CREATING THE PHILIPPINE NATIONAL OIL COMPANY, DEFINING ITS POWERS AND FUNCTIONS, PROVIDING FUNDS THEREFOR, AND FOR OTHER PURPOSES[]

WHEREAS, in spite of the planned accelerated power
development program using indigenous resources and the planned
institution of conservation measures, the country will still he highly
dependent on oil for a considerable length of time;

WHEREAS, it is imperative for the Government to take a more
active role in assuring adequate supply of oil by reducing the clement
of uncertainty on sources of crude oil supply;

WHEREAS, international political development in 1973 which
led to an oil situation of crisis proportions have emphasized the need
for such government activity; and

WHEREAS, there is a compelling need for the Government to
embark on measures which will help insure a stable supply of petroleum
products in order to sustain the growth of the economy and of the social
well-being of the nation;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution as
Commander-in-Chief of all the Armed Forces of the Philippines, and
pursuant to Proclamation No. 1081, dated September 21, 1972, and General
Order No. 1, dated September 22, 1972, as amended, do hereby order and
decree, as part of the law of the land, the following:

SECTION 1. Short Title. — This Decree shall be known
as the “Charter of the Philippine National Oil Company.”

SEC. 2. Declaration of Policy. — It is the declared
policy of the State to promote industrial and overall economic
development through the effective and efficient utilization of energy
sources, including oil and oil-based resources. In line with this
policy, the establishment of an organized entity is necessary in order
to assure adequate supply of oil and oil products to all users and
consequently to enable the unimpeded and efficient growth of the
economy.

SEC. 3. Creation, Name, Domicile and Term. — There is
hereby created a body corporate to be known as the Philippine National
Oil Company, hereinafter referred to as the “Company,” which shall
undertake and transact the corporate business relative primarily to oil
or petroleum operations as defined hereunder, and for that purpose, the
Company shall have capacity to sue and be sued.

“Oil or Petroleum Operation” shall include actual exploration,
production, refining, tankerage and/or shipping, storage, transport,
marketing, and related activities concerning oil and petroleum products.

The principal office of the Company shall be determined by its Board of
Directors. It may establish such offices, agencies, subsidiaries,
branches or correspondents in the Philippines or abroad as its business
operations would require.

The Company shall have a term of fifty
(50) years from the issuance hereof, which shall be deemed renewed for
an equal period unless sooner dissolved by law.

SEC. 4. Purposes.
— The Company shall have the following purposes:

(a) To provide and maintain an adequate and stable supply of
oil and petroleum products for the domestic requirement;

(b) To promote the exploration, exploitation and development of
local oil and petroleum sources; and
(c) To foster oil or petroleum operation conditions conducive to a
balanced and sustainable growth of the economy.

SEC. 5. Powers and Functions of the Company. — The
Company shall have the following powers and functions:

(a) To undertake, by itself or otherwise, exploration,
exploitation and development of all areas of oil or petroleum deposits
in the country, including surveys and activities related thereto;

(b) To establish, maintain, control and direct in any area
within the national territory as it may deem appropriate, a petroleum
base territory and construct install or maintain therein duty-free ports
adequate for the use of vessels engaged in off shore oil drilling
operations, airports sufficient for direct service flights,
telecommunications center and ship-to-shore communications facilities,
provide electric power and fresh water supply, and perform such other
acts as it may deem necessary and advantageous or convenient to such
operations;

(c) To lease, at reasonable rates, to private domestic entities
or persons such portion or portions of the petroleum base, including
facilities therein, under its administration, as may be necessary for
warehousing, logistical centers for the storage of oil drilling and oil
well supplies, fabrication of offshore drilling components and
structures, mechanical repair facilities and the like; spaces for the
office, habitation and recreational requirements of personnel directly
engaged in offshore oil drilling and in manning the various logistical
support operations and their immediate dependents;

(d) To undertake all other forms of petroleum or oil
operations;

(e) To enter into contracts, with or without public bidding,
with any person or entity, domestic or foreign, and with governments for
the undertaking of the varied aspects of oil or petroleum operation,
including the acquisition, by way of purchase, lease or rent or other
deferred payment arrangements of equipment and/or raw materials and
supplies, as well as for services connected therewith under such terms
and conditions as it may deem proper and reasonable;

(f) To borrow money from local and foreign sources as may be
necessary for its operations;

(g) To invest its funds as it may deem proper and necessary in
any activity related to oil or petroleum operations, including in any
bonds or securities issued and guaranteed by the Government of the
Philippines;

(h) To purchase, hold, alienate, mortgage, pledge or otherwise
dispose of the shares of the capital stock of, or any bond, security of
other corporations or associations of this or any other country; and
while the owner of said stock, to exercise all the rights of ownership,
including the right to vote thereon;

(i) To hold lands and acquire rights over mineral lands in excess
of the areas permitted to private corporations, associations and persons
by statute;

(j) To engage in export and import business of oil or petroleum
and its derivatives, as well as in related activities;

(k) To acquire assets, real or personal, or interests therein,
and encumber or otherwise dispose the same as it may deem proper and
necessary in the conduct of its business;

(l) Subject to existing regulations, if it deems necessary, to
establish and maintain such communication system, whether by radio,
telegraph or any other manner, without the need of a separate franchise
therefor;

(m) To determine its organizational structure, and the number and
salaries of its officers and employees;

(n) To establish and maintain offices, branches, agencies,
subsidiaries, correspondents or other units anywhere as may be needed by
the Company and reorganize or abolish the same as it may deem proper;

(o) To exercise the right of eminent domain as may be necessary
for the purpose for which the Company is created;

(p) Subject to payment of the proper amount, to enter private
lands for the purpose of conducting geological or geophysical studies in
connection with petroleum exploration and exploitation;

(q) To acquire easement over public and private lands necessary
for the purpose of carrying out any work essential to its petroleum
exploration and exploitation, subject to payment or reasonable
considerations;

(r) To establish and maintain a technical educational system for
the sustained development of the necessary manpower to manage and
operate its affairs and business;

(s) To adopt a code of by-laws to complement this Charter;

(t) To adopt and use a corporate seal which shall be
judicially noticed;

(u) To perform such acts and exercise such functions as may be
necessary for the attainment of the purposes and objectives herein
specified;

(v) To promulgate such rules and regulations as may be
necessary to carry out the purposes of this Decree; and

(w) To perform such other functions as may be provided by law.

SEC. 6. Governing Body. — The Company shall be
governed by a Board of Directors, hereinafter referred to as the “Board”
which shall be composed of seven (7) members, to be appointed by the
President of the Philippines. The members of the Board shall serve for a
term of three (3) years or until their successors shall have been
appointed and qualified. In case of any vacancy in the Board, the same
shall be filled by the President of the Philippines for the unexpired
term.

No person shall be appointed as member of the Board unless
he is a natural-born citizen of the Philippines, at least thirty-five
(35) years of age and of established integrity.

The Chairman of
the Board, as well as the President of the Company, shall be appointed
by the President of the Philippines. The other officers of the Company
shall be appointed by the Board.

SEC. 7. Capital Stock.
— The Company shall have a capital stock divided into three (3) million
no-par shares to be subscribed, paid for and be voted as follows:

(a) Two (2) million shares of stock shall be originally
subscribed and paid for by the Republic of the Philippines at an
original issue value of P50 per share; and

(b) The remaining one (1) million shares of stock may be
subscribed and paid for by the Republic of the Philippines or by
government financial institutions at values to be determined by the
Board, but in no case less than the original issued value above stated
to the Republic of the Philippines.

The voting power pertaining to shares of stock subscribed by the
Government of the Republic of the Philippines shall be vested in the
President of the Philippines or in such person or persons as he may
designate.

The voting power pertaining to shares of stock
subscribed by the government financial institutions shall be vested in
them.

SEC. 8. Duties and Responsibilities of the
President. — The President, who shall be the chief executive of the
Company, shall have the following duties and responsibilities:

(a) To prepare the agenda for the meetings of the Board, and
to submit for the consideration of the Board such policies and measures
as he believes necessary to carry out the purposes and objectives of
this Decree;

(b) To execute, administer and implement the policies and
measures approved by the Board;

(c) To direct and supervise the operations and administration
of the Company;

(d) To represent the Company in all dealings with other
offices, agencies and instrumentalities of the Government and with all
persons and other entities, public or private, domestic or foreign; and

(e) To exercise such other powers and perform such other duties
provided in the by-laws and as may be vested in him by the Board.

SEC. 9. Issuance of Bonds. — The Company, upon the
recommendation of the Secretary of Finance and with the approval of the
President, is hereby authorized to issue bonds or other securities,
whether tax-exempt or not, which may be guaranteed by the Government, to
finance its oil or petroleum operation.

SEC. 10. Legal Counsel. — The Secretary of
Justice shall be the ex officio legal counsel of the Company and he may
designate a representative for that purpose.

SEC. 11. Auditor. — The Commission on Audit shall
appoint, subject to the approval of the Board, a representative who
shall be the Auditor of the Company and such personnel as may be
necessary to assist said representative in the performance of his
duties. The salaries of the Auditor and his staff shall be approved by
the Board. The Auditors of corporations owned or controlled by the
Company shall be appointed by their respective boards of directors.

SEC. 12. Exemption from Civil Service Law. — The
officers and employees of the Company shall not be subject to the Civil
Service Law, rules and regulations, and shall likewise be exempt from
the regulations of the Wage and Position Classification Office.

SEC. 13. Loans. — The Company is hereby
authorized to contract loans, credits, any convertible foreign currency
or capital goods, and indebtedness from time to time from foreign
governments, or any international financial institutions or fund
sources, or any other entities, on such terms and conditions it shall
deem appropriate for the accomplishment of its purposes and to enter
into and execute agreements and other documents specifying such terms
and conditions.

The Republic of the Philippines, through the President of the
Philippines, or his duly authorized representative, may guarantee,
absolutely and unconditionally, as primary obligor and not as surety
merely, the payment of the loans, credits and indebtedness issued up to
the amount herein authorized, which may be over and above the amount
which the President of the Philippines is authorized to guarantee under
Republic Act Numbered Sixty-One Hundred Forty-two, as amended, as well
as the performance of all or any of the obligations undertaken by the
Company in the territory of the Republic of the Philippines pursuant to
loan agreements entered into with foreign governments or any
international financial institutions or fund sources.

SEC. 14.
Government Financial Institutions Guarantees. — The provision of
any law to the contrary notwithstanding, any financial institution
owned or controlled by the Government of the Republic of the
Philippines, other than the Central Bank, Government Service and
Insurance System and the Social Security System, is hereby empowered to
guarantee acceptance credits, loans, transactions, undertakings, or
obligations of any kind which may be incurred by the Company, whether
directly or indirectly, in favor of any person, association or entity,
whether domestic or foreign.

SEC. 15. Privileges and Incentives. — The
Company shall be entitled to all the incentives and privileges granted
by law to private enterprises engaged in petroleum or oil operations.

SEC. 16. Appropriations. — For the initial
funding requirements of the Company, the sum of two hundred million
pesos (P200,000,000) is hereby set aside and appropriated from the
General Funds, not otherwise appropriated.

SEC. 17. Reports. — The Company shall, within
three (3) months after the end of every fiscal year, submit its annual
report to the President. It shall likewise submit such periodic or other
reports as may be required of it from time to time.

SEC. 18. Separability Clause. — Should any
provision of this Decree be held unconstitutional, no other provision
hereon shall be affected thereby.

SEC. 19. Repealing Clause. — All laws, decrees,
executive orders, administrative orders, rules or regulations
inconsistent herewith are hereby repealed, amended or modified
accordingly.

SEC. 20. Effectivity. — This Decree shall take
effect immediately.

Done in the City of Manila, this 9th day of November, in the
year of Our Lord, nineteen hundred and seventy-three.