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sie * Republic of the Philippines

RE DEPARTMENT OF ENERGY
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= (Kagawaran ng Enerhiya)

DEPARTMENT CIRCULAR (DC) NO. _0C2023-/2- 0033 »

GUIDELINES ON THE AWARDING OF PETROLEUM SERVICE CONTRACTS
FOR DEVELOPMENT AND PRODUCTION

WHEREAS, Section 2, Article XII of the 1987 Constitution provides that “xxx The
exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State” and “(t)he 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;”

WHEREAS, Sections 4 and 5 of Presidential Decree (PD) No. 87, as amended,
otherwise known as the “Oil Exploration and Development Act of 1972”, provides that
the Government may directly explore for and produce indigenous petroleum or
indirectly undertake the same under service contracts, which may be executed subject
to the approval of the President, after public notice, pre-qualification and public bidding
or concluded through negotiations;

WHEREAS, Sections 5(b) and (c) of Republic Act (RA) No. 7638, otherwise known as
“The Department of Energy (DOE) Act of 1992,” as amended by Sections 37(b) and
(g) of RA 9136, otherwise known as the “Electric Power Industry Reform Act of 2001,"
mandate the DOE to “develop and update annually the existing Philippine Energy Plan
... Which shall provide for an integrated and comprehensive exploration, development,
utilization, distribution and conservation of energy resources, with preferential bias for
environment-friendly, indigenous, and low-cost sources of energy” and “establish and
administer programs for the exploration, transportation, marketing, distribution,
utilization, conservation, stockpiling and storage of energy resources of all forms,
whether conventional or non-conventional;”

WHEREAS, Section 5(f) of RA 7638, as amended by Section 37(k) of RA 9136, further
mandates the DOE to “assess the requirements of, determine priorities for, provide
direction to, and disseminate information resulting from energy research and
development programs for the optimal development of various forms of energy
production and utilization technologies;”

WHEREAS, to implement its mandate under PD 87 and to attract private entities which
have the capital, the technology and the experience of exploring and developing the
country’s petroleum resources, the Government, through the DOE, has adopted
various modes of awarding Petroleum Service Contracts (PSCs) — from direct
negotiation to public contracting;

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WHEREAS, on 27 December 2017, the DOE promulgated DOE Department Circular
(DC) No. DC2017-12-0017, titled “Adopting the Philippine Conventional Energy
Contracting Program (PCECP) of Awarding Petroleum Service Contracts (PSCs) and
Creating the Review and Evaluation Committee (REC)”’:

WHEREAS, under the PCECP, PSCs may be awarded through (1) nomination and
publication of area/s of interest and (2) offering of pre-determined areas;

WHEREAS, as a result of the Government's efforts to attract local and foreign
investments for petroleum exploration, there has been a significant increase in
explored areas in the country. However, due to legal, contractual, technical and
financial constraints, producible petroleum reserves in some explored areas are not
fully developed and produced;

WHEREAS, there is a need to adopt a new strategy of awarding PSCs that will allow
the development and production of producible petroleum reserves taking into
consideration the requirements of intensive capital and specialized technical expertise
to carry out the work program to fully maximize and exhaust producible petroleum
reserves;

WHEREAS, there is a need to implement a judicious and cost-effective way to
optimize the development and utilization of producible petroleum reserves to avoid
stranded petroleum reserves which will result in substantial losses to the Philippine
Government;

WHEREAS, in consonance with the Philippine Development Plan and Philippine
Energy Plan, the country needs to accelerate the exploration, development and
utilization of indigenous petroleum resources to contribute to the country’s energy
security, create jobs, and generate wealth:

NOW, THEREFORE, in consideration of the aforementioned premises, the following
policies and guidelines are hereby adopted and promulgated:

Section 1. Scope. This Circular shall govern the awarding of PSCs for development
and production (“Development and Production PSC”) to accelerate the development
and utilization of areas with producible petroleum reserves as validated by the DOE.

Section 2. Area Coverage. The proposed contract area must include the area with
DOE-validated producible petroleum reserves and shall cover not less than 50,000
hectares and not more than 93,750 hectares for onshore areas, or not less than 80,000
hectares and not more than 187,500 hectares for offshore areas as provided for in
Sections 9 (e) and 18 (b) of PD 87.

Section 3. Contract Term. The Development and Production PSC awarded under
this Circular shall have an initial term corresponding to the period necessary for the
full maximization and exhaustion of the producible petroleum reserves based on the
Plan of Development (POD) approved by the DOE in the contract area, and may be

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DC No.
Guidelines on the Awarding of Petroleum Service Contracts for Development and Production

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renewed for an additional period under such terms and conditions agreed upon by the
parties at the time of renewal.

Section 4. Modes of Award of a Development and Production PSC.

4.1. Nomination and Publication of Area/s of Interest — Interested applicant/s for a
Development and Production PSC shall formally nominate the area/s of interest which
must comply with Section 2 hereof, in accordance with the procedures in Item | of
Annex A of DOE DC No. DC2017-12-0017.

4.2 Direct Negotiation — An Operator of a PSC with producible petroleum reserves
that would last beyond the Operator's remaining production term, as validated by the
DOE, shall have the option to apply for a Development and Production PSC through
direct negotiation with the DOE under this Circular, provided, that the application be
made prior to the expiration of the remaining production term.

4.3 Offering of Pre-Determined Areas (PDA) — The DOE, through the REC, may
publish identified petroleum area/s with remaining producible petroleum reserves with
an invitation to any interested applicant to file an application in accordance with Item
Il of Annex A of DOE DC No. DC2017-12-0017.

Section 5. Criteria for Evaluating Applicant/s for PSCs for Development and
Production. Applicants shall be evaluated based on the following selection criteria:

i. Legal qualification;

ii. Technical qualification;

iii. Financial qualification; and
iv. Work Program

Section 6. The REC, REC Technical Working Group (TWG) and Secretariat. The
REC, its TWG and Secretariat, created pursuant to DOE DC No. 0C2017-12-0017,
are hereby directed to perform the functions and responsibilities provided under this
Circular.

The REC shall negotiate the terms and conditions of the Development and Production
PSC awarded under this Circular which shall not be less than the minimum terms
required under PD 87 and other applicable laws.

Section 7. Procedures of Awarding PSCs through Direct Negotiation. Upon the
effectivity of this Circular, the REC shall issue supplemental rules and procedures to
govern the application process under this Circular, as may be necessary.

Section 8. Applicability of DC No. DC2017-12-0017. The provisions of DOE DC No.
DC2017-12-0017 shall be applicable in the implementation of this Circular.

Section 9. Repealing Clause. All issuances that are inconsistent with the provisions
of this Circular are hereby repealed or amended accordingly.

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Section 10. Separability Clause. If, for any reason, any section or provision of this
Circular is declared unconstitutional or invalid, such parts not affected shall remain in
full force and effect.

Section 11. Effectivity. This Circular shall be effective fifteen (15) calendar days after
its publication in two (2) newspapers of general circulation. A copy of this Circular shall
be filed with the University of the Philippines Law Center — Office of the National
Administrative Register (UPLC-ONAR).

Issued on____ December 2023 at the DOE, Energy Center, Rizal Drive cor. 34" Street,
Bonifacio Global City, Taguig City, Metro Manila.

RAPHAEL P.M. LOTILLA
ecretary

BEC 07 2023