Shell has agreed to sell its operating stake in the giant Malampaya gas field offshore the Philippines in a deal worth up to $460 million.
Taking on the stake from the Anglo-Dutch supermajor is Malampaya Energy XP, a subsidiary of Udenna Corporation — the latter a local company owned by Filipino tycoon Dennis Uy.
Through the deal, Shell is divesting its 100% shareholding in Shell Philippines Exploration (Spex), which holds a 45% operating interest in Service Contract 38, which hosts the deep-water producing Malampaya field.
“We, together with [national upstream company Philippine National Oil Company Exploration Corporation] PNOC EC, are the most suitable party to assume Shell's interest," a Udenna spokesperson had earlier said before the deal was confirmed.
"The Udenna Group firmly believes that Malampaya is a high-quality asset, strategic to the future welfare and energy security of the country.”
The base consideration for the sale is $380 million, with additional payments of up to $80 million between 2022 to 2024 contingent on asset performance and commodity prices.
Norwegian consultancy Rystad Energy last year said Shell’s Malampaya stake had a potential value of $461 million with the attributable resources pegged at 90 million barrels of oil equivalent, of which upwards of 85% is gas.
The Malampaya facilities are capable of producing at least 500 million cubic feet per day of gas, although Shell’s website last year pegged output at around 429 MMcfd of gas and approximately 15,000 barrels per day of condensate.
The field offshore Palawan currently relies on a depletion compression platform that came into operation in October 2015 to sustain gas production.
The existing service contract is due to expire in 2024, although Shell has applied to the Philippines Department of Energy for a six-year extension.
“Since it began commercial operations in 2002, Malampaya has supplied a significant portion of the Philippines’ energy demand and it will continue powering the country with indigenous gas following a safe transition of the asset and its experienced workforce,” Wael Sawan, Shell’s upstream director, said on Thursday.
“Today’s announcement is consistent with Shell’s efforts to shift our upstream portfolio to one that is focused on nine core positions.”
Those nine core areas — Brazil, Brunei, the Mexican and US areas of the Gulf of Mexico, Kazakhstan, Malaysia, Nigeria, Oman, the Permian shale basin in the US and the UK North Sea — currently generate about 80% of cash flows in Shell’s upstream business.
Spex staff will continue their employment under the new ownership, providing continuity and contributing to ongoing operational reliability and safety.
Subject to partner and regulatory consent, the transaction — which has an affective date of 1 January 2021 — is targeted for completions by year-end.
The deal has no impact on other Shell businesses in the Philippines, which the company said remains an important country within its portfolio of assets after over a century of successful operations there.
Shell added it would continue to pursue opportunities in the Philippines where it can leverage its global expertise in line with its strategy.
The major components of the Malampaya project include subsea wells and flowlines, a shallow-water platform and a depletion completion platform to process natural gas, a catenary-anchored leg mooring buoy to export condensate, a 504-kilometre subsea gas export pipeline and the onshore gas plant and pipeline in Batangas City.
On completion of Shell’s divestment, Udenna companies will hold 90% of SC 38 on behalf of sole partner PNOC EC on 10%, Shell said on Thursday.
Udenna last year snapped up US supermajor Chevron’s 45% stake in SC 38. Financial details of that deal were not revealed, although local daily Manila Bulletin put a $565 million price tag on the transaction.
PNOC EC had been in the frame to take a one-tenth interest (4.5%) of the equity Udenna acquired from Chevron although is unclear whether this sale is going ahead.
Two other Philippines companies — MVP and San Miguel — also had their eye on Shell’s Malampaya stake, which analysts earlier said could also appeal to Japanese players and regional national oil companies.