THE Department of Energy (DoE) said it will offer petroleum service contractors “special allowances” to encourage investment in the upstream energy industry.
“There is a need to offer improved fiscal terms to service contractors to complement the other government initiatives in attracting more exploration and production companies to spur exploration activity,” the DoE said in a department circular dated Sept. 23.
Oil and gas exploration in the Philippines has attracted limited investment due to the risks, it said.
According to the circular, the special allowances will consist of deductions from gross proceeds with the proviso that the government’s share be less than 60% of the difference between gross income and operating expenses.
Reimbursement of all operating expenses is capped at 70% of the gross proceeds from production in any year.
The DoE is also granting special allowance on cost recovery of exploration expenses for some service contracts.
For marginal petroleum operations, the government is extending a special allowance when annual operating expenses exceed the cost recovery allowance of 70%.
To encourage the development of new petroleum fields discovered in frontier areas, the DoE is providing an allowance of 5% of the gross proceeds to the first commercial development.
“Providing special allowances that allow for maximum benefits to the country and at the same time provide reasonable returns to private companies that render financial and technical services and assume all the risk of petroleum exploration will make the Philippine service contract regime more attractive to investment and will improve the state of the oil and gas exploration in the country,” the DoE said.
Edgar Benedict C. Cutiongco, president of the Philippine Petroleum Association, welcomed the development, saying the allowances are attractive for companies of all sizes.
“Granting special allowances to petroleum service contractors creates a more supportive environment for exploration and production,” he told BusinessWorld via Viber.
“It supports marginal fields by giving companies the flexibility to continue operations even when the economics are tight — this helps avoid stranding petroleum reserves that still have potential,” he said.
Mr. Cutiongco said the incentives promote exploration in areas that have not been tested.
“It boosts local gas production, especially in new and emerging plays, which is key to strengthening our energy independence,” he said. — Sheldeen Joy Talavera