Malampaya: PR damage for sellers

"Was the risk really worth taking?"


The sale to President Rodrigo Duterte’s pal Dennis Uy of the combined 90 percent share of Shell Exploration Co. and Chevron Philippines in the Malampaya offshore oil/natural gas complex is generating an increasing amount of controversy with the oppositors contending that Uy’s Udenna Corporation was not qualified to be Malampaya’s buyer. The objections have been essentially legal and technical in character, but there have also been intimations of a lack of ethics. 

The objection on the legal side has been that the sale to Udenna was made without the Philippine government’s having exercised its contractual right of firstrefusal. The government, represented by the exploration subsidiary of PNOC (Philippine National Exploration Co.), should have been the first offence of the equity interests of Shell (45 percent) and Chevron (45 percent) in the Malampaya complex. This, the oppositors contend, was not the case; the two foreign companies’ shares were offered first to Udenna. The sale was characterized by a lack of transparency. The Filipino people woke up one morning to learn that Shell and Chevron had sold out to a close friend of President Duterte.

Not only do the sale’s oppositors believe that the government should have been given the opportunity to exercise its contractual right of first refusal; they also argue that the government should have exercised that right. Because of the special character of Malampaya and its operation - it represents the Philippines’ first experience with offshore oil and natural gas exploration - the oppositors believe that the government itself should continue to have a stake in Malampaya. After all the efforts exerted by the government toward the development of an offshore oil/natural gas industry - including wooing industry giants Shell and Caltex (Chevron’s parent company) to make investments - why should a private Philippine company be allowed to just walk in and take over Malampaya, the oppositors want to know. Why, indeed?

On the technical side, the oppositors’ objection is the fact that the sale has been made to a non-giant company that has absolutely no experience with, and owns no facilities in, a complex and highly technical manufacturing operation. Udenna’s retort to this is that the technical complement of Shell and Chevron will stay and run the business for Udenna. This surely begs the opposite question. Would Malampaya, which still has 10 percent PNOC participation, not be better off in the hands of a buyer that is already in the business and wants to expand its operations? Why sell to a complete newbie?

As stated above, the growing controversy about Malampaya’s sale has thus far focused on the buyer and its circumstances. I believe the time has come to broaden the discussion and shift the focus to the sellers. There are things that the Filipino people want to know about the decisions of two highly respected companies (1) to get out of Malampaya and (2) to sell their interests to a company controlled by a person known to have close ties to President Duterte (in Marcosian times, that person would have been called a crony).

What was the explanation for Shell’s and Chevron’s decision to sell their interests in Malampaya simultaneously? Did the two companies afford the Philippine government an opportunity to exercise its right of first refusal? If they did, what reason did the government give for choosing not to exercise its right? And, most important of all, why sell to Dennis Uy’s Udenna, knowing, as they should, that Mr. Uy’s name has come to be closely associated with that of Mr. Duterte? There clearly was a popular-opinion risk in selling to Udenna: was the risk really worth taking?

We don’t know what factors and considerations went into the decision-making on the Malampaya sale to Dennis Uy by Shell and Chevron. What we can know is that these two highly regarded companies have taken a PR hit with their transaction with Mr. Uy. That means damage-control work for their PR staff.

Topics: Rudy Romero , Malampaya , Dennis Uy , Udenna Corporation , Shell Exploration Co. , Chevron Philippines , PNOC , Philippine National Exploration Co.
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