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PRESIDENTIAL DECREE NO. 1857
PRESIDENTIAL DECREE NO. 1857 - AN
ACT GRANTING NEW INCENTIVES TO PETROLEUM SERVICE CONTRACTORS, AND FOR
THIS PURPOSE AMENDING CERTAIN SectionS OF PRESIDENTIAL DECREE NUMBERED
EIGHTY-SEVEN, AS AMENDED, OTHERWISE KNOWN AS "THE OIL EXPLORATION AND
DEVELOPMENT ACT OF 1972"
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WHEREAS,
one of the more important policy decisions in the area of oil and gas
exploration and development is the adoption of the service contract
system embodied in Presidential Decree No. 87, as amended, also known
and cited as the "Oil Exploration and Development Act of 1972";chanroblesvirtualawlibrary
WHEREAS, the service contract system which attracted foreign capital
and expertise in an area where local resources are not adequate, allows
maximum benefits to the Philippine Government and at the same time
providing reasonable returns to companies that render financial and
technical services and assume all the risk of oil exploration;chanroblesvirtualawlibrary
WHEREAS, while the results from the implementation of the service
contract system has so far been encouraging giving the country several
hydrocarbon discoveries and three producing oil-fields, it is necessary
that we offer improved fiscal and contractual terms to service
contractors in order for the Philippines to continue her oil
exploration momentum in the light of current world-wide developments
that has caused drastic cutbacks in exploration budgets of most
exploration companies; chanroblesvirtualawlibrary
WHEREAS, eight (8) exploratory wells have been drilled so far in waters
deeper than 200 meters or 600 feet, of which two (2) are discoveries,
which give deep-water drilling new significance in Philippine petroleum
operations;chanroblesvirtualawlibrary
WHEREAS, there is a need to provide for a new set of incentives to
revitalize interest and encourage more drilling activity in our
country, with special reference to deepwater oil exploration.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution, do hereby
decree as follows: chanroblesvirtualawlibrary
Section 1. Section Three of Presidential Decree
numbered Eighty-Seven, is hereby amended by adding, after subparagraph
(u) thereof, three new subparagraphs to be known as subparagraphs (v),
(w) and (x) to read as follows:cralaw:red
"(v) 'Deepwater Contract' refers to a service
contract at least eighty-five percent (85%) of the total contract area
are in water depths beyond 200 meters.
"(w) 'Deepwater Contractor' means the contractor in
a deepwater contract, whether acting alone or in consortium with
others.
"(x) 'Deepwater Well' refers to a well drilled on
water depths beyond 200 meters, whether within or without a deepwater
contract."
Section 2. Subparagraph (1) of the second paragraph
of Section 8 of the same decree, is hereby amended to read as follows:cralaw:red
"(1) On behalf of the Government, reimburse the
Contractor for all operating expenses not exceeding seventy percent
(70%) of the gross proceeds from production in any year: Provided, that
if in any year, the operating expenses exceed seventy percent (70%) of
gross proceeds from production, then the unrecovered expenses shall be
recovered from the operations of succeeding years.
"The provisions of Sections 21, 22 and 23 hereof to the contrary
notwithstanding, reimbursement of all operating expenses of the
contractor includes amortization, depreciation and interest as provided
hereunder:cralaw:red
'(a) Amortization and Depreciation. — Intangible
exploration costs may be reimbursed in full. All tangible exploration
costs such as capital expenditures and other recoverable capital assets
are to be depreciated for a period of five (5) years under the
straight-line or double-declining balance method of depreciation at the
option of the contractor.' chanroblesvirtualawlibrary
'(b) Any interest or other consideration paid or
suffered in respect of the financing as approved by the Government of
its development and production operations shall be reimbursed to the
extent of two-thirds (2/3) of the amount thereof, except interest on
loans or indebtedness incurred to finance exploration operations.
Section 3. A new section to be known as Section
Ten-A, is hereby inserted between sections ten and eleven of the same
decree to read as follows:cralaw:red
"Sec. 10-A. Deepwater Contract, Deepwater Contractor
and Deepwater Well. —chanroblesvirtualawlibrary
"(a) Cross Recovery Allowed. — Subject to cost
recovery limitation as provided in the Contract, there shall be allowed
the cross recovery of the operating expenses incurred by a deepwater
contractor or its affiliate in two or more areas under different
deepwater contracts and in the drilling of deepwater well as if they
are covered by a single contract. chanroblesvirtualawlibrary
"(b) Cross Recovery Rules. —chanroblesvirtualawlibrary
(1) Year to Which Cross Recovery May be Carried. —
Operating expenses incurred preceding the date of production shall be
cross-recoverable starting on the date of production; chanroblesvirtualawlibrary
(2) Amount of Cross Recovery. —chanroblesvirtualawlibrary
(a) the entire amount of operating expenses incurred
within ten (10) years preceding the date of production shall be
cross-recoverable;chanroblesvirtualawlibrary
(b) Operating expenses incurred more than 10 years
preceding the date of production shall be reduced by an amount equal to
twenty percent (20%) thereof, for each year beyond ten (10) years
preceding the date of production.
(3) Time to Avail Incentives. — Cross Recovery of
operating expenses set forth in this section shall be allowed for a
period of ten (10) years from the effectivity of this amendatory
decree, unless extended by law. chanroblesvirtualawlibrary
"(c) Cross Recovery Defined. — For purposes of this
section, the term "Cross Recovery" means that the operating expenses
incurred by a deepwater contractor or its affiliate in two or more
areas under different deepwater contracts and the operating expenses it
incurred in the drilling of deepwater wells may be recovered from the
gross proceeds resulting from the sale of all petroleum produced within
any one or more of the deepwater contracts (or contract where the
deepwater well is located), as if they are covered by a single
contract.
"(d) Operating Expenses Defined. — For purposes of
this section, the term 'Operating Expenses' means the total
expenditures for petroleum operations incurred by the contractor, both
within and without the Philippines except administrative items, as
provided in the service contract.
"(e) Special Rules. —chanroblesvirtualawlibrary
(1) Cross Recovery may be allowed under the service
contract in other areas upon the determination and recommendation of
the Minister of Energy and subject to the approval by the President,
taking into consideration factors such as exploration conditions, high
operation cost, location, requirements for transport and terminal
facilities.
(2) Cross Recovery shall apply to any corporation
authorized to engage in petroleum operations in the Philippines
pursuant to a service contract entered into by said corporation and the
Bureau of Energy Development for:cralaw:red
(a) Contracts entered into pursuant to this decree,
as amended, before the effectivity of this amendatory decree; and
(b) New contracts entered into after the effectivity
of this amendatory decree.
"(f) Exploration Period in Deepwater Contract and
Deepwater Well Contract. — The provisions of subparagraph (e), Section
Nine of the Decree shall apply to deepwater contract and deepwater
well, except that when petroleum has been discovered by the end of the
tenth year in deepwater contract and deepwater well, the deepwater
contract or contract for deepwater well shall be further extended to
determine whether the discovery is in commercial quantity, in which
event, another extension for a period not exceeding five (5) years
shall be granted. In the event the deepwater contract or contract for
deepwater well shall remain in force for production purpose, the
extension period of not exceeding five (5) years shall be credited as
part of the initial twenty-five (25) years production
term." chanroblesvirtualawlibrary
Section 4. Section twelve of the same decree is
hereby amended by adding, after subparagraph (h) thereof, a new
subparagraph to be known as subparagraph (i) to read as follows:cralaw:red
"(i) Exemption from the investment requirements of
foreign corporations under Section 126 in relation to Section 148 of
the Corporation Code of the Philippines."
Section 5. The Bureau of Energy Development shall be
vested with the authority to promulgate such rules and regulations as
may be necessary to implement the provisions of this decree, subject to
the approval of the Minister of Energy.
Section 6. Any provision of existing general and
special laws inconsistent with the provisions of this decree is hereby
modified, amended or repealed accordingly.
Section 7. This Decree shall take effect upon its
approval.
DONE in the City of Manila this
1st day of January in the Year of Our Lord, nineteen hundred and
eighty-three.
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