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collection of Philippine laws, statutes and codes
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Chan Robles Virtual Law Library
PRESIDENTIAL DECREE NO. 87
PRESIDENTIAL DECREE NO. 87 -
AMENDING PRESIDENTIAL DECREE NO. 8 ISSUED ON OCTOBER 2, 1972, AND
PROMULGATING AN AMENDED ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF
INDIGENOUS PETROLEUM AND APPROPRIATE FUNDS THEREFOR
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chanroblesvirtualawlibrary
WHEREAS, Presidential Decree No. 8 dated
October 2, 1972 was issued to promote the discovery and development of
the country's indigenous petroleum resources and adopting therefore as
part of the law of the land the provisions of Senate Bill No. 531 (An
Act to Promote the Discovery, Production of Indigenous Petroleum and
Appropriate Funds Therefor);chanroblesvirtualawlibrary
WHEREAS, it was found necessary for the national interest to amend
Senate Bill No. 531 among others things to provide more meaningful
incentives to prospective service contractors.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines,
by virtue of the powers vested in me by the Constitution as
Commander-in-Chief of all the Armed Forces of the Philippines, and
pursuant to Proclamation No. 1081, dated September 21, 1972, and
General Order No. 1, dated September 22, 1972, as amended, do hereby
amend Presidential Decree No. 8 as follows: chanroblesvirtualawlibrary
AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTION OF INDIGENOUS PETROLEUM,
AND APPROPRIATING FUNDS THEREFOR.
Section 1. Short title. — This Act shall be known and
may be cited as "THE OIL EXPLORATION AND DEVELOPMENT ACT OF 1972."
Section 2. Declaration of policy. — It is hereby
declared to be the policy of the State to hasten the discovery and
production of indigenous petroleum through the utilization of
government and/or private resources, local and foreign, under the
arrangements embodied in this Act which are calculated to yield the
maximum benefit to the Filipino people and the revenues to the
Philippine Government for use in furtherance of national economic
development, and to assure just returns to participating private
enterprises, particularly those that will provide the necessary
services, financing and technology and fully assume all exploration
risks.
Section 3. Definition of terms. — As used in this
Act, the following shall have the following respective
meanings: chanroblesvirtualawlibrary
(a) "Petroleum" shall include any mineral oil
hydrocarbon gas, bitumen, asphalt, mineral gas and all other similar or
naturally associated substances with the exception of coal, peat,
bituminous shale and/or other stratified mineral fuel deposits.
(b) "Crude oil" or "crude" means oil in its natural
state before the same has been refined or otherwise treated. It does
not include oil produced through destructive distillation of coal,
bituminous shales or other stratified deposits, either in its national
state or after the extraction of water, and sand or other foreign
substances therefrom.
(c) "Natural gas" means gas obtained from boreholes
and wells and consisting primarily of hydrocarbons.
(d) "Petroleum operations" means searching for and
obtaining petroleum within the Philippines through drilling and
pressure or suction or the like, and all other operations incidental
thereto. It includes the transportation, storage, handling and sale
(whether for export or for domestic consumption) of petroleum so
obtained but does not include any: (1) transportation of petroleum
outside the Philippines; (2) processing or refining at a refinery; or
(3) any transactions in the products so refined.
(e) "Petroleum in commercial quantity" means
petroleum in such quantities which will permit its being economically
developed as determined by the contractor after taking into
consideration the location of the reserves, the depths and number of
wells required to be drilled and the transport and terminal facilities
needed to exploit the reserves which have been discovered.
(f) "Posted price" refers to the FOB price
established by the Contractor in consultation with the Petroleum Board
for each grade, gravity and quality of crude oil offered for sale to
buyers generally for export at the particular point of export, which
price shall be based upon geographical location, and the fair market
export values for crude oil of comparable grade, gravity and
quality. chanroblesvirtualawlibrary
(g) "Market Price" shall mean the price which would
be realized for petroleum produced under a contract as hereinafter
defined if sold in a transaction between independent persons dealing at
arm's length in a free market.
(h) "Barrel" means 42 U.S. gallons or 9702 cubic
inches at temperature of 60º Fahrenheit.
Any reference in this Act to the value of any crude oil at the posted
price or market price shall be construed as a reference to the amount
obtained by multiplying the number of barrels of that crude oil by the
posted price or market price per barrel applicable to that crude oil.
(i) "Crude oil exported" shall include not only crude
oil exported as such but also indigenous crude oil refined in the
Philippines for export.
(j) "Government" means the Government of the Republic
of the Philippines.
(k) "Contractor" means the contractor in a service
contract whether acting alone or in consortium with others.
(l) "Contract" refers to a service contract.
(m) "Filipino participation incentive" means the
allowance which may be given the Contractor with Filipino participation
as provided in Section 28 hereof.
(n) "Philippine corporation" means a corporation
organized under Philippine laws at least sixty per cent of the capital
of which is owned and held by citizens of the Philippines. chanroblesvirtualawlibrary
(o) "Affiliate" means (a) a company in which a
contractor holds directly or indirectly at least fifty per cent of its
outstanding shares entitled to vote; (b) a company which holds directly
or indirectly at least fifty per cent of the contractor's outstanding
shares entitled to vote; or (c) a company in which at least fifty per
cent of its share outstanding and entitled to vote are owned by a
company which owns directly or indirectly at least fifty per cent of
the shares outstanding and entitled to vote of the contractor.
(p) "Gross income" means the gross proceeds from the
sale of crude, natural gas or casing head petroleum spirit produced
under the contract and sold during the taxable year at posted or market
price, as the case may be, and such other income which are incidental
to and arising from any one or more of the petroleum operations of the
contractor.
(q) "Taxable net income" means the gross income less
the deductions allowed in this Act.
(r) "Taxable year" means the calendar or fiscal year
of the contractor.
(s) "Casing head petroleum spirit" means any liquid
hydrocarbon obtained from natural gas by separation or by any chemical
or physical process.
(t) "Petroleum Board" refers to the Petroleum Board
created in Section seventeen of this Act.
(u) "Operating Expenses" means the total expenditures
for petroleum operations made by the Contractor both within and without
the Philippines as provided in a service contract. chanroblesvirtualawlibrary
Section 4. Government may undertake petroleum
exploration and production. — Subject to the existing private rights,
the Government may directly explore for and produce indigenous
petroleum. It may also indirectly undertake the same under service
contracts as hereinafter provided. These contracts may cover free
areas, national reserve areas and/or petroleum reservations, as
provided for in the Petroleum Act of 1949, whether on-shore or
off-shore. In every case, however, the contractor must be technically
competent and financially capable as determined by the Board to
undertake the operations required in the contract.
Section 5. Execution of contract authorized in this
Act. — Every contract herein authorized shall, subject to the approval
of the President, be executed by the Petroleum Board created in this
Act, after due public notice pre-qualification and public bidding or
concluded through negotiations. In case bids are requested or if
requested no bid is submitted or the bids submitted are rejected by the
Petroleum Board for being disadvantageous to the Government, the
contract may be concluded through negotiation.
In opening contract areas and in selecting the best offer for petroleum
operations, any of the following alternative procedures may be resorted
to by the Petroleum Board, subject to prior approval of the President:cralaw:red
(a) The Petroleum Board may select an area or areas
and offer it for bid, specifying the minimum requirements and
conditions; or
(b) The Petroleum Board may open for bidding a large
area wherein bidders may select integral areas not larger than the
maximum provided in this Act. Only the best offer shall be accepted and
the selection thereon shall be made by a weighted system of evaluating
the different aspects of each bid; or chanroblesvirtualawlibrary
(c) An area may be selected by an interested party
who shall negotiate with the Petroleum Board for a contract under the
terms and conditions provided in this Act.
Section 6. Nature of service contract. — In a service
contract, service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated service fee
while financing is provided by the Government to which all petroleum
produced shall belong.
Section 7. Special stipulation in service contract. —
Where the Government is unable to finance petroleum exploration
operations or in order to induce the contractor to exert the maximum
efforts to discover and produce petroleum as soon as possible, the
service contract shall stipulate that if the contractor shall furnish
services, technology and financing, the proceeds of sale of the
petroleum produced under the contract shall be the source of funds for
payment of the service fee and the operating expenses due the
contractor.
Section 8. Obligation of contractor in service
contract. — The arrangement pursuant to the preceding section seven
shall be such that the contractor, which may be a consortium, shall
undertake, manage and execute petroleum operations. The contract may
authorize the contractor to take and dispose of and market either
domestically or for export all petroleum produced under the contract
subject to supplying the domestic requirements of the Republic of the
Philippines on a pro-rata basis. The Government shall oversee the
management of the operations contemplated in the contract and in this
connection shall require the contractor to —chanroblesvirtualawlibrary
(a) Provide all necessary services and technology;chanroblesvirtualawlibrary
(b) Provide the requisite financing;chanroblesvirtualawlibrary
(c) Perform the exploration work obligations and
program prescribed in the agreement between the Government and the
Contractor, which may be more but shall not be less than the
obligations prescribed in this Act; chanroblesvirtualawlibrary
(d) Once petroleum in commercial quantity is
discovered, operate the field on behalf of the Government in accordance
with accepted good oil field practices using modern and scientific
methods to enable maximum economic production of petroleum; avoiding
hazards to life, health and property; avoiding pollution for land and
waters; and pursuant to an efficient and economic program of operation;chanroblesvirtualawlibrary
(e) Assume all exploration risks such that if no
petroleum in commercial quantity is discovered and produced, it will
not be entitled to reimbursement;chanroblesvirtualawlibrary
(f) Furnish the Petroleum Board promptly with
geological and other information, data and reports which it may
require;chanroblesvirtualawlibrary
(g) Maintain detailed technical records and accounts
of its operations;chanroblesvirtualawlibrary
(h) Conform to regulations regarding, among others,
safety, demarcation of agreement acreage and work areas,
non-interference with the rights of other petroleum, mineral and
natural resources operators;chanroblesvirtualawlibrary
(i) Maintain all meters and measuring equipment in
good order and allow access to these as well as to the exploration and
production sites and operations to inspectors authorized by the
Petroleum Board;chanroblesvirtualawlibrary
(j) Allow examiners of the Bureau of Internal Revenue
and other representatives authorized by the Petroleum Board full access
to their accounts, books and records, for tax and other fiscal
purposes; and
(k) Be subject to Philippine income tax. chanroblesvirtualawlibrary
On the other hand, the Petroleum Board shall —chanroblesvirtualawlibrary
(1) On behalf of the Government, reimburse the
Contractor for all operating expenses not exceeding seventy per cent of
the gross proceeds from production in any year: Provided, That if in
any year the operating expenses exceeds seventy per cent of gross
proceeds from production, then the unrecorded expenses shall be
recovered from the operations of succeeding years.
(2) Pay the Contractor a service fee the net amount
of which shall not exceed forty per cent of the balance of the gross
income after deducting the Filipino participation incentive, if any,
and all operating expenses recovered pursuant to Section 8 (1) above.
(3) Reimbursement of operating expenses and payment
of the service fee shall be in such form and manner as provided for in
the contract.
Section 9. Minimum terms and conditions. — In
addition to those elsewhere provided in this Act, every contract
executed in pursuance hereof shall contain the following minimum terms
and conditions:cralaw:red
(a) Every contractor shall be obliged to spend in
direct prosecution of exploration work and in delineation and
development following the discovery of oil in commercial quantity not
less than the amounts provided for in the contract between the
Government and the contractor and these amounts shall not be less than
the total obtained by multiplying the number of hectares covered by the
contract by the following amounts for hectare:cralaw:red
Period On-shore Of-shore
Year 1 P3.00 P3.00
Year 2 3.00 3.00
Year 3 3.00 6.00
Year 4 3.00 6.00
Year 5 3.00 6.00
Year 6 9.00 18.00
Year 7 9.00 18.00
Year 8 9.00 18.00
Year 9 9.00 18.00
Year 10 9.00 18.00
Provided, That if during any contract year the Contractor shall spend
more than the amount of money required to be spent, the excess may be
credited against the money required to be spent by the Contractor
during the succeeding contract years: Provided, further, That in case
the same Contractor holds two or more areas under different contracts
of service, the total amount of work obligations for exploration
required for the initial term of all contracts may be spent within any
one or more of them as if they are covered by a single contract of
service: Provided, further, That should the Contractor fail to comply
with the work obligations provided for in the contract, it shall pay to
the Government the amount it should have spent but did not in direct
prosecution of its work obligations: Provided, finally, That the
Contractor shall drill a minimum footage of test wells before the end
of periods of time as may be specified in the contract with the
Petroleum Board in order to be entitled to the extension of the
exploration period for 3 years as provided for in paragraph (e) herein.
(b) In case the contractor renounces or abandons
wholly or partly the area covered by his contract within two years from
its effective date, it shall in respect of the abandoned area pay the
Government the amount it should have spent, but did not, for
exploration work during said two years, for which payment, among other
obligations, the performance guarantee posted by the contractor shall
be answerable.
(c) Every contract shall provide for the compulsory
relinquishment of at least twenty-five per cent of the initial area at
the end of five years from its effective date and in the event of an
extension of the contract from seven to ten years, an additional
relinquishment of at least twenty-five per cent of the initial area at
the end of seven years from its effective date. But the portion already
delineated as production area pursuant to the succeeding paragraph
shall not be taken into account in ascertaining the extent of
relinquishment required. Any area renounced or abandoned under Sec.
9(b) above shall be credited against the portion of the area subject to
the contract which is required to be surrendered hereunder.
(d) The Contractor shall, from the discovery of
petroleum in commercial quantity, delineate the production area within
the period agreed upon in the contract.
(e) The exploration period under every contract shall
be seven years, extendible for three years if the contractor has not
been in default in its exploration work obligations and other
obligations after which the contract shall lapse unless Petroleum has
been discovered by the end of the tenth year and the contractor for
requests a further extension of one year to determine whether it is in
commercial quantity, in which event, another extension of one year for
exploration may be granted. If Petroleum in commercial quantity has
been discovered, the Contractor may retain after the exploration period
and during the effectivity of the Contract twelve and one-half per cent
of the initial area in addition to the delineated production area:
Provided, however, That the contractor shall pay annual rentals on such
retained area which shall not be less than ten pesos per hectare or
fraction thereof for on-shore areas and not less than twenty pesos as
determined by the Petroleum Board per hectare or fraction thereof for
off-shore areas: Provided, further, That such rentals can be offset
against exploration expenditures actually spent on such
area. chanroblesvirtualawlibrary
(f) Where petroleum in commercial quantity is
discovered during the exploration period in any area covered by the
contract, the contract with respect to said area shall remain in force
for production purposes during the balance of the ten year exploration
period and for an additional period of twenty-five years, thereafter
renewable for a period not exceeding fifteen years under such terms and
conditions as may be agreed upon by the parties at the time of renewal.
(g) All materials, equipment, plants and other
installations erected or placed on the exploration and/or production
area of a movable nature by the contractor shall remain properties of
the contractor unless not removed therefrom within one year after the
termination of the contract.
(h) The contractor shall be subject to the provisions
of laws of general application relating to labor, health, safety, and
ecology insofar as they are not in conflict with the provisions
otherwise contained in this Act.
(i) Every contract executed in pursuance of this Act
shall contain provisions regarding the discovery, production, sale and
disposal of natural gas and casing head petroleum spirit that shall be
in line with the rules herein prescribed for crude oil except that:cralaw:red
(1) The market price shall be the basis for tax and
all other purposes;chanroblesvirtualawlibrary
(2) After meeting requirements in secondary recovery
operations priority shall be given to supplying prospective demand in
the Philippines.
Section 10. Contract areas. — Subject to Section
eighteen hereof, a contractor or its affiliate may enter into one or
more contracts with the Government. Contracts for off-shore areas may
cover any portion beneath the Philippine territorial waters or its
continental shelf, or portion of the continental slope, terrace or
areas which are or may be subject to Philippine jurisdiction: Provided,
That for off-shore areas beyond water depths of 200 meters, the
Petroleum Board may provide for more liberal terms than that provided
for herein with respect to contract areas, exploration period and
relinquishment.
Section 11. Transfer and assignment. — The rights and
obligations under a contract executed under this Act shall not be
assigned or transferred without the prior approval of the Petroleum
Board: Provided, That with respect to the transfer or assignment of
contractual rights and obligations under this Act to an affiliate of
the transferor, the approval thereof by the Petroleum Board shall be
automatic, if the transferee is as qualified as the transferor to enter
into such contract with the Government: Provided, further, That the
affiliate relationships between the original transferor or a company
which holds at least fifty per cent of the contractor's outstanding
shares entitled to vote and each transferee shall be maintained during
the existence of the contract.
Section 12. Privileges of contractor. — The
provisions of any law to the contrary notwithstanding, a contract
executed under this Act may provide that the contractor shall have the
following privileges:cralaw:red
(a) Exemption from all taxes except income tax.
(b) Exemption from payment of tariff duties and
compensating tax on the importation of machinery and equipment, and
spare parts and all materials required for petroleum operations subject
to the conditions that said machinery, equipment, spare parts and
materials of comparable price and quality are not manufactured
domestically; and directly and actually needed and will be used
exclusively by the contractor in its operations or in operations for it
by a subcontractor are covered by shipping documents in the name of the
contractor to whom the shipment will be delivered direct by the customs
authorities; and prior approval of the Petroleum Board was obtained by
the contractor before the importation of such machinery, equipment,
spare parts and materials which approval shall not be unreasonably
withheld: Provided, however, That the contractor or its subcontractor
may not sell, transfer or dispose of these machinery, equipment, spare
parts and materials without the prior approval of the Petroleum Board
and payment of taxes due the Government: Provided, further, That should
the contractor or its subcontractor sell, transfer or dispose of these
machinery equipment, spare parts or materials without the prior consent
of the Petroleum Board, it shall pay twice the amount of the tax
exemption granted: Provided, finally That the Petroleum Board shall
allow and approve the sale, transfer, or disposition of the said items
without tax if made (1) to another contractor; (2) for reasons of
technical obsolescence; or (3) for purposes of replacement to improve
and/or expand the operations of the contract;chanroblesvirtualawlibrary
(c) Exemption upon approval by the Petroleum Board
from laws, regulations and/or ordinances restricting the (1)
construction, installation, and operation of power plant for the
exclusive use of the contractor if no local enterprise can supply
within a reasonable period and at reasonable cost the power needed by
the contractor in its petroleum operations, (2) exportation of
machinery and equipment which were imported solely for its petroleum
operation when no longer needed therefor;chanroblesvirtualawlibrary
(d) Exemption from publication requirements under
Republic Act Numbered Five thousand four hundred fifty-five; and the
provisions of Republic Act Numbered Sixty-one hundred and seventy-three
with respect to the exploration, production, exportation or sale or
disposition of crude oil discovered and produced in the Philippines;chanroblesvirtualawlibrary
(e) Exportation of petroleum subject to the prior
filing pro-rata of domestic needs as elsewhere provided in this Act;chanroblesvirtualawlibrary
(f) Entry, upon the sole approval of the Petroleum
Board which shall not be unreasonably withheld, of alien technical and
specialized personnel (including the immediate members of their
families), who may exercise their professions solely for the operations
of the contractor as prescribed in its contract with the Government
under this Act: Provided, That if the employment or connection of any
such alien with contractor ceases, the applicable laws and regulations
on immigration shall apply to him and his immediate family: Provided,
further, That Filipinos shall be given preference to positions for
which they have adequate training: And provided, finally, That the
contractor shall adopt and implement a training program for Filipinos
along technical or specialized lines, which program shall be reported
to the Petroleum Board;chanroblesvirtualawlibrary
(g) Rights and obligations in any contract concluded
pursuant to this Act shall be deemed as essential considerations for
the conclusion thereof and shall not be unilaterally changed or
impaired; and
(h) The privileges and benefits granted to a
contractor under the provisions of this Act together with any
applicable obligations shall likewise be made available to
concessionaires under the Petroleum Act of 1949 and their authorized
contractors and/or service operators, whether local or foreign, if they
so elect. chanroblesvirtualawlibrary
Section 13. Repatriation of capital and retention of
profits abroad. — The contractor shall be entitled to (1) repatriate
over a reasonable period the capital investment actually brought into
the country in foreign exchange or other assets and registered with the
Central Bank; (2) retain abroad all foreign exchange representing
proceeds arising from exports accruing to the contractor over and above
(a) the foreign exchange to be converted into pesos in an amount
sufficient to cover, or equivalent to, the local costs for
administration and operations of the exported crude and (b) Revenues
due the Government on such crude: Provided, however, That the
Government and the contractor shall stipulate in the contract the
currency in which the Government revenues arising under (b) above are
to be paid; (3) convert into foreign exchange and remit abroad at
prevailing rates no less favorable to Contractor than those available
to Contractor than those available to any other purchaser of foreign
currencies, any excess balances of their peso earnings from petroleum
production and sale over and above the current working balances they
require, and (4) convert foreign exchange into Philippine currency for
all purposes in connection with its petroleum operations at prevailing
rates no less favorable to contractor than those available to any other
purchaser of such currency.
Section 14. Full disclosure of interest in
contractor. — Interest held in the contractor by domestic mining and
petroleum companies and/or the latter's stockholders may be allowed to
any extent after full disclosure thereof to, and approved by the
Petroleum Board.
Section 15. Arbitration. — The Petroleum Board may
stipulate in a contract executed under this Act that disputes in the
implementation thereof between the Government and the contractor may be
settled in accordance with generally accepted international arbitration
practice.
Section 16. Performance guarantee. — In order to
guarantee compliance with the obligations of the contractor in
contracts executed under this Act, the contractor shall post a bond or
other guarantee of sufficient amount in favor of the Government and
with surety or sureties satisfactory to the Petroleum Board,
conditioned upon the faithful performance by the contractor of any or
all of the obligations under and pursuant to said
contracts. chanroblesvirtualawlibrary
IMPLEMENTING AGENCY
Section 17. There is hereby created a Petroleum Board
composed of the Secretary of Agriculture and Natural Resources, as
Chairman, and the Secretary of Finance, the Secretary of Justice, the
Chairman of the Board of Investments, the Governor of the Central Bank,
the Secretary of Trade and Tourism and the Director of Mines as
members. The Director of Mines shall be its Executive Officer. The
Board shall be attached to the National Economic Development Authority.
Section 18. Functions of Petroleum Board. — In
accordance with the provisions and objectives of this Act, the
Petroleum Board shall:cralaw:red
(a) Define and give public notice when applicable of
the areas available for service contract;chanroblesvirtualawlibrary
(b) Enter into contracts herein authorized with such
terms and conditions as may be appropriate under the circumstances
including the grant of special allowance: Provided, however, That no
depletion allowance shall be granted: Provided, further, That except as
provided in Sections twenty-six and twenty-seven hereof, no contract in
favor of one contractor and its affiliates shall cover less than fifty
thousand nor more than seven hundred and fifty thousand hectares for
on-sphere areas, or less than eighty thousand nor more than one million
five hundred thousand hectares for off-shore areas: Provided, finally,
That in no case shall the annual net revenue or share of the
Government, including all taxes paid by or on behalf of the contractor,
be less than sixty per cent of the difference between the gross income
and the sum of operating expenses and Filipino participation
incentive; chanroblesvirtualawlibrary
(c) Provide for the manner and form of the income tax
payment, the reimbursement of operating expenses, the payment of
service fee, and payment of Filipino participation incentive allowance,
if any, in the service contract;chanroblesvirtualawlibrary
(d) Make specific proposals to Congress for the grant
of subsidy to contractors and petroleum companies at least sixty per
cent of the capital of which is owned by Philippine citizens, to be
derived from the revenue or share that will accrue to the Government in
pursuance of this Act;chanroblesvirtualawlibrary
(e) Undertake intensive studies and researches on oil
field practices, procedures, and policies;chanroblesvirtualawlibrary
(f) Promulgate such rules and regulations as may be
necessary and assess charges for services rendered, to implement the
intent and provisions of this Act;chanroblesvirtualawlibrary
(g) Appoint, discipline and remove, and determine the
compensation of, its technical staff and other personnel: Provided,
That positions which are highly technical or primarily confidential
shall not be subject to the Civil Service Laws and Rules, and of the
Wage and Position Classification Office;chanroblesvirtualawlibrary
(h) Within four months after the close of every
fiscal year, submit to the President and Legislature an annual report
on its activities, with appropriate recommendation; and
(i) Generally, exercise all powers necessary or
incidental to attain the objectives of this Act. chanroblesvirtualawlibrary
TAX PROVISIONS
Section 19. Imposition of tax. — The contractor shall
be liable each taxable year for Philippine income tax on income derived
from its petroleum operations under its contract of service, computed
as provided in Section 20, through 25.
Section 20. Determination of gross income. — The
gross income shall consist of:cralaw:red
(a) In respect of crude oil exported, the gross
proceeds from the sale of crude oil at the posted price;chanroblesvirtualawlibrary
(b) In respect of crude oil sold for consumption in
the Philippines, the gross income shall consist of the gross proceeds
from the sale thereof at market price per barrel;chanroblesvirtualawlibrary
(c) In respect of natural gas and/or casing head
petroleum exported or sold for consumption in the Philippines the gross
income shall consist of the total quantity sold at the prevailing
market price thereof; and
(d) Such other income which are incidental to and/or
arising from any petroleum operation.
Section 21. Deductions from gross income. — In
computing the taxable net income, there shall be allowed as deductions:cralaw:red
(1) Filipino participation incentive; and
(2) Operating expenses reimbursed pursuant to Section
8 (1) which includes amortization and depreciation as provided in
Section 22.
Section 22. Amortization and Depreciation. —
Intangible exploration costs may be deductible in full; all tangible
exploration costs such as capital expenditures and other recoverable
capital assets are to be depreciated for a period of ten years.
Section 23. Deductions not allowed. — In ascertaining
the taxable net income, no deduction from gross income shall be allowed
in respect of any interest or other consideration paid or suffered in
respect of the financing of its petroleum operations.
Section 24. Return and payment of tax. — Every party
to a service contract shall render to the Petroleum Board a return for
each taxable year in duplicate in such form and manner as provided by
law setting forth its gross income and the deductions herein allowed.
The return shall be filed by the Petroleum Board with the Commissioner
of Internal Revenue or his deputies or other persons authorized by him
to receive such return within the period specified in the National
Internal Revenue Code and the Rules and Regulations promulgated
thereunder. Every party to a service contract shall be subject to tax
separately on its share of taxable income arising from such contract.
Section 25. Applicability of the provisions of the
National Revenue Code. — All provisions of the National Internal
Revenue Code and rules and regulations promulgated in relation
therewith which are not inconsistent with the provisions of this Act
shall be applicable to the Contractor.
SPECIAL PROVISIONS
Section 26. Option of exploration concessionaires. —
A holder of a valid and subsisting petroleum exploration concession
under the Petroleum Act of 1949 may, at his option enter into a
contract of service under the rules of the Petroleum Act of 1949,
subject to constitutional restrictions, with any local or foreign oil
company under such terms and conditions as may be agreed upon by the
concessionaire and the service contractor. As an alternative the
concessionaire may convert his concession into a service contract as
provided in this Act through negotiations, with all the rights and
privileges herein authorized: Provided, That the contract which may be
concluded after said negotiation shall contain at least the minimum
terms and conditions provided in this Act and shall take into account
terms and conditions more favorable to the Government contained in
contracts involving exploration pursuant to this Act: Provided,
further, That the exploration period shall commence to run from the
effective date of the original concession, except when the concession
has been effective for a period of seven years or more, in which case
the contractor shall be required to commence exploratory drilling
operations within a period of not exceeding eighteen months from the
date of effectivity of the service contract. If the contractor is not
in default in the drilling operations as hereunder required, an
extension of the exploration period may be granted as provided in
Section nine, paragraph (e) of this Act.
Section 27. Alternative option of exploration
concessionaire. — The concessionaire referred to in the preceding
section may form a consortium with another company or companies and
jointly enter into a service contract with the Government under this
Act, with the right to assign to the consortium, subject to the
approval of the Petroleum Board, the area covered by his concession
which shall thereupon be governed by the provisions of this Act:
Provided, That the voluntary relinquishment of the concession and its
assignment, as well as all technical data on the area resulting from
studies conducted by the concessionaire subsisting improvement
introduced by him thereon, shall be evaluated and given a fair value
which may constitute his contribution, wholly or in part, to the
consortium: Provided, however, That the exploration period under the
new contract shall commence to run from the date of the effectivity of
the contract if it covers areas in addition to the assigned areas;
otherwise the provisions of the preceding section shall apply:
Provided, further, That duly published applications, for exploration
concessions or bids therefor already awarded by the Secretary of
Agriculture and Natural Resources under the provisions of the Petroleum
Act of 1949 shall be recognized and the corresponding deeds of
concessions issued accordingly: Provided, finally, That exploration
concessions on which the holder thereof failed to perform the three
consecutive years the exploration work required under the provisions of
the Petroleum Act of 1949, as amended by Republic Act Numbered Five
Thousand Eighty-Six shall be considered automatically cancelled.
Section 28. Filipino Participation Incentive. — The
contractor under a service contract in which Philippine citizens or
corporations have a minimum participating interest of fifteen per cent
in the contract area may be subject to reasonable conditions imposed by
the Petroleum Board be granted by a government subsidy, commensurate
with the scope of Filipino participation, i.e., a Filipino
participation incentive, not exceeding seven and one-half per cent,
which shall be computed by deducting the said allowance from the posted
or market price, whichever, is the higher, of crude oil exports
produced in the contract area, and from the market price of crude oil
produced in the contract area, sold or disposed of for consumption in
the Philippines.
Section 29. Publicity. — Negotiation with the
Government for the conclusion of a contract under this Act and every
contract concluded hereunder shall be given publicity consistent with
the best interest of the Government. chanroblesvirtualawlibrary
Section 30. Provisions of Petroleum Act applicable. —
The provisions of the Petroleum Act of 1949, as amended, shall not be
applicable to the service contract provided in this Act, except the
following Articles:cralaw:red
(a) Article 16, referring to public easements on
lands covered by concessions;chanroblesvirtualawlibrary
(b) Article 17, providing that petroleum operations
are subject to existing mining rights, permits, leases and concessions
in respect of substances other than petroleum and to existing petroleum
rights;chanroblesvirtualawlibrary
(c) Article 18, referring to the right of the
Government to establish reservations or grant mining rights on
petroleum concessions;chanroblesvirtualawlibrary
(d) Article 20, granting exploration and exploitation
concessionaires the right to enter private lands covered by their
concessions; chanroblesvirtualawlibrary
(e) Article 21, referring to easement and the
exercise of the right of eminent domain over private lands for the
purpose of carrying out any work essential to petroleum operations;chanroblesvirtualawlibrary
(f) Article 22, providing for easements over public
land for the purpose of carrying out any work essential to petroleum
operations; and
(g) Article 23, which grants concessionaires the
right to utilize for any of the work to which the concession relates,
timber, water, and clay from any public lands within their concessions.
Section 31. Preference to Local Labor. — The
Contractor shall give priority in employment to qualified personnel in
the municipality or municipalities or province where the exploration or
production operations are located.
Section 32. Foreign Assistance. — Nothing in this Act
or of any other law shall preclude the Government of the Republic of
the Philippines, through the Petroleum Board or any other proper office
or agency, from negotiating or entering into any agreement with any
foreign country or government for assistance in terms of equipment,
technical know-how and financing for the exploration and production of
indigenous crude oil and its by-products.
Section 33. Funds. — To carry out the purpose of this
Act, there is hereby appropriated, out of any funds in the National
Treasury not otherwise appropriated, the sum of five hundred thousand
pesos for the fiscal year nineteen hundred seventy-three. Hereafter,
the necessary appropriations shall be included in subsequent General
Appropriations Act.
Section 34. Repealing Clause. — All laws, executive
orders and regulations inconsistent with the provisions of this Act are
hereby repealed, provided that no existing rights shall be prejudiced
thereby.
Section 35. Effectivity date. — This Act shall take
effect upon its approval.
Done in the City of Manila,
this thirty first day of December, in the year of Our Lord, nineteen
hundred and seventy-two.
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