President Rodrigo Duterte has issued an executive order that allows state-owned Philippine National Oil Company Exploration Corporation (PNOC EC) to tap third parties or to participate in service contracts awarded by the government to third parties in oil and gas exploration, development and production.

EO No. 80, which Duterte signed on May 28, repealed EO No. 556, which former President and now Speaker Gloria Macapagal-Arroyo issued in 2006.

"The PNOC EC is hereby permitted to enter into farm-in/farm-out agreements through which: a) third parties can participate in the service contracts awarded by the Government to PNOC EC; and b) PNOC EC can participate in the service contracts awarded by the Government to third parties," the new EO read.

Farm-in/farm-out refers to a practice, recognized and accepted in the oil and gas industry, of allowing third party participation to spread the risks inherent in oil and gas exploration, development, and production.

The entity acquiring the participating interest considers the transaction as a "farm-in", while the entity transferring such interest considered the transaction as "farm-out."

Arroyo's EO did not allow farm-in or farm-out contracts awarded by any government agency, including the PNOC.

EO 80 also provides that in all cases, PNOC EC shall enter into farm-in/farm-out agreements only with reputable, technically competent and financially capable entities.

The PNOC EC is also tasked to select third party in accordance to the "best practices" widely adopted in the international petroleum industry, as may be determined by the Department of Energy.

Thus, the EO said the DOE, in consultation with the Governance Commission for Government-Owned or -Controlled Corporations, shall issue rules and regulations specifying the selection process to be observed by PNOC EC.

The EO also underscored the need for transparency and objectivity in the selection process and that contracts to be entered into by the GOCCs shall undergo review by the Office of the Government Corporate Counsel.

"Every farm-in/farm-out agreement of the PNOC EC shall only take effect upon approval of the DOE, which approval shall be granted after the Department finds that all aspects of the agreement, including the qualifications of the relevant third party and the selection process that was undertaken, all comply with PD 87 (Oil Exploration and Development Act of 1972), this Order and other applicable laws and issuances," the EO said.

The PNOC EC is directed to observe sound business judgment and exercise extraordinary diligence, with paramount consideration to the national interest, in entering into the commercial contracts and arrangements with the third party.

The EO shall take effect immediately upon publication in the Official Gazette or a newspaper of general circulation. Celerina Monte/DMS