(October, 1993)
Republic of the Philippines
DEPARTMENT OF ENERGY
Manila
(Model Agreement)
GEOPHYSICAL SURVEY AND EXPLORATION CONTRACT
THIS GEOPHYSICAL SURVEY AND EXPLORATION CONTRACT made and entered into this ____day of
__________________, 19________ in the City of Manila by and between the:
The GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, hereinafter referred to as the “GOVERNMENT’,
represented by the DEPARTMENT OF ENERGY, hereinafter referred to as ‘DEPARTMENT’, established pursuant to
Republic Act No. 7638, with principal offices at the Philippine National Petroleum Center, Merritt Road, Fort
Bonifacio, Taguig, Metro Manila, as First Party, and __________________________________ as Second Party,
hereinafter referred to as the “CONTRACTOR”.
In the implementation of this Contract, the GOVERNMENT and/or DEPARTMENT and CONTRACTOR are herein
referred to collectively as the “Parties”.
WITNESSETH:
WHEREAS, all petroleum, crude oil, crude, natural gas and/or casinghead petroleum spirit in 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 2,
Article XII of the 1987 Constitution;
WHEREAS, the Oil Exploration and Development Act of 1972 , (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;
WHEREAS, Section 2, Article XII of the 1987 Constitution provides that the President may enter into agreement 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 welfare of the country and
for the promotion of the development and use local scientific and technical resources;
WHEREAS, under the provisions of the Act, the Government of the Republic of the Philippines may explore for and
produce indigenous petroleum under Service Contract as provided in the Act, subject to the requirements prescribed in
Section 2, Article XII of the 1987 Constitution;
WHEREAS, in the pursuance of the above-stated policy, the GOVERNMENT acting through the DEPARTMENT
wishes to avail itself of the resources of the CONTRACTOR through a Geophysical Survey and Exploration Contract
under which CONTRACTOR will provide the necessary technology and financing including the required services for
the geophysical survey operations, hereinafter defined and will assume all kinds of risk inherent and incidental thereto.
The conduct of geophysical survey operations shall be under full control and supervision of the GOVERNMENT
through the DEPARTMENT;
WHEREAS, CONTRACTOR, wishes to enter into such a Geophysical Survey and Exploration Contract covering the
Geophysical Survey Areas hereinafter defined; and
WHEREAS, CONTRACTOR has the financial resources, technical competence and professional skills necessary to
carry out the geophysical survey operations.
NOW, THEREFORE, in consideration of the sum of __________________________________________________ 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 Geophysical Survey and Exploration Contract with all the 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 seismic and other necessary geophysical
operations contemplated hereunder the full control and supervision of the DEPARTMENT.
1.2 CONTRACTOR shall be responsible to the DEPARTMENT 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
geophysical survey and drilling operations as provided herein;
1.3 CONTRACTOR shall assume all risks which are inherent and incidental to the geophysical survey operations
contemplated hereunder;
1.4 This contract conveys no right unto CONTRACTOR to make exploratory drilling other than is provided in Section
4.4 hereof. CONTRACTOR is given the option to convert fifty percent (50%) and, subject to technical
justification, up to a maximum of seventy-five percent (75%) of the geophysical survey area pursuant to the
provisions of Presidential Decree No. 87, as amended and Section 2, Article XII of the 1987 Constitution, within
the period co-terminus with this Geophysical Survey and Exploration Contrat, in the form attached hereto as
Annex “B”.
SECTION II
DEFINITIONS
2.1 Contract – means this Geophysical Survey and Exploration Contract.
2.2 Geophysical Survey Area – means the aggregate area outlined and more particularly described in Annex “A”
hereto attached.
2.3 Geophysical Survey Operation or Operations – means the study of variations in the values of the physical
parameters of the crust of the earth with the object of gaining information for economic purposes, about
subsurface structures. Methods employed involve the study of (a) ambient field and (b) the effects of applied field.
Examples of (a) are gravitational, magnetic, temperature gradients and heat flow. Examples of (b) are seismic
surveys by the application of shock waves. Techniques include aerial surveys, including air photograph
interpretation (subject to clearance from proper military authority) both land and marine surface surveys in
boreholes. The objectives of geophysical survey operations include, among others, the delineation of potential oiland gas-bearing structures.
2.4 Effective Date – means the execution date of the Contract by the Parties.
2.5 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
DEPARTMENT and to the CONTRACTOR.
SECTION III
TERM
3.1 This Contract shall be for a term of one (1) year from the execution of the Contract and such additional period of
time as may be required to complete the drilling of any exploratory well or wells which CONTRACTOR may
elect to drill hereunder as provided for in Section 4.4 below.
3.2 If the CONTRACTOR requires a limited extension of the 1 st twelve months term provided in 3.1 hereof with
reasonable justification, the DEPARTMENT shall not unreasonably withhold approval. The DEPARTMENT
shall make its decision within thirty (30) days from its receipt of the notice.
SECTION IV
GEOPHYSICAL SURVEY PROGRAMMES AND COSTS
4.1 The CONTRACTOR shall inform the DEPARTMENT prior to the actual start of the geophysical survey
operations in the area, the nature of the work proposed to be done, the size of the parties to be put in the field, and
the areas to be covered by such work. The CONTRACTOR shall carry out the geophysical survey program
consisting of a technical evaluation, reprocessing and/or interpretation of existing data over the Contract Area as
may, in the opinion of CONTRACTOR, be necessary to complete its study over the area and thereafter, acquire,
process, evaluate, interpret and integrate a minimum __________________________ of seismic data over the
Contract Area. The CONTRACTOR shall complete its study within six (6) months from Effective Date and issue
promptly a report to the DEPARTMENT. The CONTRACTOR shall complete the acquisition, processing,
interpretation and integration of the new seismic data within six months thereafter, except to the extent allowed
under 3.2 hereof.
4.2 After completion of the work obligation provided for in Section 4.1 above and the minimum expenditure under
Section 4.3 below, CONTRACTOR may abandon the contract without any further obligation or liability to the
DEPARTMENT by written notice at least ten (10) days before said expiration of the contract.
4.3 The CONTRACTOR
shall be obliged to spend in direct prosecution of the geophysical survey
operation/programme not less than the amount of _________________________________, such costs to include
but not limited to:
(a) Direct costs incurred pursuant to the geophysical survey contract and the costs of processing data arising
therefrom;
(b) Other direct costs from outside contracts or consultation services;
(c) Costs attributable to the programme and the interpretation and evaluation of data arising therefrom.
4.4
(a) The CONTRACTOR by written notice to the DEPARTMENT given not later than the last day of the twelfth
month from the Effective Date shall have the successive options to drill up to two (2) exploratory wells in the
Geophysical Survey Area at location or locations to be selected by the CONTRACTOR and duly approved
by the DEPARTMENT.
(b) If the CONTRACTOR elects to drill the first option well as provided for above, the CONTRACTOR shall
within 60 days inform the DEPARTMENT of the location for the exploratory well.
(c) If the DEPARTMENT approves the proposed well location, the first option well shall be spudded by
CONTRACTOR within eight (8) months from the last day of the twelfth month from the Effective Date and
thereafter diligently prosecute and complete the drilling thereof to its total depth or economic basement
within the same eight (8) months period.
(d) Prior to the end of the eight (8) months period in Section 4.4 (c) above, CONTRACTOR shall give written
notice to the DEPARTMENT of its election:
(i)
to drill the second option well; or
(ii)
convert the Geophysical Survey Area into a Service Contract Area as provided for in Section 1.4
above; or
(iii)
totally relinquish the Geophysical Survey Area.
(e) If the CONTRACTOR elects to drill the second option well as provided for above, the CONTRACTOR shall
within sixty (60) days, from the date of election, inform the DEPARTMENT of the location for such second
option well.
(f)
If the DEPARTMENT approves the proposed well location, the second option well shall be spudded by the
CONTRACTOR within sixteen (16) months from the last day of the twelfth month from the Effective Date
and thereafter diligently pursue the drilling thereof to its total depth or economic basement within the same
sixteen (16) months period.
(g) Within sixty (60) days after the completion of the second option well, CONTRACTOR shall give written
notice to the DEPARTMENT of its election:
(i)
to convert the Geophysical Survey Area into a Service Contract Area as provided for in Section 1.4
above; or
(ii)
totally relinquish the Geophysical Survey Area.
(h) If the CONTRACTOR notifies the DEPARTMENT of its election to drill the option well or wells specified
in Section 4.4 (b) hereof, the CONTRACTOR shall be obliged to spend the sum of ______________in the
drilling of the first well, and thereafter, should the CONTRACTOR elect to drill the second option well as
provided in Section 4.4 (d)(i) above, it shall be obliged to spend ___________________in the drilling of the
second well. Should the CONTRACTOR fail to conduct the drilling operation specified, then it shall pay to
the DEPARTMENT the amount specified above less any expenditures incurred by the CONTRACTOR in
the direct prosecution of operations of the optional drilling program under this Contract. For purposes of
these provisions, 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 _____________per well whichever is higher.
(i)
If the CONTRACTOR exercises its option to enter into a Service Contract as provided for in Section 4.4
(d)(ii) or, after drilling the second option well, decides to convert the contract into a Service Contract under
Section 4.4 (g) hereof, then the operations performed by the CONTRACTOR and expenditures incurred in
the prosecution of operations under the Contract shall be included within the meaning of “Petroleum
Operations” of “Operations” and “Operating Expenses”, as these terms are respectively defined in the Service
Contract (Annex “B”) and accordingly the operations performed and the expenditures incurred under this
Contract with respect to said drilling/drillings shall be credited against the work commitments and the
amount of money required to be spent by the CONTRACTOR for the first two contract years under Section
5.1 of the Service Contract (Annex “B”), and all expenditures as described above shall be recoverable under
Section 7.2 of the said Service Contract.
(j)
If the CONTRACTOR elects either Sections 4.4 (c)(iv) or 4.4 (g)(iii), the Contract shall be extended while
the CONTRACTOR and the DEPARTMENT jointly review the findings of the CONTRACTOR. Upon
mutual satisfaction that technological means to produce petroleum in commercial quantity does not yet exist,
the term of this contract shall be extended for a period of five (5) years (hereinafter referred to as the
“Moratorium Period”). The decision as to whether the 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 DEPARTMENT its progress in developing the requisite technology. If during the Moratorium
Period CONTRACTOR and the DEPARTMENT agree that technology has developed sufficiently to allow
production of petroleum in commercial quantity, then the CONTRACTOR may convert the Geophysical
Survey Area into a Service Contract Area. If at the end of the Moratorium Period the Contractor has not yet
converted to a Service Contract Area, then CONTRACTOR must elect within a period of sixty (6) days
following the Moratorium Period to either convert the Geophysical Survey Area into a Service Contract or
abandon the Geophysical Survey Area without further commitment or obligations under this Contract.
SECTION V
RIGHTS AND OBLIGATIONS OF THE PARTIES
5.1 CONTRACTOR shall have the following obligations:
(a) Perform all seismic and necessary geophysical survey operations and provide all necessary services,
technology and financing in connection therewith; provided, that no foreign exchange requirements of the
operations shall be funded from the Philippine Banking System;
(b) Be subject to the provisions of laws of general application relating to labor, health, safety and ecology;
(c) Furnish the DEPARTMENT 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;
(d) Maintain detailed technical records and accounts of its operations;
(e) Conform to regulations regarding, among others, safety, demarcation of the Geophysical Survey Area, noninterference with the rights of other petroleum, mineral and natural resources operators;
(f)
Maintain all meters and measuring equipment in good order and allow access to these as well as to the
geophysical areas to inspectors authorized by the DEPARTMENT;
(g) Give priority in employment to qualified personnel in municipality or municipalities or province where the
geophysical operations are located;
(h) Within 30 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 DEPARTMENT, conditioned
upon the faithful performance by the CONTRACTOR of any or all of the obligations under and pursuant to
this contract;
(i)
The right to enter upon or to occupy private property in connection with this Contract must be secured from
the owner or legal occupant thereof;
(j)
The CONTRACTOR binds itself to execute reasonable diligence and take reasonable precaution to avoid
causing damage to persons and/or property and shall pay the GOVERNMENT through the DEPARTMENT
or private owner or legal occupant, as the case may be, compensation for any and all damage to, or
destruction of property caused by th;e CONTRACTOR’S operations hereunder and shall hold the
GOVERNMENT through the DEPARTMENT harmless from all claims, accounts, demands and/or actions
arising out of damage or injury to persons and/or property resulting from the CONTRACTOR’S operations
under this Contract
(k) CONTRACTOR shall not use the areas covered by this Contract for purpose other than surface geological
and/or geophysical investigations for oil and gas exploration; and, as provided herein, for drilling operations
and, should the CONTRACTOR use or attempt to use the area or permit them to be used for purposes other
than as herein authorized without prior written authority of the DEPARTMENT, then in such event, this
Contract shall at once terminate and the rights and interests of CONTRACTOR hereunder shall be forfeited;
(l)
The CONTRACTOR shall undertake, upon approval of the DEPARTMENT, a program of training assistance
for DEPARTMENT personnel, the total costs of which shall be at least US Dollars _____________
5.2 CONTRACTOR shall have the following rights:
(a) Exemption from the 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 geophysical survey operations on the condition 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 operation or in the operations for it by the 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 DEPARTMENT 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 subcontractors may not sell, transfer or
dispose of such machinery, equipment, spare parts and materials within the Philippines without prior approval of
the DEPARTMENT and payment of taxes due the GOVERNMENT; provided, further, that should the
CONTRACTOR or its subcontractors sell, transfer, or dispose of these machinery, equipment, spare parts or
materials within the Philippines without the prior consent of the DEPARTMENT, it shall pay twice the amount of
the tax exemption granted; provided finally, that the DEPARTMENT shall allow and approve the sale, transfer or
disposition of the said items within the Philippines without tax if made (1) to another contractor, (2) for reason of
technical obsolescence; or (3) for purposes of replacement to improve and/or expand operations of the
CONTRACTOR;
(b) Entry upon the sole approval of the DEPARTMENT which shall not be unreasonably withheld of alien technical
and specialized personnel (including the immediate members of their families), who any exercise their professions
solely for the geophysical survey operation of the CONTRACTOR; provided, that if employment or connection of
such alien with CONTRACTOR ceases, the applicable laws