SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First RegUlar Session 
) 
SENATl? 
1'; I,) <1') 
S. B. No. ,:.,) {~ 
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 npstream 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 hyrocarbon 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 fUlther interest and 
encourage more drilling activity in the country. 
I 


, 
' 
<-
In view of the foregoing, the timely passage ofthis bill is earnestly recommended, 
~' 
MARIA LOfrwn~, 
BINAY 
Senator 


SIXTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regula.' Session 
) 
SENATE 
S. B. No. 232 
Int"oduced by Senator Maria LOIII'des Nancy S. Binay 
I 
AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF 
2 
INDIGENOUS PETROLEUM AND FOR OTT-IER PURPOSES 
3 
4 
Be it enacted by the Senate ({nd House of Representatives of the Philippines III 
5 
Congress m,~embled: 
6 
7 
SECTlON 1. Short Title. This Act shall be known and may be cited as "The 
8 
Petroleum Fxploration and Development Act of2013." 
9 
10 
SECTION 2. Declaratioll (if Policy. All petroleum resources in public and private 
11 
lands within the territory and exclusive economic zone of the Republic of the 
12 
Philippines are owned by the State.! It is hereby declared to be the policy of the State' 
13 
(a) to ensure a continuous, adequate, and economic supply of energy with the end in 
14 
view of ultimately achieving self-reliance in the country's energy requirements 
15 
through the integrated and intensive exploration, production, management, and 
16 
development of the country's indigenous petroleum resources
2
; (b) to' hasten the 
17 
discovery and production of indigenous petroleum through the utilization of 
18 
government and/or private resources, local and foreign under the arrangements 
19 
embodied in this Act which are calculated to yield the maximum benefit to the 
20 
Filipino people and to assure just returns to participating private enterprises, 
21 
particularly those that will provide the necessary financing, technology and services 
22 
and fully assume all exploration risks; (c) to attract foreign capital and expertise by 
23 
providing meaningful incentives that are competitive with the fiscal and other terms 
24 
offered by other countries in the Asia-Pacific region; (d) to revitalize and encourage 
25 
more exploration activities in the Philippines; and (e) to rationalize and simplify the 
26 
regulatory framework governing exploration and production investment and activities 
27, 
in the Philippines. 
28 
29 
SECTION 3. Definition o.fterms. As used in this Act, the following terms shall have 
30 
the following meanings' 
31 
32 
(a) 
"Affiliate" means (i) a company in which a Contractor holds directly or 
33 
indirectly at least fifty percent (50%) of its outstanding shares entitled to vote; 
34 
(ii) a company which holds directly or indirectly at least fifty percent (50%) of 
-------_._---
1 Sec 2, RA 7942, Mining Act of 1995 
2 Sec 2. RA 7638, Deparlmenl of Energy Act of 1992. 


1 
the Contractor's outstanding shares entitled to vote; or (iii) a company in which 
2 
at least fifty percent (50%) of its share outstanding and entitled to vote are 
3 
owned by a company which holds directly or indirectly at least fifty percent of 
4 
the shares outstanding and entitled to vote ofthe Contractor. 
5 
6 
(b) 
"Associated Gas" means all gaseous hydrocarbons produced in association with 
7 
Crude Oil from oil reservoirs, including residue gas remaining after the 
8 
extraction of liquid hydrocarbons therefrom. 
9 
I 0 
(c) 
"Barrel" means 42 U.S. gallons or 9702 cubic inches at a temperature of Sixty 
II 
degrees Fahrenheit (60°F). Any references in this Act to the value of any Crude 
12 
Oil at the Market Price shall be construed as a reference to the amount obtained 
13 
by multiplying the number of Barrels of that Crude Oil by Market Price per 
14 
Barrel applicable to that Crude Oi\. 
15 
16 
(d) 
"Calendar Year" means a period of twelve (12) consecutive months 
17 
commencing with January 1 and ending on the following December 31. 
18 
19 
(e) 
"Casinghead Petroleum Spirit" means any hydrocarbons, including condensate, 
20 
existing in liquid form at a temperature of sixty degrees Fahrenheit (60°F) and at 
21 
an atmospheric pressure of 14.65 PSIA, which are obtained from Natural Gas at 
22 
the well head or by separation or by any cbemical or pbysical process or ethane, 
23 
propane, and butane produced by gas processing. 
24 
25 
(f) 
"Coal Bed Methane" means natural (hydrocarbon) gas with methane gas as its 
26 
main component naturally brought about in the coalification process in trapped 
27 
and absorbed condition in coal andlor coal layers. 
28 
29 
(g) 
"Coal Bed Methane Contract" means a Contract for the exploration and 
30 
development of a Coal Bed Methane area under this Act. 
31 
32 
(h) 
"Contract" or "Service Contract" refers to a contract entered into by the 
33 
Government and a Contractor in accordance with this Act 
including any 
34 
exhibits and attachments. 
35 
36 
(i) 
"Contract Area" or "Area" means, at any time, the area within the sovereignty 
37 
or jurisdiction of the Republic of the Philippines which is the subject of a 
38 
Service Contract. 
39 
40 
0) 
"Contractor" means the contractor in a Service Contract whether acting alone 
41 
I or in consortium with others. 
42 
43 
(k) 
"Contractor Share" shall have the meaning set forth in Section 9(0). 
44 
(I) 
"Cross Recovery" means that the Operating Expenses incurred by a Deepwater 
45 
Contractor or its Affiliate in two or morc Areas under different Deepwater 
46 
Contracts and the Operating Expenses it incurred in the drilling of Deepwater 
47 
WeHs may be recovered from the Gross Income resulting from the sale of the 
48 
Petroleum produced within anyone or more of the Deepwater Contracts, as if 
49 
they are covered by a single contract. 
50 


1 
(m) "Crude Oil" or "Crude" means oil in its natural state before tbe same has been 
2 
refined or otherwise treated. It does not include oil produced through destructive 
3 
distillation of coal, bituminous shales or other stratified deposits, either in its 
4 
natural state or after the extraction of water, and sand or other foreign 
5 
substances therefrom. 
6 
7 
(n) 
"Date of Commencement of Commercial Production" means the date of 
8 
commencement of production of Crude Oil and/or Natural Gas from any Oil 
9 
Field and Gas Field determined and announced by the Department and the 
10 
Contractor in accordance with the provisions of the Contract on determination 
I I 
of commerciality, excluding production from an extended well test or drill stem 
12 
test. 
13 
14 
(0) 
"Department" means the Department of Energy created under Republic Act No. 
15 
7638. 
16 
17 
(p) 
"Department Secretary" means the Secretary of Energy. 
18 
19 
(q) 
"Deepwater Contract" means a Contract that as of its effective date at least 
20 
eighty five percent (85%) of the total contract area are in water depths greater 
21 
than 200 meters, notwithstanding any subsequent reduction of the contract area 
22 
in water depths greater than 200 meters arising from relinquishment or other 
23 
reduction perm itted under the Contract. 
24 
25 
(r) 
"Deepwater Contractor" means the Contractor m a Deepwater Contract, 
26 
whether alone or in consortium with others. 
27 
28 
(s) 
"Deepwater Well" refers to a well drilled on water depths greater than 200 
29 
meters. 
30 
31 
(t) 
"Development Cost" means costs incurred by the Contractor for Development 
32 
Operations. 
33 
34 
(u) 
"Development Operations" means operations carried out for the realization of 
35 
Petroleum production from the date of approval by the Department of the 
36 
Overall Development Program for any Oil Field and/or Gas Field including 
37 
design, construction, installation, drilling, and related research work as well as 
38 
relevant activities carried out before the Date of Commencement of Commercial 
39 
Production for the realization of Petroleum production. 
40 
41 
(v) 
"Exploration Cost" means costs incurred by the Contractor for Exploration 
42 
Operations. 
43 
44 
(w) 
"Exploration Operations" means operations carried out for the purpose of 
45 
discovering Petroleum-bearing traps by means of geological, geophysical, 
46 
geochemical and other methods including exploratory well drilling; all the work 
47 
undertaken to determine the commerciality of traps in which Petroleum has 
48 
been discovered including appraisal well drilling and feasibility studies, 
49 
formulation of the Overall Development Program; and activities related to all 
50 
such operations, including any work done prior to approval of the Overall 


I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
IS 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
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). 
I 
(y)l" 
"Facilities" means all property of every kind, nature and des(,ription taken over, 
appropriated or otherwise acquired under or for the purpose of Petrolewn 
Operations. 
(z) 
"Filipino Participation Incentive Allowance (FPIA)" means the allowance 
which may be given a Contractor with Filipino participation as provided in 
Section II hereof. 
(aa) "Foreign Exchange" means any currency other than that of tbe Republic of the 
Philippines wbich is freely convertible into gold or currencies eligible to form 
part of the country's international reserves and is acceptable to tbe 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 witbin 
associated traps of tbe same independent geological structure, including gas 
caps, which mayor may not be complicated by faulting, and which has 
commercial value determined in accordance witb the procedures stipulated in 
the Contract. 
(cc) "Government" means the Government ofthe Republic of the Philippines. 
(dd) "Government Share" shaH 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 fTom one or more of 
the Petroleum Operations of the Contractor. 
(ff) 
"Investment Promotion Period" means the period within ten (l0) 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 Liquified Natural Gas. 
(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,OOO)]. 
"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. 
' 


I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
II 
12 
13 
14 
IS 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
OJ) 
"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. 
(ll) 
"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. 
(00) "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. 
(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 necessarily 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 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. 
"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 bc limited to, recoverable 
reserves, the development well pattern, master design, production profile, 


I 
economic analysis and time schedule of the Development Operations, 
2 
abandonment and decommissioning. 
3 
4 
(ss) "Petroleum" means any Crude Oil or mineral oil, Natural Gas or hydrocarbon 
5 
gas, Coal Bed Methane, condensate, Casinghead Petroleum Spirit, bitumen, 
6 
asphalt, mineral gas, and all other similar or naturally associated substances 
7 
with the exception of coal, peat, bituminous shale and/or other stratified mineral 
8 
fuel deposits. 
9 
10 
(ttY 
"Petroleum In Commercial Quantity" means Petroleum in such quantities which 
11 
will permit its being economically developed, either on its own or in 
12 
combination with other existing and/or future discoveries of Petroleum, as 
13 
determined by the Contractor and approved by the Department after taking into 
14 
consideration the location of the Petroleum reserves, the depths and number of 
15 
wells required to be drilled, and the transport and terminal facilities needed to 
16 
utilize the Petroleum which has been discovered. 
l7 
l8 
(uu) "Petroleum Operations" means searching for and obtaining Petroleum within 
19 
the Philippines through drilling and natural flow or suction or the like, and all 
20 
other operations incidental thereto. It includes the treatment, processing, 
21 
transportation (including transportation by pipeline), storage, handling and sale 
22 
(whether for export or domestic consumption) of Petroleum so obtained but 
23 
does not include any: (i) transportation of Petroleum outside the Philippines; (ii) 
24 
processing or refining of Crude Oil at a refinery; or (ii) any transaction in the 
25 
Crude Oil products so refined. It includes transportation of Petroleum up to 
26 
delivery point to the buyer(s) thereof, and the facilities upstream of said delivery 
27 
point(s) for the extraction of such Petroleum as described in the applicable 
28 
Overall Development Plan. Subject to the approval of the Department and to 
29 
terms as may be agreed between the Government and the Contractor, such 
30 
Contractor may construct, install and operate facilities (whether otfshore and/or 
31 
onshore) to process the Natural Gas from the Contract Area into LNG, and to 
32 
store, transport, dispose and/or export such LNG, as part of Petroleum 
33 
Operations. 
34 
35 
(vv) "Philippine Contractor" means a Contractor that is a Philippine Corporation or a 
36 
consortium wherein Philippine Corporations hold at least sixty percent (60%) of 
37 
the participating interest as defined in the joint operating agreement governing 
38 
the consortium. 
39 
40 
(ww) "Philippine Corporation" means a corporation organized and existing under 
41 
Philippine laws at least sixty percent (60%) of the capital of which is owned and 
42 
held by Filipino citizens and/or other Philippine Corporations. 
43 
44 
(xx) "Philippine Income Tax" means all taxes imposed by the National Internal 
45 
Revenue Code of the Philippines or equivalent legislation, as may be amended 
46 
from time to time, upon taxable corporate income, including withholding taxes 
47 
on dividends and distribution or remittances or profit to Contractor's parent 
48 
company or companies, or to Contractor's bead office if the Contractor is a 
49 
branch ofa foreign company, or to Contractor's shareholders. 
50 


I 
2 
3 
4 
5 
6 
7 
8 
9 
LO 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
(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) "President" means the President of the Philippines. 
(aaa) "Production Area" means that portion or portions of the Contract Area where 
reservoirs containing Petroleum Tn 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 that 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" sball have the meaning set forth in Section 6 hereof 
I 
(frf) "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 (Pl,OOO,OOO,OOO). 


I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
1J 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
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 
(b) 
(c) 
(d) 
I 
(e) 
(f) 
recommendation ofthe Department. 
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. 
The President shall notifY Congress of every Contract entered into within thirty 
days from the execution thereof. 
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 negotiation. 
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) conduct negotiations 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 10 the implementation of Section 5 (e) 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? 
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) 
(c) 
the Contractor provides the necessary financing, technology and services 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 
the Government receives a stipulated share of the Net Proceeds from the 
Petroleum produced under the Contract. 
3 Sec Scction 6 and 7, House Bill No. 3019, Oil and Gas Act of 2004. 


J 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
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. Obligations 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) 
(b) 
(c) 
(d) 
(e) 
(f) 
(g) 
(~) 
(i~ 
Gl 
(k) 
(1) 
Provide the necessary services and technology; 
Provide the requisite financing; 
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; 
Once Petroleum in Commercial Quantity is discovered, operate the field on 
behalf of the Government in accordance with accepted good oil field practice 
using 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; 
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; 
Furnish the Department promptly with geological and other information, data 
and reports which it may require; 
Maintain detailed technical records and accounts of its operations; 
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; 
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; 
Allow examiners of the Bureau of Internal Revenue and other representatives 
authorized by the Department full access to their accounts, books and records, 
fortax and other fiscal purposes; 
Be subjecl to Philippine Income Tax; 
After commercial production of Petroleum commences in the Contract Area, to 
supply from Contractor's and Government's shares in such production, a 


I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
II 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
pOltion of the domestic requirements of the Philippines on a prorata 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 required for domestic conswnption by the ratio of 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 expOlt such Petroleum if domestic buyers are not willing or are otherwise 
unable to timely purchase tbe Petroleum or to timely pay tbe Market Price 
therefore. 
On the other band the Department shall: 
1. 
Reimburse tbe Contractor for all Operating Expenses not exceeding the 
percentage of the Gross Income as provided in Section 9 (I) hereof; Provided, 
That if in any year the Operating Expenses exceeds the allowable percentage of 
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) 
bereof. 
Rdimbursement of Operating Expenses and payment of the FPIA, Cross-Recovery 
and tbe service fee shall be in sucb form and manner as provided in the Contract. 
SECTION 9. Minimum terms and conditions. 
In addition to those elsewhere 
provided in this Act, every Contract executed in pursuance hereof shall contain tbe 
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 tbe discovery of Petrolewn 
in Commercial Quantity not less tban the amounts provided for in the Contract 
between tbe Government and the Contractor and these amounts shall not be less 
than the total obtained by multiplying the number of hectares covered by tbe 
Contract by the following amounts per hectare: 
PERJOD 
ONSHORE 
OFFSHORE 
Year I 
P 15.00 
P 15.00 
Year 2 
15.00 
15.00 
Year 3 
15.00 
30.00 
Year 4 
15.00 
30.00 
Year 5 
15.00 
30.00 
Year 6 
45.00 
90.00 
Year 7 
45.00 
90.00 
Year 8 
45.00 
90.00 
Year 9 
45.00 
90.00 
Year 10 
45.00 
90.00 


I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
II 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
(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 srent within anyone 
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 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 effective date, it should in respect of the abandoned area pay 
the Government the amount it should have spent, hut did not, for exploration 
work during said two (2) years, for which payment, among other ohligations, 
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 he 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 be surrendered 
hereunder. 
(d) 
The Contractor shall, after the discovery of Petroleum in Commercial Quantity, 
delineate the Production Area witbin the period agreed upon in the Contract. 
(e) 
The Exploration Period under every Contract shall be seven (7) years which 
may consist of suh-phases as defined in the Contract, extendible for three (3) 
years if the Contractor has not heen 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 
requests 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) pcr 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. 
(d 
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 


I 
(I) year Exploration Period and for an additional period of twenty-five (25) 
2 
years, thereafter renewable for a period not exceeding fifteen (15) years under 
3 
such terms and conditions as may be agreed upon by the Government and the 
4 
Contractor at the time of renewal. 
5 
6 
(g) 
Other than assets leased from third parties, the Contractor shall own the 
7 
materials, equipment, plants and other installations purchased, installed andlor 
8 
constructed for the Petroleum Operations, whether such assets are movable or 
9 
immovable in nature, and whether located within or outside of the Contract 
10 
Area. The Contractor shall transfer possession and ownership of fully cost 
I I 
recovered assets, as is, upon termination of the Contmct or within the period 
12 
agreed by the Government and the Contractor, Provided, 
that in case the 
13 
Department does not elect to possess certain assets which have been fully cost 
14 
recovered, the Contractor shall to the extent required under the Overall 
15 
Development Plan· remove or dispose the relevant assets within one year from 
16 
the termination of the Contract, or within the period agreed by the Goverrnnent 
17 
and the Contractor, PrOVided, further that the Contractor shall have the right to 
18 
continue to use the aforementioned assets until it has concluded its use of them 
19 
in accordance with obligations under the Contract. 
20 
21 
22 
(h) 
The Contractor shall be responsible for the decommissioning of the Facilities 
23 
and as part of the Overall Development Program the Contractor shall define a 
24 
decommissioning plan as well as a process to determine provisions for future 
25 
abandonment costs. In respect of Facilities located offshore the means and 
26 
methods of decommissioning shall be consistent with Article 60(3) of the 1982 
27 
United Nations Convention on the Law of the Sea and the "Guidelines and 
28 
Standards for the Removal of Offshore Installations and Structures on the 
29 
Continental Shelf and in the Exclusive Economic Zone" is~ued in 1989 by the 
30 
rnternational Maritime Organization. 
The decommissioning plan shall 
31 
incorporate the following principles: (i) the decommissioning plan shall make 
32 
provision for the cost of decommissioning; (ii) the Contract may provide for the 
33 
creation of a decommissioning fund; (iii) costs incurred by the Contractor for 
34 
decommissioning including payments to the decommissioning fund shall be cost 
35 
recoverable; (iv) the Contractor may be required to provide security to ensure 
36 
conipliance with its decommissioning obligations; and (v) the Department may 
37 
elect to take over the Facilities in which event the decommissioning fund shall 
38 
be transferred to the Department and the Contractor shall be relieved of any 
39 
further liability for decommissioning the Facilities. 
40 
41 
(i) 
The Contractor shall be subject to the provisions of laws of general application 
42 
relating (0 labor, health, safety and ecology insofar as they are not in conflict 
43 
with the provisions otherwise contained in this Act. The Contractor shall be 
44 
responsible to take measures to manage the health, safety and environmental 
45 
risks arising from the conduct of Petroleum Operations, and should have the 
46 
ability to prevent and respond to critical events. 
47 
48 
(j) 
Every Contract executed in pursuance of this Act shall contain provisions 
49 
regarding the discovery, production, sale and disposal of Natural Gas and 
50 
Casinghead Petroleum Spirit that shall be in line with the rules herein prescribed 


I 
for Cl'llde Oil except that; (1) the Market Price shall be the basis for tax and all 
2 
other purposes; and (2) after meeting any requirements in secondary recovery 
3 
operations priority shall be given to supplying prospective demand in the 
4 
Philippines. 
5 
6 
(k) 
A Contractor shalI be exempt from all national and 
local taxes, except 
7 
Philippine Income Tax. 
8 
9 
(I) 
In each Calendar Year, the Contractor shall recover from the Gross Income an 
10 
amount equal to all unrecovered Operating Expenses; Provided, that the amount 
11 
so recovered shall not exceed eighty percent (80%) of the Gross Income in any 
12 
Calendar Year; Provided further, that if in any Calendar Year, the unrecovered 
I3 
Operating Expenses exceed eighty percent (80%) of the Gross Income, or there 
14 
is no Gross Income, then the unrecovered Operating Expenses shall be 
15 
recovered from the Gross Income in the succeeding Calendar Year(s); Provided 
16 
further, that after the first three Calendar Years of commercial production the 
17 
percentage of Operating Expenses that can be recovered from Gross Income 
18 
shall be reduced to seventy percent (70%). Reimbursement of the Contractor's 
19 
Operating Expenses includes amortization, depreciation and interest as provided 
20 
hereunder. In the recovery of Operating Expenses, the first to be recovered shall 
21 
be the Operating Cost followed by the Exploration cost then the Development 
22 
Cost. Tangible Exploration Costs such as capital assets may, at the option of 
23 
Contractor, be depreciated for a period of tbree (3) years under the straight line 
24 
or double declining method. Intangible Exploration Costs may be recovered in 
25 
full during the Calendar Year they are incurred. 
26 
27 
(m) CrOSS-Recovery of Operating Expenses set forth in this section shall be allowed 
28 
for Deepwater Contracts that hecome effective during the Investment Promotion 
29 
Period. A Deepwater Contractor shall be entitled to the Cross Recovery of the 
30 
Operating Expenses (including but not limited to the drilling of Deepwater 
31 
Wells) incurred in two or more Areas under different Deepwater Contracts, as 
32 
if they are covered by a single Contract. Operating Expenses incurred by a 
33 
Deepwater Contractor before the Date of Commencement of Commercial 
34 
Production shall be cross-recoverable starting on the said date. The following 
35 
shall be cross-recoverable: (i) the entire amount of Operating Expenses incurred 
36 
within ten (10) years before the Date of Commencement of Commercial 
37 
Production; and (ii) Operating Expenses incurred more than ten (10) years 
38 
before the Date of Commencement of Commercial Production shall be reduced 
39 
by an amount equal to twenty percent (20%) for each year beyond ten (10) years 
40 
before the Date of Commencement of Commercial Production. 
Operating 
41 
Expenses of Deepwater Contracts under this Act may be cross-recovered from 
42 
the gross income of a service contract executed under Presidential Decree No. 
43 
87 wbich meets tbe defmition of a Deepwater Contract. If the Contractor is a 
44 
consortimll then Cross Recovery shall apply mutatis mutandis to a member of 
45 
consortium holding an interest in two or more Areas under different Deepwater 
46 
Contracts. The manner for claiming, computing, and paying Cross Recovery 
47 
shall be stipulated in the Contract. 
48 
49 
(n) 
The Contractor's service fee sball be equal to forty percent (40%) of the Net 
50 
Proceeds from Petroleum Operations during a CaJendar Year ("Contractor 


I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
II 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
Share"), Provided, that in the case of a Deepwater Contract or M<uor 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 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. 
(0) 
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 the 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 heneath 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 t1fty thousand 
(50,000) nor more than seven hundred and t1fty thousand (7S0,000) hectares for 
onshore areas, or less than eighty thousand (80,000) nor more than one million five 
hundred thousand (I,SOO,OOO) 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 (IS%), the Government may grant the Contractor an 
allowance commensurate with the scope of Filipino participation, not exceeding seven 
and one half percent (7.S%) ofthe Gross Income. 
SECTION 12. Transfer and assignment. The rights and obligations under a Contract 
e~ecuted under this Act shall not be assigned or transferred without the prior approval 
OD the Department; Provided, That with respect to the transfer or assignment of 
contractual rights and obligations under this Act to an Aft1liatc 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; 
(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 


I 
by the Contractor or its Sub-Contractors in Petroleum Operations, subject to the 
2 
following conditions: (i) that said machinery, equipment, spare parts and 
3 
materials of comparable price, quality and quantity 
are not manufactured 
4 
domestically nor readily available to Contractor or its Sub-Contractor(s) within 
5 
the same or better time frame; and (ii) said machinery, equipment, spare parts 
6 
and materials are directly and actually needed and will be used exclusively by 
7 
the Contractor or Sub-Contractor for Petroleum Operations and are covered by 
8 
shipping documents in the name of the Contractor to whom the shipment will be 
9 
delivered directly by the customs authorities; and (iii) the prior approval of the 
10 
Department was obtained by the Contractor before the importation of such 
II 
machinery, equipment, spare parts and materials which approval shall not be 
12 
unreasonably withheld; Provided, however, if the Contractor or its Sub-
13 
Contractor(s) sell, transfer or dispose of such machinery, equipment, spare parts 
14 
and materials in the Philippines without the prior approval of the Department 
15 
the Contractor shall pay twice the amount of tax exemption granted on the item 
16 
sold, transferred or disposed; Provided finally, that the Department shall allow 
17 
and approve sale, transfer, or disposition of the said items without tax if made 
18 
(1) to another Contractor; (2) for reasons of technical obsolescence; or (3) for 
19 
purposes of replacement to improve and/or expand the Petroleum Operations of 
20 
the Contractor; 
21 
22 
(c) 
Exemption from the posting of a performance or surety bond during the period 
23 
of Production Operations under the Contract; 
24 
25 
(d) 
Exemption upon approval by the Department from laws, regulations and/or 
26 
ordinance restricting (I) the construction, installation and operation of power 
27 
plants for the exclusive use of the Contractor if no local enterprise can supply 
28 
within a reasonable period and at reasonable cost the power needed by the 
29 
Contractor in its petroleum operations, and (2) the exportation of machinery, 
30 
equipment, spare parts and materials which were imported solely for the 
31 
Contractor's Petroleum Operations when no longer needed therefore; 
32 
33 
(e) 
Exemption from publication requirements under Republic Act No, 5455 
34 
otherwise known as the "Foreign Business Regulation Act"; 
35 
36 
(f) 
Exemption from the investment requirements of foreign corporations under 
37 
Section 126 in relation to Section 148 of the Corporation Code of the 
38 
Philippines; 
39 
40 
(g) 
EXpoltation of Petroleum subject to the obligation to supply a portion of 
41 
domestic requirements as provided in Section 7(1); 
42 
43 
(h) 
Entry, upon the sale approval of the Department which shall not be 
44 
unreasonably withheld, of foreign nationals for technical and specialized 
45 
positions (including their spouses and unmarried children below twenty one 
46 
(21) years of age), who may exercise their professions solely for the operations 
47 
of the Contractor as prescribed in its Contract with the Government under this 
48 
Act; Provided, That if the employment or cOl1l1ection of any such foreign 
49 
national with the Contractor or Sub-Contractor ceases, the applicable laws and 
50 
regulations on immigration shall apply to said foreign national and the members 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
of the family; Provided, further That Filipinos shall be given preference to 
positions for which they have adequate training and experience; and Provided, 
rinally, That the Contractor shaH 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 bc permitted to enter and 
reside in the Philippines during the period of employment of such foreign 
nationals. They shaH 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, thcn 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 
(i) 
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 he 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 (h) 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 fi'om 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 
fa~orable to contractor than those available to any other purchaser of such currency. 
S~CTION 15. Arbitration. The Department may stipulate in a C~ntract 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. 


1 
SECTION 17. Implementing Agency and Inter-Agency Committee. The Department 
2 
of Energy is designated as the implementing agency of this Act. 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
(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-Chari), the Bureau of 
Customs, the Bureau of Immigration, the Philippine Coast Guard, and the 
National Quarantine Office. 
14 
. (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. 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
(cl 
(d) 
Additional inter-agency committees - The Department may establish such other 
inter-agency committees as may be required facilitate the implementation of this 
Act and to facilitate cooperation and the sharing of resources and information 
among the relevant Government agencies. 
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: 
33 
(a) 
Promulgate and issue rules and regulations implementing the provisions of the 
34 
Act; 
35 
36 
(b) 
Prescribe appropriate forms, documentary requirements, and fees for the 
37 
processing of applications or the provision of administrative services under the 
38 
Act; 
39 
40 
(c) 
Define areas that are available for Contracts and to give wide publicity to any 
41 
notice or invitation to bid for such Contracts consistent with the best interest of 
42 
the Government; 
43 
44 
(d) 
Conduct investment promotion programs for domestic and international 
45 
investors in coordination with the Department of Trade and Industry; 
46 
47 
(e) 
Provide Contractors and potential investors with updated information and 
48 
authoritative resources regarding the permits, approvals and other requirements 
49 
for investments under this Act and for conducting Petroleum Operations; 
50 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
J9 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
(f) 
(h) 
(i) 
(j) 
(k) 
(I) 
(m) 
(n) 
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; 
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; 
Provide for the manner and form of the payment of Philippine Income Tax, the 
reimbursement of Operating Expenses, Cross-Recovery, the payment of the 
Go\'ernment Share and Contractor's service fee, and other payments pursuant to 
the applicable Contract; 
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; 
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; 
Conduct programs to control marine polJution 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; 
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; 
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; 
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 SUppOlt 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; 


I 
(0) 
Submit an annual report to the President and Congress on the activities and the 
2 
accomplishments of the Department to implement the Act; and 
3 
4 
(p) 
Perform such other functions and responsibilities as may be directed by the 
5 
President and to exercise all powers necessary or incidental to attain the 
6 
objectives of this Act. 
7 
8 
SECTION 19. Imposition of Tax. The Contractor shall be liable each Taxable Year 
9 
for Philippine Income Tax under the provisions of the National Internal Revenue 
10 
Code and this Act. The Philippine Income Tax shall be part ofthe Government Share. 
11 
12 
SECTION 20. Taxable Net Income. The Taxable Net Income shall be equivalent to 
13 
the Contractor Share grossed-up lor the amount of Philippine Income Tax. 
14 
15 
SECTION 21. Tax return. Each corporation comprising the Contractor shall render to 
16 
the Department a return for each Taxable Year in duplicate in such form and manner 
17 
as provided by Philippine laws setting forth its Taxable Net Income. The Department 
18 
shall file the returns with the Commissioner of Internal Revenue or his deputies or 
19 
other persons authorized to receive such return within the period specified in the 
20 
National Internal Revenue Code and the Rules and Regulations promulgated 
21 
thereunder. 
22 
23 
SECTION 22. Payment of tax. The Department shall, on behalf of each corporation 
24 
comprising Contractor, pay from the Government Share of the Net Proceeds and 
25 
separately remit to the Bureau of Internal Revenue, all Philippine Income Tax based 
26 
on income or profit derived from Petroleum Operations under the Contract. The 
27 
Depattment shall separately remit such Philippine Income Tax to, and obtain separate 
28 
official receipts acknowledging payment of said taxes from, the proper Government 
29 
authority. The Department shall furnish to each of the corporations comprising the 
30 
C~ntractor their respective official receipts issued in their names. The Contractor's 
31 
liability for Philippine Income Tax in any Taxable Year shall not exceed the 
32 
Government Share, and the Contractor shall not be liable for the payment of any 
33 
Philippine Income Tax in excess of the Government Share. 
34 
35 
SECTION 23. 
Final income tax on Sub-Contractors. -
Every Sub-Contractor, 
36 
whether domestic or foreign, entering into a contract with a Contractor engaged in 
37 
Petroleum Operations in the Philippines shall be liable to a final income tax 
38 
equivalent to eight percent (8%) of its gross income derived from such contract, such 
39 
tax to be in lieu of any and all taxes, whether national or local: Provided, however, 
40 
that any income received from all other sources within and without the Philippines in 
41 
the case of domestic Sub-Contractors and within the Philippines in the case of foreign 
42 
Sub-Contractors shall be subject to the regular income tax imposed under the National 
43 
Internal Revenue Code. The term "gross income" means all income earned or received 
44 
as a result of the contract entered into by the subcontractor with a service contractor 
45 
engaged in petroleum operations in the Philippines under this Act. 
46 
47 
SECTION 24. Taxation of foreign nationals employed by Contractors and Sub-
48 
Contractors. Foreign nationals who are permanent residents of a foreign country but 
49 
who are employed and assigned in the Philippines by Contractors or by Sub-
50 
Contractors engaged in Petroleum Operations in the Philippines, shall be liable to a 


I 
final income tax equal to fifteen percent (15%) of the salaries, wages, annuities, 
2 
compensations, remunerations and emoluments received from such contractors or 
3 
subcontractors. Any income earned from all other sources within the Philippines by 
4 
the said alien employees shall be su~ject to the income tax imposed under the 
5 
National Internal Revenue Code. 
6 
7 
SECTION 25. Withholding of certain taxes. (a) Every Contractor shall deduct, 
8 
withhold, and pay the tax imposed under Section 23 from the amounts paid by 
9 
Contractor to the Sub-Contractor under the contract entered into by and between them 
10 
inlthe same manner and subject to the same conditions as provided in Section 26 of . 
11 
the National Internal Revenue Code. (b) Every Contractor shall also deduct, withhold 
12 
arid pay the tax imposed under Section 24 from the salaries, wages, annuities, 
13 
compensations, remunerations and emoluments paid to its foreign national employees 
14 
and the foreign nationals employed by its foreign Sub-Contractors in the same manner 
15 
and under the same conditions as provided in Section 26 of the National Internal 
16 
Revenue Code. (c) Every domestic Sub-Contractor shall deduct, withhold and pay the 
17 
tax imposed in Section 24 from the salaries, wages, annuities, compensations, 
18 
remunerations and emoluments paid to its foreign national employees in the same 
19 
manner and under the same conditions as provided in Section 26 of the National 
20 
Internal Revenue Code. 
21 
22 
SECTION 26. Registration of Sub-Contracts. - All contracts entered into between 
23 
the Contractor and a Sub-Contractor engaged in Petroleum Operations in the 
24 
Philippines shall be registered with the Department. The cost of Su b-Contracts shall 
25 
be considered as part of reimbursable operating expenses of the Contractor under this 
26 
Act only if it is shown that the contract has been properly registered witb the 
27 
Department and the taxes due under this Act have been withheld and paid in 
28 
accordance with the provisions of Sections 26 ofthe National Internal Revenue Code. 
29 
30 
SECTION 27. Applicability of the provisions of the National Internal Revenue Code. 
31 
All provisions of the National Internal Revenue Code and the rules and regulations 
32 
promulgated in relation therewith that are not inconsistent with the provisions of this 
33 
Act shall be applicable to the Contractor. 
34 
35 
SECTION 28. Auxiliary Exploration and Development Rights. To facilitate the 
36 
efficient conduct of Petroleum Operations the Contractor shall have the following 
37 
rights: 
38 
39 
(a) Water Rights. - The Contractor shall have water rights for its Petroleum 
40 
Operations upon approval of application with the appropriate government agency in 
41 
accordance with existing water laws, rules and regulations promulgated thereunder: 
42 
Provided, That water rights already granted or vested through long use, recognized 
43 
and acknowledged by local customs, laws, and decisions of courts shall not thereby be 
44 
impaired: 
Provided, 
45 
further, That the Government reserves the right to regulate water rights and the 
46 
reasonable and equitable distribution of water supply so as to prevent the monopoly of 
47 
the use thereof. 
48 
49 
(b) Right to Possess Explosives. - The Contractor shall have the right to possess and 
50 
use explosives within his contract area as may be necessary for his Petroleum 


I 
Operations upon approval of an application with the appropriate government agency 
2 
in accordance with existing laws, rules and regulations promulgated thereunder: 
3 
Provided, That the Government reserves the right to regulate and control the 
4 
explosive accessories to ensure safe mining operations. 
5 
6 
(c) Easement Rights. - When the Contract Area is so situated that for purposes of 
7 
more convenient Petroleum Operations it is necessary to huild, construct or install on 
8 
the area or lands owned, occupied or leased hy other persons, such infrastructure as 
9 
roads, warehouses, staging or storage areas and port facilities, tramways, runways, 
10 
airports, electric transmission, telephone or telegraph lines, sites for water wells, 
II 
ditches canals, pipelines, etc., the Contractor, upon payment of just compensation 
12 
shall be entitled to enter and occupy said areas or lands. 
13 
14 
(d) Entry into Private Lands and Concession Areas. - Subject to prior notification, the 
15 
Contractor shall not be prevented from entry into private lands and concession areas 
16 
by surface owners, occupants, or concessionaires when conducting Petroleum 
17 
Operations therein: Provided, That any damage done to the property of the surface 
18 
owner, occupant, or concessionaire as a consequence of such operations shall be 
19 
properly compensated as may be provided for in the implementing rules and 
20 
regulations: Provided, further, That to guarantee such compensation, the Contractor 
21 
authorized to conduct Petroleum Operations shall, prior thereto, post a bond with the 
22 
Department based on the type of properties, the prevailing prices in and around the 
23 
area where the Petroleum Operations are to be conducted, with surety or sureties 
24 
satisfactory to the DepaItment. 
25 
26 
SECTION 29. Safety and Exclusion Zones. 
The President may establish and 
27 
reserve certain lands, waters, submerged lands, foreshore areas, and air space as 
28 
safety and exclusion zones in order: (a) to protect public health, safety and the 
29 
environment; (b) to secure vital infrastructure used in Petroleum Operations from 
30 
damage; and (c) to prevent disruptions in the availability of Petroleum. 
The 
31 
Department may prohibit celtain activities in such safety and exclusion zones 
32 
without its prior authorization, including but not limited to: (a) trawl fishing or other 
33 
fishing methods which involve the use of weights, anchors or similar devices on the 
34 
sehbed; (b) anchoring; (c) use of and/or dumping of explosives; Cd) drilling, 
35 
c~nstruction or the installation of submarine pipelines or cable; and (e) similar 
36 
activities which may pose a potential risk to the Petroleum sand to public health, 
37 
safety and the environment. 
38 
39 
SECTION 30. Temporary restraining orders and injunctions. Republic Act No. 
40 
8975 (An act to ensure the expeditious implementation and completion of 
41 
Government infrastructure projects by prohibiting lower courts from issuing 
42 
temporary restraining orders, preliminary injunctions, or preliminary mandatory 
43 
injunctions, providing penalties for violations thereof, and for other purposes) shall 
44 
apply to projects pmsuant to a Contract under this Act and such projects shall be 
45 
deemed as "national government projects" for the purpose ofRA No. 8975. 
46 
47 
SECTION 31. Vessels used for Petroleum Operations. Foreign-owned or foreign-
48 
registered Special Purpose Vessels used by Contractors for Petroleum Operations 
49 
shall not be deemed to be public or common carriers engaged in domestic trade or 
50 
coastwise trade and are exempt from the requirement to obtain a certificate of 


1 
Philippine registry under Presidential Decree No. 761 and related laws and issuances, 
2 
subject to the following conditions: (a) the Special Purpose Vessel is used exclusively 
3 
[or Petroleum Operations by one or more Contractors and its use by the Contractor for 
4 
a specified duration has been approved by the Department; (b) vessels of similar 
5 
specifications and capacity are not locally available at competitive price; (c) the 
6 
Special Purpose Vessel is not used in the business of carrying passengers and general 
7 
cargo from port to port in the Philippines; (d) the Special Purpose Vessel enters 
8 
Philippine ports principally for the purpose of transporting personnel and cargo 
9 
required for Petroleum Operations in an offshore location, resupply, refueling, repair 
10 
or maintenance, or if required, for the purpose of customs, immigration and 
11 
quarantine clearance. The Special Purpose Vessel may be manned or operated by 
12 
foreign andlor Filipino nationals. 
The Department and the Maritime Industry 
13 
Authority shall issue joint regulations prescribing a simplified procedure for the 
14 
issuance of permits for Special Purpose Vessels that will facilitate the efficient and 
15 
cost-effective conduct of Petroleum Operations. 
16 
I 
17 
SECTION 32. Allocation of Government Share. The Government Share as referred 
18 
tolin Section 9 shall be allocated in accordance with Sections 290 and 292 of Republic 
19 
Act No. 7160 otherwise known as the Local Government Code of 1991. In case 
20 
Petroleum Operations are undertaken by a government-owned or controlled 
21 
corporation, the sharing and allocation shall be in accordance with Sections 291 and 
22 
292 ofthe said Code. 
23 
24 
SECTION 33. Coal Bed Methane. The exploration and development of Coal Bed 
25 
Methane resources is subject to the provisions of this Act. In awarding contracts for 
26 
Coal Bed Methane areas, the Department may give preference to the holder of an 
27 
existing coal mining license or pennit issued pursuant to Republic Act No. 7942, that 
28 
meets the requirements under this Act or the applicable rules and regulations. The 
29 
Department and the Department of Enviromnent and Natural Resources shall issue 
30 
joint implementing rules and regulations governing areas where a Coal Bed Methane 
3 I 
Contract area overlaps with a coal mining license or permit area, specifying the 
32 
respective rights and obligations of the relevant parties, including the obligation to 
33 
coordinate their respective operations to the extent practicable. 
34 
35 
SECTION 34. Preference to Local Labor. The Contractor shall give priority in 
36 
employment to qualified personnel in the municipality or municipalities or province 
37 
where the Petroleum Operations are conducted. 
38 
39 
SECTION 35. Foreign Assistance. Nothing in this Act or of any other law shall 
40 
preclude the Government of the Republic of the Philippines, through the Department 
41 
or any other proper office or agency, from negotiation or entering into any agreement 
42 
with any foreign country or government for assistance in terms of equipment, 
43 
technical know-how and financing for the exploration and production of Petroleum. 
44 
45 
SECTION 36. Disputed Maritime Areas. Pending the resolution of disputes with 
46 
certain States in respect of maritime areas with known or potential Petroleum reserves 
47 
within the territory or exclusive economic zone of the Philippines, the Government 
48 
may consider, pursue and entcr into provisional arrangements consistent with Articles 
49 
74 and 83 of the 1982 United Nations Convention on the Law of the Sea. The 
50 
President upon the recommendation of the Secretary of Energy and the Secretary of 


1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
II 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
SO 
rJreign 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 arcas 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. 
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 Eleven. 
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 Decreee 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 
aJplication for conversion shall be submitted to the Department within eighteen (18) 
mpnths 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 (0 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, 


---------------- ------
I 
presidential decrees, executive orders and issuances, or any part thereof, which are 
2 
inconsistent herewith are hereby repealed, provided that no existing rights shall be 
3 
prejudiced thereby. 
4 
5 
SECTION 41. Effectivity Clause. This Act shall take effect upon its publication in the 
6 
Official Gazette or in at least one newspaper of general circulation. 
Approved,