Charter of Philippine National Oil Company

Policy, purpose, and need for regulation

Section 2 declares it State policy to promote industrial and overall economic development through the effective and efficient utilization of energy sources, including oil and oil-based resources.
Section 2 requires an organized entity to assure adequate supply of oil and oil products to all users to enable the unimpeded and efficient growth of the economy.
Section 4 directs the Company to provide and maintain an adequate and stable supply of oil and petroleum products for domestic requirements.
Section 4 directs the Company to promote the exploration, exploitation, and development of local oil and petroleum sources.
Section 4 directs the Company to foster oil or petroleum operation conditions conducive to a balanced and sustainable growth of the economy.

Creation, name, domicile, and corporate term

Section 3 creates a body corporate named the Philippine National Oil Company (“Company”).
Section 3 makes the Company capable to sue and be sued.
Section 3 limits corporate business primarily to oil or petroleum operations as defined by the decree.
The decree defines “Oil or Petroleum Operation” to include actual exploration, production, refining, tankerage and/or shipping, storage, transport, marketing, and related activities concerning oil and petroleum products (Section 3).
Section 3 leaves the principal office location to determination by the Board of Directors.
Section 3 authorizes the Company to establish offices, agencies, subsidiaries, branches, or correspondents in the Philippines or abroad as business operations require.
Section 3 gives the Company a term of fifty (50) years from issuance, deemed renewed for an equal period unless sooner dissolved by law.

Corporate purposes and core functions

Section 4 enumerates the Company’s purposes to ensure stable oil supply, develop local sources, and support balanced and sustainable economic growth through petroleum operations.
Section 5(a) authorizes the Company to undertake exploration, exploitation, and development of all areas of oil or petroleum deposits in the country, including surveys and related activities.
Section 5(b) authorizes the Company to establish within national territory petroleum base territory and construct/install/maintain facilities including:
- duty-free ports for vessels engaged in offshore oil drilling operations,
- airports sufficient for direct service flights,
- telecommunications center and ship-to-shore communications facilities,
- electric power and fresh water supply,
- and other necessary or advantageous acts for such operations.
Section 5(c) authorizes the Company to lease, at reasonable rates, portions of the petroleum base (including facilities) to private domestic entities or persons for warehousing/logistical centers, storage of oil drilling and oil well supplies, fabrication of offshore drilling components and structures, mechanical repair facilities, and office/habitation/recreational spaces of personnel and immediate dependents.
Section 5(d) authorizes the Company to undertake all other forms of petroleum or oil operations.
Section 5(e) authorizes the Company to enter contracts with or without public bidding with domestic/foreign persons/entities and governments, covering varied aspects of oil or petroleum operations, including acquisition of equipment and/or raw materials and supplies via purchase, lease, rent, or deferred payment arrangements, plus connected services under proper and reasonable terms and conditions.
Section 5(f) authorizes the Company to borrow money from local and foreign sources necessary for its operations.
Section 5(g) authorizes investment of Company funds in activities related to oil/petroleum operations, including Government of the Philippines bonds or securities guaranteed by the Government.
Section 5(h) authorizes the Company to purchase, hold, alienate, mortgage, pledge, or dispose of shares/bonds/securities of other corporations or associations, and while owner, to exercise ownership rights including the right to vote.
Section 5(i) authorizes the Company to hold lands and acquire rights over mineral lands in excess of areas permitted to private corporations, associations, and persons by statute.
Section 5(j) authorizes export and import business of oil/petroleum and its derivatives and related activities.
Section 5(k) authorizes acquiring and disposing of assets and interests and encumbering them as proper and necessary for the Company’s business.
Section 5(l) allows, subject to existing regulations and if necessary, establishing and maintaining a communications system (radio, telegraph, or any other manner) without the need for a separate franchise.
Section 5(m) empowers the Company to determine its organizational structure and the number and salaries of its officers and employees.
Section 5(n) authorizes establishing and maintaining offices, branches, agencies, subsidiaries, correspondents, or other units, and reorganizing or abolishing them.
Section 5(o) empowers the Company to exercise eminent domain as necessary for the purpose for which it is created.
Section 5(p) allows entry into private lands for geological or geophysical studies for petroleum exploration and exploitation, subject to payment of the proper amount.
Section 5(q) allows acquiring easement over public and private lands necessary for essential petroleum exploration and exploitation work, subject to payment or reasonable considerations.
Section 5(r) authorizes establishment and maintenance of a technical educational system for sustained manpower development.
Section 5(s) authorizes adopting a code of by-laws to complement the Charter.
Section 5(t) authorizes adopting and using a corporate seal that shall be judicially noticed.
Section 5(u) authorizes acts and functions necessary for attainment of the Charter’s purposes and objectives.
Section 5(v) authorizes promulgation of rules and regulations necessary to carry out the decree’s purposes.
Section 5(w) authorizes other functions provided by law.

Board, officers, and governance

Section 6 establishes that the Company is governed by a Board of Directors (the “Board”).
Section 6 provides that the Board is composed of seven (7) members, appointed by the President of the Philippines.
Section 6 provides that Board members serve for three (3) years or until successors are appointed and qualified.
Section 6 provides that vacancies are filled by the President for the unexpired term.
Section 6 requires Board membership qualifications: the member must be a natural-born citizen, at least thirty-five (35) years of age, and of established integrity.
Section 6 provides that the Chairman of the Board and the President of the Company are appointed by the President of the Philippines.
Section 6 provides that the other officers are appointed by the Board.

Company President duties and legal representation

Section 8 designates the President of the Company as its chief executive.
Section 8(a) requires the Company President to prepare Board meeting agendas and submit policies and measures to carry out the decree’s purposes and objectives.
Section 8(b) requires the Company President to execute, administer, and implement Board-approved policies and measures.
Section 8(c) requires the Company President to direct and supervise Company operations and administration.
Section 8(d) requires the Company President to represent the Company in dealings with government offices/agencies/instrumentalities and with domestic or foreign persons and entities, public or private.
Section 8(e) authorizes the Company President to exercise other powers and perform other duties provided in the by-laws and vested by the Board.
Section 10 makes the Secretary of Justice the ex officio legal counsel of the Company and authorizes designation of a representative for that purpose.

Capital structure and voting control

Section 7 provides the Company’s capital stock is divided into three (3) million no-par shares subscribed, paid for, and voted as specified.
Section 7(a) requires the Republic of the Philippines to subscribe and pay two (2) million shares at an original issue value of P50 per share.
Section 7(b) authorizes one (1) million shares to be subscribed and paid for by the Republic of the Philippines or government financial institutions at values determined by the Board, but not less than the original issued value of P50 per share to the Republic.
Section 7 provides that voting power for shares subscribed by the Republic of the Philippines is vested in the President of the Philippines or the person(s) he designates.
Section 7 provides that voting power for shares subscribed by government financial institutions is vested in those institutions.

Financing, guarantees, appropriations, and reporting

Section 9 authorizes the Company, upon recommendation of the Secretary of Finance and approval of the President, to issue bonds or other securities, whether tax-exempt or not, which may be guaranteed by the Government, to finance oil or petroleum operations.
Section 13 authorizes the Company to contract loans, credits, any convertible foreign currency or capital goods, and indebtedness from time to time from foreign governments, international financial institutions or fund sources, or other entities, on terms and conditions deemed appropriate for its purposes, including execution of agreements specifying those terms and conditions.
Section 13 authorizes the Republic of the Philippines, through the President (or duly authorized representative), to guarantee absolutely and unconditionally as primary obligor and not as surety merely the payment of loans/credits/indebtedness issued up to the amount authorized by the decree—also allowing amounts over and above the President’s authorization under Republic Act Numbered Sixty-One Hundred Forty-two, as amended.
Section 14 empowers government-owned or government-controlled financial institutions (excluding the Central Bank, Government Service and Insurance System, and Social Security System) to guarantee acceptance credits, loans, transactions, undertakings, or obligations of any kind incurred by the Company, whether directly or indirectly, in favor of any domestic or foreign person, association, or entity.
Section 16 appropriates PHP 200,000,000 from the General Funds, not otherwise appropriated for the Company’s initial funding requirements.
Section 17 requires the Company to submit an annual report within three (3) months after the end of every fiscal year to the President.
Section 17 requires submission of periodic or other reports as may be required from time to time.

Civil service exemption and audit oversight

Section 12 exempts the Company’s officers and employees from the Civil Service Law, its rules and regulations, and from Wage and Position Classification Office regulations.
Section 11 provides that the Commission on Audit appoints, subject to the Board’s approval, a representative as Auditor of the Company and allows appointment of necessary personnel to assist the Auditor.
Section 11 states that the salaries of the Auditor and staff are approved by the Board.
Section 11 provides that auditors of corporations owned or controlled by the Company are appointed by their respective boards of directors.

Incentives, by-laws, and corporate instruments

Section 15 provides that the Company is entitled to all incentives and privileges granted by law to private enterprises engaged in petroleum or oil operations.
Section 5(s) authorizes adoption of a code of by-laws to complement the Charter.
Section 5(t) provides that the Company’s corporate seal is judicially noticed.
Section 5(v) authorizes adoption and promulgation of rules and regulations to carry out the decree’s purposes.

Bonds, eminent domain, and land access powers

Section 9 authorizes Government-guaranteed bond issuance to finance oil and petroleum operations.
Section 5(o) authorizes exercise of eminent domain as necessary for the Company’s chartered purposes.
Section 5(p) authorizes entry into private lands for geological or geophysical studies, subject to payment of the proper amount.
Section 5(q) authorizes acquisition of easement over public and private lands necessary to essential work for exploration and exploitation, subject to payment or reasonable considerations.

Separability, repeals, and amendments

Section 18 provides a separability rule: if any provision is held unconstitutional, the other provisions remain unaffected.
Section 19 provides a repealing clause: all laws, decrees, executive orders, administrative orders, rules, or regulations inconsistent with the decree are repealed, amended, or modified accordingly.
The decree is amended by Presidential Decree No. 405.