scheme, Mañalac said the government, through the PNOC, would farm out its service contract to a private company, which, in turn, will farm in its investments and technology.
           
Here, Mañalac said the government must evaluate beforehand all prospective partners in all aspects, especially the technical and financial capabilities, their strategies, plans and decision-making. After this, the government will only choose the one that is really capable, and not just get who emerged with the best bid.
           
“So what the government says as bidding process cannot be applied in a farm-out deal,” Mañalac said.
           
Aside from this, Mañalac said any winning bidder cannot just proceed with the project, as there are at least five issues that need to be threshed out in the Terms of Reference between the PNOC and the Department of Energy under Executive Order 473, and the Tripartite Agreement covering the Malampaya natural gas project of the consortium led by Shell and Chevron, PNOC and the Department of Energy.
           
These issues pertain to the manner by which the Malampaya oil development will be undertaken.
           
One of these, he said, is the use of the Dynamic Positioning Rig, which is extremely expensive and nothing of this kind is available at this time since there are only a handful of this. 
           
“These issues must be resolved first before investors can come in,” Mañalac said.
           
He said had Malacañang not issued EO 556 and stop the negotiations between the PNOC and Mitra Energy, development of the oil rig would have already started by this time, and oil extraction can begin in early 2007.
           
Mañalac said Mitra Energy emerged from the original six groups that were interested in the project, and negotiations would have ended last August since they were already resolving the five complicated issues in the Tripartite and Terms of Reference.
           
He said since PNOC was given the exclusive right to look for the partner, its advanced negotiations with Mitra Energy are actually an indication—if standards in the farm-out industry are to be followed—that they have a deal.
           
“In the industry parlance, we were working on an agreement and we did agree on them, so it’s a deal already,” Mañalac said. M. de Leon
           
This was why the issuance of EO 556, which invalidated the PNOC-Mitra Energy negotiations to give way to a competitive bidding, came as another turnoff to foreign investors no matter how the government floated that there was still no deal between the two groups.
           
Economic analyst Peter Wallace, who was in the audience, said EO 556 was another one of those policy pronouncements of the administration that scare away investments.
           
Now, Mañalac said the government needs to develop a system for the competitive bidding of the project and the earliest it can be done is by early next year.

He said the government should be extra careful in choosing its partner since if it chooses a not-so technically capable group, the natural gas being cultivated by the Shell consortium will be compromised.

As it is now, Mañalac said the government will be foregoing opportunities to extract more oil from the reserve to the tune of about four to eight million barrels per year.

Michael Wootton, chairman of the British Business Council, said if more time is wasted, the project will no longer be economically viable for investors to come in.