The Department of Energy (DOE) has released a circular on special allowances for petroleum service contractors. The goal is to attract more investments to accelerate the exploration, development, and use of the country’s petroleum resources.
The DOE issued Department Circular (DC) 2025-09-0017, which was signed by Energy Secretary Sharon Garin on Sept. 23, 2025. The circular addresses the low level of investment in domestic oil and gas exploration due to the high risks involved in petroleum operations.
The DOE stated there is a need to offer improved fiscal terms to service contractors. This is meant to complement other government initiatives to attract more exploration and production companies, which will spur exploration and lead to the discovery of more domestic oil and gas fields.
The department noted that providing special allowances—which offer maximum benefits to the country and reasonable returns to private companies that assume all the risk—will make the Philippine service contract regime more attractive to investments and improve the state of oil and gas exploration in the country. The grant of a special allowance is also expected to induce the inflow of foreign investment capital, which could significantly contribute to the country’s balance of payment.
“To spur exploration activities and encourage producing service contractors to invest in exploration activities in other service contracts, a special allowance for the cost recovery of exploration expenses from service contracts outside the producing service contract is hereby granted,” the circular stated.
This special allowance applies when a petroleum service contract already in the production phase has not fully used the 70 percent allowable reimbursement of all operating expenses from production in any year. The special allowance on cost recovery will be computed proportionally to the service contractor’s participating interest in the production-phase contract. If the service contract where the exploration is being undertaken later converts to production, the operating expenses recovered under this special allowance are no longer recoverable.
To encourage the discovery of new petroleum sources in untested geologic plays in productive basins, the DOE granted a special allowance of 5 percent of the gross proceeds. This allowance will be granted only to the first commercial development of such a new geologic play in the basin.
The DOE also granted a special allowance of 5 percent of the gross proceeds to encourage the development of new petroleum fields discovered in a frontier area, but only for the first commercial development in that frontier area.
Finally, to encourage the production of domestic gas in new plays, frontier, or remote areas, the DOE granted a special allowance of 30 percent of the gross proceeds less any Filipino Participation Incentive Allowance (FPIA), cost recovery, and other special allowances. This allowance will be granted only to the first or foundational project in the new play, frontier, or remote area.
