Question & AnswerQ&A (Republic Act No. 387)
The short title of Republic Act No. 387 is the "Petroleum Act of 1949."
Under the Petroleum Act of 1949, 'Petroleum' includes any mineral oil, hydrocarbon gas, bitumen, asphalt, mineral wax, and all other similar or naturally associated substances, except coal, peat, bituminous shale, and/or other stratified mineral fuel deposits.
The State, which means the Republic of the Philippines, owns all natural deposits or occurrences of petroleum or natural gas found on public or private lands, including submerged lands within the territorial waters, continental shelf, or its analogue in an archipelago seaward from the shores of the Philippines.
No, ownership or right to use lands for purposes other than petroleum exploration, development, or exploitation does not include ownership or rights to explore or exploit petroleum or natural gas deposits on or under such lands.
Petroleum rights to explore, develop, exploit, or utilize petroleum resources are granted only to duly qualified persons through concessions. The Government reserves the right to undertake such work itself or through contractors.
The Act recognizes several types of concessions: Non-Exclusive Exploration Permit, Exploration Concession, Exploitation Concession, Refining Concession, and Pipe Line Concession.
The granting of concessions is generally discretionary with the Government, except for certain obligatory cases under Article 11, such as granting Exploitation Concessions to Exploration Concession holders upon fulfilling formalities.
An Exploration Concession grants the exclusive right to explore for petroleum within specified areas, including geological and geophysical work, drilling test wells, and related exploration activities.
Concessionaires must commence work with reasonable promptness, exercise diligence in conformity with good oil field practice, avoid waste and pollution, pay required taxes and royalties, submit reports to the government, and provide preference for Filipino employment.
Non-compliance may result in penalties under this Act or other laws, court actions to compel compliance, or cancellation of the concession if defaults continue.
The initial term is up to four years, with possible extensions for two additional three-year terms, totaling up to ten years. No further renewals are allowed after ten years from the date of the original concession.
Exploitation concessionaires must pay a royalty of at least twelve and one-half percent of the petroleum produced and saved, less petroleum consumed in operations.
No, holders of concessions cannot transfer or assign their rights without prior written approval from the Secretary of Agriculture and Natural Resources.
Private landowners are entitled to a ten percent share of the exploration or exploitation tax due to the Government for their land area. Also, concessionaires must indemnify owners or occupants for damages caused by exploration on private land.
The Act declares all activities relating to exploration, exploitation, refining, storage, or transportation of petroleum as matters of public utility.
Concessions may be canceled for falsehood or omission in application, failure to perform work obligations, failure to pay taxes or royalties, suspension of operations without approval, and failure to begin construction of required facilities within a year, among other grounds.
The Secretary is the executive officer charged with carrying out the Act's provisions, including prescribing regulations, granting concessions, resolving disputes, imposing penalties, and creating administrative units and technical boards.
Failure to fulfill obligations due to force majeure events (such as natural disasters, war, riots, strikes, etc.) is not considered a breach of the concessionaire's obligations.
Upon expiration or cancellation within the first term or first fifteen years after renewal, the concessionaire may remove their property within one year; otherwise, title passes to the Government. Roads, bridges, airports, wharves, and casings in the ground become Government property without compensation.
Concessionaires are exempt from local taxes and sales taxes on petroleum produced and used in operations and may import equipment duty-free during the first five years following concession granting, subject to conditions.