Geothermal Energy and Gas Exploration Law

Definitions and key concepts

“Act” means Republic Act No. 5092 (Section 2(a)).
“Bore” means any well, hole, pipe, or excavation bored, drilled, sunk, or made in the ground for investigating, prospecting, obtaining, or producing geothermal energy, natural gas and methane gas, including any hole which taps geothermal energy, natural gas and methane gas (Section 2(b)).
“Geothermal energy” means energy derived or derivable from and produced within the earth by natural heat phenomenon, including all steam and water vapor heated by natural underground energy, and every kind of matter derived from a bore for the time being with or in any such stead (Section 2(c)).
“Government” means the Government of the Philippines (Section 2(d)).
“State” means the Republic of the Philippines (Section 2(e)).
“Person” includes a natural person, corporation, or partnership (Section 2(f)).

State ownership and land title limits

All geothermal sources or occurrences of geothermal energy, natural gas and methane gas in public and/or private lands in the Philippines belong to the State, are inalienable and imprescriptible, and their exploration, tapping, and utilization are governed by the Act (Section 3).
Land ownership or the right to use land for any purpose other than exploration, tapping, or use of geothermal energy, natural gas and methane gas does not include ownership of, nor the right to explore for, tap, or utilize, geothermal energy, natural gas and methane gas in, on, or under the land (Section 4).

Permits, leases, and who may apply

The right to explore for, tap, or utilize geothermal energy, natural gas and methane gas may be obtained and exercised only through permits and/or leases granted to duly qualified persons under the Act (Section 5).
No permit is required when exploration is undertaken by the owner of the land himself or by his agent (Section 5).
If geothermal energy, natural gas and methane gas is already being used for domestic purposes (including cooking, heating, washing, and bathing) when the Act takes effect, the user may continue using it to similar or lesser extent without a permit or lease, unless the Director of Mines, considering the public interest, otherwise directs (Section 5).
The Government reserves the right to undertake exploration itself or through instrumentalities or competent persons as independent contractors (Section 5).
Applicants for permits or leases must meet these qualifications:
- An individual applicant must be a Philippine citizen, of legal age, and have capacity to contract obligations (Section 6).
- An association of individuals must be a partnership or corporation organized under Philippine law, with at least 60% of capital owned and held by Philippine citizens at all times (Section 6).
- Any applicant must present evidence of sufficient finance, organization, resources, technical competence, skills, and experience to conduct operations, using the best method known to the industry (Section 6).

Public easements and interaction with other rights

Lands covered by permits and/or leases are subject to public easements established or recognized by existing or future laws (Section 7).
Permittee and/or lessee operations are subject to existing mining or petroleum rights, grants, permits, leases, and concessions, which must not be adversely affected; disputes are decided by the Director of Mines (Section 8).

Entry rights over private land

Permit and/or lease holders, and their men, contractors, or operators, may enter and re-enter private lands covered by permits/leases upon written notice to the owner sent at least 10 days in advance, for geological and/or geophysical studies and to make bores, using necessary instruments and apparatus (Section 9).
Entry is subject to an obligation to indemnify the owner or legal occupant for all material damage suffered by the property, annexes, or appurtenances as a result of the studies (Section 9).
Occupancy of private buildings, yards, or gardens cannot be authorized against the will of their owner (Section 9).
If the owner or legal occupant denies entry, the permittee and/or lessee may apply to the municipal court of the municipality where the land is situated; upon posting a bond fixed and approved by that court, the court issues an order allowing entry pending final determination of the proper amount to be paid (Section 9).

Easements over private land and eminent domain

A permittee or lessee may secure a necessary agreement with the owner or legal occupant when temporary or permanent occupancy easements over private lands are needed for works essential to operations (Section 10).
If no agreement is reached, or the owner refuses, or obstacles prevent immediate acquisition of necessary surface area or indispensable rights, the municipal court may, upon application and posting of a necessary bond, grant authority to use and occupy the land needed, pending final determination including reasonable value or rental and compensation for resulting damage (Section 10).
For land occupation needed to construct, maintain, operate, and drill bores, tanks, reservoirs, waterways, pipelines, roads, railroads, tramways, telephone and telegraph lines, airfields, radio stations, powerhouses, transmission lines, pumping stations, wharves, piers, and terminals declared for public use or benefit, the Government may exercise the right of eminent domain through the permittee or lessee under applicable laws (Section 10).
A copy of any court order or voluntary agreement must be furnished to the Director of Mines (Section 10).
Necessity is presumed for bore drilling and auxiliary works, pipelines, tanks, pumping plants, power systems, warehouses, shops, and means of transport and communication (Section 10).

Entry rights over public land

Except for areas covered by armed forces reservations, holders of permits and/or leases may enter public lands covered by their permits/leases (Section 11).
When easement or temporary or permanent occupancy over public land is needed for essential operations, the Director of Mines may grant the right with due regard to prior rights of third parties and the purpose of the reservation (Section 11).
The presumption of necessity in the permittee/lessee context (from Section 10) applies likewise for public land cases (Section 11).

Permit application, publication, and adverse claims

Permit applications must be accompanied by a plan showing bearings and distances of boundaries and latitude and longitude to the nearest second of corner 1 (Section 12).
Permit applications are filed with the Director of Mines, who examines and acts on qualifications and authorizes publication of the application notice at least once a week for three consecutive weeks in the Official Gazette and in a newspaper of general circulation published in English in the City of Manila, notwithstanding any law to the contrary (Section 12).
During the publication period, an adverse claim stating its nature and grounds may be filed with the Director of Mines (Section 12).
If no adverse claim is filed within the publication period, it is conclusively presumed that no adverse claim exists, and thereafter no adverse claim from third parties may be heard; the permit is then issued by the Director of Mines for the Republic of the Philippines stating principal rights and obligations (Section 12).
An applicant must prosecute the application with due diligence by ensuring it is in order and submitting satisfactory evidence of qualifications required by law and regulations (Section 12).
In case of conflict of applications for permit, priority of filing determines who has preferential right, provided the application is put in order and satisfactory evidence of required qualifications is submitted within the period provided by regulations (Section 12).
Any adverse claim filed during the publication period is decided by the Director of Mines (Section 12).

Permit size, exclusivity, and limits

Permits are granted in rectangular blocks unless allowed by the Director of Mines when contiguous with seas, bays, lakes, or other permits or leases already granted (Section 13).
Permit dimensions are subject to the rule that the longer dimension shall not be more than five times its shorter dimension (Section 13).
Each permit area cannot exceed five thousand hectares (Section 13).
No person may acquire more than ten permits for the whole territory of the Philippines (Section 13).
A permit conveys to the holder, heirs, and assigns from the date of grant during its term and extensions an exclusive right to explore the covered block, conduct geological and geophysical work, do drilling operations, and do related work objected to the discovery of geothermal energy, natural gas, or methane gas (Section 14).
A permit does not include the right to produce and utilize any geothermal energy, natural gas, or methane gas discovered (Section 14).

Permit obligations, minimum spending, and reports

With the permit application and before the start of each calendar year thereafter during the permit’s life, the applicant/permittee must submit to the Director of Mines a program of exploration work for that year (Section 15).
From the date of permit granting up to the first anniversary and every permit year thereafter during the permit’s life, the permittee is obligated to spend in direct prosecution of exploration work at least PHP 2 pesos per hectare per year (or fraction thereof) (Section 15).
In no case is the total amount for each permit less than PHP 1,000 a year (Section 15).
Renewal requires that necessary drilling required in Section 16 has been conducted (Section 15).
The permittee must submit satisfactory evidence to the Government of expenditures supported and justified by technical reports prepared in accordance with regulations, submitted within 90 days after the end of the corresponding calendar year (Section 15).
Amounts actually spent in excess of minimum amounts may be carried forward to exploration work obligations for succeeding years, but not to any period of renewal (Section 15).
Unspent required work obligations for any year are forfeited in favor of the Bureau of Mines and form part of its Mines Special Fund (Section 15).
Failure to comply with minimum work obligations for any year or failure to submit technical reports within the required period is sufficient cause for cancellation of the permit by the Secretary of Agriculture and Natural Resources upon recommendation of the Director of Mines, with termination of the permittee’s rights, without prejudice to collecting the difference between minimum required and actual spent for that year (Section 15).
No new or additional areas and/or rights under the Act are granted to a permittee who failed to comply with minimum work obligations in any of his subsisting permits/leases until defaults are corrected (Section 15).

Permit term and extensions

The initial permit term may not exceed 3 years, counted from the date of issuance (Section 16).
The Secretary of Agriculture and Natural Resources may grant an extension of 2 years (for the entire area or any part) if the permittee drilled wells totaling at least 1,000 feet during the initial term and complied with the Act, regulations, and permit terms; the permittee must apply prior to the expiration of the original term (Section 16).
During the first extension, a second extension of 2 years may be granted for the entire area or part if wells totaling at least 2,000 feet were drilled during the first extension and the permittee complied with the Act, regulations, and permit terms, upon application made prior to expiration of the first extension (Section 16).
No further extension may be granted after 7 years from the date of original issuance (Section 16).
If still interested, and the permittee drilled wells during the period of the second renewal with required total footage and complied with the Act and terms, he may file an application for a permit over the same area or portion treated as any other new application (Section 16).

Lease application and lease size

When a discovery is made by a permit holder and it is determined commercially valuable and the holder is ready to produce and utilize or put it into commercial use, the holder may apply for a lease at any time during the permit’s life subject to the limitation in Section 18 (Section 17).
Lease applications are filed with the Director of Mines and must be accompanied by a plan prepared from an accurate transit and tape survey showing one corner of a claim tied by bearing and distance to a recognized bench mark, permanent monument, or other registered points, approved by the Director of Mines (Section 17).
If the lease application is found in order and the applicant is qualified and the conditions for granting the lease are satisfied, the Director of Mines grants the lease stating the principal rights and obligations (Section 17).

Lease rights, obligations, production rules

Leaseable area must not exceed one-half of the original permit area, and must be in rectangular block shape, except when the Secretary of Agriculture and Natural Resources allows rectangular block contiguity with seas, bays, and lakes and with other existing concessions; in such cases the longer dimension may not exceed five times the shorter dimension (Section 18).
No person may hold more than 25,000 hectares under lease in the whole territory of the Philippines (Section 18).
The lessee, heirs, and assigns have an exclusive right under the lease term to:
- drill within boundaries projected vertically downward,
- tap and utilize geothermal energy, natural gas, and methane gas existing therein,
- extract matter derived from a bore and every steam, water, water vapor, or mixture,
- and process and market the same,
  subject to the Act and regulations issued by the Secretary of Agriculture and Natural Resources regarding conservation and prevention of waste, prevention of water and air pollution, safety and health, and other pertinent matters (Section 19).
Minerals mixed with steam, water vapor, or mixtures heated by natural underground energy may be separated and produced without the need to come under the Mining Act when the separation and production of the mineral is only incidental to or a by-product of production and utilization of geothermal energy, natural gas, or methane gas for commercial purposes (Section 20).

Lessee work obligations, cancellations, taxes

With the lease application and before the beginning of each calendar year during the lease’s life, the applicant or lessee must submit to the Director of Mines a program of work proposed for that year (Section 21).
The lessee must commence tapping and utilizing discovered geothermal energy, natural gas, and methane gas within 1 year from lease grant date and must continue until at least the commercial requirement is met, after consultation with the Director of Mines (Section 21).
The extent of tapping and utilization must be in accordance with good engineering practice (Section 21).
Unreasonable suspension or limitation of production or utilization is a cause for cancellation of the lease by the Director of Mines (Section 21).
No annual tax on the lease is due until the lessee has commenced commercial operation; thereafter, an annual tax of PHP 2 pesos per hectare per year or fraction thereof is due and payable (Section 22).

Lease term, renewal, royalty

A lease term may not exceed 25 years from date of issuance and is renewable for another period not to exceed 25 years at the option of and upon application of the lessee made prior to expiration of the original term (Section 23).
Commercial geothermal energy, natural gas, and methane gas produced and utilized are subject to royalty to the Government at the rate of 1½% (one and one-half per centum) of the market value of the energy or gas produced and utilized (Section 24).

Renunciation, fees, and performance bond

A permittee and/or lessee may renounce the whole or any part of the area covered at any time during the existence of the permit and/or lease (Section 25).
Every application must be accompanied by:
- PHP 500 for a permit application,
- PHP 1,000 for a lease application (Section 26).
If no corresponding permit or lease is granted, the amount paid is returned less expenses incurred by the Government in processing in accordance with regulations; the fees form part of the trust fund of the Bureau of Mines (Section 26).
Upon issuance, the permittee and/or lessee must post a bond in favor of the Government in an amount fixed by regulations, with surety or sureties satisfactory to the Secretary of Agriculture and Natural Resources, conditioned on faithful performance of all obligations under the permit and/or lease (Section 27).

Employment of Filipinos and reporting duties

Permittee and/or lessee and their contractors or operators must give preference to Philippine citizens in all types of employment within the country to the extent such citizens are qualified to perform with reasonable efficiency and without hazard to safety of operations (Section 28).
They must maintain effective training and advancement programs commensurate with demonstrated abilities of such citizens to perform satisfactorily (Section 28).
They may still use employees of their own selection without restriction for executive or technical work and other work that, with Director of Mines approval, requires highly specialized training or long experience (Section 28).
Each permittee and/or lessee must submit an annual report with statistical and descriptive information relevant to this employment provision as required by regulations, and must demonstrate compliance to the satisfaction of the Director of Mines upon request (Section 28).
If the Director of Mines opines that provisions are not complied with, he may require steps necessary for compliance, without prejudice to the right under the stated exception for highly specialized training/long experience (Section 28).

Information submission, inspection powers, and retention

Holders of permits and/or leases must submit to the Director of Mines all information the latter may require, including reports on results of geological and geophysical examination, complete well formation history, electric logs, and production reports showing pertinent production data, in the form, manner, and at intervals prescribed by regulations (Section 29).
The Director of Mines or representatives may inspect operations at all reasonable times and examine records, including books and accounts related to payment of taxes and royalties under the Act, and carry out inspections authorized by law or regulations (Section 30).
Permittee and/or lessee must furnish officials or representatives with technical and actual data specified by regulations and provide authority, ample facilities, and assistance to discharge duties (Section 30).
Permittee and/or lessee must retain within the country all original records or original carbon copies essential to determining taxes and royalties due to the Government (Section 30).

Customs/tax incentives for lease operations

During the first 5-year period following granting of any lease, the permittee and/or lessee may import free of customs and tariff duties, compensating tax, and other import-imposed taxes on equipment, machinery, instruments, accessories and spare parts, chemicals and supplies certified by the Director of Mines as essential to operations (Section 31).
When no longer needed, such items may be exported or returned to the point of origin without export tax, provided that if later sold to persons not qualified under the law, the items are subject to tax (Section 31).
No exemption applies to goods imported for personal use or for use by others, nor for sale or purposes other than exploration, production, and utilization of geothermal energy, natural gas, and methane gas; after goods on which exemption was allowed are thus used or disposed of, the permittee and/or lessee must report and pay the duties as due (Section 31).

Stability of work obligations and taxes

Work obligations, special taxes, and royalties fixed by the Act or the terms of the permit and/or lease are inherent and cannot be increased or changed during the life of the permit and/or lease to which they apply (Section 32).
No other special taxes or levies may be applied to such permits and/or leases (Section 32).
Permittee and/or lessee are not subject to provincial, municipal, or other local taxes or levies (Section 32).
They remain subject to taxes of general application in addition to taxes and levies specifically provided in the Act (Section 32).

Surcharges and compulsory collection

Failure to pay any tax, royalty, or unspent balance on work obligations due under the Act triggers a surcharge of 1% per month until paid (Section 33).
When failure persists for a period of 6 months from the date the amounts become due and payable, the Government may resort to compulsory collection consistent with the National Internal Revenue Code (Section 33).

Director of Mines administration and regulations

The Director of Mines is the executive officer responsible for carrying out the Act (Section 34).
The Director of Mines must prescribe rules and regulations and issue orders necessary to carry out the Act, including rules on:
- forms required for the Act (Section 34(a)),
- financial and technical qualifications of applicants and conditions for application, grant, or renewal (Section 34(b)),
- keeping records and furnishing information/returns by authorized persons and prescribing the nature, form, manner, and times of keeping/furnishing (Section 34(c)),
- duties of permittees and/or lessees and operations under permits/leases (Section 34(d)),
- qualifications of persons in charge of making, marking, and closing bores, including bore managers, examinations, and certificates for qualified persons (Section 34(e)),
- preventing or abating nuisances in or about bores and industries using geothermal energy, natural gas, and methane gas (Section 34(f)),
- safety precautions for making and after completion of bores; treatment of ground about bores and water above and below ground; and preventing waste or loss of geothermal energy, natural gas, and methane gas (Section 34(g)),
- drilling machinery/materials/casts to be used to cope with emergencies, and prohibition of use of other classes of such equipment (Section 34(h)),
- prohibiting or regulating bores near other bores (Section 34(i)),
- regulating cessation of boring operations and abandonment and closing of bores, and precautions against loosening earth in vicinity of any bore (Section 34(j)),
- requiring bores be made with due diligence and safe and satisfactory methods (Section 34(k)).

Orders, appeals, and finality

Orders and decisions of the Director of Mines may be appealed to the Secretary of Agriculture and Natural Resources within 30 days from receipt (Section 35).
If parties disagree with the Secretary’s decision, the matter may be taken to the Court of Appeals or the Supreme Court (as the case may be) within 30 days from receipt of the Secretary’s order or decision (Section 35).
Failure to appeal within these periods renders the Director’s or Secretary’s order/decision final and binding (Section 35).
Findings of fact in a Director of Mines decision affirmed by the Secretary are final and conclusive (Section 35).
Appeals to the Supreme Court must be by petition for review filed within the period provided, raising only questions of law (Section 35).

Transfer and assignment restrictions

Permit and/or lease holders may not transfer or assign rights under permits and/or leases in whole or in part without previous written approval of the Secretary of Agriculture and Natural Resources (Section 36).
No transfer or assignment may be made to a person who is not qualified to acquire or hold a permit or lease under the Act, or who would hold a total area (including the transferred/assigned area) exceeding the maximum areas allowed under the Act (Section 36).

Separability and repeal; effectivity rule

If any clause, sentence, provision, or article is held invalid or unconstitutional, the remaining parts remain in full force and effect (Section 37).
All Acts, laws, rules, and regulations inconsistent with the Act are repealed (Section 38).
The Act takes effect upon approval (Section 39).