Constitutional and statutory basis
- Section 2, Article XII of the Constitution establishes that all minerals, petroleum and other mineral oils, and other natural resources are owned by the State and are under the full control and supervision of the State.
- Presidential Decree No. 87, as amended, known as the “Oil Exploration and Development Act of 1972”, provides for the Government to engage technically competent and financially capable contractors through service contracts to explore, develop, and produce indigenous petroleum resources.
- Section 11 of PD 87 permits holders of service contracts to assign or transfer their rights through farm-in/farm-out contracts, subject to prior approval of the Department of Energy (DOE).
- Executive Order No. 80 is issued to rationalize the rules for third party participation in the petroleum service contracts in which PNOC Exploration Corporation (PNOC EC) participates.
Permitted third-party participation model
- Section 1 permits PNOC EC to enter into farm-in/farm-out agreements.
- Section 1(a) allows third parties to participate in service contracts awarded by the Government to PNOC EC.
- Section 1(b) allows PNOC EC to participate in service contracts awarded by the Government to third parties.
- Section 1 requires that PNOC EC enter into farm-in/farm-out agreements only with reputable, technically competent and financially capable entities.
- Farm-in/farm-out is defined as a standard oil and gas industry practice allowing third party participation to spread risks in oil and gas exploration, development, and production:
- the entity acquiring the participating interest treats the transaction as a “farm-in”, and
- the entity transferring such interest treats the transaction as a “farm-out”.
DOE-driven selection, review, and approval
- Section 2 requires PNOC EC’s third party selection process to conform to best practices widely adopted in the international petroleum industry, as determined by the DOE.
- Section 2 directs the DOE, in consultation with the Governance Commission for Government-Owned or -Controlled Corporations (GCG), to issue rules and regulations specifying the selection process PNOC EC must observe.
- Section 2 requires the DOE to consider existing government selection procedures that enhance transparency and objectivity, including GCG issuances requiring that contracts entered into by government-owned and/or -controlled corporations (GOCCs) undergo review by the Office of the Government Corporate Counsel.
- Section 2 mandates incorporation of the relevant GCG review/transparency/objectivity provisions into the DOE rules and regulations insofar as consistent with international petroleum industry best practices.
- Section 2 provides that compliance with the selection process is closely monitored by both DOE and GCG.
- Section 2 makes DOE approval a condition for effectivity: every farm-in/farm-out agreement of PNOC EC takes effect only upon approval of the DOE.
- Section 2 limits DOE approval: it is granted after the Department finds that all aspects of the agreement, including:
- the qualifications of the relevant third party, and
- the selection process undertaken,
comply with PD 87, Executive Order No. 80, and other applicable laws and issuances.
Governance and diligence standards
- Section 3 requires PNOC EC to observe sound business judgment in entering the commercial contracts and arrangements contemplated by Executive Order No. 80.
- Section 3 requires PNOC EC to exercise extraordinary diligence.
- Section 3 requires paramount consideration of the national interest in PNOC EC’s entry into the contemplated commercial arrangements.
Presidential reporting and oversight
- Section 4 directs the DOE to submit regular reports to the President on the implementation of Executive Order No. 80.
- Section 4 requires that the reports be copy furnished to the GCG.
Duty of government assistance
- Section 5 directs government agencies and instrumentalities—including GOCCs and government financial institutions—to extend such assistance and support as necessary for the successful implementation of Executive Order No. 80.
Repeal, separability, and continuity
- Section 6 repeals Executive Order No. 556 (s. 2006) and all other executive issuances, rules and regulations, or parts thereof that are inconsistent with the provisions of Executive Order No. 80.
- Section 7 provides separability: if any provision is declared invalid or unconstitutional, the other provisions unaffected remain valid and subsisting.