DoE wants better fiscal perks for oil exploration

Energy Undersecretary Jose M. Layug Jr. Photo from doe.gov.ph

MANILA, Philippines—The Department of Energy (DoE) is aggressively pursuing policy reforms that will enhance the fiscal incentives offered to companies engaging in oil and gas exploration and development in the country. Energy Undersecretary Jose M. Layug Jr. said that although the country’s fiscal incentives were already among the most attractive in the Association of Southeast Asian Nations, the Philippine oil and gas resources remained relatively under-explored.

“The Philippines is a sleeping giant in terms of petroleum exploration. The Philippines has only 27 existing service contracts and of these, only two are producing. We need to encourage more investors to come here,” Layug said.

At present, investors are allowed to recover a maximum of 70 percent of an oil and/or gas field’s gross sales to cover the costs and expenditures incurred during the exploration and production stages. The remaining 30 percent would be divided between the government and the contractor under a 60-40 sharing agreement.

Layug said these exploration companies faced several challenges in the country.

“The geography or the sedimentary basins of the Philippines, compared to Indonesia, Malaysia and Thailand, are not as prospective. That’s why you see more oil and gas exploration in our neighbors. The only way we can entice investors, considering the challenges of our geography, is to offer better incentives,” Layug said.

“It’s not that we will simply give away our resources to (investors) outright, but we want to be able to convince them to come here. One way to do that is to show them that we have an attractive set of fiscal incentives,” he added.

According to Layug, the DoE is now studying other options that may be included in the current fiscal incentives package. These may include the ring-fencing concept, which will allow a holder of an existing service contract that is doing another project to deduct its new exploration costs from the proceeds of its existing contract.

This concept, he said, should, however, be addressed carefully as it might put new investors—or those that do not hold service contracts yet—at a disadvantage.