MANILA – The Senate Committee on Energy on Tuesday expressed concern over Udenna Corp’s sizable stake in the Malampaya gas field, which may have implications on security of the country’s power supply.

During a Senate hearing on the country’s natural gas venture northwest off Palawan, Sen. Sherwin Gatchalian said the Dennis Uy-led firm had no known technical expertise to operate the multibillion dollar deep water gas-to-power project.

“What we're trying to avoid here is... a possible conflict that will affect the operations, and in turn, affect the supply of electricity to our country,” he said.

“We want sound, technical, capable operators that will operate Malampaya to its fullest capacity and maximize the resources,” added Gatchalian, who chairs the panel.

The Malampaya gas project, which began commercial operations in 2001, provides up to 20 percent electricity needs in the country or to 6.3 million residential customers by producing cleaner-burning natural gas.

It is operated by a consortium composed of Shell Philippines Exploration BV (SPEX) with a 45 percent share and Philippine National Oil Company - Exploration Corp (PNOC-EC) with a 10 percent share.

In March 2020, Uy's Udenna Corp completed its acquisition of Chevron Malampaya LLC, which then held a 45 percent interest in the gas project. The Davao-based tycoon bought 100 percent of the shares of the subsidiary of Chevron Philippines Ltd. at $565 million.

Shell Philippines Exploration BV in September said it is exploring options to sell its SC 38 Malampaya stake as part of an "ongoing portfolio rationalization."

Energy Assistant Secretary Leonido Pulido III said the transaction between Chevron and Udenna Corp. was a “voidable contract,” and for it to be consummated, the transferee must secure government approval.

The Department of Energy (DOE) is still evaluating the sale documents, including the financial and technical capability of Udenna Corp., he said. Evaluation has yet to reach the agency’s executive committee.

Udenna Corp controls oil retailer Phoenix Petroleum and is also engaged in shipping and logistics through Chelsea Logistics.

During the hearing, Gatchalian also raised concerns the transfer may not push through, which could also disrupt the country’s energy supply.

“We now have a scenario here that the new buyer can be disqualified as a service contractor...we are now at a bind, how do now rectify this issue? Because what is at stake is the energy security of our consumers,” he said.

Pulido III said there were several options they were looking into, including offering it to general public. However, he stressed that SPEX remains the operator of the Malampaya production field.

Belinda Racela of Chevron Malampaya LLC, which is now owned by Udenna Corp., maintained that the purchase agreement was a commercial transaction and not covered by Section 11 of Presidential Decree (PD) 87.

“In our view, PD 87 was on the purview of assigning its rights, but this transaction didn’t involve the assignment of rights... because we see there's no change in legal entity but only an acquisition at the parent level. CMLLC remains to be the entity with which it is transacting under SC 38,” she said.

Section 11 of PD 87 or Oil Exploration and Development Act of 1972 states that “the rights and obligations under a contract executed under this Act shall not be assigned or transferred without prior approval of the Petroleum Board.”

Despite the change in parent company ownership, Racela said Udenna vowed to support the consortium in the interest of continuing operations in Malampaya and the possible extension of its license.

“Should there be a challenge, should there be a question in DOE... it might not be in the interest of the Filipino people if this transaction will be stopped. It may cause disruption in the operation, in the possibility of the discussion of license extension,” she said.

The Service Contract 38 or the license for the Malampaya project is set to expire on 2024. It has provided the government P261 billion in revenue from January 2002 to December 2019, and is a crucial source of funding for its energy resource development programs and initiatives.