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REPUBLIC OF THE PHILIPPINES

OFFICE OF THE PRESIDENT

Manila

SERVICE CONTRACT

THIS CONTRACT, made and entered into this 11th day
of December 1990, in the City of Manila, by and
Between the GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, as
First Party, hereinafter referred to as the ’’GOVERNMENT” and
OCCIDENTAL, PHILIPPINES, INC. and SHELL EXPLORATION B. V., as
Second Party, hereinafter referred to as "CONTRACTOR". In the
implementation of this Contract, the GOVERNMENT shall act
through and be represented by the OFFICE OF ENERGY AFFAIRS.
The GOVERNMENT and/or the OFFICE OF ENERGY AFFAIRS and
CONTRACTOR are hereinafter referred to collectively as the
"PARTIES”.

W I T N E S S E T H

WHEREAS, all petroleum, crude oil, crude natural gas and/or
casinghead petroleum spirit of the Philippines belong to the
State and their disposition, exploration, development,
exploitation and utilization are governed by Presidential
Decree No. 87, as amended, otherwise known as the Oil
Exploration and Development Act of 1972 and Section 7,
Article XII of the 1987 Constitution;

WHEREAS, Section 2, Article XII of the 1987 Constitution
provides that the President may enter into agreements with
foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development
and utilization of, among others, 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 and for the promotion of the
development and use of local scientific and technical resources.



WHEREAS, the Oil Exploration and Development Act of 1972, as
amended (hereinafter called "The Act”), declares it to be the
policy of the State to hasten the discovery and production of
indigenous petroleum through the utilization of GOVERNMENT
and/or private resources, local and foreign; and

WHEREAS, under the provisions of the Act, the Government of the
Republic of the Philippines may explore for and produce
indigenous petroleum under a Service Contract as provided in
the Act, subject to the requirements prescribed in Section 2,
Article XII, of the 1987 Constitution; and

WHEREAS, in the pursuance of its above-stated policy, the
GOVERNMENT, acting through the OFFICE OF ENERGY AFFAIRS, wishes
to avail itself of the resources of the CONTRACTOR through a
Service Contract under which CONTRACTOR will furnish the
necessary technology and financing, including the required
services and will provide services for the Petroleum
Operations, hereinafter defined, and will assume all
exploration risks. The conduct of the Petroleum Operations
shall be under the full control and supervision of the Office
of Energy Affairs; and

WHEREAS, CONTRACTOR wishes to enter into such a Service
Contract governing the Contract Area as hereinafter defined; and

WHEREAS, CONTRACTOR has the financial resources and technical
competence as well as the professional skills necessary to
carry out the Petroleum Operations;

NOW, THEREFORE, in consideration of the sum of One Hundred
Fifty Thousand United States Dollars (U.S. $150,000) in hand 
paid, the receipt and sufficiency of which is hereby
acknowledged, and of the mutual covenants and the conditions
herein contained, it is hereby stipulated and agreed as follows:



SECTION I

SCOPE

1.1 This Contract is a Service Contract entered into pursuant
to Section 7 of the Act with all necessary technology and
financing, as well as the required services to be
furnished by CONTRACTOR in accordance with the provisions
herein contained. The CONTRACTOR shall undertake and
execute the Petroleum Operations contemplated hereunder
under the full control and supervision of the OFFICE OF
ENERGY AFFAIRS.

1.2 CONTRACTOR shall be responsible to the OFFICE OF ENERGY
AFFAIRS for the execution of such Operations in
accordance with the provisions of this Contract, and is
hereby appointed and constituted the exclusive party to
conduct the Petroleum Operations. In the event more than
one (1) party comprises the Second Party, the OFFICE OF
ENERGY AFFAIRS shall have the right to require
performance of any or all obligations under this Contract
against any or all of the Second Party.

1.3 CONTRACTOR shall assume all exploration risks such that
if no Petroleum in Commercial Quantity is discovered and
produced, it will not be entitled to reimbursement.

1.4 During the term of this Contract, the total production
achieved in the conduct of such Operations shall be
accounted for between the Parties in accordance with
Section VII hereof.

SECTION II

DEFINITIONS

In the text of this Contract, the words and terms defined in
Section 3 of the Act shall, unless otherwise specified herein,
have meaning in accordance with such definitions.


2.1 Affiliate means (a) a company in which a CONTRACTOR holds
directly or indirectly at least fifty percent (50%) of
its outstanding shares entitled to vote; or (b) a company
which holds directly or indirectly at least fifty percent
(50%) of the CONTRACTOR'S outstanding shares entitled to
vote; or (c) a company in which at least fifty percent
(50%) of its shares outstanding and entitled to vote are
owned by a company which owns directly or indirectly at
least fifty percent (50%) of the shares outstanding and
entitled to vote of the CONTRACTOR.

2.2 Darrel means forty-two (42) U. S . gallons or nine thousand
seven hundred two (9,702) cubic inches at a temperature
of sixty degrees (60°) Fahrenheit.

2.3 Calendar Year or Year means a period of twelve? (12)
consecutive months, commencing with January 1 and ending
on the following December 31, according to the Gregorian
Calendar.

2.4 Casinghead Petroleum Spirit means any liquid hydrocarbons 
obtained from natural gas by separation or by any
chemical or physical process.

2.5 Contract, means the Service Contract.

2.6 Contract Area means, at any time, the Area within the
mining territory of the Republic of the Philippines which
is the subject of this Contract. The Contract Area is
outlined and more particularly described in Annex "A”
attached hereto.

2.7 Contract Year means a period of twelve (12) consecutive
months according to the Gregorian Calendar counted from
the Effective Date of this Contract, and thereafter from
the anniversary of such Effective Date.


2.8 Crude Oil Exported shall include not only Crude Oil
exported as such but also indigenous Crude Oil refined in
the Philippines for export.

2.9 Crude Oil or Crude means oil in its natural state before
the same has been refined or otherwise treated. It does
not include oil produced through destructive distillation
of coal, bituminous shales or other stratified deposits,
either in its natural state or after the extraction of
water and sand or other foreign substances therefrom.

2.10 Deepwater Contract refers to a service contract at least
eighty-five percent (85%) of the total contract area are
In water depths beyond 200 meters.

2.11 Deepwater Contractor means the contractor in a deepwater
contract, whether acting alone or in consortium with
others.

2.12 Deepwater Well refers to a well drilled on water depths
beyond 200 meters, whether within or without a deepwater
contract.

2.13 Effective Date means February 23. 1989.

2.14 Foreign Exchange means currency other than that of the
Republic of the Philippines that are freely convertible
into gold or currencies eligible to form part of the
country's international reserves acceptable to the OFFICE
OF ENERGY AFFAIRS and to the CONTRACTOR.

2.15 Government means the Government of the Republic of the
Philippines.


2.16 Gross Income means the gross proceeds from the sale of
crude, natural gas or casinghead petroleum spirit
produced under the Contract and sold during the taxable
year at Posted or Market Price, as the case may be, all
as determined pursuant to Section VII, and such other
income which are incidental to and arising from any one
or more of the Petroleum Operations of the CONTRACTOR.

2.17 Market Price means the price which would be realized for
Crude Oil or Petroleum produced under this Contract if
sold in a transaction between independent persons dealing
at arm's length in a free market.

2.18 Natural Gas means gas obtained from boreholes and wells
and consisting primarily of hydrocarbons.

2.19 Operating Expenses means the total expenditures incurred
by the Operator both within and without the Philippines
in Petroleum Operations pursuant to this Contract and the
Geophysical Survey Contract which is the predecessor to
this Contract as determined in accordance with the
Accounting Procedure attached hereto and made part hereof
as Annex "B". These expenses will include, but not be
limited to, the cost of seismic surveys, geological
studies, drilling and equipping wells, engineering
studies, construction of well platforms, tank
(batteries), pipelines, systems and terminals and the
cost of operating and maintaining all such facilities.

2.20 Petroleum means any mineral oil, hydrocarbon gas,
bitumen, asphalt, mineral gas and all other similar or
naturally associated substances with the exception of
coal, peat, bituminous shale and/or other stratified
mineral fuel deposits.


2.21 Petroleum in Commercial Quantity, means Petroleum in such
quantities which will permit its being economically
developed as determined jointly by the CONTRACTOR and the
OFFICE OF ENERGY AFFAIRS after taking into consideration
the location of the reserves, the depths and number of
wells required to be drilled and the transport and
terminal facilities needed to exploit the reserves which
have been discovered.

2.22 Petroleum Operation or Operations means searching for and
obtaining Petroleum within the Philippines through
drilling and pressure or suction or the like, and all
other operations incidental thereto. It includes the
transportation, storage, handling and sale (whether for
export or domestic consumption) of Petroleum so obtained
but does not include any (1) transportation of Petroleum
outside the Philippines; (2) processing or refining at a
refinery; or (3) any transactions in the products so
refined.

2.23 Philippine Corporation means a corporation organized
under Philippine Laws at least sixty percent (60%) of the
capital of which is owned and held by citizens of the
Philippines.

2.24 Philippine Income Tax means all taxes imposed by the
National Internal Revenue Code of the Philippines upon
taxable corporate income, including withholding taxes on
dividends and distribution or remittances of profit.

2.25 Filipino Participation Incentive Allowance means the
sliding scale allowance granted CONTRACTOR when
participation in the Contract Area by one (1) or more
Philippine citizens and/or one (1) or more Philippine
corporations is between fifteen percent (15%) and thirty
percent (30%).

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2.26 Posted Price means the FOB price established by the
CONTRACTOR and the OFFICE OF ENERGY AFFAIRS for each
grade, gravity and quality of Crude Oil offered for sale
to buyers, generally for export at the particular point
of export, which price shall, be based upon geographical
location and the fair market export values for Crude Oil
of comparable grade, gravity and quality.

2.27 Production Area means that portion of the Contract Area
where all reservoirs containing Petroleum in Commercial
Quantity are delineated by the CONTRACTOR in consultation
with the OFFICE OF ENERGY AFFAIRS.

2.28 Taxable Net Income means the Gross Income less the
deductions provided in Section 8.1 below.

SECTION III

TERM

3.1 The exploration period under this Contract shall be seven
(7) years from the Effective Date, automatically
extendible for three (3) years if (a) the CONTRACTOR has
not been in default in its exploration work obligations
and other obligations; (b) has drilled to a combined
subsea depth a minimum of at least thirty-five thousand
(35,000) feet of test wells and (c) has provided a work
obligation for the extension of one (1) well per year
after which time this Contract shall automatically
terminate unless Petroleum has been discovered by the end
of the tenth year. If Petroleum is discovered by the end
of the tenth year, this Contract shall be further
extended to determine whether the discovery is in
commercial quantity, in which event, another extension
not exceeding five (5) years shall freely be granted upon

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a satisfactory showing to the OFFICE OF ENERGY AFFAIRS
that the work program, to be conducted to determine
whether the discovery is in commercial quantity,
justifies the period for extension. This extension shall
be credited as part of the initial twenty-five (25) years
production term, if the Area is subsequently developed by
CONTRACTOR.

3.2 Where Petroleum in Commercial Quantity is discovered
during the exploration period, this Contract shall, as to
any Production Areas delineated pursuant to Section
6.1(b) below, remain in force during the balance of the
exploration period or any extension thereof and for an
additional period of twenty-five (25) years, thereafter
renewal.)] e for a period not exceeding fifteen (15) years
under such terms and conditions as may be granted upon by
the Parties at the time of the renewal.

3.3 In the event CONTRACTOR has drilled an Option Well
pursuant to Section 3.1 of the Geophysical Survey
Contract, the Option Well shall be deemed as satisfying
the Work Commitment and Amount for Contract Year 1,
pursuant to the Work Program outlined in Section 5.1 of
this Service Contract. Further, the effectiveness of
this Contract shall relate back to the first day of the
thirteenth (13) month after the Effective Date of the
Geophysical Survey Contract.

In the event the Moratorimum Period of the Geophysical
Survey Contract or this Service Contract is invoked, the
Work Program of Section 5 of this Contract shall be
suspended for an equal period of time and the obligations
of CONTRACTOR under this Service Contract shall be
treated without accumulation. 

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3.4 In the event CONTRACTOR drills more than one (1) well and
discovers Petroleum in sufficient quantity that could
ordinarily he commercially produced except that, due to
inadequate technology, the capability to produce the
Petroleum in Commercial Quantities does not yet exist,
then CONTRACTOR shall so notify the OFFICE OF ENERGY
AFFAIRS and the parties will jointly review the findings
of CONTRACTOR. Upon mutual satisfaction that
technological means to extract the Petroleum in
Commercial Quantities does not yet exist, the term of
this Service Contract shall be stayed for a period of
five (5) years (’’Moratorium Period"). The decision as to
whether a Moratorium Period is justified, shall be based,
inter alia, on projects and operations found elsewhere in
the world at comparable depths and conditions to those
encountered by CONTRACTOR under this Contract. During
the Moratorium Period, CONTRACTOR shall actively pursue
the necessary research, by itself or in joint industry
studies, to develop the technology necessary to produce
the discovered Petroleum in Commercial Quantities. The
CONTRACTOR shall annually report to the OFFICE OF ENERGY
AFFAIRS its progress in developing the requisite
technology. If during the Moratorium Period technology
has developed sufficiently to allow Petroleum in
Commercial Quantities to be produced, the CONTRACTOR must
elect to either continue with its obligations under this
Contract or abandon the Area without further commitment
or requirement under this Contract.

SECTION IV                               
EXCLUSION OF AREAS

4.1 On or before the end of the fifth (5th) Contract Year,
CONTRACTOR shall surrender twenty-five percent (25%) of
the initial Contract Area.




On or before the end of the initial seven (7) years
exploration period, if CONTRACTOR elects to extend the
period for an additional three (3) years, CONTRACTOR
shall surrender an additional area equal to twenty-five
percent (25%) of the initial Contract Area.

4.3 In the event that CONTRACTOR has delineated any
Production Areas pursuant to Section 6.1(b) below, the
extent of such Production Areas shall be deducted from
the initial Contract Area for the purpose of determining
the size of such area that must be surrendered pursuant
to Section 4.1 and 4.2 above.

4.4 If Petroleum in Commercial Quantity has been discovered
during the exploration period, or any extension thereof,
the CONTRACTOR may retain after the exploration period
and during the effectivity of the Contract, twelve and
one-half percent (12-1/2%) of the initial area in
addition to the delineated Production Area; if CONTRACTOR
has provided an exploration work obligation for the area
to be retained acceptable to the OFFICE OF ENERGY
AFFAIRS; provided, however, that the CONTRACTOR shall pay
annual rentals on such twelve and one-half percent
retained areas of forty (40) pesos per hectare or
fraction thereof; provided, finally, that .such annual
rentals shall be reduced by the amount spent by
CONTRACTOR for exploration on such retained area during
the Contract Year.

4.5 CONTRACTOR shall have the right on at least thirty (30)
days written notice to the OFFICE OF ENERGY AFFAIRS to
surrender all or any portion of the Contract Area. Any
portion so surrendered shall be credited against that
portion of the Contract Area which CONTRACTOR is next
required to surrender under the provisions of Sections


4.1 and 4.2 hereof. The areas being surrendered shall be
of sufficient size and convenient shape to enable
Petroleum Operations to be conducted thereon.

4.6 In case the CONTRACTOR surrenders or abandons wholly or
partly the area covered by this Contract within two (2)
Years from its Effective Date, it shall in respect of the
abandoned area, pay the Government the amount it should
have spent, but did not, for exploration work during said
two (2) years as specified under Section 5.1 for which
payment, among other obligations, the performance
guarantee posted by the CONTRACTOR shall be answerable.

4.7 With respect to the mandatory surrenders pursuant to
Section 4.1 and 4.2 as qualified by Section 4.3,
CONTRACTOR shall advise the OFFICE OF ENERGY AFFAIRS of
the portion to be surrendered at least thirty (30) days
in advance of the date of surrender. The areas being
surrendered shall each be of sufficient size and
convenient shape to enable the Petroleum Operations to be
conducted thereon.

SECTION V

WORK PROGRAM AND EXPENDITURES
5.1 CONTRACTOR shall be obliged to drill and spend in direct
prosecution of this Contract not less than the number of:
wells and amounts hereinafter specified:

Contract Year        Work Commitment       Amount
Year 1                     One well                          USD 5,000,000
Year 2                     One well                          USD 5,000,000



Year 3                     One well                          USD 5,000,000 
Year 4                     One well                          USD 5,000,000 
Year 5                     One well                          USD 5,000,000 
Year 6                     One well                          USD 5,000,000 
Year 7                     One well                          USD 5,000,000 

The first exploratory test well shall be commenced within
three hundred sixty-five (365) days from the Effective
Date of the Contract; thereafter, the drilling program
shall continue in the Years specified above until the
programmed funds are expended and the drilling
commitments are fulfilled or until Petroleum is
discovered in Commercial Quantity, whichever first occurs
and in the latter event, CONTRACTOR will devote the
remainder of the programmed funds, as may be appropriate
and pursuant to good oilfield practice, to the
delineation and development in supplement to such funds
as may be needed to pursue actively the delineation and
development program developed and presented for approval
to the OFFICE OF ENERGY AFFAIRS within ninety (90) days
after the declaration of discovery of Petroleum in
Commercial Quantity; provided, however, that upon thirty
(30) days' notice prior to the commencement of any new
Contract Year, CONTRACTOR may relinquish the
non-Production Area(s) and be relieved of any future work
program commitment for exploratory drilling; provided,
however, if during any Contract Year, CONTRACTOR shall
spend more than the amount of money required to be spent


by CONTRACTOR, the excess may be credited against the
amount of money required by the CONTRACTOR during the
succeeding Contract Year(s) and provided, further, that
should the CONTRACTOR fail to comply with the work
obligations provided for in this Contract for any
Contract Year, it shall pay to the Government the amount
it should have spent but did not in direct prosecution of
its work obligations. For purposes of this provision,
failure to meet a commitment to drill a well shall be
deemed a failure to spend the amount committed above
which is left unspent or Two Million Five Hundred
Thousand United States Dollars (U.S. $2.5 Million),
whichever is higher.

5.2 Within a period of three (3) months after the Effective
Date of this Contract and three (3) months prior to the
beginning of each succeeding Contract Year, CONTRACTOR
shall prepare and submit a Work Program and Budget for
the Contract Area setting forth the Petroleum Operations
which CONTRACTOR proposes to carry out during the ensuing
Contract Year and shall advise the OFFICE OF ENERGY
AFFAIRS of any significant changes thereon.

SECTION VI

RIGHTS AND OBLIGATIONS OF THE PARTIES

6.1 CONTRACTOR shall have the Following obligations:
(a) Perform all Petroleum Operations and provide all
necessary technology and finance, as well as the
required services in connection therewith; provided,
that no Foreign Exchange requirements of the
Operations shall be funded from the Philippine
banking system.


(b) Upon each discovery pf Petroleum in quantities that
may be commercial as determined jointly by the
CONTRACTOR and the OFFICE OF ENERGY AFFAIRS,
delineate in consultation with the OFFICE OF ENERGY
AFFAIRS the reservoir in a prudent and diligent
manner and in accordance with good oil field
practices within a one hundred twenty (120) day
period. If after such delineation it is determined
that the reservoir contains Petroleum in Commercial
Quantity, the area so delineated shall constitute a
Production Area.

(c) Be subject to the provisions of law of general
application relating to labor, health, safety and
ecology.

(d) Once Petroleum in Commercial Quantity is discovered,
operate the field in accordance with accepted good
oil field practices using modern and scientific
methods to enable maximum economic production of
petroleum; avoiding hazards to life, health end
property; avoiding pollution of air, land and waters;
and pursuant to an efficient and economic program of
Operation.

(e) Furnish the OFFICE OF ENERGY AFFAIRS promptly with
geological and other information, data and reports
relative to the Operation except for proprietary
techniques used in developing said information, data
and reports.

(f) Maintain detailed technical records and accounts of
its Operation.


(g) Conform to regulations regarding, among others,
safety, demarcation of the Contract Area,
noninterference with the rights of other petroleum,
mineral and natural resources operators.

(h) Maintain all meters and measuring equipment in good
order and allow access to these as well as to the
exploration and production sites and Operations to
inspectors authorized by the OFFICE OF ENERGY AFFAIRS.

(i) Allow examiners of the Bureau of Internal Revenue and
other representatives authorized by the OFFICE OF
ENERGY AFFAIRS at all reasonable times, and upon
twenty-four (24) hour notice full access to accounts,
books, and records relating to Petroleum Operations
hereunder for tax and other fiscal purposes.

(j) Be subject to Philippine income tax,

(k) Give priority in employment to qualified personnel 3 n
the municipality or municipalities or province where
the exploration or production operations are located.

(l) Within sixty (60) days after the Effective Date of
the Contract, post a bond or other guarantee of
sufficient amount in favor of the Government and with
surety or sureties satisfactory to the OFFICE OF
ENERGY AFFAIRS, conditioned upon the faithful
performance by the CONTRACTOR of any or all of the
obligations under and pursuant to this Contract; and




(m) After commercial production commences in the Contract
Area, supply from such production a portion of the
domestic requirements of the Republic of the
Philippines on a pro rata basis, which portion shall
be sold at Market Price and shall be determined as
follows: in respect of each Year multiply the (total
quantity of Crude Oil required for domestic
consumption by the ratio of the total quantity of
Crude Oil produced from the Contract Area to the
entire Philippine production of Crude Oil.
CONTRACTOR shall be entitled to sell this amount in
overseas markets in the event domestic purchasers are
unwilling or unable to timely purchase and timely pay
Market Price.

CONTRACTOR shall have the following rights:

(a) Exemption from all taxes except income tax;

(b) Exemption from payment of tariff duties and
compensating tax on the importation into the
Philippines of all machinery, equipment, spare parts
and all materials required for and to be used
exclusively by CONTRACTOR or subcontractor in
Petroleum Operations on the conditions that said
machinery, equipment, spare parts and materials of
comparable price and quality are not manufactured
domestically, are directly and actually needed and
will be used exclusively by the CONTRACTOR in its
Operations or in the operations for it by a
subcontractor; are covered by shipping documents in
the name of the CONTRACTOR to whom the shipment will


be delivered direct by the customs authorities; and the
prior approval of the OFFICE OF ENERGY AFFAIRS was
obtained by the CONTRACTOR before the importation of such
machinery, equipment, spare parts and materials which
approval shall not be unreasonably withheld; provided,
however, that the CONTRACTOR or its subcontractor may not
sell, transfer or dispose of such machinery, equipment,
spare parts and materials within the Philippines without
the prior approval of the OFFICE OF ENERGY AFFAIRS and
payment of taxes due the Government; provided, further,
that should the CONTRACTOR or its subcontractor sell,
transfer, or dispose of these machinery, equipment, spare
parts or materials within the Philippines without the
prior consent of the OFFICE OF ENERGY AFFAIRS, it shall
pay twice the amount of the tax exemption granted on the
equipment sold, transferred or disposed; provided,
finally, that the OFFICE OF ENERGY AFFAIRS shall allow
and approve, which shall not he unreasonably withheld,
the sale, transfer, or disposition of the said items
within the Philippines without tax if made (1) to another
contractor; {2) for reasons of technical obsolescence; or
(3) for purposes of replacement to improve and/or expand
Operations of the CONTRACTOR;

(c) Exemption upon approval by the OFFICE OF ENERGY
AFFAIRS from laws, regulations and/or ordinances
restricting the (1) construction, installation, and
operation of power plant for the exclusive use of the
CONTRACTOR if no local enterprise can supply within a
reasonable period and at reasonable cost the power
needed by the CONTRACTOR in its Petroleum Operations;


(2) exportation of machinery and equipment which were
imported solely for its Petroleum Operations when no
longer needed therefor;

(d) Exemption from publication requirements under
Republic Act Number Five Thousand Four Hundred 
Fifty-Five, and the provisions of Republic Act
Numbered Sixty One Hundred and Seventy-Three with
respect to the exploration, production, exportation
or sale or disposition of Crude Oil discovered and
produced in the Philippines;

(e) Exportation of Petroleum subject to the obligation to
supply a portion of domestic requirements as provided
in Section 6.1 (m) above;

(f) Entry, upon the sole approval of the OFFICE OF ENERGY
AFFAIRS which shall not be unreasonably withheld, of
alien technical and specialized personnel (including
the immediate members of their families) who may
exercise their professions solely for the Petroleum
Operation of the CONTRACTOR; provided, that if the
employment or connection of any such alien with
CONTRACTOR ceases, the applicable laws and
regulations on immigration shall apply to the alien
and his immediate family; provided, further, that
Filipinos shall be given preference to positions for
which they have adequate training; and provided,
finally, that the CONTRACTOR shall adopt and
implement a training program for Filipinos along
technical or specialized lines, in accordance with
the provisions of Section XIII hereof;


(g) Rights and obligations in this Contract shall be
deemed as essential consideration tor the conclusion
thereof and shall not be unilaterally changed or
impaired;

(h) Subject to the regulations of the Central Bank of the
Philippines be entitled to: (1) repatriate over a
reasonable period the capital investment actually
brought into the country in Foreign Exchange or other
assets and registered with the Central Bank; (2)
retain abroad all Foreign Exchange representing
proceeds arising from exports accruing to the
CONTRACTOR over and above (a) the Foreign Exchange to
be converted into pesos in an amount sufficient to
cover the costs of CONTRACTOR’S Petroleum Operations
payable in Philippine currency and (b) revenue due
the Government on such Crude; (3) convert into
Foreign Exchange and remit abroad at prevailing rates
no less favorable to CONTRACTOR than those available
to any other purchaser of foreign currencies, any
excess balances of their peso earnings from Petroleum
production and sale over and above the current
working capital they require; (4) convert Foreign
Exchange into Philippine currency for all purposes in
connection with its Petroleum Operations at
prevailing rates no less favorable to CONTRACTOR than
those available to any other purchaser of such
currency;

(i) Make at all times the free right of ingress to and
egress from the Contract Area and to and from
facilities wherever located in the Philippines;


(j) Exemption from the investment requirements of foreign
corporations under Section 126 in relation to Section
14B of the Corporation Code of the Philippines,

6.3 The OFFICE OF ENERGY AFFAIRS shall assume and pay on
behalf of CONTRACTOR and its parent company, on the first
transaction in each instance where the tax is imposed,
all income taxes payable to the Republic of the
Philippines based on income and profits and, with respect
to CONTRACTOR, on the first transaction in each instance
where the tax is imposed, all dividends, withholding
taxes and other taxes imposed by the Government of the
Philippines on the distribution of income and profits
derived from Petroleum Operations to its parent company.
The OFFICE OF ENERGY AFFAIRS shall promptly furnish to
CONTRACTOR, without fee or other consideration, the
official receipts issued in the name of CONTRACTOR by any
duly empowered Government authority, acknowledging the
payment of said taxes.

SECTION VII

RECOVERY OF OPERATING EXPENSES AND
ACCOUNTING FOR PROCEEDS OF PRODUCTION

7.1 CONTRACTOR, if authorized by the OFFICE OF ENERGY AFFAIRS
to market the OFFICE OF ENERGY AFFAIRS's share of
Petroleum produced and saved from Contract Area, shall
account for the proceeds from such sales as provided in
this Section VII, CONTRACTOR shall have the right and
privilege of receiving in kind and disposing of
CONTRACTOR'S portion of the Petroleum produced and saved
from the Contract Area.

7.2 In each Year, CONTRACTOR will recover from the gross
proceeds resulting from the sale of all Petroleum
produced under this Contract an amount equal to all
Operating Expenses; provided, that the amount so
recovered shall not exceed seventy percent (70%) of the
gross proceeds from production in any Year; provided,
further, that if in any Year the operating costs exceed
seventy percent (70%) of the gross proceeds from the
production or there are no gross proceeds, then the
unrecovered expenses shall be recovered from the gross
proceeds in succeeding Year(s). This payment shall be
calculated in accordance with the U.S. Dollar amounts
recorded in the books and accounts pursuant to Section
XV. The payment corresponding to the first lifting of the
Calendar Year, shall include any adjustments on
Government's share of the preceding calendar quarter.

7.3 (a) If the CONTRACTOR has been authorized to market the
OFFICE OF ENERGY AFFAIRS's share of production, it
shall within three (3) working days from collection
date but in no case beyond sixty (60) days from
lifting date, remit to the OFFICE OF ENERGY AFFAIRS
an amount equal to sixty percent (60%) of estimated
net proceeds from each Petroleum lifting operations.
This payment shall be calculated in accordance with
the U.S. Dollar amounts recorded in the books and
accounts pursuant to Section XV. The payment
corresponding to the first lifting of the Calendar
Year, shall include any adjustments on Government’s
share of the preceding calendar quarter.


In the event that CONTRACTOR is not paid within sixty
(60) days from the lifting date, CONTRACTOR shall
immediately inform the OFFICE OF ENERGY AFFAIRS.
Should delays in collection continue, the Parties
shall immediately meet to resolve the sixty (60) day
payment requirement. Further, in the event
collection within sixty (60) days from the lifting
dates remains a problem Cor four (4) months or in the
event that a single payment is not paid for an
inordinate period, then CONTRACTOR shall meet with
the OFFICE OF ENERGY AFFAIRS within thirty (30) days,
and if the problem is not completely resolved within
sixty (60) days thereafter, CONTRACTOR, at its
option, may extend the sixty (60) days from lifting
date payment requirement until it collects the entire
amount owed on each lifting in dispute.

(b) The OFFICE OF ENERGY AFFAIRS shall be entitled to
receive in kind Petroleum equal in value to sixty
percent (60%) of net proceeds.

(c) For purposes of Section VII, net proceeds means the
difference between gross income and the sum of the
Operating Expenses recovered pursuant to Section 7.2.

7.4 CONTRACTOR will retain an amount equal to its fee of
forty percent (40%) of the net proceeds from the
Petroleum Operations.

7.5 If the OFFICE OF ENERGY AFFAIRS and the CONTRACTOR elect
to take their respective shares in kind, the Parties to
this Contract will enter into separate agreement
providing among others, for the manner and form of
deliveries and appropriate quarterly adjustments.




7.6 For the purpose of determining gross proceeds. Petroleum
shall be valued as follows:

(a) All Crude Oil sold for consumption in the Philippines
shall be valued at Market Price for such Crude Oil.

(b) All Crude Oil Exported shall be valued at the Posted
Price.

(c) All Natural Gas and/or Casinghead Petroleum Spirit
exported or sold for consumption in the Philippines
shall be valued at the prevailing Market Price
thereof .

(d) Reasonable commissions or brokerage incurred in
connection with sales to third parties, if any, shall
be deducted from gross proceeds but shall not exceed
the customary and prevailing rate.

(e) Filipino Participation Incentive Allowance, if any,
shall be deducted from gross proceeds. This
Allowance shall be computed on a sliding scale, as
provided in the appropriate circular issued by the
OFFICE OF ENERGY AFFAIRS, provided that the Filipino
Participation Incentive Allowance shall be granted
under this Contract if qualifying Filipino
Participation is secured prior to the commencement of
the first drilling operation. The Allowance shall be
deducted from the higher of Section 7.6(a) and 7.6(b).




SECTION VIII

INCOME TAXES

8.1 CONTRACTOR shall be liable each taxable year for
Philippine income tax under the provisions of the
National Internal Revenue Code and the Oil Exploration
and Development Act of 1972, as amended. The CONTRACTOR'S
gross income shall consist of;

(a) Gross proceeds determined in accordance with Section
7.6 above; and

(b) Such other income which is incidental to and/or
arising from any Petroleum Operation or other aspects
of the Contract.

In computing the Taxable Net Income, CONTRACTOR shall be
allowed to deduct Operating Expenses recovered pursuant
to Section 7.2 above.

8.2 In ascertaining the CONTRACTOR'S Taxable Net Income,
deduction from gross income shall be allowed in respect
of any interest or other consideration paid or suffered
in respect of the financing of its Petroleum Operations
to the extent allowed by the Accounting Procedure,
Part II, Section 14.

8.3 CONTRACTOR shall render to the OFFICE OF ENERGY AFFAIRS a
return for each taxable year in duplicate in such forms
and manner as provided by law setting forth its gross
income and the deduction herein allowed. The return shall
be filed by the OFFICE OF ENERGY AFFAIRS with the
Commissioner of Internal Revenue or his deputies or other

persons authorized by him to receive such return within
the period specified in the National Internal Revenue
Code and the Rules and Regulations promulgated thereunder.

8.4 The OFFICE OF ENERGY AFFAIRS, upon payment by it of
CONTRACTOR’S income taxes, shall procure official
receipts in the name of CONTRACTOR evidencing such
payment. Each of the second parties, if more than one
(1), shall be subject to tax separately on its share of
income and the OFFICE OF ENERGY AFFAIRS shall supply each
with an individual receipt in its own name.

SECTION IX

PAYMENTS

9.1 All payments which this Contract obligates CONTRACTOR to
make to the OFFICE OF ENERGY AFFAIRS shall be in Foreign
Exchange at a bank to be designated by the OFFICE OF
ENERGY AFFAIRS and agreed upon by the Central Bank of the
Philippines except that CONTRACTOR may make such payments
in Philippine pesos to the extent that such currency is
realized as a result of the domestic sale of Crude Oil or
Natural Gas. All such payments shall be translated at the
applicable exchange rates as defined in the Accounting
Procedures attached hereto as Annex "B".

SECTION X

NATURAL GAS

10.1 After meeting requirements for secondary recovery
operations, priority shall be given to supplying
prospective demand for Natural Gas in the Philippines,
Any Natural Gas produced from the Contract Area to the



extent: not used in Operations hereunder, may be flared if
the processing or utilization thereof is not deemed
economical by CONTRACTOR or required by CONTRACTOR for
secondary recovery operations, including repressuring and
recycling; provided, that the OFFICE OF ENERGY AFFAIRS
may take and utilize such Natural Gas that would
otherwise be flared, in which event all costs of taking
and handling such Natural Gas will be for the sole
account and risk of the OFFICE OF ENERGY AFFAIRS.

SECTION XI 

ASSETS AND EQUIPMENT

11.1 CONTRACTOR shall acquire for the Petroleum Operations
only such assets as are reasonably estimated to be
required in carrying out the Petroleum Operations.

11.2 All materials, equipments, plants and other installations
erected or placed on the Contract Area of a movable
nature by the CONTRACTOR shall remain the property of the
CONTRACTOR unless not removed therefrom within one Year
after the termination of this Contract in which case,
ownership shall be vested with the OFFICE OF ENERGY
AFFAIRS, In the event CONTRACTOR fully recovers its
investment in movable material, equipments and/or plants
or other installations placed on the Contract Area, then
CONTRACTOR shall transfer ownership to those materials,
equipments and/or plants or other installations, as is,
when CONTRACTOR has concluded its use of them.

11.3 CONTRACTOR may also utilize in the Petroleum Operations
equipment owned and made available by CONTRACTOR and


charges to the Petroleum Operations account for use of
such equipment shall be made as provided in the
Accounting Procedure.

SECTION XII

CONSULTATION AND ARBITRATION                        

12.1 Disputes, if any, arising between the OFFICE OF ENERGY
AFFAIRS and CONTRACTOR relating to this Contract or the
interpretation and performance of any of the clauses of
this Contract, and which cannot be settled amicably,
shall be settled by arbitration. The OFFICE OE ENERGY
AFFAIRS on the one hand and CONTRACTOR on the other hand,
shall each appoint one arbitrator within thirty (30) days
after receipt of a written request of the other Party to
do so, such arbitrator shall, at the request of the other
Party, if the parties do not otherwise agree, be
appointed by the President of the International Chamber
of Commerce. If the first two arbitrators appointed as
aforesaid fail to agree on a third within thirty (30)
days following the appointment of the second arbitrator,
the third arbitrator shall, if the Parties do not
otherwise agree, be appointed, at the request of either
Party, by the President of the International Chamber of
Commerce. If an arbitrator fails or is unable to act, his
successor will be appointed in the same manner as the
arbitrator whom he succeeds. Unless the Parties agree
otherwise, the Philippines shall be the venue of the
arbitration proceedings. The English language shall be
the language used.

12.2 The decision of a majority of the arbitrators shall be
final and binding upon the parties. Judgment upon the
award rendered may be entered in any court having


jurisdiction or application may be made to such court for
a judicial acceptance of the award and an order of
enforcement, as the case may be.

12.3 Except as provided in this Section, arbitration shall be
conducted in accordance with the Rules of Arbitration of
the International Chamber of Commerce, then in effect.

SECTION XIII
EMPLOYMENT AND TRAINING OF PHILIPPINE PERSONNEL

13.1 CONTRACTOR agrees to employ qualified Filipino personnel
in the operations and after commercial production
commences will undertake, upon prior approval of the
OFFICE OF ENERGY AFFAIRS the schooling and training of
Filipino personnel for labor and staff position,
including administrative, technical and executive
management position. CONTRACTOR shall undertake upon
prior approval of the OFFICE OF ENERGY AFFAIRS a program
of training assistance for OFFICE OF ENERGY AFFAIRS
personnel. CONTRACTOR’S total training commitment shall
be Twenty Thousand United States Dollars (U.S. $20,000)
annually during the exploration phase excluding any
Moratorium Period and a mutually agreed amount during the
production phase.

13.2 Costs and expenses of training Filipino personnel for
CONTRACTOR’S own employment shall be included in
Operating Expenses. Costs and expenses of a program of
training for OFFICE OF ENERGY AFFAIRS’s personnel shall
be on a basis to be agreed upon by the OFFICE OF ENERGY
AFFAIRS and CONTRACTOR.

days, CONTRACTOR shall, within thirty (30) days following
the expiration of said sixty (60) day period, pay to the
First Party the total sum of One Million United States
Dollars (U.S. $1,000,000); provided, it is understood
that CONTRACTOR, in order to sustain said rate of fifty
thousand (50,000) BOPD for said sixty (60) day period,
shall not be required to operate the Contract Area Mother
than as a reasonably prudent operator following sound oil
field practice prevalent in the industry.

17.3 If and when there shall be produced from the Contract
Area seventy-five thousand (75,000) barrels of oil per
day (BOPD) at an average rate for sixty (60) consecutive
days, CONTRACTOR shall, within thirty (30) days following
the expiration of said sixty (60) day period, pay to
First Party the total sum of Two Million United States
Dollars (U.S, $2,000,000); provided, it is understood
that CONTRACTOR, in order to sustain said rate of
seventy five thousand (75,000) BOPD for said sixty (60)
day period, shall not be required to operate the Contract
Area other than as a reasonably prudent operator
following sound oil field practice prevalent in the
industry.

17.4 If and when there shall be produced from the Contract
Area one hundred thousand (100,000) barrels of oil per
day (BOFD) at an average rate for sixty (60) consecutive
days, CONTRACTOR shall, within thirty (30) days following
the expiration of said sixty (60) day period, pay to
First Party the total sum of Three Million United States
Dollars (U.S. $3,000,000); provided, it is understood
that CONTRACTOR, in order to sustain said rate of one

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SECTION XIV
TERMINATION

This Contract shall be terminated and CONTRACTOR Shall be
relieved of its obligations:

14.1 As provided in Section 3.1 hereof; or

14.2 On expiration of the term, or extension thereof provided
for in Section 3.2 hereof; or

14.3 Upon surrender by CONTRACTOR of the entire Contract Area
pursuant to Section 4.5, subject to the provisions of
Section 4.6 hereof.

SECTION XV
BOOKS AND ACCOUNTS AND AUDITS.

15.1 Books and Accounts 

CONTRACTOR shall be responsible for keeping complete
books and accounts, both in United States and Philippine
currencies, reflecting all transactions in connection
with Petroleum Operations in accordance with the
Accounting Procedure attached hereto as Annex "B".

15.2 Audit

The OFFICE OF ENERGY AFFAIRS shall have the right to
inspect and audit CONTRACTOR'S books and accounts
relating to this Contract for any Calendar Year within
the one (1) year period following the end of such
Calendar Year. Any such audit will be completed within

-30-

twelve (12) months after its commencement. Any exception
must be mode in writing sixty (60) days following the
completion of such audit and failure to give such written
exception within such time shall establish the
correctness of CONTRACTOR'S books and accounts for the
period of such audit.

SECTION XVI

OTHER PROVISIONS

16.1 Notices                                                                               

Any notice required or given by either party to the other
party shall be in writing and shall be effective when a
copy thereof is handed to or served upon the Party's duly
designated representative or the person in charge of the
office or place of business; or when sent by telex with
written confirmation subsequently received within fifteen
(15) days, notice shall be effective on date of telex
receipt; or when sent by registered mail, notice shall be
effective upon actual receipt by the addressee, but if he
fails to claim his mail from the post office within five
(5) days from the date of the first notice of the
postmaster, service shall take effect at the expiration
of such time. All such notices shall be addressed to:

To the First Party:

The Office of Energy Affairs
Philippine National Petroleum Center
Merritt Road, Fort Bonifacio, Metro Manila

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To_the Second Party:

Occidental Philippines, Inc.
1200 Discovery Way
P. O. Box 12021
Bakersfield, California 93389-2021
U.S.A.

Any Party may substitute or change such address on
written notice thereof to the others.

16.2 Governing Law

The laws of the Republic of the Philippines shall apply
to this Contract.

16.3 Suspension of Obligations
(a) Any failure or delay on the part of either Party
in the performance of its obligations or duties
hereunder shall be excused to the extent
attributable to Force Majeure. The absence of
technological capability to produce a discovery
shall not constitute Force Majeure.

(b) If Operations are delayed, curtailed or prevented
by such causes, then the time for enjoying the
rights and carrying out the obligations thereby
affected, and all rights and obligations hereunder
shall be extended for a period equal to the period
thus involved, except that the term of this
Contract as provided in Section III thereof shall
not thereby be extended.


(d) Force Majeure shall include Acts of God,
unavoidable accidents, acts of war or conditions
arising out of or attributed to war (declared or
undeclared), laws, rules, regulations and orders
by any Government or governmental agency, strikes,
lockouts and other labor disturbances,
insurrections, riots, and other civil disturbances
and all other beyond the control of the Party
concerned (other than rig availability); provided,
however, that as to the OFFICE OF ENERGY AFFAIRS
only, laws, rules and regulations and orders by
Government or any governmental agency of the
Republic of the Philippines shall not constitute
Force Majeure.

(d) The Party whose ability to perform its obligations
is so affected shall notify the other party
thereof in writing stating the cause and both
Parties shall do all reasonably within their power
to remove such cause.

16.4 Assignment

The rights and obligations of Second Party under this
Contract shall not be assigned or transferred without the
prior approval of the OFFICE OF ENERGY AFFAIRS which
shall not be unreasonably withheld and shall be without
fee or other consideration; provided, that with respect
to the assignment or transfer of such rights and
obligations to an Affiliate of the transferor, the
approval thereof by the OFFICE OF ENERGY AFFAIRS shall be
automatic and without fee or other consideration, if the


transferee is as qualified as the transferor to enter
into such contract with the Government; provided,
further, that the Affiliate relationship between the
original transferor or a company which holds at least
fifty percent (50%) of the CONTRACTOR’S outstanding
shares entitled to vote and each transferee shall ye
maintained during the existence of the Contract.

Petrochemical Facility

At such time as CONTRACTOR has established Commercial
Production as defined in Section 2.21, CONTRACTOR will
undertake technical and economic studies as to the
feasibility of establishing a petrochemical facility in
the Philippines to utilize a portion of said production.
CONTRACTOR will conduct such studies at its sole cost and
expense. To the extent that it is mutually agreed between
all parties that such studies indicate that such
facilities would be technically and economically
feasible, CONTRACTOR will finance and construct or cause
to be financed and constructed such facility.

SECTION XVII                             

PAYMENTS BY CONTRACTOR

17.1 CONTRACTOR shall, within sixty (60) days following the
first declaration of a discovery of Petroleum in
Commercial Quantity, pay to the First Party the total sum
of One Million United States Dollars (U.S. $1,000,000).

17.2 If and when there shall be produced from the Contract
Area fifty thousand (50,000) barrels of oil per day
(DOPD) at an average rate Cor sixty (60) consecutive

hundred thousand (100,000) BOPD tor said sixty (60) day
period, shall not be required to operate the Contract
Area other than as a reasonably prudent operator
following sound oil field practice prevalent in the
industry.

SECTION XVIII                                                                  

DEEPWATER CONTRACT

18.1 With regard to the recovery of Operating Expenses of
CONTRACTOR who qualifies as a Deepwater Contractor, the
following recoveries shall be allowed:

(a) Cross Recovery Allowed - Subject to cost recovery
limitation as provided in the Contract, there shall
be allowed the cross recovery of the Operating
Expenses incurred by a Deepwater Contractor or its
affiliate in two (2) or more areas under different
Deepwater Contracts and in the drilling of Deepwater
Wells as if they are covered by a single contract.

(b) Cross Recovery Rules

(1) Year to which Cross Recovery may be
carried - operating expenses incurred
preceding the date of production shall be
cross-recoverable starting on the date of
production.



(2) Amount of Cross Recovery                            

(a) The entire amount of Operating
Expenses incurred within ten (10)
Years preceding the date of
production shall be
cross-recoverable;

(b) Operating Expenses incurred more
than ten (10) years Preceding the
date of production shall be reduced
by an amount equal to twenty percent
(20%) thereof, for each year beyond
ten (10) years preceding the date of
production.

(3) Time to Avail Incentive - Cross Recovery
of Operating Expenses set forth in this
section shall be allowed for a period of
ten (10) years from the effectivity of
this amendatory decree, unless extended
by law.

(c) Cross Recovery Defined - For purposes of this
section, the term "Cross Recovery" means that
the Operating Expenses incurred by a Deepwater
CONTRACTOR or its affiliate in two (2) or more
areas under different deep-water contracts and
the Operating Expenses it incurred in the
drilling of Deepwater Wells may be recovered
from the Gross Proceeds resulting from the
sale of all Petroleum produced within any one



or more of the Deepwater Contracts (or
contract where the Deepwater Well is located),
as if they are covered by a single contract.

(d) Operating Expenses Defined - For purposes of
this section, the term "Operating Expenses"
means the total expenditures for Petroleum
Operation incurred by the CONTRACTOR, both
within and without the Philippines, except
administrative items, as provided in the
Service Contract.

18.2 The provision of this Section XVIII, as well as
provisions elsewhere specified which are applicable to
Deepwater Contracts or Deepwater Wells, as provided in
Presidential Decree No. 1857, shall apply to this
Contract as long as this Contract remains as a Deepwater
Contract or in cases of drilling of Deepwater, as the
case may be.

SECTION XIX

EFFECTIVENESS

19.1 This Contract shall come into effect on the Effective
Date.

19.2 This Contract shall not be annulled amended or modified
in any respect except by the mutual consent in writing of
the Parties hereto.


IN WITNESS WHEREOF the Parties hereto have executed this
Contract as of the day and year first above written.

GOVERNMENT OF THE REPUBLIC                OCCIDENTAL PHILIPPINES, INC.
OF THE PHILIPPINES

By:                                                                      By:
       Corazon C. Aquino                                          Carlos A. Contreras

Title: President                                                 Title: Vice President and
                                                                                     Resident Manager

SHELL EXPLORATION B. V.

By: W. A. Loader

Title:  Chief Executive 
Shell Companies in the
Philippines