EIGHTEENTH CONGRESS OF THE REPUBLIC 
OF THE PH ILIPPINES
First Regular Session
SENATE
S.B. NO. 9 9 1
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•19 AUG 28 P6 25
REC: ;- -:)!!■
Introduced by Senator Maria Lourdes Nancy S. Binay
AN ACT
TO PROMOTE THE DISCOVERY AND PRODUCTION OF INDIGENOUS 
PETROLEUM AND FOR OTHER PURPOSES
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 explored. 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 modern 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 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.
MARIA LOURDES NANCY S. BINAY 
Senator


EIGHTEENTH CONGRESS OF THE REPUBLIC 
OF THE PH ILIPPINES
First Regular Session
SENATE 
s.B. NO.
' lOtficf of tijf i«rcrrtinj>
*19 AUG 28 P6 25
R La r.'-i?:
Introduced by Senator Maria Lourdes Nancy S. Binay
AN ACT
TO PROMOTE THE DISCOVERY AND PRODUCTION OF INDIGENOUS 
PETROLEUM AND FOR OTHER PURPOSES
Be it enacted by the Senate and House o f Representatives o f the Phiiippines in 
Congress assembled:
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Section 1. Short Title. -  This Act shall be known and may be cited as "The
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Petroleum Exploration and Development Act of 2019."
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Sec. 2. Declaration o f Policy. -  All petroleum resources in public and
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private lands within the territory and exclusive economic zone of the Republic of
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the Philippines are owned by the State. It is hereby declared to be the policy of
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the State (a) to ensure a continuous, adequate, and economic supply of energy
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with the end in view of ultimately achieving self-reliance in the country's energy
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requirements through the integrated and intensive exploration, production,
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management, and development of the country's indigenous petroleum resources
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; (b) to hasten the discovery and production of indigenous petroleum through
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the utilization of government and/or private resources, local and foreign under
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the arrangements embodied in this Act which are calculated to yield the
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maximum benefit to the Filipino people and to assure just returns to participating
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private enterprises, particularly those that will provide the necessary financing,
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technology and services and fully assume all explorations risks; (c) to attract
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foreign capital and expertise by providing meaningful incentives that are
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competitive with the fiscal and other terms offered by other countries in the Asia-
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Pacific region; (d) to revitalize and encourage more exploration activities in the
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Philippines; and (e) to rationalize and simplify the regulatory framework
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governing exploration and production investment and activities in the Philippines.
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Sec. 3. Definition o f Terms. -  As used in this Act, the following terms shall
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have the following meanings:
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(A) 
"Affiliate" means (i) a company in which a Contractor
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holds directly or indirectly at least fifty percent (50%) of
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its outstanding shares entitled to vote; (ii) a company
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which holds directly or indirectly at least fifty percent
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(50%) of the Contractor's outstanding shares entitled to
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vote; or (iii) a company in which at least fifty percent
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(50%) of its share outstanding and entitled to vote are
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owned by a company which holds directly or indirectly at
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least fifty percent of the shares outstanding and entitled
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to vote of the Contractor;
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(B) 
Contractor's outstanding shares entitled to vote; or (iii) a
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company in which at least fifty percent (50%) of its
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share outstanding and entitled to vote are owned by a
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company which holds directly or indirectly at least fifty
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percent of the shares outstanding and entitled to vote of
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the Contractor;
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(C) 
"Associated 
Gas" 
means 
all 
gaseous 
hydrocarbons
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produced in 
association 
with 
Crude 
Oil 
from oil
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reservoirs, including residue gas remaining after 
the
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extraction of liquid hydrocarbons therefrom;
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(D) 
"Barrel" means 42 U.S. gallons or 9702 cubic inches at a
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temperature of sixty degrees Fahrenheit (60°F). Any
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references in this Act to the value of any Crude Oil at the
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Market Price shall be construed as a reference to the


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amount obtained by multiplying the number of Barrels of 
that Crude Oil by Market Price per Barrel applicable to 
that Crude Oil;
(E) 
"Calendar 
Year" 
means 
a 
period 
of twelve 
(12) 
consecutive months commencing with January 1 and 
ending on the following December 31;
(F) 
"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;
(G) 
"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;
(FI) 
"Coal Bed Methane Contract" means a Contract for the 
exploration and development of a Coal Bed Methane 
area under this Act;
(I) 
"Contract" or "Service Contract" refers to a contract 
entered into by the Government and a Contractor in 
accordance with this Act including any exhibits and 
attachments;
(J) 
"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;
(K) 
"Contractor" means the contractor in a Service Contract 
whether acting alone or in consortium with others;
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(L) 
"Contractor Share" shall have the meaning set forth in 
Section 9(o);
(M) 
"Cross Recovery" means that the Operating Expenses 
incurred by a Deepwater Contractor or its Affiliate in two 
or more Areas under different Deepwater 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;
(N) 
"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;
(O) 
"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;
(P) 
"Department" means the Department of Energy created 
under Republic Act No. 7638;
(Q) 
"Department Secretary" means the Secretary of Energy;
(R) 
"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
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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;
(S) 
"Deepwater Contractor" means the Contractor in a 
Deepwater Contract, whether alone or in consortium with 
others;
(T) 
"Deepwater Well" refers to a well drilled on water depths 
greater than 200 meters;
(U) 
"Development Cost" means costs 
incurred 
by the 
Contractor for Development Operations;
(V) 
"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;
(W) 
"Exploration 
Cost" 
means 
costs 
incurred 
by 
the 
Contractor for Exploration Operations;
(X) 
"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
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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;
(Y) 
"Exploration Period" shall have the meaning set forth in 
Section 9(e);
(Z) 
"Facilities" means all property of every kind, nature and 
description 
taken 
over, 
appropriated 
or 
otherwise 
acquired 
under or for the 
purpose 
of 
Petroleum 
Operations;
(AA) 
"Filipino Participation Incentive Allowance (FPIA)" means 
the allowance which may be given a Contractor with 
Filipino participation as provided in Section 11 hereof;
(BB) 
"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;
(CC) 
"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;
(DD) 
"Government" means the Government of the Republic of 
the Philippines;
(EE) 
"Government Share" shall have the meaning set forth in 
Section 9(p) hereof;


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(FF) 
"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;
(GG) 
"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;
(HFI) 
"LNG" means Liquefied Natural Gas;
(II) 
"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)];
(JJ) 
"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;
(KK) 
"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;
(LL) 
"Net Proceeds" means the difference between (i) Gross 
Income, and (ii) the sum of the Operating Expenses 
recoverable and the FPIA, if any;
(MM) "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;
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(NN) 
"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;
(0 0 ) 
"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;
(PP) 
"Oil Field and/or Gas Field Straddling a Boundary" means 
any Oil Field and/or Gas Field extending beyond the 
Contract Area;
(QQ) 
"Operating Cost" means the costs incurred by the 
Contractor for Production Operations;
(RR) 
"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
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applicable 
accounting 
procedure 
of 
the 
Contract. 
Operating Expenses shall also 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;
(SS) 
"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;
(TT) 
"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;
(UU) 
"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
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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;
(W ) 
"Petroleum 
Operations" 
means 
searching 
for 
and 
obtaining 
Petroleum within 
the 
Philippines through 
drilling and natural flow 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;
(WW) "Philippine Contractor" means a Contractor that is a 
Philippine Corporation or a consortium wherein Philippine 
Corporations hold at least sixty percent (60%) of the
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participating interest as defined in the joint operating 
agreement governing the consortium;
(XX) 
"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;
(YY) 
"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;
(ZZ) 
"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;
(AAA) "President" means the President of the Philippines;
(BBB) "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;
(CCC) "Production 
Operations" 
means 
operations 
and 
all 
activities related thereto carried out for producing
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Petroleum from an Oil Field and/or Gas Field from the
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Date 
of Commencement of Commercial 
Production
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including 
but 
not 
limited 
to 
extraction, 
injection,
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stimulation, 
treatment, 
storage, 
transportation, 
and
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lifting;
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(DDD) "Special Purpose Vessel" means a vessel hat is used for
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offshore Petroleum Operations including but not limited
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to: drilling operations; seismic, geophysical, geochemical,
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oceanographic and similar surveys; 
survey; 
supply,
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anchor or hose handling, pipe or cable laying; offshore
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construction, installation, commissioning and hook-up;
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heavy lifting; dredging and rock placement; pipeline and
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subsea facilities inspection and maintenance; floating
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accommodation, floating storage; floating production
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storage and offloading; fire-fighting, search and rescue;
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and oil spill control and response;
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(EEE) "Sub-Contractor" means an individual or entity that
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directly 
or 
indirectly 
provides 
goods 
and 
services
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required for Petroleum Operations including the related
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subcontractors at whatever tier;
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(FFF) "Taxable Net Income" shall have the meaning set forth in
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Section 6 hereof; and
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(GGG) "Taxable Year" means the calendar or fiscal year of the
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Contractor;
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Sec. 4. Government May Undertake Petroleum exploration and production.
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-  Subject to existing private rights, the Government may directly explore for and
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produce indigenous Petroleum. It may also indirectly undertake the same under
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Service Contracts as hereafter provided. These Contracts may cover onshore or
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offshore areas or a combination of both provided that each Contract Area shall as
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much as practicable be contiguous. In every case, the Contractor must be
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technically competent and financially capable as determined by the Department
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to undertake the Petroleum Operations required in the Contract. In the context
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of Section 2, Article XII of the 1987 Constitution regarding the large-scale
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exploration, development and utilization of petroleum resources, Non-Philippine
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Contractors are qualified to enter into Service Contracts provided that the work
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commitment for all of the phases comprising the Exploration Period, including
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but not limited to the acquisition of seismic data and the drilling of exploratory
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and/or 
appraisal 
well(s), 
shall 
not 
be 
less 
than 
One 
Billion 
Pesos
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(P1,000,000,000.00).
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Sec. 5. Execution o f the Contract authorized in this A ct -  A Contract
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authorized in this Act shall be executed as follows:
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(A) If the Contract is with a Non-Philippine Contractor, then the
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Contract shall be entered into on behalf of the Government
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by the 
President, 
upon the 
recommendation 
of the
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Department;
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(B) If the Contract is with a Philippine Contractor, the Contract
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shall be entered into on behalf of the Government by (i) the
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President, or (ii) by the Department Secretary, subject to
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the approval of the President, Provided, That if there are
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assignments of the participating interest that result in the
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Contractor being deemed a non-Philippine Contractor then
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such Contract shall be re-executed by the President upon
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the recommendation of the Department;
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(C) The President shall notify Congress of every Contract
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entered into within thirty (30) days from the execution
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thereof;
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(D) A Contract under this Act shall be executed after due public
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notice and pre-qualification and may be awarded through
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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; and
(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 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.
Sec. 6. Nature o f 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
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(C) The government receives a stipulated share of the Net
2 
Proceeds from the Petroleum produced under the Contract.
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Sec. 7. Provisions o f Service Contract -  The provisions of each Contract
5 
shall include but is not limited to the following: term, exclusion or relinquishment
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of areas, minimum work commitment and expenditure, obligations and rights of
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the Contractor, work program and budget, declaration of commerciality, cost
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recovery and accounting, sale and disposal of Petroleum, pricing of Petroleum
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sold or disposed, income tax, payments, natural gas, submission of data and
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reports, assets and equipment, consultation and arbitration, incentives for
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Filipino participation, employment and training of Filipinos, preferential use of
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local goods and services, books of account and audit, insurance, confidentiality,
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assignments, health environmental protection and safety, and termination.
14
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Sec. 8. Obiigation o f the Contractor. -  The Contractor shall undertake
16 
manage and execute Petroleum Operations under the full control and supervision
17 
of the Government, through the Department. The Contract may authorize the
18 
Contractor to take and dispose of and market either domestically or for export all
19 
Petroleum produced under the Contract subject to supplying the domestic
20 
requirements of the Republic of the Philippines on a pro-rata basis. The
21 
Government shall oversee the management of the operations contemplated in
22 
the contract and in this connection shall require the Contractor to:
23 
(A) Provide the necessary services and technology;
24 
(B) Provide the requisite financing;
25 
(C) Perform the exploration work obligations and program
26 
prescribed in the Contract, which may be more but shall not
27 
be less than the obligations prescribed in this Act;
28 
(D) Once Petroleum in Commercial Quality is discovered,
29 
operate 
the 
field 
on 
behalf of the 
Government 
in
30 
accordance with accepted good oil field practice using
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modern 
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;
(FI) 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
16


1 
basis, which portion shall be offered for sale at Market
2 
Price, and shall be determined as follows: in respect of each
3 
year, 
by multiplying the total quantity of Petroleum
4 
produced from the Contract Area to the entire Philippine
5 
production of Petroleum, Provided, that the Contractor
6 
subject to the approval of the Department, which shall not
7 
be unreasonably withheld, shall be entitled to export such
8 
Petroleum if domestic buyers are not willing or are
9 
otherwise unable to timely purchase the Petroleum or to
10 
timely pay the Market Price therefore.
11 
On the other hand the Department shall:
12 
(A) Reimburse the Contractor for all Operating Expenses not
13 
exceeding the percentage of the Gross Income as provided
14 
in Section 9 (I) hereof; Provided, That if in any year the
15 
Operating Expenses exceeds the allowable percentage of
16 
Gross Income then the unrecovered Operating Expenses
17 
shall be recovered from the Gross Income of succeeding
18 
years.
19 
(B) Grant the Contractor a Filipino Participation Incentive
20 
Allowance (FPIA) and Cross-Recovery, if applicable, and a
21 
service fee as provided in Section 9 (n) hereof.
22 
Reimbursement of Operating Expenses and payment of the FPIA, Cross-
23 
Recovery and the service fee shall be in such form and manner as provided in
24 
the Contract.
25
26 
Sec. 9. Minimum Terms and Conditions. -  In additions to those elsewhere
27 
provided in this Act, every Contract executed in pursuance hereof shall contain
28 
the following minimum terms and conditions:
29 
(A) Every Contractor shall be obliged to spend in direct
30 
prosecution of exploration work and in delineation and
17


1
development following the discovery of Petroleum in
2
Commercial Quantity not less than the amounts provided
3
for in the Contract between
the Government and the
4
Contractor and these amounts shall not be less than the
5
total obtained
by multiplying
the number of hectares
6
covered by the
Contract by the following amounts per
7
hectare:
8
PERIOD
ONSHORE
OFFSHORE
9
Year 1
P 15.00
P 15.00
10
Year 2
15.00
15.00
11
Year 3
15.00
30.00
12
Year 4
15.00
30.00
13
Year 5
15.00
30.00
14
Year 6
45.00
90.00
15
Year 7
45.00
90.00
16
Years
45.00
90.00
17
Year 9
45.00
90.00
18
Year 10
45.00
90.00
19
20 
21 
22
23
24
25
26
27
28
29
30
(B) Provided, That if during any Contract year the Contractor 
shall spend more than the amount of money required to be 
spent, the excess may be credited against the money 
required to be spent by the Contractor during the 
succeeding years; Provided, further, That in case the same 
Contractor holds two or more areas under different 
Contracts, 
the total 
amount of work obligations for 
exploration required for in the initial term of all such 
Contracts may be spent within any one or more of them as 
if they are covered by a single Contract; Provided, That 
should the Contractor fail to comply with the work 
obligations provided for in the Contract, it shall pay the
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Government the amount it should have spent but did not in 
direct prosecution of its work obligations. In case the 
Contractor renounces or abandons wholly or partly the area 
covered by the Contract within two years from its effectivity 
date, it should in respect of the abandoned area pay the 
Government 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,
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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 (PIOO.OO) 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
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immovable in nature, and whether located within or outside 
of the 
Contract Area. 
The 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
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1
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;
(K) A Contractor shall be exempt from all national and local 
taxes, except Philippine Income Tax;
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(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
23


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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 shhW 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 
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
24


1 
in kind as Contractor's share of the Petroleum produced,
2 
saved and sold from the Contract Area. The Secretary may
3 
authorize the Contractor to market the Government share
4 
of Petroleum together with the Contractor's share which
5 
sale shall be exempt from any law rules or regulations
6 
requiring public bidding; Provided, That the selling price
7 
shall not be less than the Market Price;
8 
(0) The Government shall be entitled to receive sixty percent
9 
(60%) of the Net Proceeds from Petroleum Operations
10 
during a Calendar Year ("Government Share"), Provided,
11 
that in case of a Deepwater Contract or Major Contract that
12 
becomes effective during the Investment Promotion Period
13 
the Government Share shall be equal to fifty percent (50%)
14 
of the Net Proceeds.
15
16 
Sec. 10. Contract Areas. - A Contractor or its Affiliate may enter into one
17 
or more Contracts with the Government. Contracts for offshore areas may cover
18 
any portion beneath the Philippine territorial waters or its continental shelf, or
19 
portion of the continental slope, terrace or areas which are or may be subject to
20 
Philippine jurisdiction; Provided, That for Deepwater Contracts, the Department
21 
may provide for more liberal terms than provided for herein with respect to
22 
contract area, exploration period and relinquishment. No individual Contract shall
23 
cover less than fifty thousand (50,000) nor more than seven hundred and fifty
24 
thousand (750,000) hectares for onshore areas, or less than eighty thousand
25 
(80,000) nor more than one million five hundred thousand (1,500,000) hectares
26 
for offshore areas.
27
28 
Sec. 11. Filipino Participation Incentive Allowance. -  If the Contractor is a
29 
consortium in which Philippine Corporations have an aggregate participating
30 
interest of at least fifteen percent (15%), the Government may grant the
25


1 
Contractor an allowance commensurate with the scope of Filipino participation,
2 
not exceeding seven and one half percent (7.5%) of the Gross Income.
3
4 
Sec. 12. Transfer and Assignment -  The rights and obligations under a
5 
Contract executed under this Act shall not be assigned or transferred without the
6 
prior approval of the Department; Provided, That with respect to the transfer or
7 
assignment of contractual rights and obligations under this Act to an Affiliate of
8 
the transferor, the approval thereof by the Department shall be automatic, if the
9 
transferee is as qualified as the transferor to enter into such contract with the
10 
Government.
11
12 
Sec. 13. Privileges o f Contractor. -  The provisions of any law to the
13 
contrary notwithstanding, a Contract executed under this Act shall provide that
14 
the Contractor shall have the following privileges:
15 
(A) Exemption from all national and local taxes (including real
16 
property tax), except Philippine Income Tax;
17 
(B) Exemption from payment of all levies, tariffs, duties,
18 
compensating tax and value added tax on the importation
19 
into the Philippines of all machinery, equipment, spare parts
20 
and all materials required for, and to be used exclusively by
21 
the 
Contractor 
or its 
Sub-Contractor 
in 
Petroleum
22 
Operations, subject to the following conditions: (i) that said
23 
machinery, 
equipment, 
spare 
parts 
and 
materials of
24 
comparable 
price, 
quality 
and 
quantity 
are 
not
25 
manufactured 
domestically 
nor 
readily 
available 
to
26 
Contractor or its Sub-Contractor(s) within the same or
27 
better time frame; and 
(ii) said machinery, equipment,
28 
spare parts and materials are directly and actually needed
29 
and will be used exclusively by the Contractor or Sub-
30 
Contractor for Petroleum Operations and are covered by
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shipping documents in the name 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 
finaiiy, 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
27


1
solely for the Contractor's Petroleum Operations when no
2
longer needed therefore;
3
(E) Exemption from publication requirements under Republic
4
Act No. 5455 otherwise known as the "Foreign Business
5
Regulation Act";
6
(F) Exemption from the investment requirements of foreign
7
corporations under Section 126 in relation to Section 148 of
8
the Corporation Code of the Philippines;
9
(G) Exportation of Petroleum subject to the obligation to supply
10
a portion of domestic requirements as provided in Section
11
7(1);
12
(H) Entry, upon the sole approval of the Department which
13
shall not be unreasonably withheld, of foreign nationals for
14
technical and specialized positions (including their spouses
15
and unmarried children below twenty one (21) years of
16
age), who may exercise their professions solely for the
17
operations of the Contractor as prescribed in its Contract
18
with the Government under this Act; Provided, That if the
19
employment or connection of any such foreign national with
20
the Contractor or Sub-Contractor ceases, the applicable
21
laws and regulations on immigration shall apply to said
22
foreign national and the members of the family; Provided,
23
further, That Filipinos shall be given preference to positions
24
for which they have adequate training and experience; and
25
Provided, finally. That the Contractor shall adopt and
26
implement a program for providing technology transfer and
27
specialized technical training to Filipinos. Foreign nationals
28
within the purview of this provision, who are not excluded
29
by Section 29 of Commonwealth Act No. 613, as amended.
30
shall be permitted to enter and reside in the Philippines
28


1 
during the period of employment of such foreign nationals.
2 
They shall be entitled to a multiple entry visa, valid for a
3 
period of three years (or if the employment is for a period
4 
less 
than 
three 
years, 
then 
for 
the 
duration 
of
5 
employment), and shall be allowed to enter and leave the
6 
Philippines without further documentary requirements other
7 
than valid passports or other travel documents in the
8 
nature of passports. The validity of the multiple entry visa
9 
shall be extendible yearly. The said foreign nationals
10 
admitted under this provision, as well as their respective
11 
spouses and dependents shall 
be exempt from: 
(a)
12 
obtaining alien certificates of registration and immigration
13 
clearance 
certificates; 
and 
(b) 
securing 
the 
Alien
14 
Employment Permit (AEP) and all types of clearances,
15 
permits, licenses or their equivalents required by any
16 
government department or agency; and
17 
(I) 
Rights and obligations in any Contract concluded pursuant
18 
to this Act shall be deemed as essential considerations for
19 
the Contract and shall not be unilaterally changed or
20 
impaired.
21
22 
Sec. 14. Repatriation o f capitai and retention o f profits abroad. -  The
23 
Contractor shall be entitled to: (1) repatriate over a reasonable period the capital
24 
investment and all costs and expenses actually spent on or brought into the
25 
country in Foreign Exchange or other assets and registered with the Bangko
26 
Sentral ng Pilipinas; (2) retain abroad all Foreign Exchange representing
27 
proceeds arising from exports accruing to the Contractor over and above (a) the
28 
Foreign Exchange to be converted into Pesos in an amount sufficient to cover the
29 
costs of the Petroleum Operations payable in Philippine currency; and (b)
30 
revenues due the Government from such Petroleum Operations; Provided,
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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.
Sec. 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.
Sec. 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.
Sec. 17. Impiementing 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
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of
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; and
(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.
Sec. 18. Powers and Functions. -  In addition to the powers and functions 
the Department under Republic Act No. 7638, the Department shall:
(A) Promulgate and issue rules and regulations implementing 
the provisions of the Act;
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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 manner 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
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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) 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 units;
(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
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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.
Sec. 19. Imposition o f 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.
Sec. 20. 
Taxable Net Income. -  The Taxable Net Income shall be 
equivalent to the Contractor Share grossed-up for the amount of Philippine 
Income Tax.
Sec. 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
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within the period specified in the National Internal Revenue Code and the Rules 
and Regulations promulgated thereunder.
Sec. 22. Payment o f 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 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.
Sec. 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.
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Sec. 24. Taxation o f 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, 
annuities, 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.
Sec. 25. Withholding o f 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 manner 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.
Sec. 26. Registration o f 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
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Contractor under this Act only if it is shown that the contract has been properly 
registered with the Department and the taxes due under this Act have been 
withheld and paid in accordance with the provisions of Section 26 of the National 
Internal Revenue Code.
Sec. 27. Applicability o f the provisions o f 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.
Sec. 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
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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; and
(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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Sec. 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 pubiic health, safety and 
the environment; (b) to secure vitai infrastructure used in Petroleum Operations 
from damage; and (c) to prevent disruptions in the availabiiity of Petroieum. The 
Department may prohibit certain activities in such safety and exclusion zones 
without its prior authorization, including but not iimited to: (a) trawi 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 instaiiation of submarine pipelines or cable; and
(e) similar activities which may pose a potential risk to the Petroleum sand to 
public heaith, safety and the environment.
Sec. 30. Temporary restraining orders and injunctions. -  Republic Act No. 
8975 (An act to ensure the expeditious impiementation and compietion of 
Government infrastructure projects by prohibiting lower courts from issuing 
temporary restraining orders, preliminary injunctions, or preliminary mandatory 
injunctions, providing penaities for violations thereof, and for other purposes) 
shali apply to projects pursuant to a Contract under this Act and such projects 
shaii be deemed as "national government projects" for the purpose of RA No. 
8975.
Sec. 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
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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 personnei and cargo required for 
Petroleum Operations in an offshore location, resuppiy, 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.
Sec. 32. Allocation o f Government Share. -  The Government Share as 
referred to in Section 9 shali 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.
Sec. 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 ruies 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
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obligations of the relevant parties, including the obligation to coordinate their 
respective operations to the extent practicable.
Sec. 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.
Sec. 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.
Sec. 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
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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 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.
Sec. 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.
Sec. 38. Non-impairment o f 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
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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.
Sec. 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.
Sec. 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.
Sec. 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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