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DEPARTMENT CIRCULAR NO. DC 2003-05-005

PROCEDURES FOR CONTRACT AREA DEFINITION AND
PUBLIC CONTRACTING ROUNDS IN PETROLEUM
PROSPECTIVE AREAS

WHEREAS, Section 5 of Presidential Decree No. 87, otherwise known as the “Oil
Exploration and Development Act of 1972”, as amended, provides that “every contract
herein authorized shall, subject to the approval of the President, be executed by the
Petroleum Board (now Department of Energy) created in this Act, after due public notice,
pre-qualification and public bidding or concluded through negotiations”;

WHEREAS, the current practice of the Department of Energy (DOE) is to grant all
petroleum Geophysical Survey and Exploration Contracts (GSEC) and Service Contracts
(SC) through negotiations on a “first-come, first-served basis”;

WHEREAS, the DOE desires to change the current practice of granting contract
areas freely defined by the Contractor by offering areas predefined by the DOE based on a
blocking reference system to facilitate the establishment of the most effective exploration
strategy and allow the DOE to evaluate the market value or true value of the acreage that is
being offered;

WHEREAS, in order to promote the government’s petroleum exploration and
development program, there is a need to attract both local and foreign oil industry
investments through competitive public contracting rounds in petroleum prospective areas.

NOW, THEREFORE, in consideration of the aforementioned premises, the
following procedures shall govern the competitive system for awarding petroleum
exploration, development and production service contracts:

1. Definition of Petroleum Contract Areas - Block Reference System

1.1 The Philippine territory and Exclusive Economic Zone shall be subdivided into
a block reference system that follows geographical co-ordinates, to wit:
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117° E 118° E
12°N mae 15° |
a Block
Latitude x longitude = 1° x 1°
Minimum i =
um | 5 3 4 Approximate Area = 12,000 sq. km
Lot
Latitude x longitude = 20’ x 15’
27} LOT | BLOCK Approximate Area = 1,000 sq. km
5 6 7 8 Minimum unit
~ Latitude x longitude = 4’ x 3’
Approximate Area = 40 sq. km
9 10 11 12
11°N

1.2 New petroleum contract areas (Blocks) shall normally be defined using units of
1° latitude and 1° longitude. Where the contract area is limited by boundaries
such as to existing contract areas, coastlines or limits of sedimentary basins, the
unit of 20’ latitude x 15’ longitude (Lot) should be used to define the contract
area. The minimum unit permitted in the outline of a contract area is 4’ latitude
x 3’ longitude.

The Energy Resource Development Bureau (ERDB) will issue more detailed
guidelines for contract area definition as required.

2. Public Contracting Rounds

2.1 The ERDB shall determine certain prospective areas within the Philippine
territory and Exclusive Economic Zone for competitive public contracting
rounds. The Undersecretary, upon the recommendation of the ERDB Director,
shall declare such areas open for service contract (SC) applications only. In the
meantime no new application will be accepted and all existing application will
be on hold until after the results of the public round is announced.

2.2 The ERDB shall prepare the public contracting round documents, complete
with a description of available data over the areas concerned and the petroleum
prospectivity of each area. It shall then request the DOE Contract Negotiating
Panel to issue public notices for the public contracting round (s). The public
notices will include among others the following:

a.
b.

Map of the area for public contracting round (s)

Time schedules including the commencement of the public
contracting rounds, and

Other information as appropriate.
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2.3 Participants to the public contracting rounds shall submit the following
documents for evaluation by the DOE Contracts Negotiating Panel:

a. Work Program/Economic Documentation
a.l Draft of the proposed Service Contract, with comments, if
any.
a.2 Geological and geophysical evaluation of the blocks applied
for.
a.3 Economics and development concepts of possible
discoveries.

a.4 The proposals for work program and minimum expenditure
in respect to the block or blocks specified in the application.

b. Financial Documentation

b.1 Latest audited financial statement of the corporation and
annual reports for the last three (3) years

b.2. Duly filled-out information sheet of the corporation

b.3. Resume/Profile of the corporation/incorporators/offices

b.4 Particulars of the kinds of financial resources available to the
applicant including capital, credit facilities and guarantees so
available

c. Legal Documentation
c.l Articles of Incorporation
c.2 By-laws of the Corporation

d. Technical Documentation
d.1 Particulars of the technical and industrial qualifications of
the applicant and his employees’ operating experience
d.2 Particulars of the technical and industrial resources available
to the applicant

The Panel may require the submission of additional information relevant to
the evaluation.

2.4 The Panel shall open the public contracting documents one day after the
deadline. No contracting documents shall be accepted on the day of the
opening of the public contracting rounds.

2.5 The Panel shall evaluate the contracting round documents within four (4) weeks
from the opening of the contracting rounds deadline. The following factors will
be evaluated in judging the bids:

1. Proposed work program
2. Financial/Legal qualifications
3. Technical qualifications

The Panel, if it deems appropriate, may reject any or all bids submitted.

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2.6 The Panel shall formally inform all the applicants of the results of the
evaluations and at the same time finalize the service contract for formal
execution with the winning applicant. If necessary, service contract
negotiations will commence as soon as feasible.

2.7 Areas not awarded after the public contracting rounds will be re-offered in the
subsequent contracting rounds. This provision notwithstanding, the DOE may
award such areas to any qualified company under such terms and conditions as
it may prescribe.

Effectivity

This Circular shall take into effect fifteen (15) days after publication in a
newspaper of general circulation.

Issued this 19" day of May 2003 in Fort Bonifacio, Taguig, Metro Manila.

(sgd.) VINCENT S. PEREZ, JR.
Secretary