ANGELITO V. AGONCILLO Legal Officer V Department of Energy

ANGELITO V. AGONCILLO Legal Officer V Department of Energy

1987 Constitution Republic Act No. 7638 Presidential Decree No. 87, as amended (for petroleum) Presidential Decree No. 972, as amended (for coal) Presidential Decree No. 1442, as amended (for geothermal) Executive Order No. 462, as amended (for ocean, solar and wind)

FULL CONTROL AND SUPERVISION OF THE STATE. THE STATE MAY DIRECTLY UNDERTAKE SUCH ACTIVITIES, OR IT MAY ENTER INTO CO-PRODUCTION, JOINT VENTURE, OR PRODUCTION-SHARING AGREEMENTS WITH FILIPINO CITIZENS, OR CORPORATIONS OR ASSOCIATIONS AT LEAST SIXTY PER CENTUM OF WHOSE CAPITAL IS OWNED BY SUCH CITIZENS. SUCH AGREEMENTS MAY BE FOR A PERIOD NOT EXCEEDING TWENTY-FIVE YEARS, RENEWABLE FOR NOT MORE THATN TWENTY-FIVE YEARS, AND UNDER SUCH TERMS AND CONDITIONS AS MAY BE PROVIDED BY LAW. IN CASES OF WATER RIGHTS FOR IRRIGATION, WATER SUPPLY, FISHERIES, OR INDUSTRIAL USES OTHER THAN THE DEVELOMENT OF WATER POWER, BENEFICIAL USE MAY BE THE MEASURE AND LIMIT OF GRANT. X X X THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT, AND UTILIZATION OF MINERALS, PETROLEUM, AND OTHER MINERAL OILS ACCORDING TO THE GENERAL TERMS AND CONDITIONS PROVIDED BY LAW, BASED ON REAL CONTRIBUTIONS TO THE ECONOMIC GROWTH AND GENERAL WELFARE OF THE COUNTRY. IN SUCH AGREEMENTS, THE STATE SHALL PROMOTE THE DEVELOPMENT AND USE OF LOCAL SCIENTIFIC AND TECHNICAL RESOURCES. THE PRESIDENT SHALL NOTIFY THE CONGRESS OF EVERY CONTRACT ENTERED INTO IN ACCORDANCE WITH THIS PROVISION, WITHIN THIRTY DAYS FROM ITS EXECUTION. Adopts the JURA REGALIA Doctrine / Concept

Develop and update Philippine energy program providing for an integrated and comprehensive exploration, development, utilization, distribution and conservation of energy resources Establish and administer programs for the exploration, transportation, marketing, distribution, utilization, conservation, stockpiling and storage of energy resources of all forms Supervise and control all government activities relative to energy projects Energy Resource Development Bureau (ERDB) Assist in the formulation and implementation of policies to develop and increase domestic supply of local energy resources Assist in the formulation of financial and fiscal policies, rules, guidelines and requirements relative to the operations of Service Contractors

President of the Philippines A service contract may be entered into for areas thru public bidding, or through negotiations The service contractor shall provide the services, technology and financing, and shall be paid a service fee and for the operating expenses from the proceeds of the sale of the petroleum produced A service contract shall impose the following obligations upon the contractor: Payment of processing fee of forty centavos (P0.40) per hectare of the proposed area Performance of the exploration work obligations Operation of the field in accordance with accepted good oil field practices Assumption of all exploration risks Payment of Philippine income tax

Payment of service fee up to 40% of net income, after deduction of Filipino participation incentive and operating expenses Exception from all taxes except income tax Exception from all taxes and duties for importation of materials and equipment for petroleum operations Facility of repatriation of capital investments and profits Grant of special income tax rate for subcontractors at 8% of gross Philippine income Grant of special tax rate for foreign employees of service contractors at 15% of gross Philippine income Grant of Filipino Participation Incentive Allowance of up to 71/2% of gross proceeds to service contracts with minimum Philippine participating interest of 15% Option for international arbitration for settlement of disputes

Non-exclusive Geophysical Permit Exclusive Geophysical Survey and Exploration Contract with option to a prenegotiated Service Contract Production Sharing Service Contract

Minimum working capital of US$ 1.0 MM 6 months without any extension Area open to other applicants for NGPs Permit area not to exceed 1.5 million hectares for offshore and 750,000 hectares for onshore DOE to be furnished all data and interpretations on the area All data and interpretations not to be sold without prior approval of the DOE

Seismic operations Study of variations in the values of the physical parameters of the crust of the earth Drilling of up to two (2) exploratory well Term of one (1) year, subject to 6 months extension to complete drilling of exploratory wells Option to convert to Production Sharing Service Contract Obligation to spend an agreed amount for the prosecution of geophysical survey operations Obligation to pay the Government the agreed amount for the prosecution of geophysical survey operations in case of failure to conduct operations Terms and conditions Compliance with Philippine labor and environmental laws Engagement of local qualified labor Furnishing DOE promptly with geological information and data Exemption from taxes and duties for importation of equipment and materials for geophysical survey operations

Conduct of Petroleum operations through drilling; includes transportation, storage, handling and sale of petroleum obtained Obligatory drilling of wells at agreed cost Maximum terms of ten (10) years for exploration, and forty (40) years for production and development Terms and obligations Income tax obligation paid out of government share Payment of agreed amount for prosecution of petroleum operations in case of failure to conduct operations Grant of incentives and privileges provided under Presidential Decree No. 87, as amended