Petroleum Exploration History
Petroleum exploration in the Philippines dates back to 1896 with the drilling of Toledo-1 well in Cebu Island by Smith & Bell. Widespread exploration activities were carried out from the 1950s to 1970s. At that time, exploration was governed by Republic Act No. 387 known as the "Petroleum Act of 1949" which ushered in the era of the concession system.
The current Service Contract System took effect in 1973 with the enactment of Presidential Decree No. 87, better known as the "Oil Exploration and Development Act of 1972". With its attractive contractual terms and liberal fiscal regime that are particularly favourable to offshore exploration, activities shifted to offshore areas like the Northwest Palawan Shelf where the first oilfield, Nido, was discovered. Several small fields, all located in offshore Northwest Palawan, were subsequently discovered and produced.
In 1989, relatively large fields were discovered in the deep waters off Palawan when Occidental Petroleum tested gas in its Camago Structure. Alcorn Philippines, in 1990, discovered the West Linapacan Field and commenced production two years later until 1996. Also in 1990, Shell discovered Malampaya gas field becoming, by far, the largest gas discovery in the country. The field started to produce commercially in 2002, providing clean fuel for power generation to Luzon grid. At present, Malampaya natural gas provides about 40% of Luzon’s power requirement.
Onshore in northern Luzon, the Philippine National Oil Company developed and produced the San Antonio Gas Field in 1994 and supplied natural gas as fuel to the local electric cooperative in the Province of Isabela.
- Under Presidential Decree (P.D.) 87 otherwise known as the " Oil Exploration and Development Act of 1972, the following incentives are provided for petroleum service contractors:
- Service fee of up to 40% of net production
- Cost reimbursement of up to 70% gross production with carry-forward of unrecovered costs
- FPIA grants of up to 7.5% of the gross proceeds for service contract with minimum Filipino company participation of 15%
- Exemption from all taxes except income tax
- Income tax obligation paid out of government's share
- Exemption from all taxes and duties for importation of materials and equipment for petroleum operations
- Easy repatriation of investments and profits
- Free market determination of crude oil prices, i.e., prices realized in a transaction between independent persons
- dealing at arms-length
- Special income tax of 8% of gross Philippine income for subcontractors
- Special income tax of 15% of Philippine income for foreign employees of service contractors and subcontractors