“If we aspire to reach greater heights, we can learn much from the successful models adopted by neighboring countries”
During the Senate discussions on what later became Republic Act 12120, or the Philippine Natural Gas Industry Development Act, it was pointed out that exploration projects, once robust following the discovery of the Malampaya gas deposits in 1989, had practically ground to a halt.
What this emphasized is that vast national resources, both inland and offshore, had seemingly lost their allure for potential investors.
Several factors contributed to this, but the main deterrent is the unpredictability of future exploration projects due to unclear or non-existent regulations.
Understandably, investors were reluctant to take risks on ventures lacking clear governmental policies.
The exploration investment climate at the time could be compared to the chaotic gold rush on Mount Diwalwal, a notoriously gold-rich but highly unstable site where dreams were shattered and lives lost.
However, this period of uncertainty in exploration is almost over, thanks to the decisive action of the Department of Energy under the new leadership of Secretary Sharon Garin.
The DOE has committed to providing more incentives to service contractors, with the aim of reinvigorating investment in the upstream energy industry.
Department Circular DC2025-09-0017, titled “Grant of Special Allowances for Petroleum Service Contractors,” is the DOE’s move to implement long-established constitutional mandates to protect exploration investors.
This also serves as an open invitation to those willing to invest in the vast potential of Philippine resources.
The new circular provides service contractors with special allowances deductible from gross proceeds, while preserving the government’s 60 percent share, calculated as the difference between gross income and the contractor’s operating expenses.
This will ensure a level playing field.
Operating expenses of up to 70 percent will be reimbursed, offering not just relief but also assurance to investors that the government is committed to playing its part in harnessing the country’s resources.
The government is introducing an additional allowance for marginal petroleum operations when their annual operating expenses surpass the 70 percent cost-recovery allowance.
In an effort to stimulate the exploration and production of newly discovered petroleum fields in frontier regions, the DOE is offering a 5 percent allowance on gross proceeds to the initial commercial development.
The DOE circular dated Sept. 23, 2025, states: “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 activities leading to the discovery of more oil and gas fields in the country.”
The DOE circular further elaborates: “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 improve the state of oil and gas exploration in the country.”
In line with Presidential Decree 87, or “The Oil Exploration and Development Act of 1972,” the DOE has adopted new mechanisms and strategies to effectively execute its plans and programs.
The current state of oil and gas exploration in the country is marked by low-level investments due to the high risk in petroleum operations.
The government emphasizes that the grant of special allowances will stimulate the inflow of foreign investment capital, which could significantly contribute to the country’s balance of payments position.
However, the DOE could also draw inspiration from the successful models implemented by Malaysia and Indonesia in offering exploration investment incentives, such as reduced tax rates, accelerated capital allowances, investment allowances, and export duty waivers.
At the same time, the DOE recognizes that the Philippines is already making steady progress in reviving exploration. Among these are the extension of Service Contract 38 over the Malampaya field and the passage of RA 12120.
If we aspire to reach greater heights, we can learn much from the successful models adopted by neighboring countries.
But the important thing is that we have already taken decisive steps towards a more prosperous future in indigenous gas development that will ultimately redound to the benefit of the Filipino people in the years ahead. (Email: ernhil@yahoo.com)
