MANILA, Philippines – President Rodrigo Duterte has issued an order which eases the rules on contracts entered into by the government for oil exploration and development.
Duterte signed the Executive Order (EO) No. 80 on May 28 and a copy of which was released by Malacañang on Thursday (May 30).
Through the EO, Duterte has allowed third parties to participate in service contracts awarded by the government to the Philippine National Oil Company-Exploration Corporation (PNOC-EC), the upstream oil and gas subsidiary of the Philippine National Oil Company.
“In all cases, PNOC-EC shall enter into farm-in/farm-out agreements only with reputable, technically competent and financially capable entities,” the order stated.
Farm-in/farm-out refers to a practice, recognized and accepted in the oil and gas industry, of allowing third party participation to spread the risks inherent in oil and gas exploration, development, and production. The entity acquiring the participating interest considers the transaction as a “farm-in,” while the entity transferring such interest considers the transaction as a “farm-out.”
The order effectively repeals the EO 556 series of 2006 and other executive issuances which prohibits the awarding of farm-in or farm-out deals by any government agency. The order, signed during the Arroyo administration also ordered government agencies to follow a strict bidding procedure in selecting parties for oil exploration.
The Department of Energy (DOE) has been pushing for the repeal of Arroyo’s EO to allow pending farm-in deals, including the controversial Service Contract (SC) 57 to proceed.
The SC 57, which covers an area off Northwest Palawan under the exclusive Philippines’ economic zone, was awarded to the PNOC EC in 2005.
According to the contract, State-owned China National Offshore Oil Corporation has farmed in into SC 57 in 2006, acquiring 51 percent participating interest.
Under Duterte’s order, the DOE is tasked to issue rules and regulations specifying the selection process to be observed by the PNOC-EC.
All farm-in/farm-out agreements to be undertaken by the PNOC-EC must be approved by the DOE.
“The DOE shall take into consideration provisions of existing government selection procedures that enhance transparency and objectivity in the selection process, including GCG issuances requiring that contracts to be entered into by the government-owned and/or controlled corporations undergo review by the Office of the Government Corporate Counsel,” the EO stated.
Duterte’s order comes after the Philippines and China inked a memorandum of understanding (MOU) on oil and gas development in the contested South China Sea.
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