Petroleum Act of 1949

R.A. 387
MEMBERS: 1B - Natural Resources

● BAUTISTA, Patricia Anne D.

● GADDI, Marfe
● GARCIA, Keith
● GATDULA, ANDI
 RA 387 - Petroleum Act of 1949
● Enacted on June 18, 1949

Aims to promote the exploration,

exploitation, and utilization of the petroleum
resources of the country and employs the
concession system for the exploitation of the
nation’s petroleum resources
 GRANTING OF
PETROLEUM RIGHTS
WHAT IS GRANTED?

· Exploration and Exploitation Concessions do not

confer upon the concessionaire the ownership over the
petroleum lands and petroleum deposits, but only the right
to explore for, develop, exploit, and utilize them for the
period and under the conditions determined by this Act.
 GRANTING OF
PETROLEUM RIGHTS
TO WHOM IS IT GRANTED?

· The right to explore for, develop, exploit or utilize the

petroleum resources described in article three hereof may
only be granted to duly qualified persons by means of
concessions in accordance with the provisions of this Act.
 GRANTING OF
PETROLEUM RIGHTS
WHO GRANTS IT?

The Government reserves the right to undertake such work either by itself or
through its instrumentalities, or through competent persons qualified to
undertake such work as independent contractor or contractors under a
contract of service executed for the Republic of the Philippines by the President
and approved by the Congress of the Philippines in accordance with the
provisions of article thirteen of this Act.
KINDS OF CONCESSIONS
 Non-exclusive
Exploration Permit
WHO MAY APPLY?

Any person legally qualified to

acquire concession under the
provisions of the act may, upon
application, acquire a permit for
a non-exclusive right to
undertake surface geological or
geophysical investigations
within the free areas.
Non-exclusive Exploration Permit

RIGHT CONVEYED

It conveys no right for the permittee to make any exploratory drilling, nor carry
any priority or preferential right to the area it covers so as to entitle the
permittee to exclusive exploration or exploitation concession, but is intended
only to permit geological and/or geophysical exploration, preparatory to
making application for exclusive exploration concession.
 Exploration Concession

WHAT IS EXPLORATION?

All work that have for their object the discovery of petroleum, including,
but not restricted to, surveying and mapping, aerial photography,
surface geology, geophysical investigations, testing of subsurface
conditions by means of borings or structural drillings, and all such
auxilliary work as are useful in connection with such operations.
 Exploration
Concession
RIGHT CONVEYED

Exclusive right to explore the

block granted, to do geological
and geophysical work, to open
test pits, to conduct drilling
operations, and to do such other
works related to exploration.
 Exploration
Concession
WORK OBLIGATIONS

● At the beginning of each calendar

year during the life of the
concession, the concessionaire shall
submit to the Director of Mines and
geosciences a program of
exploration work to be undertaken
by the concessionaire during that
year.
 Exploration
Concession
WORK OBLIGATIONS

● He is obligated to spend in the direct

prosecution of exploration work
within his concession, such as
topographic, or geological
renaissance.
 Exploration
Concession
WORK OBLIGATIONS

● Mapping or cross sectioning,

geophysical surveys by
magnetometer, gravimeter or
seismograph
● Core or exploratory drilling;
● Or any combination of the said work,
the amounts indicated in the law.
Exploitation
Concession
All work within the area
embraced by an
exploitation concession
that have for their object
the production of
petroleum within such
area
Rights Conveyed Under Exploitation Concession
● Exclusive right to
○ Drill within boundaries
○ Extract within boundaries
○ Utilize substances

● Term of concession
○ 25 years from issuance
○ Renewable for another
25 years
Malampaya gas field offshore facility
Exploitation Work Obligations
● Submit program of exploitation
work to be undertaken

● Commence drilling within one

year of grant

● Develop and bring into

production the exploitation
area

● Pay royalties to government

 Refining
Concession
Processing or treating of
petroleum by chemical
or physical means for
the purpose of
making or separating
marketable products
Rights Conveyed Under Refining Concession
● Non-exclusive right to provide
facilities for the manufacturing
of petroleum products

● Carry out auxiliary works and

operations essential to such

● Provision and operation of

facilities for receiving, storing,
and shipping
materials/products
Utilization of Refining Capacity
● Preferential right to utilize
installations

● When also an exploitation

concessionaire, may be subject
to pay royalties to government

● Term of concession
○ 25 years
○ Renewable for another Petron Bataan Refinery

25 years
Benefits of Oil Refineries
● Contribution to economic
welfare

● Opportunities for employment

● Reduce costs of petroleum

products
 Pipeline
Concession
Applications should be
filed with the Director of
Mines and Geosciences

Energy Regulatory
Commission (ERC) has
power to regulate and
fix rates of pipeline
concessionaires
Rights Conveyed Under Pipeline Concession
● Non-exclusive right to transport
petroleum

● Construction and operation of

pipelines

● Preferential right to utilize his

installations

● Term
○ 25 years; renewable
 Cancellation
of concession Any falsehood in those statements
or omission of facts which may
alter, change, or affect
Statements made in the substantially the facts set forth in
application or made in support said statements may cause the
thereof shall be considered as cancellation of the lease granted
conditions and essential parts
of the concessions that may be
granted by virtue of such
application
Other causes for cancellation of concession
EXPLORATION
1. Failure of the concessionaire to
perform the work obligations for 2
consecutive years
2. Failure to pay for 2 consecutive years
the exploration tax due thereon
EXPLOITATION
1. Failure of the concessionaire to
perform the exploitation work
obligations 2 consecutive years
2. Suspending production operations for
more than 6 months without prior
written approval of the DENR
Secretary
3. Failure to pay the annual exploitation
tax for 2 consecutive years
4. Failure to deliver or pay to the
government its royalty within 1 year
from the date such royalty becomes
due
Refining and Pipeline Concessions cancellation
May be cancelled for failure of the concessionaire to begin the construction of
a refinery and pipeline within 1 year from the date of the issuance of suc
concessions
Extinction of Rights
Rights acquired by virtue of a concession shall become extinguished upon the
expiration of its term including the extensions or renewals thereof, if any or
upon the cancellation or renunciation of such concession. In the event of such
extinction of rights, any sum payable to the government by the concessionaire
and then unpaid shall become due and payable forthwith, the property of the
concessionaire shall be disposed of in accordance with the provisions of Article
93 of the Act, and the concession contract shall be surrendered to the DENR
Secretary
Provisions
Upon renunciation, cancellation or expiration of an exploration concession,

● the area covered thereby shall AUTOMATICALLY become part of the

national reserve
● Within the first term of 25 years or within the first 15 years of its renewal,
the title rights to all apparatus, materials, equipment, supplies and other
personal properties, all works, buildings, and other facilities and structures
which the concessionaire places on the land under the terms of the
concession, including but not limited to drilling pipe, warehouse stocks,
automotive, aviation, and marine equipment, shall have the right to
remove and export the same at any time within one year
Provided
● That the govt shall acquire title to all properties
● That the govt shall have exclusive right of option to buy from the
concessionaire any or all of the properties which the concessionaire has
the right to remove under this paragraph within 90 days from the
concession is renounced, cancelled or terminated
● That the concessionaire shall maintain said properties, pending decision of
the govt to purchase the same, in as good condition as the condition of
said properties on the date of the said renunciation, cancellation or
termination
In case of renunciation, cancellation or
termination of the exploitation concession after
the 15th year from the date of renewal
All the properties mentioned shall become the property of the government
without payment or indemnification to the concessionaire
note :
The provisions do not apply to any refinery built by the concessionaire as said
refinery shall continue to be the exclusive property of the owner even after the
termination of the concession

Provided, that roads and bridges constructed by the concessionaire shall

become the property of the govt.
Settlements and disputes
The DENR Secretary is authorized to enter into agreement with any petroleum
concessionaire

In case of failure to come to an agreement, the Secretary shall render his

decision thereon, from which decision the concessionaire adversely affected
may bring the matter to the proper court
Work obligations, Taxes, and Royalties
● Considered as inherent on such concessions after they are granted
● Shall not be increased or decreased during the life of the concession to
which they apply
● Other special taxes or levies shall not be applied to such concessions
● Concessionaires under the Act shall not be subject to any provincial,
municipal or other local taxes or levies
● Any sales tax shall not be charged on any petroleum produced from the
concession or portion thereof, and manufactured by the concessionaire
and used in the working of his concession
 Bagatsing v. Committee on Privatization
Petition for prohibition to:

1.) To nullify the bidding conducted for the sale of a

block of shares constituting 40% of the capital
stock of PETRON and the award made to
ARAMCO as the highest bidder in the bidding.

2.) To stop the sale of said block of shares to

ARAMCO.

Ponente: Justice Quiason

FACTS:

● PETRON was wholly- owned by the government which aimed to buffer

against sudden increase of oil prices in international market.
● President Corazon Aquino promulgated Proclamation 50 - Disposition
and Privatization of Certain Government Corporations, including
PETRON.
● President Ramos approved the privatization of Petron with a strategy
of 40% - 40% - 20%. The purpose of the privatization is to provide the
flexibility and level the playing field it needs to remain an influential
player in the oil industry.
● The floor price bid for 40& of the shares was fixed at 440M dollars.
● There were 3 bidders: (a) PETRONAS who was disqualified because the
submitted bid was below the floor price; (b) WESTMONTH who was also
disqualified because it failed the pre- qualification criteria of financial
capability; and (c) ARAMCO who won the bid.
PETITIONER’S CLAIMS AND THE COURT’S RULING

1.) Petitioners claim that the inclusion of PETRON in the privatization program contravened the
declared policy of the state to dispose of ONLY non- performing assets or which have been
found unnecessary for the government to maintain.

COURT RULING:

PETRON was found to be “inappropriate and unnecessary” for the government to maintain
because refining and marketing of petroleum is an aspect of the industry which is better left to the
private sector.
PETITIONER’S CLAIMS AND THE COURT’S RULING

2.) Petitioners contend that PETRON is a public utility, in which foreign ownership of its
equity shall NOT exceed 40% thereof and the foreign participation in the governing body shall be
limited to their proportionate share in its capital. This hinges on whether the business of oil refining
is a “public utility” within the Section II, Article 12 of the 1987 Constitution.

COURT RULING:

A “public utility” under the Constitution is one organized “for hire or compensation” to serve
the public, which is given the right to demand its service. PETRON is NOT engaged in oil refining
for hire and compensation to process the oil of other parties. Furthermore, the activities
considered as “public utility” under RA 387 refers only to petroleum which is indigenous in the PH.
Hence, the refining of petroleum products sourced from abroad is not within the contemplation of
law
FIN