PRESIDENTIAL DECREE NO. 87, December 31, 1972
AMENDING PRESIDENTIAL DECREE NO. 8 ISSUED ON OCTOBER 2, 1972 AND PROMULGATING AN AMENDED ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF INDIGENOUS PETROLEUM AND APPROPRIATE FUND…
WHEREAS, Presidential Decree No. 8, dated October 2, 1972,
was issued to promote the discovery and development of the country’s indigenous
petroleum resources and adopting therefore as part of the law of the land the
provisions of Senate Bill No. 531 (An Act to Promote the Discovery, Production
of Indigenous Petroleum and Appropriate Funds Therefor);
WHEREAS, it was found necessary for the national interest to
amend Senate Bill No. 531 among other things to provide more meaningful
incentives to prospective service contractors;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me 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 amend Presidential Decree No. 8 as follows:
AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF
INDIGENOUS PETROLEUM, AND APPROPRIATING FUNDS THEREFOR.
SECTION 1. Short title. — This Act shall be known
and may be cited as “THE OIL EXPLORATION AND DEVELOPMENT ACT OF 1972.”
SEC. 2. Declaration of policy. — It is hereby
declared to be the policy of the State to hasten the discovery and production of
indigenous petroleum through the utilization of government and/or private
resources, local and foreign, under the arrangements embodied in this Act which
are calculated to yield the maximum benefit to the Filipino people and the
revenues to the Philippine Government for use in furtherance of national
economic development, and to assure just returns to participating private
enterprises, particularly those that will provide the necessary services,
financing and technology and fully assume all exploration risks.
SEC. 3. Definition of terms. — As used in this Act,
the following terms shall have the following respective meanings:
- “Petroleum” shall include any mineral oil, hydrocarbon gas, bitumen,
asphalt, mineral gas and all other similar or naturally associated substances
with the exception of coal, peat, bituminous shale and/or other stratified
mineral fuel deposits. - “Crude oil” or “crude” means oil in its natural state before the same has
been refined or otherwise treated. It does not include oil produced through
destructive distillation of coal, bituminous shales or other stratified
deposits, either in its natural state or after the extraction of water, and sand
or other foreign substances therefrom. - “Natural gas” means gas obtained from boreholes and wells and consisting
primarily of hydrocarbons. - “Petroleum operations” means searching for and obtaining petroleum within
the Philippines through drilling and pressure or suction or the like, and all
other operations incidental thereto. It includes the transportation, storage,
handling and sale (whether for export or for domestic consumption) of petroleum
so obtained but does not include any: (1) transportation of petroleum outside
the Philippines; (2) processing or refining at a refinery; or (3) any
transactions in the products so refined. - “Petroleum in commercial quantity” means petroleum in such quantities which
will permit its being economically developed as determined by the contractor
after taking into consideration the location of the reserves, the depths and
number of wells required to be drilled and the transport and terminal facilities
needed to exploit the reserves which have been discovered. - “Posted price” refers to the FOB price established by the Contractor in
consultation with the Petroleum Board for each grade, 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, gravity and
quality. - “Market price” shall mean the price which would be realized for petroleum
produced under a contract as hereinafter defined if sold in a transaction
between independent persons dealing at arm’s length in a free market. - “Barrel” means 42 U.S. gallons or 9702 cubic inches at a temperature of 60°
Fahrenheit.Any reference in this Act to the value of any crude oil at the posted price
or market price shall be construed as a reference to the amount obtained by
multiplying the number of barrels of that crude oil by the posted price or
market price per barrel applicable to that crude oil. - “Crude oil exported” shall include not only crude oil exported as such but
also indigenous crude oil refined in the Philippines for export. - “Government” means the Government of the Republic of the Philippines.
- “Contractor” means the contractor in a service contract whether acting alone
or in consortium with others. - “Contract” refers to a service contract.
- “Filipino participation incentive” means the allowance which may be given
the Contractor with Filipino participation as provided in Section 28
hereof. - “Philippine corporation” means a corporation organized under Philippine laws
at least sixty per cent of the capital of which is owned and held by citizens of
the Philippines. - “Affiliate” means (a) a company in which a contractor holds directly or
indirectly at least fifty per cent of its outstanding shares entitled to vote;
(b) a company which holds directly or indirectly at least fifty per cent of the
contractor’s outstanding shares entitled to vote; or (c) a company in which at
least fifty per cent of its share outstanding and entitled to vote are owned by
a company which owns directly or indirectly at least fifty per cent of the
shares outstanding and entitled to vote of the contractor. - “Gross income” means the gross proceeds from the sale of crude, natural gas
or casinghead petroleum spirit produced under the contract and sold during the
taxable year at posted or market price, as the case may be, and such other
income which are incidental to and arising from any one or more of the petroleum
operations of the contractor. - “Taxable net income” means the gross income less the deductions allowed in
this Act. - “Taxable year” means the calendar or fiscal year of the contractor.
- “Casinghead petroleum spirit” means any liquid hydrocarbon obtained from
natural gas by separation or by any chemical or physical process. - “Petroleum Board” refers to the Petroleum Board created in Section seventeen
of this Act. - “Operating Expenses” means the total expenditures for petroleum operations
made by the Contractor both within and without the Philippines as
provided in a service contract.
SEC. 4. Government may undertake petroleum exploration
and production. — Subject to the 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 free areas, national reserve areas
and/or petroleum reservations, as provided for in the Petroleum Act of
1949, whether on-shore or off-shore. In every case, however, the Contractor must
be technically competent and financially capable as determined by the Board to
undertake the operations required in the contract.
SEC. 5. Execution of contract authorized in this
Act. — Every contract herein authorized shall, subject to the approval of
the President, be executed by the Petroleum Board created in this Act, after due
public notice pre-qualification and public bidding or concluded through
negotiations. In case bids are requested or if requested no bid is submitted or
the bids submitted are rejected by the Petroleum Board for being disadvantageous
to the Government, the contract may be concluded through negotiation.
In opening contract areas and in selecting the best offer for petroleum
operations, any of the following alternative procedures may be resorted to by
the Petroleum Board, subject to prior approval of me President:
(a) The Petroleum Board may select an area or areas and offer it for bid,
specifying the minimum requirements and conditions; or
(b) The Petroleum
Board may open for bidding a large area wherein bidders may select integral
areas not larger than the maximum provided in this Act. Only the best
offer shall be accepted and the selection thereon shall be made by a weighted
system of evaluating the different aspects of each bid; or
(c) An area may be
selected by an interested party who shall negotiate with the Petroleum Board for
a contract under the terms and conditions provided in this
Act.
SEC. 6. Nature of service contract. — In a service
contract, service and technology are furnished by the service contractor for
which it shall be entitled to the stipulated service fee while financing is
provided by the Government to which all petroleum produced shall
belong.
SEC. 7. Special stipulation in service contract. —
Where the Government is unable to finance petroleum exploration operations or in
order to induce the Contractor to exert the maximum efforts to discover and
produce petroleum as soon as possible, the service contract shall stipulate that
if the contractor shall furnish services, technology and financing the proceeds
of sale of the petroleum produced under-the contract shall be the source of
funds for payment of the service fee and the operating expenses due the
Contractor.
SEC. 8. Obligations of contractor in service
contract. — The arrangement pursuant to the preceding Section seven shall
be such that the contractor, which may be a consortium, shall undertake, manage
and execute petroleum operations. 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 —
- Provide all necessary services and technology;
- Provide the requisite financing;
- Perform the exploration work obligations and program prescribed in the
agreement between the Government and the Contractor, 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 practices
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; - Furnish the Petroleum Board 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
agreement acreage and work areas, 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 Petroleum Board; - Allow examiners of the Bureau of Internal Revenue and other representatives
authorized by the Petroleum Board lull access to their accounts, books and
records, for tax and other fiscal purposes; and - Be subject to Philippine income tax.
On the other hand, the Petroleum Board shall —
(1) On behalf of the Government, reimburse the Contractor for all operating
expenses not exceeding seventy per cent of the gross proceeds from production in
any year: Provided, That if in any year the operating expenses exceeds
seventy per cent of gross proceeds from production, then the unrecovered
expenses shall be recovered from the operations of succeeding years.(2) Pay the Contractor a service fee the net amount of which shall not exceed
forty per cent of the balance of the gross income after deducting the Filipino
participation incentive, if any, and all operating expenses recovered pursuant
to Section 8 (1) above.(3) Reimbursement of operating expenses and payment of the service fee shall
be in such form and manner as provided for in the
contract.
SEC. 9. Minimum terms and conditions. — In addition
to those elsewhere provided in this Act, every contract executed in
pursuance hereof shall contain the following minimum terms and conditions:
(a) Every contractor shall be obliged to spend in direct prosecution of
exploration work and in delineation and development following the discovery of
oil in commercial quantity not less than the amounts provided for in
the contract between the Government and the Contractor and these amounts shall
not be less than the total obtained by multiplying the number of hectares
covered by the contract by the following amounts per hectare:
1 2 3 4 5 6 7 8 9 10 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
succeeding contract: years: Provided, further, That in case the same
Contractor holds two or more areas under different contracts of service, the
total amount of work obligations for exploration required for the initial term
of all the contracts may be spent within any one or more of them as if they are
covered by a single contract of service: Provided, further, That should
the Contractor fail to comply with the work obligations provided for in
the contract, it shall pay to the Government the amount it should have spent but
did not in direct prosecution of its work obligations: Provided,
finally.That the Contractor shall drill a minimum footage of test wells
before the end of periods of time as may be specified in the contract with the
Petroleum Board in order to be entitled to the extension of the exploration
period for 3 years as provided for in paragraph (e) herein.(b) In case the Contractor renounces or abandons wholly or partly the area
covered by his contract within two years from its effective date, it shall in
respect of the abandoned area pay the Government the amount it should have
spent, but did not, for exploration work during said two years, for which
payment, among other obligations, the performance guarantee posted by the
Contractor shall be answerable.(c) Every contract shall provide for the compulsory relinquishment of at
least twenty-five per cent 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 per cent of the
initial area at the end of seven years from its effective date. But the portion
already delineated as production area pursuant to the succeeding paragraph shall
not be taken into account in ascertaining the extent of relinquishment required.
Any area renounced or abandoned under Sec. 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, from the discovery of petroleum in commercial
quantity, delineate the production area within the period agreed upon in the
contract.(e) The exploration period under every contract shall be seven years,
extendible for three years if the Contractor has not been in default in its
exploration work obligations and other obligations after which the contract
shall lapse unless petroleum has been discovered by the end of the 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 per cent 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 ten pesos per hectare or fraction thereof for on-shore
areas and not less than twenty pesos as determined by the Petroleum Board per
hectare or fraction thereof for off-shore areas: Provided, further,
That such rentals can be offset against exploration expenditures actually
spent on such area.(f) Where petroleum in commercial quantity is discovered during the
exploration period in any area covered by the contract, the contract with
respect to said area shall remain in force for production purposes during the
balance of the ten year exploration period and for an additional period of
twenty-five years, thereafter renewable for a period not exceeding fifteen years
under such terms and conditions as may be agreed upon by the parties at the time
of renewal.(g) All materials, equipment, plants and other installations erected or
placed on the exploration and/or production area of a movable nature by the
Contractor shall remain properties of the Contractor unless not removed
therefrom within one year after the termination of the contract.(h) The Contractor shall be subject to the provisions of laws of general
application relating to labor, health, safety, and ecology insofar as they are
not in conflict with the provisions otherwise contained in this Act.(i) Every contract executed in pursuance of this Act shall contain provisions
regarding the discovery, production, sale and disposal of natural gas and
casinghead petroleum spirit that shall be in line with the rules herein
prescribed for crude oil except that:(1) The market price shall be the basis for tax and all other purposes;
(2) After meeting requirements in secondary recovery operations priority
shall be given to supplying prospective demand in the
Philippines.
SEC. 10. Contract areas. — Subject to Section
eighteen hereof, a contractor or its affiliate may enter into one or more
contracts with the Government. Contracts for off-shore areas may cover any
portion beneath the Philippine territorial waters or its continental shelf, or
portion of the continental slope, terrace or areas which are or may be subject
to Philippine jurisdiction: Provided, That for off-shore areas beyond
water depths of 200 meters, the Petroleum Board may provide for more liberal
terms than that provided for herein with respect to contract area,
exploration period and relinquishment.
SEC. 11. Transfer and assignment. — That rights and
obligations under a contract executed under this Act shall not be assigned or
transferred without the prior approval of the Petroleum Board:
Provided, That with respect to the transfer or assignment of
contractual rights and obligations under this Act to an affiliate of the
transferor, the approval thereof by the Petroleum Board shall be automatic, if
the transferee is as qualified as the transferor to enter into such contract
with the Government: Provided, further, That the affiliate relationship
between the original transferor or a company which holds at least fifty per cent
of the Contractor’s outstanding shares entitled to vote and each transferee
shall be maintained during the existence of the contract.
SEC. 12. Privileges of contractor. — The provisions
of any law to the contrary notwithstanding, a contract executed under this Act
may provide that the Contractor shall have the following privileges:
- Exemption from all taxes except income tax.
- Exemption from payment of tariff duties and compensating tax on the
importation of machinery and equipment, and spare parts and all materials
required for petroleum operations subject to the conditions that said machinery,
equipment, spare parts and materials of comparable price and quality are not
manufactured domestically; are directly and actually needed and will be used
exclusively by the Contractor in its operations or in operations for it by a
subcontractor are covered by shipping documents in the name of the Contractor to
whom the shipment will be delivered direct by the customs authorities, and the
prior approval of the Petroleum Board was obtained by the Contractor before the
importation of such machinery, equipment, spare parts and materials which
approval shall not be unreasonably withheld: Provided, however, That
the Contractor or its subcontractor may not sell, transfer or dispose of these
machinery, equipment, spare parts and materials without the prior approval of
the Petroleum Board and payment of taxes due the Government: Provided,
further, That should the Contractor or its subcontractor sell, transfer or
dispose of these machinery, equipment, spare parts or materials without the
prior consent of the Petroleum Board, it shall pay twice the amount of the tax
exemption granted: Provided, finally, That the Petroleum Board shall
allow and approve the sale, transfer, or disposition of the said items without
tax if made (1) to another contractor; (2) for reasons of technical
obsolescence; or (3) for purposes of replacement to improve and/or expand the
operations of the contract; - Exemption upon approval by the President Board from laws, regulations and/or
ordinances restricting the (1) construction, installation, and operation of
power plant for the exclusive use of the Contractor if no local enterprise can
supply within a reasonable period and at reasonable cost the power needed by the
Contractor in its petroleum operations, (2) exportation of machinery and
equipment which were imported solely for its petroleum operation when no longer
needed therefor; - Exemption from publication requirements under Republic Act Numbered Five
thousand four hundred fifty-five; and the provisions of Republic Act Numbered
Sixty-one hundred and seventy-three with respect to the exploration, production,
exportation or sale or disposition of crude oil discovered and produced in the
Philippines; - Exportation of petroleum subject to the prior filling pro-rata of domestic
needs as elsewhere provided in this Act; - Entry, upon the sole approval of the Petroleum Board which shall not be
unreasonably withheld, of alien technical and specialized personnel (including
the immediate members of their families), who may exercise their professions
solely for the operations of the contractor as prescribed in its contract with
the Government under this Act: Provided, That if the employment or
connection of any such alien with contractor ceases, the applicable laws and
regulations on immigration shall apply to him and his immediate family:
Provided, further, That Filipinos shall be given preference to
positions for which they have adequate training: And provided, finally,
That the Contractor shall adopt and implement a training program for Filipinos
along technical or specialized lines, which program shall be reported to the
Petroleum Board; - Rights and obligations in any contract concluded pursuant to this Act shall
be deemed as essential considerations for the conclusion thereof and shall not
be unilaterally- changed or impaired; and - The privileges and benefits granted to a contractor under the provisions of
this Act together with any applicable obligations shall likewise be made
available to concessionaires under the Petroleum Act of 1949 and their
authorized contractors and/or service operators, whether local or foreign if
they so elect.
SEC. 13. Repatriation of capital and retention of
profits abroad. — The Contractor shall be entitled to (1) repatriate over a
reasonable period the capital investment actually brought into the country in
foreign exchange or other assets and registered with the Central Bank; (2)
retain abroad all foreign exchange representing proceeds arising from exports
accruing to the Contractor over and above (a) the foreign exchange to be
converted into pesos in an amount sufficient to cover, or equivalent to, the
local costs for administration and operations of the exported crude and (b)
revenues due the Government on such crude: Provided, however, That the
Government and the Contractor shall stipulate in the contract the currency in
which the Government revenues arising under (b) above are to be paid; (3)
convert into foreign exchange and remit abroad at prevailing rates no less
favorable to Contractor than those available to any other purchaser of foreign
currencies, any excess balances of their peso earnings from petroleum production
and sale over and above the current working balances they require, and (4)
convert foreign exchange into Philippine currency for all purposes in connection
with its petroleum operations at prevailing rates no less favorable to
contractor than those available to any other purchaser of such currency.
SEC. 14. Full disclosure of interest in contractor.
— Interest held in the contractor by domestic mining and petroleum
companies and/or the latter’s stockholders may be allowed to any extent after
full disclosure thereof to, and approved by the Petroleum Board.
SEC. 15. Arbitration. —The Petroleum Board may
stipulate in a contract executed under this Act that disputes in the
implementation thereof between the Government and the Contractor may be settled
in accordance with generally accepted international arbitration practice.
SEC. 16. Performance guarantee. — In order to
guarantee compliance with the obligation of me Contractor in contracts executed
under this Act, the Contractor shall post a bond or other guarantee of
sufficient amount in favor of the Government and with surety or sureties
satisfactory to the Petroleum Board, conditioned upon the faithful performance
by the contractor of any or all of the obligations under and pursuant to said
contracts.
IMPLEMENTING A GENCY
SEC. 17. There is hereby created a Petroleum Board composed
of the Secretary of Agriculture and Natural Resources, as Chairman, and the
Secretary of Finance, the Secretary of Justice, the Chairman of the Board of
Investments, the Governor of the Central Bank, the Secretary of Trade and
Tourism and the Director of Mines as members. The Director of Mines shall be its
Executive Officer. The Board shall be attached to the National Economic
Development Authority.
SEC. 18. Functions of Petroleum Board. — In
accordance with the provisions and objectives of this Act, the Petroleum Board
shall:
- Define and give public notice when applicable of the areas available for
service contract. - Enter into contracts herein authorized with such terms and conditions as may
be appropriate under the circumstances including the grant of special allowance:
Provided, however, That no depletion allowance shall be granted:
Provided, further, That except as provided in Sections
twenty-six and twenty-seven hereof, no contract in favor of one contractor and
its affiliates shall cover less than fifty thousand nor more than seven hundred
and fifty thousand hectares for on-shore areas, or less than eighty thousand nor
more than one million five hundred thousand hectares for off-shore areas:
Provided, finally, That in no case shall the annual net revenue or
share of the Government, including all taxes paid by or on behalf of the
Contractor, be less than sixty per cent of the difference between the gross
income and the sum of operating expenses and Filipino participation
incentive. - Provide for the manner and form of the income tax payment the reimbursement
of operating expenses, the payment of service fee, and payment of Filipino
participation incentive allowance, if any, in the service contract. - Make specific proposals to Congress for the grant of subsidy to contractors
and petroleum companies at least sixty per cent of the capital of which is owned
by Philippine citizens, to be derived from the revenue or share that will accrue
to the Government in pursuance of this Act; - Undertake intensive studies and researches on oil field practices,
procedures, and policies; - Promulgate such rules and regulations as may be necessary and assess charges
for services rendered, to implement the intent and provisions of this Act; - Appoint, discipline and remove, and determine the compensation of, its
technical staff and other personnel: Provided, That positions which are
highly technical or primarily confidential shall not be subject to the Civil
Service Laws and rules, and of the Wage and Position Classification Office; - Within four months after the close of every fiscal year, submit to the
President and Legislature an annual report on its activities, with appropriate
recommendation; and - Generally, exercise all powers necessary or incidental to attain the
objectives of this Act.
TAX PROVISIONS
SEC. 19. Imposition of tax. —The Contractor shall
be liable each taxable year for Philippine income tax on income derived from its
petroleum operations under its contract of service, computed as
provided in Sections 20 through 25.
SEC. 20. Determination of gross income. — The gross
income shall consist of:
- In respect of crude oil exported, the gross proceeds from the sale of crude
oil at the posted price; - In respect of crude oil sold for consumption in the Philippines, the gross
income shall consist of the gross proceeds from the sale thereof at market price
per barrel; - In respect of natural gas and/or casinghead petroleum exported or sold for
consumption in the Philippines the gross income shall consist of the total
quantity sold at the prevailing market price thereof; and - Such other income which are incidental to and/or arising from any petroleum
operation.
SEC. 21. Deductions from gross income. – In computing the
taxable net income, there shall be allowed as deductions:
(1) Filipino participation incentive; and
(2) Operating expenses
reimbursed pursuant to Section 8(1) which includes amortization and depreciation
as provided in Section 22.
SEC. 22. Amortization and Depreciation. —
Intangible exploration costs may be deductible in full; all tangible exploration
costs such as capital expenditures and other recoverable capital assets are to
be depreciated for a period of ten years.
SEC. 23. Deductions not allowed. — In ascertaining
the taxable net income, no deduction from gross income shall be allowed in
respect of any interest or other consideration paid or suffered in respect of
the financing of its petroleum operations.
SEC. 24. Return and payment of tax. — Every party
to a service contract shall render to the Petroleum Board a return for each
taxable year in duplicate in such form and manner as provided by law
setting forth its gross income and the deductions herein allowed. The
return
shall be filed by the Petroleum Board with the Commissioner of Internal Revenue
or his deputies or other persons authorized by him to receive such return within
the period specified in the National Internal Revenue Code and the Rules and
Regulations promulgated thereunder. Every party to a service contract shall be
subject to tax separately on its share of taxable income arising from such
contract.
SEC. 25. Applicability of the provisions of the National
Internal Revenue Code. — All provisions of the National Internal Revenue
Code and rules and regulations promulgated in relation therewith which are not
inconsistent with the provisions of this Act shall be applicable to the
Contractor.
SPECIAL PROVISIONS
SEC. 26. Option of exploration concessionaires. — A
holder of a valid and subsisting petroleum exploration concession under the
Petroleum Act of 1949 may, at his option enter into a contract of service under
the rules of the Petroleum Act of 1949, subject to constitutional restrictions,
with any local or foreign oil company under such terms and conditions as may be
agreed upon by the concessionaire and the service contractor. As an alternative
the concessionaire may convert his concession rate a service contract as
provided in this Act through negotiations, with all the rights and
privileges herein authorized: Provided, That the contract which may be
concluded after said negotiation shall contain at least the minimum terms and
conditions provided in this Act and shall take into account terms and
conditions more favorable to the Government contained in contracts involving
exploration pursuant to this Act: Provided, further, That the
exploration period shall commence to run from the effective date of the original
concession, except when the concession has been effective for a period of seven
years or more, in which case the contractor shall be required to commence
exploratory drilling operations within a period of not exceeding eighteen months
from the date of effectivity of the service contract. If the contractor is not
in default in the drilling operations as hereunder required, an extension of the
exploration period may be granted as provided in Section nine,
paragraph (e) of this Act.
SEC. 27. Alternative option of exploration
concessionaire. —The concessionaire referred to in the preceding section
may form a consortium with another company or companies and jointly enter into a
service contract with the Government under this Act, with the right to assign to
the consortium, subject to the approval of the Petroleum Board, the area covered
by his concession which shall thereupon be governed by the provisions of this
Act: Provided, That the voluntary relinquishment of the concession and
its assignment, as well as all technical data on the area resulting from studies
conducted by the concessionaire and subsisting improvement introduced by him
thereon, shall be evaluated and given a fair value which may constitute his
contribution, wholly or in part, to the consortium: Provided, however.
That the exploration period under the new contract shall commence to run from
the date of the effectivity of the contract if it covers areas in addition to
the assigned areas; otherwise the provisions of the preceding section shall
apply: Provided, further, That duly published applications, for
exploration concessions or bids therefor already awarded by the Secretary of
Agriculture and Natural Resources under the provisions of the Petroleum Act of
1949 shall be recognized and the corresponding deeds of concessions issued
accordingly: Provided, finally, That exploration concessions on which
the holders thereof failed to perform for three consecutive years the
exploration work required under the provisions of the Petroleum Act of 1949, as
amended by Republic Act Numbered Five Thousand Eighty-Six shall be considered
automatically cancelled.
SEC. 28. Filipino Participation Incentive. —The
Contractor under a service contract in which Philippine citizens or corporations
have a minimum participating interest of fifteen per cent in the contract area
may subject to reasonable conditions imposed by the Petroleum Board be granted a
government subsidy, commensurate with the scope of Filipino participation, i.e.,
a Filipino participation incentive, not exceeding seven and one-half per cent,
which shall be computed by deducting the said allowance from the posted or
market price, whichever is the higher, of crude oil exports produced in the
contract area, and from the market price of crude oil produced in the contract
area, sold or disposed of for consumption in the Philippines.
SEC. 29. Publicity. — Negotiation with the
Government for the conclusion of a contract under this Act and every contract
concluded hereunder shall be given publicity consistent with the best interest
of the Government.
SEC. 30. Provisions of Petroleum Act applicable.
—The provisions of the Petroleum Act of 1949, as amended, shall not be
applicable to the service contract provided in this Act, except the,
following Articles:
- Article 16, referring to public easements on lands covered by
concessions; - Article 17, providing that petroleum operations are subject to existing
mining rights, permits, leases and concessions in respect of substances other
than petroleum and to existing petroleum rights; - Article 18, referring to the right of the Government to establish
reservations or grant mining rights on petroleum concessions; - Article 20, granting exploration and exploitation concessionaires the right
to enter private lands covered by their concessions; - Article 21, referring to easement and the exercise of the right of eminent
domain over private lands for the purpose of carrying out any work essential to
petroleum operations; - Article 22, providing for easement over public land for the purpose of
carrying out any work essential to petroleum operations; and - Article 23, which grants concessionaires the right to utilize for any of the
work to which the concession relates, timber, water and clay from any public
lands within their concessions.
SEC. 31. Preference to Local Labor. — The
Contractor shall give priority in employment to qualified personnel in the
municipality or municipalities or province where the exploration or production
operations are located.
SEC. 32. Foreign Assistance. — Nothing in this Act
or of any other law shall preclude the Government of the Republic of the
Philippines, through the Petroleum Board or any other proper office or agency,
from negotiating or entering into any agreement with any foreign country or
government for assistance in terms of equipment, technical know-how and
financing for the exploration and production of indigenous crude oil and its
byproducts.
SEC. 33. 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 five hundred thousand pesos for the fiscal
year nineteen hundred seventy-three. Hereafter, the necessary appropriations
shall be included in subsequent General Appropriations Act.
SEC. 34. Repealing Clause. — All laws, executive
orders and regulations inconsistent with the provisions of this Act are hereby
repealed, provided that no existing rights shall be prejudiced
thereby.
SEC. 35. Effectivity date. — This Act shall take
effect upon its approval.
Done in the City of Manila, this thirty-first day of December, in the year of
Our Lord,
nineteen hundred and seventy-two.
(Sgd.) FERDINAND E. MARCOS
President
Republic of the Philippines
By the President: (Sgd.) ALEJANDRO MELCHOR Executive Secretary