Another scam in the making?

Energy Secretary Rene Almendras may be able to evade responsibility for the 8- to 10-hour blackouts in Mindanao and the rising cost of oil products, but he may have difficulty explaining why he allowed Shell and Chevron, the principal service contractors of the $4.5-billion Camago-Malampaya Gas Pipeline Project, to drill two additional wells for which $800 million of the government’s earnings from the project will go down the drain.

The two foreign oil companies asked for a budget of $1 billion ostensibly for the second phase of the project and for drilling. Why $1 billion when Shell itself confirmed that it would cost only $200 million to drill the two wells? For what would the additional $800 million be spent? They claim it will be for a new platform and for a “new state-of-the-art” equipment. Which is a lot of nonsense because these facilities already exist.

The $1 billion drilling cost would be deducted from the government’s share of the profits from the project, in accordance with the cost recovery provisions of the service contract. The consortium even had the temerity to claim that the amount is a new investment.

Actually, there is no need to drill two additional wells because there are still five wells that have not been commissioned since the project started. What Almendras and the oil firms also did not reveal is that the new drilling project is designed to justify the application of Chevron and Shell for the extension of the service contract for another 15 years.

Why extend the contract now when it still has 13 years to go? If extended, the contractors would be using for free the facilities now in existence, the ownership of which will be turned over to the government at the expiration of the present contract.

Why the undue interest of Almendras in the new project?

It is interesting to note that Almendras was formerly an executive of Ayala and Aboitiz, both of which have interests in Shell Philippines. Energy Undersecretary Jose Layug, on the other hand, was formerly the legal counsel of Chevron, the principal partner in the Camago-Malampaya project.

Can Almendras and Layug effectively regulate the oil companies they once served? Isn’t this conflict of interest?

Department of Energy insiders are also wondering why three days after the new drilling projects were signed in ceremonies to which President Aquino was invited, Layug went to Singapore on the invitation of the finance officer of the drilling firm interested in getting the contract to supply the drilling equipment for the new project. The unofficial trip was surreptitious. Layug used his private passport.

Shouldn’t P-Noy or the Senate order an independent investigation? This may be another scam in the making.

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In relation to the above, I received a paper from “Concerned Employees of DOE and PNOC.” I will quote from that paper:

“Service contract 38, a consortium among Shell, Chevron and the Philippine National Oil Co. Exploration Corp. (PNOC EC), also known as Camago-Malampaya Natural Gas Pipeline Project, will expire in 2024. Extension of the service contract by another 15 years cannot be justified without violating the provisions of the Petroleum Act, or PD [Presidential Decree] 87. The extension came at a time when SC 38 still has 13 more years in its term. The announcement that the SC 38 consortium will spend $1 billion in capital expenditures for the expansion of the wells cannot and should not be used as a justification for extending the term of the present contract by another 15 years.

“It will be recalled that the SC 38 consortium drilled some 11 wells in the service contract area of which only one well was found dry. Of the other 10 wells, only five wells were commissioned to supply the natural gas requirements of the three natural gas power plants located in Batangas. The rest of the wells have not yet been commissioned.

“Should there be a drop in the supply of natural gas to the three power plants, the rest of the wells can easily be commissioned by the SC 38 consortium without spending $1 billion as previously announced.

“A case in point is the drilling of another well in the Camago area in June 2011 to determine the extent of the gas, or possibly oil, and the confirmation that the Malampaya culmination is connected to the Camago culmination. The Camago and Malampaya gas reserve is estimated at approximately 4.2 trillion cubic feet of gas. As of September 2011, only 1 trillion cubic feet has been spent. Therefore, an estimated 3.2 trillion cubic feet of gas is still available as well as a pressure of approximately 3,200 psi, enough to get the gas out for another 15 years.

“If the consortium would need to drill two wells, it would need only a maximum of $100 million for each well in the Camago area, or a total of only $200 million. This was confirmed by no less than Shell Philippines Exploration Corp. and Pilipinas Shell Petroleum Corp. country chair Edgar Chua. Where did the consortium get the additional $800 million figure?

“If a platform would be installed which would cost, as per report, $800 million, this will be a redundant structure because there is already an existing $1-billion concrete gravity structure within the 30-meter shallow water offshore platform tied back to the gas manifold and eventually to deliver and process the gas to the Tabangao gas plant via the 500-kilometer pipeline. Is the consortium now overpricing the project by $800 million to cost-recover the $1-billion project which would be deductible from the government’s share and offset against the consortium’s income tax?

“Why did the DOE and the PNOC allow the unnecessary premature project when the gas reserve would still be good to sustain the project for the next 10 to 15 years?”