Authority, agencies, and governance structure
- Article 5 authorizes the President and the Congress to approve government service contracts, under Article 13.
- Article 12 empowers the Secretary of Agriculture and Natural Resources to divide petroleum lands into petroleum regions after study, including issuing the order for their establishment.
- Article 13 empowers the President, upon recommendation of the Secretary, to establish petroleum reservations by proclamation.
- Article 28 makes the Director of Mines the intake and examination authority for concession applications, with forwarding to the Secretary of Agriculture and Natural Resources for final action.
- Article 28 also makes the Secretary the authority to publish notices, process adverse claims timing effects, and execute concession contracts.
- Government employment preference compliance is enforced by the Secretary of Agriculture and Natural Resources under Article 26.
Core policy, utility, and risk allocation
- Article 7 declares petroleum exploration, exploitation, and related petroleum manufacturing, refining, storage, or transportation by special method to be public utility.
- Article 8 grants petroleum concessions at the complete risk of the interested party; the Government does not guarantee the existence of petroleum or undertake any title warranty.
- Article 9 provides that exploration and exploitation concessions do not confer ownership of petroleum lands or deposits—only the right to explore, develop, exploit, and utilize for the concession period under Act conditions.
- Article 3 inalienably and imprescriptibly vests state ownership over natural deposits/occurrences in defined Philippine areas and specified offshore analogues.
Key definitions and measurements
- Article 2(a) defines “Petroleum” to include mineral oil, hydrocarbon gas, bitumen, asphalt, mineral wax, and similar naturally associated substances, excluding coal, peat, bituminous shale, and/or other stratified mineral fuel deposits.
- Article 2(b) defines “Crude oil” as oil in its natural state before refining or other treatment, excluding water and foreign substances.
- Article 2(c) defines “Natural gas” as gas obtained from boreholes and wells consisting primarily of hydrocarbon.
- Article 2(f) defines “Permittee,” “concessionaire” or “contractor” as the person to whom a permit, concession, or contract is granted or awarded under the Act.
- Article 2(h) defines “barrel” as 158.98 liters or 42 U.S. gallons.
- Article 2(i) requires metric system for measurements of distances, width, length, areas, depth, volume, and weight.
- Article 2(j) provides that singular includes plural and vice versa.
Coverage, reserved areas, and petroleum regions
- Article 3 covers petroleum and natural gas deposits/occurrences in public and/or private lands in the Philippines, including dry lands, surface of dry lands, creeks, rivers, lakes, submerged lands within territorial waters, and the continental shelf and archipelagic analogue areas seaward from Philippine shores.
- Article 4 provides that ownership or right to use land for purposes other than petroleum exploration, development, or exploitation does not include ownership or right to explore for/exploit/utilize petroleum or natural gas deposits on, in, or under that land.
- Article 5 provides that the right to explore for, develop, exploit, or utilize petroleum resources may be granted only to duly qualified persons via concessions.
- Article 14 defines Free Areas as lands within Philippine territorial limits (including submerged areas within seas, bays, lakes, rivers, lagoons, territorial waters, continental shelf, or archipelagic analogue) that are not within National Reserve Areas, not within Petroleum Reservations, and not covered by valid and existing exploration/exploitation concessions, petroleum drilling leases under Act No. 2932, or petroleum mining claims under the Act of Congress of July 1, 1902, as amended.
- Article 15 defines National Reserve Areas as areas given up voluntarily or required under Articles 50 and 53, expired or cancelled areas, or excess areas beyond maximums that are included in exploration/exploitation concessions; such areas may be applied for after publication by notices.
- Article 12 allows the Secretary to designate petroleum regions, delimiting extent and boundaries.
- Article 13 authorizes Petroleum Reservations, which cannot be established over areas covered by applications already filed or granted for exploration or exploitation concessions, and can be released later via presidential executive proclamation concurred by a joint resolution of Congress.
Concession types and obligatory grants
- Article 10 recognizes these concession kinds:
- Non-Exclusive Exploration Permit (non-exclusive geological or geophysical exploration)
- Exploration Concession (exclusive right to explore within specified areas)
- Exploitation Concession (exclusive right to develop for petroleum production)
- Refining Concession (right to manufacture/refine petroleum or extract derivatives)
- Pipe Line Concession (right to provide and operate pipeline systems for transporting petroleum)
- Article 11 makes certain concessions obligatory upon the Government if the formalities and requirements are fulfilled:
- Exploitation Concession for holders of exploration concessions for parcels they select for exploitation, and for existing petroleum drilling lease holders or petroleum mining claim holders that apply to have their rights governed under the Act.
- Refining and/or Pipe Line Concession for holders of exploitation concessions when manufacturing/transportation is directly related.
- Refining Concession to a holder of a pipe line concession, and Pipe Line Concession to a holder of a refining concession, when directly related.
- Article 11 requires no obligatory concession grant when the concessionaire is in arrears in payments due the Government arising out of or in connection with a petroleum concession/lease/mining claim, until arrears are paid or a cash/surety bond is posted sufficient to cover disputed arrears.
- Article 11 treats rights and obligations of obligatory concessions as flowing from initial concessions, including the right to receive subsequent concessions.
- Article 6 provides discretionary concession granting generally, except where Article 11 applies and the Government becomes obliged after fulfillment of formalities and requirements.
General concession obligations and government control
- Article 16 subjects all concession-covered lands to public easements established or recognized by existing or future laws.
- Article 17 requires concession operations to remain subject to existing mining rights and grants/permits/leas es/concessions for substances other than petroleum, and to existing petroleum rights for petroleum.
- Article 18 preserves the Government’s right to establish reservations other than petroleum reservations and to grant rights relating to substances other than petroleum, provided petroleum concession rights to search, prospect, and drill; produce, extract, transport, store, process, and treat petroleum are not impaired or unreasonably interfered with.
- Article 19 authorizes the Secretary to require additional benefits beyond minimum legal requirements in:
- dispositions of National Reserve Areas, and
- conflicts of applications for concessions.
- Additional benefits may include bonuses/cash payments (single or in installments over time), increased royalty, additional education/public health/social welfare undertakings, and increased work obligations.
- Article 24 requires work under granted concessions to be commenced with reasonable promptness and prosecuted with reasonable diligence consistent with good oilfield practice, including preventing hazards to life/health/property and avoiding pollution of air and public/private land or waters; continued non-compliance can justify penalties or court action and can lead to concession cancellation.
- Article 25 requires concessionaires to submit required information and reports (including well formation history/records, electric logs, tests results, and production reports) in the form and manner and at intervals prescribed by regulations.
- Article 27 excuses breach under force majeure, listing examples including act of God, war, insurrection, riot, civil commotion, strike, tide, storm, flood, lightning, explosion, fire, earthquake, and other happenings the concessionaire could not reasonably prevent or control or avoid.
Non-Exclusive Exploration Permit regime
- Article 33 permits any person qualified to acquire concessions to apply for a non-exclusive right to undertake surface geological or geophysical investigation within Free Areas.
- Article 34 requires filing with the Director of Mines, which examines and passes on the application and qualifications, then forwards to the Secretary for final action.
- Article 34 sets an application fee of PHP 100 for a non-exclusive exploration permit, prescribed by regulations.
- Article 34 provides a return mechanism if no concession is granted corresponding to the application: the paid sum is returned less amounts corresponding to Government expenses incurred in considering the application, as determined by regulations.
- Article 36 states the non-exclusive exploration permit grants no right to make exploratory drilling and conveys no priority or preferential right to entitle the permittee to exclusive exploration or exploitation concession; it is solely for geological and/or geophysical exploration preparatory to applying for exclusive exploration.
- Article 36 requires the permittee to inform the Secretary before exploratory work of the general nature proposed, size of field parties, and areas to be covered, and to submit end-of-each-six months reports on survey results.
- Article 37 limits the term of the permit to not exceeding two years, renewable for another two years at the discretion of the Secretary.
Exploration concession: rights, areas, terms, and payments
- Article 38 defines Exploration as work aimed at discovering petroleum, including surveying/mapping, aerial photography, surface geology, geophysical investigations, subsurface testing by borings or structural drilling, and useful auxiliary work; it excludes actual oil production, though oil found may be freely used for exploration purposes only within the same concession.
- Article 39 requires exploration concession applications to be filed with the Director of Mines following Article 28, with regulations prescribing application form and contents.
- Article 40 requires a map of the block with required location details, corner coordinates/boundaries description, tie line bearings/distances to known monuments, plotting on Coast and Geodetic Survey or Army base maps, and ground establishment of boundaries using permanent conspicuous monuments/posts/mounds.
- Article 41 sets an application fee of PHP 1,000 for exploration concessions, refundable less Government consideration expenses if no concession is granted, as determined by regulations.
- Article 42 authorizes exploration concessions on lands within Free Areas and National Reserve Areas not covered by valid/existing exploration/exploitation concessions, petroleum drilling leases under Act No. 2932, or petroleum mining claims under the Act of Congress of July 1, 1902, as amended.
- Article 43 sets exploration block parameters: grants may be in lots/blocks as compact as possible and rectangular except where contiguous to sea/bays/lakes/rivers/lagoons/roads or other concessions with irregular boundaries; each block/l ot must be not more than 100,000 hectares and not less than 20,000 hectares, and the long dimension of the rectangle must be no more than five times the short dimension.
- Article 44 caps acquisition: not more than 500,000 hectares of exploration areas in any one petroleum region, and not more than 1,000,000 hectares in the whole territory of the Philippines.
- Article 45 grants the exploration concessionaire an exclusive right from grant date through the exploration period and extensions to explore the block, conduct geological/geophysical work, open test pits, conduct drilling operations, and perform related exploration work.
- Article 46 sets the exploration term:
- initial term not more than four years from issuance;
- extension of three years upon compliance, if applied for prior to expiration, for entire area or any part;
- a further three years extension upon compliance and timely application, totaling not more than ten years.
- No further renewal is allowed after ten years from the original concession date.
- Article 47 requires annual submission at the beginning of each calendar year of an exploration work program to the Director of Mines.
- Article 47 imposes minimum annual exploration work expenditure amounts (per hectare per year or fraction thereof) by year:
- Initial term:
- First year: not less than 50 centavos
- Second year: not less than 1 peso
- Third year: not less than 1 peso and 50 centavos
- Fourth year: not less than 2 pesos
- First extension:
- Fifth to seventh year: not less than 2 pesos and 50 centavos
- Second extension:
- Eighth to tenth year: not less than 3 pesos
- Initial term:
- Article 47 allows carrying forward and crediting excess actual exploration work expenditures against succeeding years’ obligations during concession existence.
- Article 47 requires payment to the Government of the difference between minimum required and actual spent if minimum work obligations are not met for any year.
- Article 47 provides that continued failure to perform necessary exploration work results, in addition to the penalty, in concession cancellation under the Act.
- Article 47 requires posting a bond of sufficient amount fixed by regulations to guarantee faithful compliance.
- Article 48 allows aggregation of work obligations between adjoining exploration blocks in the same petroleum region, and aggregation flexibility for blocks held during first/second extensions within the same petroleum region, subject to the Act’s conditions.
- Article 49 requires payment of annual exploration tax during the concession period and extensions (per hectare per year or fraction thereof):
- initial term:
- First year: not less than 5 centavos
- Second and third year: not less than 7.5 centavos
- Fourth year: not less than 10 centavos
- first extension: fifth to seventh year: 10 centavos
- second extension: eighth to tenth year: 12.5 centavos
- initial term:
- Article 50 permits renunciation by the exploration concession holder at any time, including partial renunciation, but retained portion must be not less than 20,000 hectares, unless contiguous to other blocks held by the same concessionaire, in which case the total retained contiguous blocks must be not less than 20,000 hectares.
Exploitation concession: rights, duties, taxes, and royalties
- Article 51 defines Exploitation as work within an exploitation concession area aimed at producing petroleum, including drilling and operating wells, providing and operating pumping and storage facilities, pipelines and related works/facilities to make petroleum available for sale, manufacture/refining, or shipment from the area; it excludes manufacturing/refining operations and work outside the area that is part of pipeline or other special transport systems.
- Article 52 requires exploitation concession applications to be filed with the Director of Mines under Article 28, with regulations prescribing form and contents.
- Article 53 authorizes exploration concessionaires to select exploitation parcels from within their exploration concession during the life (including extensions), granting an exploitation concession if requirements are met and the selected parcels from any one exploration block do not exceed one-half of that block’s area; parcels may be selected contiguously or separately.
- Article 53 also allows exploitation concession grants to a person who discovers and registers a natural deposit/seep or natural gas emanation with the Bureau of Mines under Article 65, even without being an exploration holder.
- Article 54 requires the exploration concessionaire to prepare a general map during exploration/extension showing the exploitation parcels, boundaries of the exploration block, and parcel boundaries with true bearings/distances, based on accurate transit/chain survey and/or aerial photography; copies must accompany the exploitation concession application.
- Article 55 sets an application fee of PHP 2,000 for exploitation concessions, refundable less Government expenses if no concession is granted as determined by regulations.
- Article 56 makes available for exploitation: areas covered by exploration concessions held by the applicant (subject to Article 53) and areas within National Reserve.
- Article 57 requires exploitation parcels to be rectangular as much as possible (except when contiguous to seas/bays/lakes/rivers/lagoons/roads or other irregular boundary concessions, or when otherwise approved by the Secretary), and sets area limits:
- not more than 50,000 hectares and not less than 10,000 hectares total area covered under a single exploitation concession;
- in no case may the greater rectangle dimension exceed five times the other;
- total exploitation area must not exceed one-half of the total area of the related exploration block.
- Article 58 caps holding: not more than 250,000 hectares of exploitation area in any one petroleum region and not more than 500,000 hectares in the whole territory of the Philippines.
- Article 59 grants exploitation concessionaires an exclusive right during the concession term to:
- drill within vertically downward projected boundaries of the concession parcels;
- extract substances referred to in the Act within those boundaries;
- utilize extracted substances;
- perform acts authorized within exploitation scope, subject to conservation/waste prevention and other regulations issued by the Secretary.
- Article 59 declares roads and/or bridges constructed by the concessionaire for exploitation operations available for public use unless otherwise agreed between the Secretary and concessionaire.
- Article 60 imposes exploitation work obligations:
- annual submission of an exploitation work program at the start of each calendar year;
- commencement of drilling within one year from the date the exploitation concession is granted and diligent continuation per good oilfield practice;
- development and bringing into production of the exploitation area and discovery areas until domestic petroleum consumption requirements in the Philippines (determined in consultation with the Secretary) are met by total net production from all indigenous production sources in the Philippines, if feasible under good petroleum engineering practice.
- Article 61 allows concentration of exploitation work obligations for multiple exploitation concessions in the same petroleum region within any one concession, provided drilling is diligently conducted with creditable expenditure and within a drilling program; no exploitation concession may remain more than five consecutive years without drilling operations, and crediting requires prior written approval of the Secretary.
- Article 62 restricts suspension:
- once production is established, production operations cannot be suspended more than six months without prior written approval of the Secretary;
- suspension cannot be authorized for more than two years at one time, except in force majeure.
- Article 63 allows holders of petroleum drilling leases under Act No. 2932 and petroleum mining claims under July 1, 1902 (as amended) to surrender rights by applying for exploitation concessions under this Act, and the Secretary may grant exploitation concessions over the same, subject to conditions and obligations under the Act.
- Article 64 imposes annual exploitation tax throughout the concession life (per hectare per year or fraction thereof):
- first five-year period: not less than 50 centavos
- second five-year period: not less than 1 peso
- third five-year period: not less than 1 peso and 50 centavos
- fourth five-year period: not less than 3 pesos
- fifth five-year period: not less than 5 pesos
- thereafter (renewal periods if any): not less than 5 pesos, unless modified by the Secretary.
- Article 65 requires exploitation concessionaires to pay Government royalty not less than 12.5% of petroleum produced and saved less petroleum consumed in operations; natural gas returned to the formation is not subject to royalty.
- Article 65 provides a discovery incentive royalty deduction:
- royalty due on petroleum/natural gas produced from the start of commercial production from wells within one kilometer from a discovered, located, registered petroleum deposit/seep or natural gas emanation is subject to a 10% deduction to be due and payable to the discoverer, provided the deposit/seep/emanation is not covered by another previously registered discovery and discovery/registration occurred before the date of granting an exploration or exploitation concession covering the area.
- Article 65 requires discoverers to mark the discovery point with prominent and permanent object and placard stating name of discovery, name of discoverer, and date and location within 30 days of discovery (or within 30 days after approval if discovered before enactment approval).
- Article 65 requires an oath declaration of discovery and location, registered in the Bureau of Mines, Manila, within 90 days from date of location, with registration fee PHP 10 and submission of a sample of the oil or natural gas.
- Article 65 deems discoveries not duly declared and registered within the period as abandoned by the discoverer.
- Article 65 provides that discoverer rights depend on actual discovery followed by registration within required period, and that discoverer rights expire 10 years after the date of registration; if within that period an exploration or exploitation concession is granted covering the discovered area, discoverer rights continue from concession grant date until 10 years from the first commercial production start from wells within the discovery area.
- Article 66 credits exploitation taxes against royalty within the same petroleum region for all exploitation concessions held by the concessionaire in the same year, but only for exploitation tax amounts in excess of 50 centavos per hectare per year; royalty and exploitation tax interplay requires converting royalty paid in kind to cash under Article 68.
- Article 67 allows royalty payment methods: the Secretary elects cash or in kind, but election cannot change during the quarter for which it has been made, and cannot change for succeeding quarter without written notice at least 30 days prior to commencement of that quarter.
- Article 67 provides that if in kind is elected, delivery must occur at the place of production or established receiving/storage station on the concessionaire’s transportation system as elected by the Secretary.
- Article 67 provides that if cash is elected, royalty is paid quarterly in advance; the amount for a quarter is determined by petroleum production during the preceding quarter; payment procedure (except specified here) is set by regulations.
- Article 68 specifies liquidation in cash: market value at the place of production uses average price of petroleum of same quality during preceding quarter in governing markets specified by regulations, deducting:
- transportation cost from place of production to markets, including actual costs inherent in transportation; and
- cost of processing/treatment necessary for suitability for transportation, including actual costs inherent therein.
- Article 69 requires the Secretary to notify the concessionaire in writing within 60 days after each month end for in-kind payments or each quarter end for cash payments that payment is accepted for full discharge or not accepted for stated reasons; acceptance by failure to notify is deemed, and acceptance is deemed irrevocable.
- Article 70 obligates exploitation concessionaires to construct and maintain storage tanks of sufficient capacity near production sites according to good oilfield practice.
- Article 70 limits free Government storage of royalty in kind to not exceeding 30 days; if Government lacks facilities, concessionaire must supply storage/handling for a reasonable charge mutually agreed in advance, but in no event may the concessionaire store beyond 30 days more than 100,000 barrels at any one time, nor petroleum other than that produced within the concession area.
Application, notices, adverse claims, and conflicts
- Article 28 requires concession applications to be filed with the Director of Mines, examined and passed upon including applicant qualifications, and forwarded with findings/recommendations to the Secretary.
- If the application is in order and the applicant duly qualified, Article 28 requires the Secretary to publish a notice at least once a week for three consecutive weeks in the Official Gazette, and in any English newspaper of general circulation published in the City of Manila.
- Article 28 allows adverse claims during the publication period; if no adverse claim is filed within that period, it is conclusively presumed no adverse claim exists and no third-party objection can be heard thereafter, and the concession contract is executed by the Secretary with the concessionaire according to laws on conveyance of leasehold rights, with the contract stating principal rights and obligations.
- Article 29 bars consideration of adverse claims based on applications filed after the first publication date of the notice mentioned in Article 28.
- Article 30 governs adverse claims on conflicting applications: within a defined process, where the adverse claimant is duly qualified, the Director informs parties and each must, within 60 days from receipt, submit amended applications stating additional benefits to the Government; the Secretary accepts the amended application that best serves national interest, and the right to appeal to courts as in ordinary cases is recognized.
- Article 31 sets applicant qualifications:
- individual applicants must be citizens of the Philippines, of legal age, and capable to contract;
- association of individuals must be a partnership or corporation organized under Philippine laws with at least 60% capital owned and held by Philippine citizens at all times.
- Article 31 provides that, subject to the ordinance appended to the Constitution, citizens of the United States and business enterprises owned and controlled by U.S. citizens enjoy the same rights and obligations under the Act under the same conditions imposed on Philippine citizens or Philippine-owned corporations/associations.
- Article 31 requires satisfactory evidence of sufficient finance, organization, resources, technical competence, and skills to conduct the concession operations using the best method known to the industry.
- Article 32 disqualifies executive branch officials and employees connected with mineral resources administration/disposition of petroleum from applying for or acquiring concessions or being interested in any way in any application/concession during incumbency and for five years thereafter.
Land access, easements, and eminent domain
- Article 20 grants exploration and exploitation concessionaires the right to enter private lands covered by their concessions for geological or geophysical studies, with authority to use instruments necessary, conditioned on indemnifying the owner or legal occupant for material damage suffered.
- Article 20 prohibits authorizing occupancy of private buildings, yards, or gardens against the owner’s will.
- Article 20 allows the concessionaire to apply for court authority to exercise denied entry if the right is denied by owner/occupant, upon posting a bond fixed and approved by the Court of First Instance of the province, with an order allowing right pending final determination of the proper amount payable.
- Article 21 allows concessionaires to enter into agreements for temporary occupancy easements over private lands needed for essential operations; when agreements cannot be reached or an owner refuses, the Court of First Instance may grant authority upon application and bond posting, pending final determination including reasonable value/rental and compensation for resulting damage.
- Article 21 declares certain works built for public use or benefit—such as oil well construction, tanks, reservoirs, waterways, pipelines, roads, railroads, tramlines, telephone/telegraph lines, airfields, radio stations, powerhouses, transmission lines, pumping stations, wharves, piers, and terminals—enable the Government to exercise eminent domain through the concessionaire in accordance with applicable laws.
- Article 21 requires furnishing a copy of any voluntary agreement between concessionaire and private owner to the Secretary of Agriculture and Natural Resources.
- Article 21 presumes necessity for purposes of this Article in cases of well drilling and auxiliary works, pipeline construction, tanks, pumping plants,