Definition of Key Terms
- "Petroleum" includes mineral oils, hydrocarbon gas, bitumen, asphalt, mineral gas, except coal and stratified mineral fuels.
- "Crude oil" means unrefined oil from natural sources, excluding oil from destructive distillation.
- "Natural gas" is hydrocarbon gas obtained from wells.
- "Petroleum operations" cover exploration, production, transportation, storage, handling, and sale within the Philippines, excluding refining and export transportation.
- "Petroleum in commercial quantity" refers to economically viable quantities for development.
- Definitions also include "posted price", "market price", "barrel", "contract", "contractor", "government", and financial terms such as "gross income" and "taxable net income".
Government's Role in Petroleum Exploration and Production
- Government may directly or indirectly explore and produce petroleum.
- Service contracts permit private entities to engage in operations on free areas, reserves, or petroleum reservations.
- Contractors must be technically and financially capable.
Contract Execution and Procedures
- Contracts require Presidential approval and are executed by the Petroleum Board.
- Public notice, pre-qualification, public bidding, or negotiation are procedures for awarding contracts.
- Petroleum Board may select areas or open them for bidding with specified conditions.
Nature and Obligations of Service Contracts
- Contractors provide services, technology, and financing; Government owns petroleum produced.
- Contractors undertake exploration, development, production, marketing with government oversight.
- Contractors assume all exploration risks and are responsible for reporting, safety, and compliance.
- Petroleum Board reimburses operating expenses and pays service fees based on production revenue.
Minimum Contract Terms and Work Obligations
- Required exploration expenditures based on hectare rates, with flexibility for aggregation and crediting excess spending.
- Obligations to drill minimum footage and deadlines for work.
- Relinquishment of contract areas required after specified periods.
- Ten-year exploration period, extendible with conditions; provisions for production term up to 40 years.
- Contractors’ property rights over movable materials and compliance with labor, health, and safety laws.
- Natural gas treated similarly regarding discovery, sale, with domestic supply priority.
Contract Area Limits and Transfers
- Area sizes for contracts specified for onshore and offshore.
- Transfers or assignments require Petroleum Board approval, with automatic approval for transfers to qualified affiliates.
Privileges Granted to Contractors
- Tax exemptions except for income tax.
- Exemptions from tariffs on imported machinery and materials not locally produced with conditions.
- Exemptions from certain local laws and permitting access for foreign technical personnel.
- Guarantee of contractual terms without unilateral alteration.
- Privileges extendable to Petroleum Act concessionaires opting for service contract status.
Repatriation, Profit Retention, and Financial Rights
- Contractors entitled to repatriate capital and retain profits abroad.
- Conversion of earnings to foreign exchange subject to prevailing rates.
Disclosure and Arbitration
- Full disclosure of interests in contractors required.
- Contracts may include arbitration clauses for dispute resolution.
Performance Guarantees
- Contractors must post bonds or guarantees ensuring faithful performance of obligations.
Petroleum Board Composition and Powers
- Board comprised of key government officials, chaired by Secretary of Agriculture and Natural Resources.
- Attached to National Economic Development Authority.
- Powers include defining contract areas, entering contracts, proposing subsidies, conducting research, rulemaking, personnel management, and reporting.
Tax Provisions
- Contractors liable for Philippine income tax on petroleum operations.
- Gross income includes sales at posted or market prices, incidental income.
- Allowable deductions include Filipino participation incentive, operating expenses, amortization, and depreciation.
- Interest on financing not deductible.
- Filing and payment procedures governed by Internal Revenue Code.
Interaction with Previous Petroleum Laws
- Certain provisions of the Petroleum Act of 1949 remain applicable.
- Exploration concessionaires may opt to convert to service contracts with specified terms.
- Consortium formations allowed with valuation of assigned areas.
Filipino Participation Incentive
- Contractors with at least 15% Filipino participation may receive government subsidies up to 7.5%.
- Computed by deduction from posted or market prices.
Transparency and Publicity
- Contracts and negotiations subject to publicity consistent with government interest.
Labor Priority and Foreign Assistance
- Employment priority for qualified local personnel in operational areas.
- Government may seek foreign assistance for technology, equipment, and financing.
Appropriations and Effectivity
- Initial funding appropriated; further funds included in annual General Appropriations Act.
- Repealing clause for inconsistent laws, preserving existing rights.
- Act effective upon approval.