Petroleum exploration, exploitation law 1949

Law Summary

State Ownership of Petroleum Resources

All petroleum and natural gas deposits within Philippine lands and waters are owned by the State inalienably and imprescriptibly.

Land Ownership and Petroleum Rights

Land ownership or use rights do not include ownership or rights to petroleum deposits beneath; these rights are separate.

Granting of Petroleum Rights

Petroleum rights can only be granted via concessions to qualified persons.
Government reserves rights to conduct exploration and exploitation through itself or contractors.
Exclusive rights apply only to exploration and exploitation but not refining or transportation.

Discretionary Nature of Concessions

Granting concessions is at the Government’s discretion except where mandatory under specific provisions.

Public Utility Declaration

Petroleum operations (exploration, exploitation, refining, storage, special transportation) declared as public utilities.

Concessionaires Assume Risks

Concessions are granted at the concessionaire's risk; government makes no guarantees on petroleum existence or title.

Nature of Titles and Rights

Concessions grant rights to explore, develop, exploit, and utilize petroleum but not ownership of land or deposits.

Types of Concessions

Non-Exclusive Exploration Permit: right to conduct geological/geophysical studies.
Exploration Concession: exclusive right to explore.
Exploitation Concession: exclusive right to produce petroleum.
Refining Concession: right to refine/manufacture petroleum.
Pipe Line Concession: right to operate petroleum transportation pipelines.

Obligatory Concession Granting

Certain concessions must be granted upon fulfillment of requirements, e.g., exploitation rights to exploration concession holders, refining/pipe line to exploitation concessionaires.
Rights flow from initial concessions and include rights to subsequent related concessions.

Designation of Petroleum Regions and Reservations

The Secretary of Agriculture and Natural Resources may designate petroleum regions.
The President may establish petroleum reservations by proclamation based on recommendations.
No reservations over areas with existing or pending concessions; reservations may be subsequently opened for concessions.

Free Areas and National Reserve Areas

Free Areas: lands open to application for exploration.
National Reserve Areas: lands surrendered, expired, or excess areas, subject to specific application procedures and notices.

Public Easements and Existing Rights

Lands under concessions remain subject to public easements and existing mining rights.
Government retains rights to establish reservations and grant other rights, provided petroleum rights are not unreasonably interfered with.

Additional Benefits and Government Interests

Secretary may require extra benefits in National Reserve Areas application conflicts, including bonuses, royalties, social undertakings, or increased work obligations.

Rights of Entry and Easements on Lands

Concessionaires have rights to enter private lands (with compensation for damages) and to acquire easements by agreement or court order.
Private occupancy of buildings/yards protected.
Government may exercise eminent domain on behalf of concessionaires for public-use facilities.
Easements on public lands granted by Secretary ensuring prior rights and laws compliance.

Use of Natural Resources

Concessionaires may use water, timber, clay from public lands within concessions, subject to regulations and prior rights.

Obligations and Work Requirements

Concessionaires must diligently perform work with good oil field practice, including exploration, drilling, development, and production.
Regulatory compliance is mandatory; failure may lead to penalties or concession cancellation.

Reporting and Employment Obligations

Regular submission of detailed technical and production reports required.
Preference in employment to qualified Filipinos with mandated training programs; exception for specialized staff.

Force Majeure Provision

Non-performance due to force majeure (natural disasters, war, strikes, etc.) is excused.

Application and Granting Procedures

Applications filed with Director of Mines, examination, publication of notice, acceptance or adverse claims handling procedures specified.
Conflicting applications resolved by Secretary’s discretion considering government interest.

Applicant Qualifications

Individuals must be citizens; corporations/partnerships majority Filipino-owned (60%).
U.S. citizens and enterprises granted equal rights under certain conditions.
Evidence of finance, organization, technical competence required.
Government officials involved in petroleum administration disqualified from applying during and five years post-service.

Non-Exclusive Exploration Permit Details

Allows geological/geophysical studies only; no priority or drilling rights.
Entry upon private property requires owner consent.
Term up to two years, renewable once.

Exploration Concessions

Defined as discovery work excluding actual production (except usage of oil found for exploration).
Applications require detailed maps with technical boundaries.
Terms up to 4 years plus possible extensions totaling 10 years.
Annual work expenditure obligations progressively increasing.
Obligations for multiple blocks may be consolidated.
Annual exploration tax with specified rates.
Allowed renunciation with minimum retained areas.

Exploitation Concessions

Defined as production-related activities within concession area.
Applications filed similarly with required technical documentation.
May be granted for parcels up to half of exploration concession area.
Restrictions on maximum area per person.
Rights include drilling, extraction, operation of associated facilities.
Obligations to commence drilling within one year and meet production requirements.
Production suspension limited and regulated.
Existing petroleum leases may convert to exploitation concessions.
Annual exploitation tax specified by time periods.

Royalties and Payments

Minimum 12.5% royalty on petroleum produced and saved, adjusted for government use and discoverer's bonus.
Royalty payment may be in kind or cash, with valued market determination.
Acceptance procedures and irrevocability rules established.

Storage and Refining Obligations

Concessionaire must provide storage tanks with capacity per good practice and store royalty in kind up to 30 days.
Government may require refining of petroleum domestically within capacity limits.

Terms and Renunciations

Exploitation concessions valid up to 25 years plus renewal.
Partial renunciation allowed with minimum retained parcels.

Refining and Pipeline Concessions

Refining involves processing petroleum into marketable products, excluding certain preparation operations.
Pipeline concession includes transport of petroleum and ancillary facilities.
Application, fees, rights, and term parallel exploration/exploitation concessions.
Refining capacity preferentially used for concessionaire’s petroleum, with obligations to refine others’ petroleum proportionally and at approved rates.
Pipeline operators act as common carriers with obligation to transport others’ petroleum under non-discriminatory conditions.
Refining and pipeline concessions may be renounced subject to approvals.

Penalties and Cancellation

Falsehoods or omissions in applications grounds for cancellation.
Specific causes for cancellation per concession type including failure to meet work obligations, failure to pay taxes or royalties, production suspension, and non-construction within required time.
Procedural rights for notification, hearing, correction, and appeal provided.

Extinction and Property Rights

Rights extinguish at expiration, cancellation, or renunciation.
Government acquires areas and property not removed within one year after termination.
Concessionaires may remove certain properties within specified period.
Refineries remain the property of owners except for roads and bridges.

Administration and Enforcement

Secretary of Agriculture and Natural Resources is the executive officer with broad powers including rulemaking.
Creation of Administrative Unit and Technical Board for technical advice and monitoring.
Appropriation for unit and board expenses provided.
Bond requirements for performance of obligations.

Landowner Shares and Emergency Provisions

Landowners of adjudicated private lands receive 10% share of exploration/exploitation taxes.
Government may requisition petroleum products during war or national emergency with just compensation.

Other Provisions

Provisions on disposal of substances other than petroleum, helium extraction rights reserved to government.
Work obligations, taxes, and royalties fixed for concession duration; no increase or additional local taxes applicable.
Import duty exemptions for equipment during first five years.
No export taxes on petroleum.
Compulsory collection procedures for unpaid fees.
Rights to inspect operations and accounts granted.
Dispute settlement authority vested in Secretary with judicial review.
Definition and prevention of waste including inefficient production and pollution.
Transitional provisions, restrictions on transfers and assignments, partial invalidity clause, repeal of conflicting laws, and effective date provided.

This comprehensive legal framework organizes the exploration, development, utilization, and conservation of the Philippines' petroleum resources, balancing government prerogatives, private enterprise rights, regulatory controls, and public interest.