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

MALACAÑANG
M a n i l a

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

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);

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,...

Login to see full content

Summary of Presidential Decree No. 87 (The Oil Exploration and Development Act of 1972)

Declaration of Policy (Section 2)
- Hasten the discovery and production of indigenous petroleum through government and/or private resources
- Arrangements to yield maximum benefit to Filipinos and revenues for economic development
- Assure just returns to participating private enterprises providing services, financing, and technology

Definition of Terms (Section 3)
- Defines terms like petroleum, crude oil, natural gas, petroleum operations, commercial quantity, posted price, market price, barrel, crude oil exported, contractor, contract, Filipino participation incentive, Philippine corporation, affiliate, gross income, taxable net income, taxable year, casinghead petroleum spirit, Petroleum Board, operating expenses

Government Petroleum Exploration and Production (Section 4)
- Government may directly or indirectly (through service contracts) explore and produce petroleum
- Contractor must be technically competent and financially capable

Execution of Service Contracts (Section 5)
- Contracts executed by Petroleum Board after public notice, pre-qualification, bidding, or negotiation
- Alternative procedures for selecting areas and offers

Nature of Service Contract (Sections 6-8)
- Contractor provides services, technology, and financing; Government owns produced petroleum
- Contractor undertakes, manages, and executes operations; may market petroleum
- Contractor's obligations and Government's reimbursement of expenses and service fee

Minimum Terms and Conditions (Section 9)
- Minimum exploration work obligations and expenditure amounts per hectare
- Relinquishment of contract areas at specified intervals
- Delineation of production area after commercial discovery
- Exploration period of 7 years, extendible up to 3 more years
- Production period of 25 years, renewable for up to 15 years
- Provisions for natural gas and casinghead petroleum spirit

Contract Areas (Section 10)
- Limits on contract areas for onshore and offshore
- More liberal terms for offshore areas beyond 200 meters depth

Transfer and Assignment (Section 11)
- Rights and obligations not transferable without Petroleum Board approval
- Automatic approval for transfer to qualified affiliate

Privileges of Contractor (Section 12)
- Exemption from taxes except income tax
- Exemption from import duties on machinery, equipment, and materials
- Exemption from certain laws and regulations
- Exportation of petroleum subject to domestic needs
- Entry of alien technical personnel
- Rights and obligations deemed essential considerations
- Privileges extended to concessionaires under Petroleum Act of 1949

Repatriation and Retention of Profits (Section 13)
- Repatriation of capital investment
- Retention of export proceeds abroad
- Conversion of pesos to foreign currency and vice versa

Disclosure of Interests (Section 14)
- Interests held by domestic companies subject to disclosure and approval

Arbitration (Section 15)
- Disputes may be settled through international arbitration practice

Performance Guarantee (Section 16)
- Contractor to post bond or guarantee for faithful performance

Petroleum Board (Sections 17-18)
- Composition and functions of the Petroleum Board
- Defining areas, entering contracts, promulgating rules, appointing staff, reporting

Tax Provisions (Sections 19-25)
- Contractor liable for Philippine income tax on petroleum operations
- Determination of gross income from crude oil, natural gas, and other income
- Deductions allowed: Filipino participation incentive, operating expenses
- Amortization and depreciation rules
- Deductions not allowed for financing costs
- Filing of tax returns and payment
- Applicability of National Internal Revenue Code provisions

Special Provisions
- Option for exploration concessionaires under Petroleum Act of 1949 to convert to service contract (Section 26)
- Alternative option for concessionaire to form consortium and enter service contract (Section 27)
- Filipino Participation Incentive of up to 7.5% for minimum 15% Filipino interest (Section 28)
- Publicity of negotiations and contracts (Section 29)
- Applicable provisions of Petroleum Act of 1949 (Section 30)
- Preference to local labor (Section 31)
- Foreign assistance for exploration and production (Section 32)

Funds and Appropriation (Section 33)
- ₱500,000 appropriated for fiscal year 1973

Repealing Clause and Effectivity Date (Sections 34-35)