Occidental, Philippines, Inc. and Shell Exploration B.V.
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Project title
Service Contract
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Renewal or extension of term
The exploration period may be extended for 3 years if: (a) the contractor has not been in default of its obligations; (b) has drilled a total of 35,000 feet minimum of test wells; and (c) has submitted work commitments to extend 1 well for the extension period. Further extension of not more than 5 years shall be allowed if the contractor makes a discovery of petroleum and needs the extension to determine whether it is of commercial quantity. This 5-year extension shall be credited to the production period of 25 years, if and when the contractor proceeds to the production phase. - Sec. 3.1
If the petroleum is of commercial quantity, the contractor shall have 25 years for production, renewable for a period not more than 15 years. - Sec. 3.2
Carlos A. Contreras, Vice President and Resident Manager, Occidental Philippines, Inc.
W.A. Loader, Chief Executive, Shell Companies in the Philippines, Shell Exploration B.V.
The meters and measuring equipment as well as the exploration and production sites and operations shall be open to inspection by the Petroleum Board inspectors.
The examiners of the Bureau of Internal Revenue and other representatives of the Petroleum Board shall have access to the accounts, books, and records of operations of the contractor, for tax and other fiscal purposes. - Sec. 6.1 (h-i)
The Office of Energy Affairs shall have the right to inspect and audit contractor's books and accounts, within 1 year from the end of the year to be audited. Such audit shall be completed within 12 months from start of audit. If not completed, the Office of Energy Affairs may ask for an extension within 60 days from end of the 12 months. Failure to do so would close the audit and contractor's books and accounts shall be deemed correct. - Sec. 15.2
The contractor shall pay rental fees at Php49.00 per hectare per year on the 12.5% retained area. Exploration costs on such retained area shall be deductible from said rental fees. - Sec. 4.4
The contractor shall prioritize qualified personnel in the municipality or province where the exploration or production operations are located. - Sec. 6.1 k
Be that as it may, the contractor is allowed to bring into the Philippines foreign technical and specialized personnel (including immediate members of their families) as needed for the petroleum operations. If their employment terminates, then immigration laws, rules and regulations shall apply to them. Provided, that Filipinos with adequate training shall be given preference for such positions. - Sec. 6.2.f
The contractor shall employ qualified Filipino personnel for its petroleum operations. - Sec. 13.1
The contractor shall adopt and implement a training program for Filipino personnel for technical and specialized positions occupied by foreign personnel. - Sec. 6.2.f
The contractor, with the approval of the Office of Energy Affairs, shall conduct schooling and training for Filipino personnel for labor and staff positions, including administrative, technical, and executive management positions. It shall also provide training assistance for the Office of Energy Affairs' personnel, upon approval of the Office of Energy Affairs. Contractor's total training commitment shall be US$20,000.00 per year during the exploration phase (except any moratorium period), and a mutually agreed amount for the production phase. - Sec. 13.1
Costs and expenses for training of Filipino personnel for employment by the contractor shall be included in its operating expenses. Costs and expenses for the training of the Office of Energy Affairs' personnel shall be as agreed upon by the parties. - Sec. 13.2
The contractor shall acquire only such assets that it needs for petroleum operations. All movable units shall remain the property of the contractor who may remove them, unless contractor already recouped their cost, in which case it shall transfer ownership (to the Office of Energy Affairs). All that remain after 12 months from termination of this contract shall belong to the Office of Energy Affairs. - Sec. 11.1 -11.2
The contractor shall start the first exploratory well within 365 days from effective date of this contract. It commits to spend US5 million per year and drill 1 well per year for Years 1 to 7. If the contractor finds petroleum in commercial quantity during the exploration, it shall devote the balance of the budget to development works as appropriate. The contractor may also choose to relinquish non-production areas within 30 days prior to the start of a new contract year in order to free itself from its spending commitment for exploratory drilling for said year.
If the contractor spends more money or drills more wells for a given year, the excess may be credited to the following year. If it underspends, it shall pay the balance to the government. Failure to dig a well for a particular year shall mean underspending also, and shall pay the amount committed as if unspent or US$2.5 million, whichever is higher. - Sec. 5.1
The contractor shall submit a Work Program and Budget for Year 1 within 3 months after effective date of this contract. Within 3 months prior to the start of Year 2 and so on, it shall submit Work Program and Budget for said year. Any significant changes thereon must be reported to the government. - Sec. 5.2
Contractual disputes between the parties that cannot be settled amicably shall be settled by arbitration. Either party shall appoint their arbitrators, and failing to do so, their arbitrator shall be appointed by the President of the International Chamber of Commerce (ICC). These 2 arbitrators shall appoint a third arbitrator, and failing to do so, the third one shall again be appointed by the President of the ICC. If any of them fails to act, the replacement shall be appointed in the same the predecessor was appointed. By default, the venue shall be Philippines, unless the parties agree elsewhere. English shall be the language used.
The decision of the majority of the arbitrators shall be final and binding upon the parties, and may be enforced by the courts.
Arbitration shall be conducted following the Rules of Arbitration of the ICC. - Sec. 12 (1-3)
The contractors may assign their rights in this contract, subject to the prior approval of the Office of Energy Affairs whose approval shall not be unreasonably withheld nor imposed fees; provided, that such approval will be automatic if the assignee is contractor's affiliate who is as qualified as the contractor; provided that the affiliation is maintained for the duration of this contract. If the assignment is among the contractors herein, mere notice to the Office of Energy Affairs is sufficient to effect transfer. - Sec. 16.4
This contract shall be terminated under the following: (1) per Sec. 3.1; (2) the term and its extension ends per Sec. 3.2; (3) the contractor surrenders the contract area in whole, per Sec. 4.5 and 4.6 - Sec. 14 (1-3)
This contract was executed pursuant to Section 2, Article XII of the 1987 Constitution, and Presidential Decree No. 87, entitled Oil Exploration and Development Act of 1972.
The governing law is Philippine law. - Sec. 16.2
Failures and delays caused by force majeure shall be excused to the extent attributable to such. The deadline to perform delayed obligations shall be extended for a period equal to the delay, but the overall term of this contract shall stay the same. Failure to make a discovery of petroleum due to lack of technological capability shall not be considered a force majeure.
The party affected shall immediately give a written notice to the other party of such failure or delay and the cause thereof, and both parties shall remedy the delay as much as possible.
- Sec. 16.3