SEVENTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
)
First Regular Session 
)
SENATC
».B. NO. l o  f d
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*17 
mar-7 P 5«7
RECEIVED BY:
Introduced by Senator Maria Lourdes Nancy S. Binay
EXPLANATORY NOTE
Oil and gas have become increasingly important to the Philippine economy both as the 
driving engine behind the transportation sector and primary fuel for power generation. 
Except for 6,000 barrels per day (MB/d) produced by Galoc Production Company 
(Galoc), the Philippines imports almost 300,000 MB/d of its daily demand on the 
average. Of these imports, the transportation sector utilizes approximately 65%. On the 
other hand, the Philippines utilizes its own indigenous gas from the Malampaya reservoir 
located 80 kilometers offshore Palawan. The Malampaya Deep Water Gas-to-Power 
project integrates the upstream and downstream components to produce 2,700 megawatts 
(MW) of electricity, which accounts for approximately 40% of power consumption in the 
island of Luzon. The Malampaya reservoir boasts of 2.7 trillion cubic feet (tcf) of gas for 
a period of at least 20 years or until 2024. Pressure from the Malampaya reservoir 
however is expected to go down beginning 2015 further stressing the need to find more 
local gas deposits.
The Philippines has a diversity of geological basins that offer hydrocarbon resource 
potential. Of the 16 sedimentary basins however, not one can be considered as 
extensively ex^ored. Since the shift from a concession framework to a service contract 
system in 1972, a total of only 263 exploration wells have been drilled in the Philippines. 
Of these activities, 41 resulted in oil discoveries while 11 were gas finds. 101 of these 
wells were drilled in the Northwest Palawan basin that is considered as the most 
prospective in terms of oil and gas reserves 43 wells were drilled in the Visayan basin 
and 23 wells were in the Southwest Palawan basin. Notwithstanding the success of Galoc 
and Malampaya, this historical exploration work in the Philippines pales in comparison to 
the wells drilled in Indonesia, Malaysia, and Thailand.
Presidential Decree No. 87 (PD 87), otherwise known as “The Oil Exploration and 
Development Act of 1972”, has established the over-arching statutory framework 
underlying the upstream oil and gas industry in the Philippines.
While it sets out one of the most attractive fiscal regimes within the Asian region, PD 87 
needs to be amended to adapt to the modem requirements of the upstream petroleum 
industry. To compete with Indonesia, Thailand, and Malaysia where a great number of oil 
and gas deposits were already discovered, the Philippines needs to offer improved fiscal


f /
and contractual terms to investors to revitalize further interest and encourage more 
drilling activity in the country.
In view of the foregoing, the passage of this bill is earnestly recommended.
MA 
Senator
ES NANCY S. BINAY


SEVENTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
)
First Regular Session 
)
S E N A T E  
0
S.B.NO.
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*17 
MAR-7 P5:07
RECEIVED BY:
Introduced by Senator Maria Lourdes Nancy S. Binay
AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF 
INDIGENOUS PETROLEUM AND FOR OTHER PURl’OSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled:
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SECTION 1. Short Title. This Act shall be known and may be cited as “TVie Petroleum 
Exploration and Development Act of 2017.”
SECTION 2. Declaration of Policy. All petroleum resources in public and private lands 
within the territory and exclusive economic zone of the Republic of the Philippines are 
owned by the State.1 It is hereby declared to be the policy of the State (a) to ensure a 
continuous, adequate, and economic supply of energy with the end in view of ultimately 
achieving self-reliance in the country’s energy requirements through the integrated and 
intensive exploration, production, management, and development of the country’s 
indigenous petroleum resources2; (b) to hasten the discovery and production of 
indigenous petroleum through the utilization of government and/or private resources, 
local and foreign under the arrangements embodied in this Act which are calculated to 
yield the maximum benefit to the Filipino people and to assure just returns to 
participating private enterprises, particularly those that will provide the necessary 
financing, technology and services and fully assume all explorations risks; (c) to attract 
foreign capital and expertise by providing meaningful incentives that are competitive 
with the fiscal and other terms offered by other countries in the Asia-Pacific region; (d) to 
revitalize and encourage more exploration activities in the Philippines; and (e) to 
rationalize and simplify the regulatory framework governing exploration and production 
investment and activities in the Philippines.
SECTION 3. Definition of Terms. As used in this Act, the following terms shall have the 
following meanings;
(a) “Affiliate” means (i) a company in which a Contractor holds directly or indirectly 
at least fifty percent (50%) of its outstanding shares entitled to vote; (ii) a 
company which holds directly or indirectly at least fifty percent (50%) of the
1Sec. 2. RA 7942, Mining Act of 1995
2Sec. 2. RA 7638, Department of Energy Act of 1992


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Contractor’s outstanding shares entitled to vote; or (iii) a company in which at 
least fifty percent (50%) of its share outstanding and entitled to vote are owned by 
a company which holds directly or indirectly at least fifty percent of the shares 
outstanding and entitled to vote of the Contractor
(b) “Associated Gas” means all gaseous hydrocarbons produced in association with 
Crude Oil from oil reservoirs, including residue gas remaining after the extraction 
of liquid hydrocarbons therefrom.
(c) “Barrel” means 42 U.S. gallons or 9702 cubic inches at a temperature of sixty 
degrees Fahrenheit (60°F). Any references in this Act to the value of any Crude 
Oil at the Market Price shall be construed as a reference to the amount obtained 
by multiplying the number of Barrels of that Crude Oil by Market Price per Barrel 
applicable to that Crude Oil.
(d) “Calendar Year” means a period of twelve (12) consecutive months commencing 
with January 1 and ending on the following December 31.
(e) “Casinghead Petroleum Spirit” means any hydrocarbons including condensate, 
existing in liquid form at a temperature of sixty degrees Fahrenheit (60°F) and at 
an atmospheric pressure of 14.65 PSIA, which are obtained from Natural Gas at 
the well head or by separation or by any chemical or physical process or ethane, 
propane, and butane produced by gas processing.
(f) “Coal Bed Methane” means natural (hydrocarbon) gas with methane gas as its 
main component naturally brought about in the coalification process in trapped 
and absorbed condition in coal and/or coal layers.
(g) “Coal Bed Methane Contract” means a Contract for the exploration and 
development of a Coal Bed Methane area under this Act.
(h) “Contracf’ or “Service Contracf’ refers to a contract entered into by the 
Government and a Contractor in accordance with this Act including any exhibits 
and attachments.
(i) “Contract Area” or “Area” means, at any time, the area within the sovereignty or 
jurisdiction of the Republic of the Philippines which is the subject of a Service 
Contract.
(j) “Contractor” means the contractor in a Service Contract whether acting alone or 
in consortium with others.
(k) “Contractor Share” shall have the meaning set forth in Section 9(o).
(l) “Cross Recovery” means that the Operating Expenses incurred by a Deepwater 
Contractor or its Affiliate in two or more Areas under different Deepwater


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Contracts and the Operating Expenses it incurred in the drilling of Deepwater 
Wells may be recovered from the Gross income resulting from the sale of the 
Petroleum produced within any one or more of the Deepwater Contracts, as if 
they are covered by a single contract.
(m) “Crude Oil” or “Crude” means oil in its natural state before the same has been 
refined or otherwise treated. It does not include oil produced through destructive 
distillation of coal, bituminous shales or other stratified deposits, either in its 
natural state or after the extraction of water, and sand or other foreign substances 
therefrom.
(n) “Date of Commencement of Commercial Production” means the date of 
commencement of production of Crude Oil and/or Natural Gas from any Oil Field 
and Gas Field determined and announced by the Department and the Contractor in 
accordance with the provisions of the Contract on determination of 
commerciality, excluding production from an extended well test or drill stem test.
(o) “Departmenf 
7638.
means the Department of Energy created under Republic Act No.
(p) “Department Secretary” means the Secretary of Energy.
(q) “Deepwater Contract” means a Contract that as of its effective date at least eighty 
five percent (85%) of the total contract area are in water depths greater than 200 
meters, notwithstanding any subsequent reduction of the contract area in water 
depths greater than 200 meters arising from relinquishment or other reduction 
permitted under the Contract.
(r) “Deepwater Contractor” means the Contractor in a Deepwater Contract, whether 
alone or in consortium with others.
(s) “Deepwater Well” refers to a well drilled on water depths greater than 200 meters.
(t) “Development Cost” means costs incurred by the Contractor for Development 
Operations.
(u) “Development Operations” means operations carried out for the realization of 
Petroleum production from the date of approval by the Department of the Overall 
Development Program for any Oil Field and/or Gas Field including design, 
construction, installation, drilling, and related research work as well as relevant 
activities carried out before the Date of Commencement of Commercial 
Production for the realization of Petroleum production.
(v) “Exploration Cosf ’ means costs incurred by the Contractor for Exploration 
Operations.


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(w) “Exploration Operations” means operations carried out for the purpose of 
discovering Petroleum-bearing traps by means of geological, geophysical, 
geochemical and other methods including exploratory well drilling; all the work 
undertaken to determine the commerciality of traps in which Petroleum has been 
discovered including appraisal well drilling and feasibility studies, formulation of 
the Overall Development Program; and activities related to all such operations, 
including any work done prior to approval of the Overall Development Program 
in an attempt to identify a market for Natural Gas.
(x) “Exploration Period” shall have the meaning set forth in Section 9(e).
(y) “Facilities” means all property of every kind, nature and description taken over, 
appropriated or otherwise acquired under or for the purpose of Petroleum 
Operations.
(z) “Filipino Participation Incentive Allowance (FPIA)” means the allowance which 
may be given a Contractor with Filipino participation as provided in Section 11 
hereof
(aa) “Foreign Exchange” means any currency other than that of the Republic of the 
Philippines which is freely convertible into gold or currencies eligible to form part 
of the country’s international reserves and is acceptable to the Department and the 
Contractor.
(bb) “Gas Field” means an accumulation of gas within the Contract Area composed 
of one or several overlapping gas bearing zones, within one trap or within 
associated traps of the same independent geological structure, including gas caps, 
which may or may not be complicated by faulting, and which has commercial 
value determined in accordance with the procedures stipulated in the Contract.
(cc) “Government” means the Government of the Republic of the Philippines.
(dd) “Government Share” shall have the meaning set forth in Section 9(p) hereof
(ee) “Gross Income” means the gross proceeds from the sale, exchange or disposition 
of Petroleum produced under the Contract and sold or exchanged during the 
Taxable Year at Posted Price or Market Price, as the case may be, and such other 
income which are incidental to and arising from one or more of the Petroleum 
Operations of the Contractor.
(ff) “Investment Promotion Period” means the period within ten (10) years from the 
effective date of this Act, which period may be extended by the President for an 
additional period not exceeding five (5) years.
(gg) “LNG” means Liquefied Natural Gas.


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(hh)“Major Contract” means a Service Contract where the Development Cost 
incurred by the Contractor is not less than [Twenty Billion Pesos 
(P20,000,000,000.00)].
(ii) “Market Price” means the price which is or would be realized for Petroleum 
produced under a Contract if sold in a transaction between independent persons 
dealing at arm’s length in a free market.
(jj) “Natural Gas” means Non-associated Gas and Associated Gas in their natural 
state including gas obtained from boreholes and wells and consisting primarily of 
hydrocarbons.
(kk) “Net Proceeds” means the difference between (i) Gross Income, and (ii) the sum 
of the Operating Expenses recoverable and the FPIA, if any.
(11) “Non-Associated Gas” means all gaseous hydrocarbons produced from gas 
reservoirs, including wet gas, dry gas and residue gas after the extraction of liquid 
hydrocarbons from wet gas.
(mm) “Non-Philippine Contractor” means a Contractor that is (a) not a Philippine 
Corporation; or (b) a consortium wherein Philippine Corporations hold less than 
sixty percent (60%) of the participating interest as defined in the joint operating 
agreement governing the consortium.
(nn) “Oil Field” means an accumulation of Crude Oil within the Contract Area 
composed of one or several overlapping oil-bearing zones, within one trap or 
within associated traps of the same independent geological structure, which may 
or may not be complicated by faulting, and which has commercial value 
determined in accordance with the Contract.
(oo) “Oil Field and/or Gas Field Straddling a Boundary” means any Oil Field and/or 
Gas Field extending beyond the Contract Area.
(pp) “Operating Cost” means the costs incurred by the Contractor for Production 
Operations.
(qq) “Operating Expenses” means the total expenditures incurred by Contractor 
within and outside the Philippines in all Petroleum Operations performed in 
accordance with or pursuant to the Contract. These expenses shall include but are 
not necessary limited to, the cost of seismic surveys, reprocessing and special 
processing of seismic data, geological and geophysical studies, drilling, equipping 
and completing wells, engineering studies, construction of well platforms and 
tank batteries, flowline systems and terminals, the cost of operating and 
maintaining all such facilities including general and administrative costs and 
expenses, and home office overhead and service fees, in accordance with the 
applicable accounting procedure of the Contract. Operating Expenses shall also


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include, but are not necessarily limited to, charges relating to lifting, 
transportation, storage, handling, and sale of Petroleum, whether for export or 
domestic consumption, and interest and financing charges incurred to fund 
Development Operations and Production Operations. In the recovery of Operating 
Expenses, the first to be recovered shall be the Operating Cost followed by the 
Exploration Cost and then the Development Cost.
(rr)“Overall Development Program” means a plan prepared by the Contractor for the 
development of an Oil Field and/or Gas Field and approved by the Department 
and such plans shall include, but shall not be limited to, recoverable reserves, the 
development well pattern, master design, production profile, economic analysis 
and time schedule of the Development Operations, abandonment and 
decommissioning.
(ss)“Petroleum” means any Crude Oil or mineral oil. Natural Gas or hydrocarbon gas, 
Coal Bed Methane, condensate. Casinghead Petroleum Spirit, bitumen, asphalt, 
mineral gas, and all other similar or naturally associated substances with the 
exception of coal, peat, bituminous shale and/or stratified mineral fuel deposits.
(tt)“Petroleum In Commercial Quantity” means Petroleum in such quantities which 
will permit its being economically developed, either on its own or in combination 
with other existing and/or future discoveries of Petroleum, as determined by the 
Contractor and approved by the Department after taking into consideration the 
location of the Petroleum reserves, the depths and number of wells required to be 
drilled, and the transport and terminal facilities needed to utilize the Petroleum 
which has been discovered.
(uu) “Petroleum Operations” means searching for and obtaining Petroleum within the 
Philippines through drilling and natural fiow or suction or the like, and all other 
operations incidental thereto. It includes the treatment, processing, transportation 
(including transportation by pipeline), storage, handling and sale (whether for 
export or domestic consumption) of Petroleum so obtained but does not include 
any: (i) transportation of Petroleum outside the Philippines; (ii) processing or 
refining of Crude Oil at a refinery; or (iii) any transaction in the Crude Oil 
products so refined. It includes transportation of Petroleum up to delivery point to 
the buyer(s) thereof, and the facilities upstream of said delivery point(s) for the 
extraction of such Petroleum as described in the applicable Overall Development 
Plan. Subject to the approval of the Department and to terms as may be agreed 
between the Government and the Contractor, such Contractor may construct, 
install and operate facilities (whether offshore and/or onshore) to process the 
Natural Gas from the Contract Area into LNG, and to store, transport, dispose 
and/or export such LNG, as part of Petroleum Operations.
(w) “Philippine Contractor” means a Contractor that is a Philippine Corporation or a 
consortium wherein Philippine Corporations hold at least sixty percent (60%) of


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the participating interest as defined in the joint operating agreement governing the 
consortium.
(ww) “Philippine Corporation” means a corporation organized and existing under 
Philippine laws at least sixty percent (60%) of the capital of which is owned and 
held by Filipino citizens and/or other Philippine Corporations.
(xx) “Philippine Income Tax” means all taxes imposed by the National Internal 
Revenue Code of the Philippines or equivalent legislation, as may be amended 
from time to time, upon taxable corporate income, including withholding taxes on 
dividends and distribution or remittances or profit to Contractor’s parent company 
or companies, or to Contractor’s head office if the Contractor is a branch of a 
foreign company, or to Contractor’s shareholders.
(yy) “Posted Price” means that Free on Board (FOB) price established by Contractor 
and the Department for each grade, specific gravity, and quality of Crude Oil 
offered for sale to buyers generally for export at the particular point of export, 
which price shall be based upon geographical location and the fair market export 
values for Crude Oil of comparable grade, specific gravity, quality and quantity.
(zz) “Presidenf ’ means the President of the Philippines.
(aaa) “Production Area” means that portion or portions of the Contract Area where 
reservoirs containing Petroleum In Commercial Quantity are delineated by 
Contractor with the approval of the Department
(bbb) “Production Operations” means operations and all activities related thereto 
carried out for producing Petroleum from an Oil Field and/or Gas Field from the 
Date of Commencement of Commercial Production including but not limited to 
extraction, injection, stimulation, treatment, storage, transportation, and lifting.
(ccc) “Special Purpose Vessel” means a vessel hat is used for offshore Petroleum 
Operations including but not limited to: drilling operations; seismic, geophysical, 
geochemical, oceanographic and similar surveys; survey; supply, anchor or hose 
handling, pipe or cable laying; offshore construction, installation, commissioning 
and hook-up; heavy lifting; dredging and rock placement; pipeline and subsea 
facilities inspection and maintenance; floating accommodation, floating storage; 
floating production storage and offloading; fire-fighting, search and rescue; and 
oil spill control and response.
(ddd) “Sub-Contractor” means an individual or entity that directly or indirectly 
provides goods and services required for Petroleum Operations including the 
related subcontractors at whatever tier;
(eee) “Taxable Net Income” shall have the meaning set forth in Section 6 hereof
'•'V.
•>


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(fff) “Taxable Year” means the calendar or fiscal year of the Contractor
SECTION 4. Government May Undertake Petroleum exploration and production. 
Subject to existing private rights, the Government may directly explore for and produce 
indigenous Petroleum. It may also indirectly undertake the same under Service Contracts 
as hereafter provided. These Contracts may cover onshore or offshore areas or a 
combination of both provided that each Contract Area shall as much as practicable be 
contiguous. In every case, the Contractor must be technically competent and financially 
capable as determined by the Department to undertake the Petroleum Operations required 
in the Contract. In the context of Section 2, Article XII of the 1987 Constitution 
regarding the large-scale exploration, development and utilization of petroleum 
resources, Non-Philippine Contractors are qualified to enter into Service Contracts 
provided that the work commitment for all of the phases comprising the Exploration 
Period, including but not limited to the acquisition of seismic data and the drilling of 
exploratory and/or appraisal well(s), shall not be less than One Billion Pesos 
(PI,000,000,000.00).
SECTION 5. Execution of the Contract authorized in this Act. A Contract authorized in 
this Act shall be executed as follows:
(a) If the Contract is with a Non-Philippine Contractor, then the Contract shall be 
entered into on behalf of the Government by the President, upon the 
recommendation of the Department.
(b) If the Contract is with a Philippine Contractor, the Contract shall be entered into 
on behalf of the Government by (i) the President, or (ii) by the Department 
Secretary, subject to the approval of the President, Provided, That if there are 
assignments of the participating interest that result in the Contractor being 
deemed a non-Philippine Contractor then such Contract shall be re-executed by 
the President upon the recommendation of the Department.
(c) The President shall notify Congress of every Contract entered into within thirty 
(30) days from the execution thereof
(d) A Contract under this Act shall be executed after due public notice and pre­
qualification and may be awarded through public bidding or concluded through 
negotiations. In case bids are requested and no bid is submitted, or the bids are 
rejected by the Department for being disadvantageous to the Government, the 
Contract may be concluded through negotiations.
(e) In opening Contract Areas and in selecting the best offers and proposals for 
Petroleum Operations the Department may use any of the following methods: (i) 
conduct a public bidding for a specific area(s) on the basis of defined criteria; or 
(ii) conduction negotiation for a specific area(s) previously offered by the 
Department but for which there has been insufficient interest to warrant a public 
bidding. Any activities related to the implementation of Section 5(b) of this Act
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shall be given the widest publicity in and outside the Philippines. The Department 
shall publish model contracts and announce at least three (3) months in advance 
any intention to offer areas for bidding to include the evaluation criteria to be 
applied and the respective weights to be given for each criterion.3
SECTION 6. Nature of Service Contract. In a Service Contract:
(a) The Government grants the Contractor the exclusive right to explore and develop 
any Petroleum within the Contract Area.
(b) The Contractor provides the necessary financing, technology and service to 
conduct Petroleum Operations and assumes all exploration risk for which it shall 
be entitled to recover Operating Expenses and to be paid a service fee from the 
Petroleum produced under the Contract; and
(c) The government receives a stipulated share of the Net Proceeds from the 
Petroleum produced under the Contract.
SECTION 7. Provisions of Service Contract. The provisions of each Contract shall 
include but is not limited to the following: term, exclusion or relinquishment of areas, 
minimum work commitment and expenditure, obligations and rights of the Contractor, 
work program and budget, declaration of commerciality, cost recovery and accounting, 
sale and disposal of Petroleum, pricing of Petroleum sold or disposed, income tax, 
payments, natural gas, submission of data and reports, assets and equipment, consultation 
and arbitration, incentives for Filipino participation, employment and training of 
Filipinos, preferential use of local goods and services, books of account and audit, 
insurance, confidentiality, assignments, health environmental protection and safety, and 
termination.
SECTION 8. Obligation of the Contractor. The Contractor shall undertake manage and 
execute Petroleum Operations under the full control and supervision of the Government, 
through the Department. The Contract may authorize the Contractor to take and dispose 
of and market either domestically or for export all Petroleum produced under the 
Contract subject to supplying the domestic requirements of the Republic of the 
Philippines on a pro-rata basis. The Government shall oversee the management of the 
operations contemplated in the contract and in this connection shall require the 
Contractor to:
(a) Provide the necessary services and technology;
(b) Provide the requisite financing;
(c) Perform the exploration work obligations and program prescribed in the Contract, 
which may be more but shall not be less than the obligations prescribed in this 
Act;
3See Section 6 and 7, House Bill No. 3019, Oil and Gas Act of 2004
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(d) Once Petroleum in Commercial Quality is discovered, operate the field on behalf 
of the Government in accordance with accepted good oil field practice using 
modem and scientific methods to enable maximum economic production of 
petroleum; avoiding hazards to life, health and property; avoiding pollution of air, 
land and waters; and pursuant to an efficient and economic program of operation;
(e) Assume all exploration risks such that if no Petroleum in Commercial Quantity is 
discovered and produced, it will not be entitled to reimbursement from the 
Government, subject to any applicable Cross Recovery;
(f) Furnish the Department promptly with geological and other information, data and 
reports which it may require;
(g) Maintain detailed technical records and accounts of its operations;
(h) Conform to regulations regarding, among others safety, demarcation of Contract 
Areas, and non-interference with the rights of other petroleum, mineral and 
natural resources operators;
(i) Maintain all meters and measuring equipment in good order and allow access to 
these as well as to the exploration and production sites and operations to 
inspectors authorized by the Department;
(j) Allow examiners of the Bureau of Internal Revenue and other representatives 
authorized by the Department full access to their accounts, books and records, for 
tax and other fiscal purposes;
(k) Be subject to Philippine Income Tax;
(l) After commercial production of Petroleum commences in the Contract Area, to 
supply from Contractor’s and Government’s shares in such production, a portion 
of the domestic requirements of the Philippines on a pro-rata basis, which portion 
shall be offered for sale at Market Price, and shall be determined as follows: in 
respect of each year, by multiplying the total quantity of Petroleum produced 
from the Contract Area to the entire Philippine production of Petroleum, 
Provided, that the Contractor subject to the approval of the Department, which 
shall not be unreasonably withheld, shall be entitled to export such Petroleum if 
domestic buyers are not willing or are otherwise imable to timely purchase the 
Petroleum or to timely pay the Market Price therefore.
On the other hand the Department shall:
1. Reimburse the Contractor for all Operating Expenses not exceeding the 
percentage of the Gross Income as provided in Section 9 (1) hereof; Provided, 
That if in any year the Operating Expenses exceeds the allowable percentage of
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Gross Income then the unrecovered Operating Expenses shall be recovered from 
the Gross Income of succeeding years.
2. Grant the Contractor a Filipino Participation Incentive Allowance (FPIA) and 
Cross-Recovery, if applicable, and a service fee as provided in Section 9 (n) 
hereof
Reimbursement of Operating Expenses and payment of the FPIA, Cross-Recovery and 
the service fee shall be in such form and manner as provided in the Contract.
SECTION 9. Minimum Terms and Conditions. In additions to those elsewhere provided 
in this Act, every Contract executed in pursuance hereof shall contain the following 
minimum terms and conditions:
a) Every Contractor shall be obliged to spend in direct prosecution of exploration 
work and in delineation and development following the discovery of Petroleum in 
Commereial Quantity not less than the amounts provided for in the Contract 
between the Government and the Contractor and these amounts shall not be less 
than the total obtained by multiplying the number of hectares covered by the 
Contract by the following amounts per hectare:
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PERIOD
ONSHORE
OFFSHi
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Year 1
P 15.00
P 15.00
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Year 2
15.00
15.00
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Year 3
15.00
30.00
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Year 4
15.00
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Year 5
15.00
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Year 6
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Year?
45.00
90.00
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Years
45.00
90.00
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Year 9
45.00
90.00
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Year 10
45.00
90.00
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b) Provided, That if during any Contract year the Contractor shall spend more than
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the amount of money required to be spent, the excess may be credited against the
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money required to be spent by the Contractor during the succeeding years;
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Provided, further. That in case the same Contractor holds two or more areas under
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different Contracts, the total amount of work obligations for exploration required
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for in the initial term of all such Contracts may be spent within any one or more
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of them as if they are covered by a single Contract; Provided, That should the
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Contractor fail to comply with the work obligations provided for in the Contract,
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it shall pay the Government the amount it should have spent but did not in direct
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prosecution of its work obligations. In case the Contractor renounces or abandons
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wholly or partly the area covered by the Contract within two years from its
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effectivity date, it should in respect of the abandoned area pay the Government
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the amount it should have spent, bud did not, for exploration work during said two 
(2) years, for which payment, among other obligations, the performance guarantee 
posted by the contractor shall be answerable.
c) Every Contract shall provide for the compulsory relinquishment of at least 
twenty-five percent (25%) of the initial area at the end of five years from its 
effective date and in the event of an extension of the Contract from seven to ten 
years, an additional relinquishment of at least twenty-five percent (25%) of the 
initial area at the end of seven years from its effective date. Any portion of the 
Contract Area already delineated as a Production Area shall not be taken into 
account in ascertaining the extent of relinquishment required. Any area renounced 
or abandoned under Section 9(b) above shall be credited against the portion of the 
area subject to the Contract which is required to surrendered hereunder.
d) The Contractor shall, after the discovery of Petroleum in Commercial Quantity, 
delineate the Production Area within the period agreed upon in the Contract.
e) The Exploration Period under every Contract shall be seven (7) years which may 
consist of sub-phases as defined in the Contract, extendible for three (3) years if 
the Contractor has not been in default in its exploration work obligations and 
other obligations after which the Contract shall lapse, unless Petroleum has been 
discovered by the end of tenth year and the Contractor request a further extension 
of one year to determine whether it is in commercial quantity in which event, 
another extension of one year for exploration may be granted. If Petroleum in 
Commercial Quantity has been discovered, the Contractor may retain after the 
Exploration Period and during the effectivity of the Contract twelve and one-half 
percent (12.5%) of the initial area in addition to the delineated Production Area: 
Provided, however. That the Contractor shall pay annual rentals on such retained 
area which shall not be less than fifty pesos (P50.00) per hectare or fraction 
thereof for onshore areas and not less than one hundred pesos (PI00.00) as 
determined by the Department per hectare or fraction thereof for offshore areas; 
Provided, further That such rentals can be offset against exploration expenditures 
actually spent on such area.
f) Where Petroleum in Commercial Quantity is discovered during the Exploration 
Period in any area covered by the Contract, the Contract with respect to said area 
shall remain in force for production purposes during the balance of the ten (10) 
year Exploration Period and for an additional period of twenty-five (25) years, 
thereafter renewable for a period not exceeding fifteen years (15) years under 
such terms and conditions as may be agreed upon by the Government and the 
Contractor at the time of renewal.
g) Other than assets leased from third parties, the Contractor shall own the materials 
equipment, plants and other installations purchased, installed and/or constructed 
for the Petroleum Operations, whether such assets are movable or immovable in 
nature, and whether located within or outside of the Contract Area. The
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Contractor shall transfer possession and ownership of fully cost recovered assets, 
as is, upon termination of the Contract or within the period agreed by the 
Government and the Contractor, Provided, that in case the Department does not 
elect to possess certain assets which have been fully cost recovered, the 
Contractor shall to the extent required under the Overall Development Plan 
remove or dispose the relevant assets within one year from the termination of the 
Contract, or within the period agreed by the Government and the Contractor, 
Provided, further that the Contractor shall have the right to continue to use the 
aforementioned assets until it has concluded its use of them in accordance with 
obligations under the Contract.
h) The Contractor shall be responsible for the decommissioning of the Facilities and 
as part of the Overall Development Program the Contractor shall define a 
decommissioning plan as well as a process to determine provisions for future 
abandonment costs. In respect of Facilities locate offshore the means and methods 
of decommissioning shall be consistent with Article 60(3) of the 1982 United 
Nations Convention on the Law of the Sea and the “Guidelines and Standards for 
the Removal of Offshore Installations and Structures on the Continental Shelf and 
in the Exclusive Economic Zone” issued in 1989 by the International Maritime 
Organization. The decommissioning plan shall incorporate the following 
principles: (i) the decommissioning plan shall make provision for the cost of 
decommissioning; (ii) the Contract may provide for the creation of a 
decommissioning fund; (iii) costs incurred by the Contractor for decommissioning 
including payments to the decommissioning fund shall be cost recoverable; (iv) 
the Contractor may be required to provide security to ensure compliance with its 
decommissioning obligations; and (v) the Department may elect to take over the 
Facilities in which event the decommissioning fund shall be transferred to the 
Department and the Contractor shall be relieved of any further liability for 
decommissioning the Facilities.
i) The Contractor shall be subject to the provisions of laws of general application 
relating to labor, health, safety and ecology insofar as they are not in conflict with 
the provisions otherwise contained in this Act. The Contractor shall be 
responsible to take measures to manage the health, safety and environmental risks 
arising from the conduct of Petroleum Operations, and should have the ability to 
prevent and respond to critical events.
j)
Every Contract executed in pursuance of this Act shall contain provisions 
regarding the discovery, production, sale and disposal of Natural Gas and 
Casinghead Petroleum Spirit that shall be in line with the rules herein prescribed 
for Crude Oil except that; (1) the Market Price shall be the basis for tax and all 
other purposes; and (2) after meeting any requirements in secondary recovery 
operations priority shall be given to supplying proactive demand in the 
Philippines
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k) A Contractor shall be exempt from all national and local taxes, except Philippine 
Income Tax.
l) In each Calendar Year, the Contractor shall recover from the Gross Income an 
amount equal to all unrecovered Operating Expenses; Provided, that the amount 
so recovered shall not exceed eighty percent (80%) of the Gross Income in any 
Calendar Year; Provided further, that if in any Calendar Year, the unrecovered 
Operating Expenses exceed eighty percent (80%) of the Gross Income, or there is 
no Gross Income, then the unrecovered Operating Expenses shall be recovered 
from the Gross Income in the succeeding Calendar Year(s); Provided further, that 
after the first three Calendar Years of commercial production the percentage of 
Operating Expenses that can be recovered from Gross Income shall be reduced to 
seventy percent (70%). Reimbursement of the Contractor’s Operating Expenses 
includes amortization, depreciation and interest as provided hereunder. In the 
recovery of Operating Expenses, the first to be recovered shall be the Operating 
Cost followed by the Exploration cost then the Development Cost. Tangible 
Exploration Costs such as capital assets may, at the option of Contractor, be 
depreciated for a period of three (3) years under the straight line or double 
declining method. Intangible Exploration Costs may be recovered in full during 
the Calendar Year they are incurred.
m) Cross-Recovery of Operating Expenses set forth in this section shall be allowed 
for Deepwater Contracts that become effective during the Investment Promotion 
Period. A Deepwater Contractor shall be entitled to Cross Recovery of the 
Operating Expenses (including but not limited to the drilling of Deepwater Wells) 
incurred in two or more Areas under different Deepwater Contracts, as if they are 
covered by a single Contract. Operating Expenses incurred by a Deepwater 
Contractor before the Date of Commencement of Commercial Production shall be 
cross-recoverable starting on the said date. The following shall be cross- 
recoverable: (i) the entire amount of Operating Expenses incurred within ten (10) 
years before the Date of Commencement of Commercial Production; and (ii) 
Operating Expenses incurred more than ten (10) years before the Date of 
Commencement of Commercial Production shall be reduced by an amount equal 
to twenty percent (20%) for each year beyond ten (10) years before the Date of 
Commencement of Commercial Production. Operating Expenses of Deepwater 
Contracts under this Act may be cross-recovered from the gross income of a 
service contract executed under Presidential Decree No. 87 which meets the 
definition of a Deepwater Contract. If the Contractor is a consortium then Cross 
Recovery shall apply mutatis mutandis to a member of consortium holding an 
interest in two or more Areas under different Deepwater Contracts. The manner 
for claiming, computing, and paying Cross Recovery shall be stipulated in the 
Contract.
n) The Contractor’s service fee shall be equal to forty percent (40%) of the Net 
Proceeds from Petroleum Operations during a Calendar Year (“Contractor 
Share”), Provided, that in the case of a Deepwater Contract or Major Contract that
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becomes effective during the Investment Promotion Period the Contractor’s 
service fee shall be equal to fifty percent (50%) of the Net Proceeds. The 
Contractor shall have the right and privilege of receiving the Contractor’s service 
fee in kind as Contractor’s share of the Petroleum produced, saved and sold from 
the Contract Area. The Secretary may authorize the Contractor to market the 
Government share of Petroleum together with the Contractor’s share which sale 
shall be exempt from any law rules or regulations requiring public bidding, 
Provided, that the selling price shall not be less than the Market Price.
o) The Government shall be entitled to receive sixty percent (60%) of the Net 
Proceeds from Petroleum Operations during a Calendar Year (“Government 
Share”), Provided, that in case of a Deepwater Contract or Major Contract that 
becomes effective during the Investment Promotion Period the Government Share 
shall be equal to fifty percent (50%) of the Net Proceeds.
SECTION 10. Contract Areas. A Contractor or its Affiliate may enter into one or more 
Contracts with the Government. Contracts for offshore areas may cover any portion 
beneath the Philippine territorial waters or its continental shelf, or portion of the 
continental slope, terrace or areas which are or may be subject to Philippine jurisdiction; 
Provided, That for Deepwater Contracts, the Department may provide for more liberal 
terms than provided for herein with respect to contract area, exploration period and 
relinquishment. No individual Contract shall cover less than fifty thousand (50,000) nor 
more than seven hundred and fifty thousand (750,000) hectares for onshore areas, or less 
than eighty thousand (80,000) nor more than one million five hundred thousand 
(1,500,000) hectares for offshore areas.
SECTION 11. Filipino Participation Incentive Allowance. If the Contractor is a 
consortium in which Philippine Corporations have an aggregate participating interest of 
at least fifteen percent (15%), the Government may grant the Contractor an allowance 
commensurate with the scope of Filipino participation, not exceeding seven and one half 
percent (7.5%) of the Gross Income.
SECTION 12. Transfer and Assignment. The rights and obligations under a Contract 
executed under this Act shall not be assigned or transferred without the prior approval of 
the Department; Provided, That with respect to the transfer or assignment of contractual 
rights and obligations under this Act to an Affiliate of the transferor, the approval thereof 
by the Department shall be automatic, if the transferee is as qualified as the transferor to 
enter into such contract with the Government.
SECTION 13. Privileges of Contractor. The provisions of any law to the contrary 
notwithstanding, a Contract executed under this Act shall provide that the Contractor 
shall have the following privileges:
a) Exemption from all national and local taxes (including real property tax), except 
Philippine Income Tax;
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b) Exemption from payment of all levies, tariffs, duties, compensating tax and value 
added tax on the importation into the Philippines of all machinery, equipment, 
spare parts and all materials required for, and to be used exclusively by the 
Contractor or its Sub-Contractor in Petroleum Operations, subject to the following 
conditions: (i) that said machinery, equipment, spare parts and materials of 
comparable price, quality and quantity are not manufactured domestically nor 
readily available to Contractor or its Sub-Contractor(s) within the same or better 
time frame; and (ii) said machinery, equipment, spare parts and materials are 
directly and actually needed and will be used exclusively by the Contractor or 
Sub-Contractor for Petroleum Operations and are covered by shipping documents 
in the neime of the Contractor to whom the shipment will be delivered directly by 
the customs authorities; and (iii) the prior approval of the Department was 
obtained by the Contractor before the importation of such machinery, equipment, 
spare parts and materials which approval shall not be unreasonably withheld; 
Provided, however, if the Contractor or its Sub-Contractor(s) sell, transfer or 
dispose of such machinery, equipment, spare parts and materials in the 
Philippines without the prior approval of the Department the Contractor shall pay 
twice the amount of tax exemption granted on the item sold, transferred or 
disposed; Provided finally, that the Department shall allow and approve sale, 
transfer, or disposition of the said items without tax if made (1) to another 
Contractor; (2) for reasons of technical obsolescence; or (3) for purposes of 
replacement to improve and/or expand the Petroleum Operations of the 
Contractor;
c) Exemption from the posting of a performance or surety bond during the period of 
Production Operations under the Contract;
d) Exemption upon approval by the Department from laws, regulations and/or 
ordinances restricting (1) the construction, installation and operation of power 
plants for the exclusive use of the Contractor if no local enterprise can supply 
within a reasonable period and at reasonable cost the power needed by the 
Contractor in its petroleum operations, and (2) the exportation of machinery, 
equipment, spare parts and materials which were imported solely for the 
Contractor’s Petroleum Operations when no longer needed therefore;
e) Exemption from publication requirements under Republic Act No. 5455 otherwise 
known as the “Foreign Business Regulation Act”;
f) Exemption from the investment requirements of foreign corporations under 
Section 126 in relation to Section 148 of the Corporation Code of the Philippines;
g) Exportation of Petroleum subject to the obligation to supply a portion of domestic 
requirements as provided in Section 7(1);
h) Entry, upon the sole approval of the Department which shall not be unreasonably 
withheld, of foreign nationals for technical and specialized positions (including
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i)
their spouses and unmarried children below twenty one (21) years of age), who 
may exercise their professions solely for the operations of the Contractor as 
prescribed in its Contract with the Government under this Act; Provided, That if 
the employment or connection of any such foreign national with the Contractor or 
Sub-Contractor ceases, the applicable laws and regulations on immigration shall 
apply to said foreign national and the members of the family; Provided, further 
That Filipinos shall be given preference to positions for which they have adequate 
training and experience; and Provided, finally. That the Contractor shall adopt 
and implement a program for providing technology transfer and specialized 
technical training to Filipinos. Foreign nationals within the purview of this 
provision, who are not excluded by Section 29 of Commonwealth Act No. 613, as 
amended, shall be permitted to enter and reside in the Philippines during the 
period of employment of such foreign nationals. They shall be entitled to a 
multiple entry visa, valid for a period of three years (or if the employment is for a 
period less than three years, then for the duration of employment), and shall be 
allowed to enter and leave the Philippines without further documentary 
requirements other than valid passports or other travel documents in the nature of 
passports. The validity of the multiple entry visa shall be extendible yearly. The 
said foreign nationals admitted under this provision, as well as their respective 
spouses and dependents shall be exempt from: (a) obtaining alien certificates of 
registration and immigration clearance certificates; and (b) securing the Alien 
Employment Permit (AEP) and all types of clearances, permits, licenses or their 
equivalents required by any government department or agency; and
Rights and obligations in any Contract concluded pursuant to this Act shall be 
deemed as essential considerations for the Contract and shall not be unilaterally 
changed or impaired.
SECTION 14. Repatriation of capital and retention of profits abroad. The Contractor 
shall be entitled to: (1) repatriate over a reasonable period the capital investment and all 
costs and expenses actually spent on or brought into the country in Foreign Exchange or 
other assets and registered with the Bangko Sentral ng Pilipinas; (2) retain abroad all 
Foreign Exchange representing proceeds arising from exports accruing to the Contractor 
over and above (a) the Foreign Exchange to be converted into Pesos in an amount 
sufficient to cover the costs of the Petroleum Operations payable in Philippine currency; 
and (b) revenues due the Government from such Petroleum Operations; Provided, 
however. That the Government and the Contractor shall stipulate in the Contract the 
currency in which the Government revenues arising under (b) above are to be paid; (3) 
convert into Foreign Exchange and remit abroad at prevailing rates no less favorable to 
Contractor than those available to any other purchaser of Foreign Exchange, any excess 
balances of their Philippine currency earnings from Petroleum production and sale over 
and above the current working balance they require, and (4) convert Foreign Exchange 
into Philippine Currency for all purposes in connection with its petroleum operations at 
prevailing rates no less favorable to contractor than those available to any other purchaser 
of such currency.
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SECTION 15. Arbitration. The Department may stipulate in a Contract that disputes in 
the implementation thereof between the Government and the Contractor may be settled in 
accordance with generally accepted international arbitration practice.
SECTION 16. Performance Guarantee. The Contract may require the posting of a bond 
or other guarantee of sufficient amount in favor of the Government and with surety or 
sureties satisfactory to the Department, conditioned upon the faithful performance by the 
Contractor of any or all of the obligations under the Contract.
SECTION 17. Implementing Agency and Inter-Agency Committee. The Department of 
Energy is designated as the implementing agency of this Act.
a) Inter-agency committee on vessel, customs, immigration and quarantine clearance 
-  To ensure a unified and coordinated effort among the Government agencies 
involved in vessel, customs, immigration and quarantine clearance in relation to 
the conduct of Petroleum Operations, and to expedite the entry and/or exit of the 
required vessels, machinery, equipment, materials and spare parts, an inter-agency 
committee is hereby created composed of the representatives of the Department 
(Chair), the Department of Finance (Vice-Chair), the Bureau of Customs, the 
Bureau of Immigration, the Philippine Coast Guard, and the National Quarantine 
Office.
b) Inter-agency committee on work permits and visas -  To ensure a unified and 
coordinated effort among the relevant Government agencies, and to expedite the 
entry and/or exit of foreign nationals required for the conduct of Petroleum 
Operations, an inter-agency committee is hereby created composed of the 
representatives of the Department (Chair), the Department of Foreign Affairs 
(Vice-Chair), the Bureau of Immigration, and the Department of Labor and 
Employment.
c) Additional inter-agency committees -  The Department may establish such other 
inter-agency committees as may be required to facilitate the implementation of 
this Act and to facilitate cooperation and the sharing of resources and information 
among the relevant Government agencies.
d) The Department shall have the power to reorganize the inter-agencies created 
pursuant to this section as may be required from time to time.
SECTION 18. Powers and Functions. In addition to the powers and functions of the 
Department under Republic Act No. 7638, the Department shall: 
1
a) Promulgate and issue rules and regulations implementing the provisions of the 
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b) Prescribe appropriate forms, documentary requirements, and fees for the 
processing of applications or the provision of administrative services under the 
Act;
c) Define areas that are available for Contracts and to give wide publicity to any 
notice or invitation to bid for such Contracts consistent with the best interest of 
the Government;
d) Conduct investment promotion programs for domestic and international investors 
in coordination with the Department of Trade and Industry;
e) Provide Contractors and potential investors with updated information and 
authoritative resources regarding the permits, approvals and other requirements 
for investments under this Act and for conducting Petroleum Operations;
f) Establish a One Stop Shop Center for the purpose of facilitating the registration, 
licensing or issuing of permits to investors under this Act, in coordination with the 
appropriate Government agencies;
g) Enter into Contracts, or recommend to the President to enter into Contracts, as the 
case may be, with such terms and conditions as may be appropriate under the 
circumstances;
h) Provide for the maimer and form of the payment of Philippine Income Tax, the 
reimbursement of Operating Expenses, Cross-Recovery, the payment of the 
Government Share and Contractor’s service fee, and other payments pursuant to 
the applicable Contract;
i) Act as the repository of the applications, notices, approvals. Contracts, reports, 
submissions and other pertinent documents and information related to the 
implementation of this Act;
j) Provide the public with information on the award and status of Contracts, the 
operational and financial performance of Contractors, major projects approved by 
the Department, and the revenues generated for the Government;
k) Conduct programs to control marine pollution from offshore Petroleum 
Operations and to establish and maintain emergency response capabilities, in 
coordination with the Philippine Coast Guard and the Department of Environment 
and Natural Resources; l)
l) Conduct development programs (directly or through a Contractor or other party) 
benefit communities in areas, or adjacent to areas, where Petroleum Operations 
are conducted, in coordination with the relevant Contractors and local government 
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m) Conduct regular and special meetings with concerned Government agencies 
(including local government units) as may be required to achieve the objectives of 
the Act, to reduce bureaucratic red tape, to simplify and standardize permit 
requirements and procedures, to resolve any inter-agency issues, and to facilitate 
the efficient conduct of Petroleum Operations;
n) Prescribe rules and regulations for: (i) the services that may be rendered by 
Government personnel (including but not limited to customs, immigration, 
quarantine and vessel clearance in support of offshore Petroleum Operations) 
involving special arrangements due to the remote location or difficulty of access 
to the area where the presence of Government personnel is required; (ii) the 
provision by the Contractor or other party of any required training, transportation, 
meals, accommodation, personal protective equipment, or other assistance; and 
(iii) the payment by the Department or the relevant Government agency of 
reasonable allowances to the aforesaid Government personnel in view of travel 
required, extended or irregular working hours, or exposure to hazards, and the 
manner of funding such allowances;
o) Submit an annual report to the President and Congress on the activities and the 
accomplishments of the Department to implement the Act; and
p) Perform such other functions and responsibilities as may be directed by the 
President and to exercise all powers necessary or incidental to attain the 
objectives of this Act.
SECTION 19. Imposition of Tax. The Contractor shall be liable each Taxable Year for 
the Philippine Income Tax under the provisions of the National Internal Revenue Code 
and this Act. The Philippine Income tax shall be part of the Government Share.
SECTION 20. Taxable Net Income. The Taxable Net Income shall be equivalent to the 
Contractor Share grossed-up for the amount of Philippine Income Tax.
SECTION 21. Tax return. Each corporation comprising the Contractor shall render to 
the Department a return for each Taxable Year in duplicate in such form and manner as 
provided by Philippine laws setting forth its Taxable Net Income. The Department shall 
file the returns with the Commissioner of Internal Revenue or his deputies or other 
persons authorized to receive such return within the period specified in the National 
Internal Revenue Code and the Rules and Regulations promulgated thereunder.
SECTION 22. Payment of tax. The Department shall, on behalf of each corporation 
comprising Contractor, pay from the Government Share of the Net Proceeds and 
separately remit to the Bureau of Internal Revenue, all Philippine Income Tax based on 
income or profit derived from Petroleum Operations under the Contract. The Department 
shall separately remit such Philippine Income Tax to, and obtain separate official receipts 
acknowledging payment of said taxes from, the proper Government authority. The 
Department shall furnish to each of the corporations comprising the Contractor their
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respective official receipts issued in their names. The Contractor’s liability for Philippine 
Income Tax in any Taxable Year shall not exceed the Government Share, and the 
Contractor shall not be liable for the payment of any Philippine Income Tax in excess of 
the Government Share.
SECTION 23. Final income tax on Sub-Contractors. Every Sub-Contractor, whether 
domestic or foreign, entering into a contract with a Contractor engaged in Petroleum 
Operations in the Philippines shall be liable to a final income tax equivalent to eight 
percent (8%) of its gross income derived from such contract, such tax to be in lieu of any 
and all taxes, whether national or local: Provided, however, that any income received 
from all other sources within and without the Philippines in the case of domestic Sub- 
Contractors and within the Philippines in the case of foreign Sub-Contractors shall be 
subject to the regular income tax imposed under the National Internal Revenue Code. The 
term “gross income” means all income earned or received as a result of the contract 
entered into by the subcontractor with a service contractor engaged in petroleum 
operations in the Philippines under this Act.
SECTION 24. Taxation of foreign nationals employed by Contractors and Sub- 
Contractors. Foreign nationals who are permanent residents of a foreign country but who 
are employed and assigned in the Philippines by Contractors or by Sub-Contractors 
engaged in Petroleum Operations in the Philippines, shall be liable to a final income tax 
equal to fifteen percent (15%) of the salaries, wages, aimuities, compensations, 
remunerations and emoluments received from such contractors or subcontractors. Any 
income earned from all other sources within the Philippines by the said alien employees 
shall be subject to the income tax imposed under the National Internal Revenue Code.
SECTION 25. Withholding of certain taxes, (a) Every Contractor shall deduct, withhold, 
and pay the tax imposed under Section 23 from the amounts paid by Contractor to the 
Sub-Contractor under the contract entered into by and between them in the same marmer 
and subject to the same conditions as provided in Section 26 of the National Internal 
Revenue Code, (b) Every Contractor shall also deduct, withhold and pay the tax imposed 
under Section 24 from the salaries, wages, annuities, compensations, remunerations and 
emoluments paid to its foreign national employees and the foreign nationals employed by 
its foreign Sub-Contractors in the same manner and under the same conditions as 
provided in Section 26 of the National Internal Revenue Code, (c) Every domestic Sub- 
Contractor shall deduct, withhold and pay the tax imposed in Section 24 from the 
salaries, wages, annuities, compensations, remunerations and emoluments paid to its 
foreign national employees in the same manner and under the same conditions as 
provided in Section 26 of the National Internal Revenue Code.
SECTION 26. Registration of Sub-Contracts. All contracts entered into between the 
Contractor and a Sub-Contract engaged in Petroleum Operations in the Philippines shall 
be registered with the Department. The cost of Sub-Contracts shall be considered as part 
of reimbursable operating expenses of the Contractor under this Act only if it is shown 
that the contract has been properly registered with the Department and the taxes due
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under this Act have been withheld and paid in accordance with the provisions of Section 
26 of the National Internal Revenue Code.
SECTION 27. Applicability of the provisions of the National Internal Revenue Code. All 
provisions of the National Internal Revenue Code and the rules and regulations 
promulgated in relation therewith that are not inconsistent with the provisions of this Act 
shall be applicable to the Contractor.
SECTION 28. Auxiliary Exploration and Development Rights. To facilitate the efficient 
conduct of Petroleum Operations the Contractor shall have the following rights:
(a) Water Rights. -  The Contractor shall have water rights for its Petroleum 
Operations upon approval of application with the appropriate government agency 
in accordance with existing water laws, rules and regulations promulgated 
thereunder: Provided, That water rights already granted or vested through long 
use, recognized and acknowledged by local customs, laws, and decisions of courts 
shall not thereby be impaired: Provided, further. That the Government reserves 
the right to regulate water rights and the reasonable and equitable distribution of 
water supply so as to prevent the monopoly of the use thereof
(b) Right to Possess Explosives. -  The Contractor shall have the right to possess and 
use explosives within his contract area as may be necessary for his Petroleum 
Operations upon approval of an application with the appropriate government 
agency in accordance with existing laws, rules and regulations promulgated 
thereunder: Provided, That the Government reserves the right to regulate and 
control the explosive accessories to ensure safe mining operations.
(c) Easement Rights. -  When the Contract Area is so situated that for purposes of 
more convenient Petroleum Operations it is necessary to build, construct or install 
on the area or lands owned, occupied or leased by other persons, such 
infrastructure as roads, warehouses, staging or storage areas and port facilities, 
tramways, runways, airports, electric transmission, telephone or telegraph lines, 
sites for water wells, ditches canals, pipelines, etc., the Contractor, upon payment 
of just compensation shall be entitled to enter and occupy said areas or lands.
(d) Entry into Private Lands and Concession Areas. -  Subject to prior notification, the 
Contractor shall not be prevented from entry into private lands and concession 
areas by surface owners, occupants, or concessionaires when conducting 
Petroleum Operations therein: Provided, That any damage done to the property of 
the surface owner, occupant, or concessionaire as a consequence of such 
operations shall be properly compensated as may be provided for in the 
implementing rules and regulations: Provided, further. That to guarantee such 
compensation, the Contractor authorized to conduct Petroleum Operations shall, 
prior thereto, post a bond with the Department based on the type of properties, the 
prevailing prices in and around the area where the Petroleum Operations are to be 
conducted, with surety or sureties satisfactory to the Department.
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SECTION 29. Safety and Exclusion Zones. The President may establish and reserve 
certain lands, waters, submerged lands, foreshore areas, and air space as safety and 
exclusion zones in order: (a) to protect public health, safety and the environment; (b) to 
secure vital infrastructure used in Petroleum Operations from damage; and (c) to prevent 
disruptions in the availability of Petroleum. The Department may prohibit certain 
activities in such safety and exclusion zones without its prior authorization, including but 
not limited to: (a) trawl fishing or other fishing methods which involve the use of 
weights, anchors or similar devices on the seabed; (b) anchoring; (c) use of and/or 
dumping of explosives; (d) drilling, construction or the installation of submarine 
pipelines or cable; and (e) similar activities which may pose a potential risk to the 
Petroleum sand to public health, safety and the environment..
SECTION 30. Temporary restraining orders and injunctions. Republic Act No. 8975 
(An act to ensure the expeditious implementation and completion of Government 
infrastructure projects by prohibiting lower courts from issuing temporary restraining 
orders, preliminary injunctions, or preliminary mandatory injunctions, providing 
penalties for violations thereof, and for other purposes) shall apply to projects pursuant to 
a Contract under this Act and such projects shall be deemed as “national government 
projects” for the purpose of RA No. 8975.
SECTION 31. Vessels used for Petroleum Operations. Foreign-owned or foreign- 
registered Special Purpose Vessels used by Contractors for Petroleum Operations shall 
not be deemed to be public or common carriers engaged in domestic trade or coastwise 
trade and are exempt from the requirement to obtain a certificate of Philippine registry 
under Presidential Decree No. 761 and related laws and issuances subject to the following 
conditions: (a) the Special Purpose Vessel is used exclusively for Petroleum Operations 
by one or more Contractors and its use by the Contractor for a specified duration has been 
approved by the Department; (b) vessels of similar specifications and capacity are not 
locally available at competitive price; (c) the Special Purpose Vessel is not used in the 
business of carrying passengers and general cargo from port to port in the Philippines; (d) 
the Special Purpose vessel enters Philippine ports principally for the purpose of 
transporting personnel and cargo required for Petroleum Operations in an offshore 
location, resupply, refueling, repair or maintenance, or if required, for the purpose of 
customs, immigration and quarantine clearance. The Special Purpose Vessel may be 
manned or operated by foreign and/or Filipino nationals. The Department and the 
Maritime Industry Authority shall issue joint regulations prescribing a simplified 
procedure for the issuance of permits for Special Purpose Vessels that will facilitate the 
efficient and cost-effective conduct of Petroleum Operations.
SECTION 32. Allocation of Government Share. The Government Share as referred to in 
Section 9 shall be allocated in accordance with Sections 290 and 292 of Republic Act No. 
7160 otherwise known as the Local Government Code of 1991. In case Petroleum 
Operations are undertaken by a government-owned or controlled corporation, the sharing 
and allocation shall be in accordance with Section 291 and 292 of the said Code.
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SECTION 33. Coal Bed Methane. The exploration and development of Coal Bed 
Methane resources is subject to the provisions of this Act. In awarding contracts for Coal 
Bed Methane areas, the Department may give preference to the holder of an existing coal 
mining license or permit issued pursuant to Republic Act No. 7942, that meets the 
requirements under this Act or the applicable rules and regulations. The Department and 
the Department of Environment and Natural Resources shall issue joint implementing 
rules and regulations governing areas where a Coal Bed Methane Contract area overlaps 
with a coal mining license or permit area, specifying the respective rights and obligations 
of the relevant parties, including the obligation to coordinate their respective operations 
to the extent practicable.
SECTION 34. Preference to Local Labor. The Contractor shall give priority in 
employment to qualified personnel in the municipality or municipalities or province 
where the Petroleum Operations are conducted.
SECTION 35. Foreign Assistance. Nothing in this Act or of any other law shall preclude 
the Government of the Republic of the Philippines, through the Department or any other 
proper office or agency, from negotiation or entering into any agreement with any foreign 
country or government for assistance in terms of equipment, technical know-how and 
financing for the exploration and production of Petroleum.
SECTION 36. Disputed Maritime Areas. Pending the resolution of disputes with certain 
States in respect of maritime areas with known or potential Petroleum reserves within the 
territory or exclusive economic zone of the Philippines, the Government may consider, 
pursue and enter into provisional arrangements consistent with Articles 74 and 83 of the 
1982 United Nations Conventions on the Law of the Sea. The President upon the 
recommendation of the Secretary of Energy and the Secretary of Foreign Affairs may 
enter into bilateral or multilateral agreements for the establishment of Joint Development 
Zones (JDZ) wherein the State parties with conflicting claims may conduct joint 
exploration, development and production of Petroleum (“JDZ Agreement”). Any JDZ 
Agreement entered into by the President shall provide that the States party thereto have 
entered into the agreement without prejudice to their respective claims, and that the 
agreement does not nullify their respective claims. The President may authorize the 
Department Secretary, the Secretary of Foreign Affairs, and/or the President of the 
Philippine National Oil Company, to enter into; (i) preliminary or preparatory 
agreements, or memoranda of understanding with their respective counterparts to 
establish joint committees or similar bodies for the purpose of initiating discussions and 
studies on the proposed establishment of Joint Development Zones; and/or (ii) 
agreements to share technical data and/or conduct joint exploration operations (including 
but not limited to seismic surveys) to assist the parties in defining suitable areas to be 
covered by the proposed JDZ (collectively, “Preparatory Agreements”). The JDZ 
Agreement shall include among others a statement of the principles and purpose of the 
agreement, the scope of the agreement, the definition of the area to be covered by the 
JDZ, the rights and obligations of the parties, any reservations made as to the rights of the 
parties, the program of work to be carried out, the respective shares of the parties in the 
costs to be incurred and any production of Petroleum that will be realized, the
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management of the JDZ, and the term and termination of the agreement. In accordance 
with SECTION 21, Article VII of the 1987 Constitution the JDZ Agreement shall be 
deemed an international agreement that requires the concurrence of at least two-thirds of 
all the members of the Senate, Provided, however, that the Preparatory Agreements shall 
not require such concurrence.
SECTION 37. Funds. To carry out the purpose of this Act, there is hereby appropriated, 
out of any funds in the National Treasury not otherwise appropriated the sum of Fifty 
Million Pesos (P50,000,000) for the fiscal year Two Thousand Seventeen. Hereafter the 
necessary appropriations shall be included in subsequent General Appropriations Act.
SECTION 38. Non-impairment of existing Service Contracts. All valid and existing 
service contracts granted under Presidential Decree No 87 at the date of the effectivity of 
this Act, shall remain valid, shall not be impaired, and shall be recognized by the 
Government until the termination or expiration thereof, including any extension allowed 
therein. Provided, That an existing service contract may be converted into a Contract 
under this Act, upon the application of the service contractor and subject to the approval 
of the President. Provided, further, that any application for conversion shall be submitted 
to the Department within eighteen (18) months from the effectivity of this Act.
SECTION 39. Separability Clause. If any provision of this Act shall be held 
unconstitutional or invalid, the other provisions not otherwise affected shall remain in full 
force and effect.
SECTION 40. Repealing Clause. Presidential Decree No. 87, as amended, shall continue 
to subsist and govern all service contracts entered into in accordance with its provisions 
prior to the effectivity of this act, until such time as all such service contracts have 
expired or terminated in accordance with its terms. All other laws, presidential decrees, 
executive orders and issuances, or any part thereof, which are inconsistent herewith are 
hereby repealed, provided that no existing rights shall be prejudiced thereby.
SECTION 41. Effectivity Clause. This Act shall take effect upon its publication in the 
Official Gazette or in at least one news paper of general circulation.
Approved,
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