IN a bid to lure in more investors in the upstream petroleum industry, the Department of Energy (DOE) will extend ‘special allowance’ to operators of marginal petroleum blocks, new and frontier areas.
Department Circular no. 2025-3-17, signed by DOE Secretary Sharon Garin on September 23, provides 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. This will make the country’s service contract regime more attractive to investments and improve the state of the oil and gas exploration.
‘The current state of the oil and gas exploration in the country shows low-level investments due to the attendant high risk in petroleum operations,’ the DOE said.
‘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.’
A special allowance on marginal petroleum operations shall be granted when the annual operating expenses exceed the cost recovery allowance of 70 percent. The DOE defined operating expenses as those related to produce petroleum but excluding development and exploration cost, and capital expenditures.
Meanwhile, the DOE defines ‘new plays’ as untested geological prospects in productive basins. Under this category, a special allowance of 5 percent of the gross proceeds will be granted only to the first commercial development.
The same allowance shall be granted in frontier areas, which the agency defines as ‘basins with no significant production activity.’
For gas development in remote areas with more than 200 kilometers (km) but not less than 400km from the identified delivery market, a special allowance of 2.5 percent shall be granted. This will increase to 5 percent for areas within the 400km but not less than 800km and 7.5 percent within 800km and above.
To encourage the production of indigenous gas in new plays, frontier, or remote areas, a special allowance of 30 percent of the gross proceeds shall be granted.
The DOE said it continues to adopt new mechanisms and strategies to carry out its plans and programs mandated under PD 87.