State

Owned

Enterprises

in the

Philippines

For the PH-

EITI Country

Report 2012 Written by

Ms. Regine Marie A. Tumlos

Ms. Maria Althea M. Teves

Under the direct supervision of

Atty. Jay L. Batongbacal

TABLE OF CONTENTS

STATE-OWNED EXTRACTIVE ENTERPRISES: PMDC AND PNOC

Legal Basis for Creation of State-Owned Enterprises for Mining, Oil, Gas and Coal Sectors 1

Government ownership of minerals 1

The Philippine Mining Development Corporation 1

Governance Structure for State-Owned Enterprises for Mining, Oil, Gas and Coal Sectors 2

PMDC’s Projects 3

Mineral Reservations 4

Diwalwal Gold Mining 4

Diwata Gold Project: Buenas-Tinago and Balite Veins 4

Upper Ulip/Mtangap Copper-Gold (Cu-Au) Prospect 5

Mabatas I Higanteng Bato Copper-Gold Prospect 5

Fregor Gold Project 5

Pagasa I Paraiso Prospect 6

Simulao Gold Prospect 6

Mapaso I Letter V/Bermuda Gold Prospects 6

Privatization Management Office 6

North Davao Mining Corporation 6

Batong Buhay Gold Mines, Inc. (BBGMI) 7

Cancelled Tenements 8

Philippine National Oil Company 9

PNOC Corporate Governance Structure 9

PNOC Service Contracts 11

SC-37, Cagayan 11

SC-47, Offshore Mindoro 11

SC-57, Calamian 12

SC-58, West Calamian 12

SC-59, West Balabac 13

SC-63, East Sabina 13

SC-75, Northwest Palawan 14

Coal Mining 14

COC-41, Zamboanga Sibugay Coal Mining Project 14

Exploration within COC-41 14

Coal Mines under Exploration and Development 15

COC-122, Isabela Integrated Coal Mine 15

COC-141, Isabela Coal Project 16

COC-140, Surigao del Sur Coal Project 16

Coal Operating Contract Nos. 184, 185 & 186 16

End Notes 17

ABBREVIATIONS 2D Two-dimensional 3D Three-dimensional ABEC A Blackstone Energy Corporation APT Assets Privatization Trust Au Gold BBGMI Batong Buhay Gold Mine, Inc. BOPD Barrels of Oil per Day CNC Certificate of Non-Coverage COC Coal Operating Contract Cu Copper DBP Development Bank of the Philippines DENR Department of the Environment and Natural Resources DGM Davao Gold Mine DOE Department of Energy ECC Environmental Compliance Certificate EMB Environmental Management Bureau EO Executive Order LARP Land Acquisition and Resettlement Plan LGU Local Government Unit MCC Malangas Coal Corporation MGB Mines and Geosciences Bureau NDC National Development Company NDMC North Davao Mining Corporation

NRDC Natural Resources Development Corporation

PMDC Philippine Mining Development Corporation PMO Privatization Management Office PNOC Philippine National Oil Company

PNOC-EC Philippine National Oil Corporation – Exploration Corporation PNOC-EDC Philippine National Oil Corporation – Energy Development Corporation SAMICO Samar Mining Company SC Service Contract SEC Securities and Exchange Commission SOE State-Owned Enterprise SSCMs Small Scale Coal Mines

1

STATE-OWNED EXTRACTIVE ENTERPRISES: PMDC AND PNOC

a) Legal Basis for Creation of State-owned Enterprises for Mining, Oil, Gas and Coal Sectors

i) Government ownership of minerals

Under the Constitution, it is stated that the State owns all minerals, coal, petroleum and other

mineral oils, all forces of potential energy and other natural resources. Although the State owns such

natural resources, these could not be alienated. Extractive activities such as exploration, development,

and utilization of natural resources shall be under the full control and supervision of the State. The State

also has the power to directly undertake such activities. It also has the option to enter into co-production,

joint-venture, or production-sharing agreements with Filipino citizens. If the State opts to enter into such

agreements with foreign associations or corporations it is subject to the following limitations that: 1) at

least sixty (60) per centum of whose capital must owned by citizens, 2) the period may be for a period not

exceeding twenty-five (25) years and renewable for not more than twenty-five (25) years, and 3) if

renewed, it must be such terms and conditions as may be provided by law.1

Small-scale utilization of natural resources by Filipinos may be allowed by Congress. For large-

scale exploration, development, and utilization of natural resources, the Congress allows the President to

enter into agreements with foreign-owned corporations involving either technical or financial assistance

according to the general terms and conditions provided by law. Should there be agreements with foreign-

owned corporations, the development and use of local scientific and technical resources should still be

promoted by the State. The President is responsible for notifying the Congress of such contracts within

thirty (30) days from its execution.2

Since the State owns the natural resources found in the country and that it may directly undertake

extractive activities, it is then proper to create state-owned enterprises for mining, oil, and coal sectors.

ii) The Philippine Mining Development Corporation

The Philippine Mining Development Corporation (PMDC) is a wholly-owned and controlled

government corporation incorporated with the Securities and Exchange Commission on July 4, 2003

pursuant to a Presidential Memorandum dated April 9, 2003. It was formerly known as the Natural

Resources Mining Development Corporation. The PMDC is primarily task to carry on extractive activities

such as:

“exploring, developing, mining, smelting, and producing, transporting, storing, distributing,

exchanging, selling, disposing, importing, exporting, trading and promotion of gold, silver, copper,

iron, and all kinds of mineral deposits and substances.”3

The PMDC is a wholly-owned and controlled government corporation with an initial authorized

capital stock of PhP100,000,000.00), 55% of the equity of which was from the Natural Resources

Development Corporation (NRDC), and 45% from the Philippine National Oil Corporation – Energy

2

Development Corporation (PNOC-EDC). Right now, it is owned by NRDC (44%), PNOC (36%) and the NDC

(20%). It is an attached agency of the DENR.4

b) Governance structure for state-owned enterprises for mining, oil, gas and coal sectors

Figure 15

The PMDC offers its services to the public for the issuance of Certified True Copies of

Information/Data in PMDC Website and for Complaint Resolutions.

The Records Officer/Custodian may issue a person a Certified True Copy of PMDC Data found in

its website. A person or any PMDC Operator may request such by filing a letter request enumerating the

documents requested for certification, the purpose of the request, and the willingness to pay the

processing fee of P10.00 per page plus P100.00 per set. It guarantees a processing time of 30 minutes.6

The Technical Services and Legal Services Department are available for Complaint Resolution. The

PMDC must acknowledge the letter for complaint resolution within three (3) working days and must

3

resolve the issue within 15-30 days. The procedure for filing the complaint shall be as follows:

1. File the complaint including all evidence with the PMDC Head Office Receiving Section in

quadruplicate (4 copies original). It must contain the following:

a. Name of the PMDC Project

b. Name of the PMDC Operator (if any)

c. Complete enumeration of the violations

d. The proof and/or evidence of such violation

e. Prayer and/or requested action by PMDC

2. Receiving Section will forward the three (3) Copies to the Project Management Department for

docketing and return one (1) received copy to the complainant;

3. The Project Management Department shall forward the copies to:

a. Office of the PMDC President

b. Records Officer

c. Concerned division (Legal Services, Technical Services, Finance and Accounting Services,

or Human Resources and Administrative Services)

4. The concerned division shall evaluate the complaint, conduct investigations and call for meetings

with the complainant and/or respondent if necessary;

5. The concerned division will forward its findings and recommendations to the President’s office

for instructions, comments, and/or approval;

6. The Concerned division will notify complainant of the actions taken and/or resolution of the

complaint.7

Operators may also go to the PMDC for technical assistance and collection of royalties, commitment fees

and other receivables. For technical assistance, the Operator must file a letter request to the Technical

Services or Project Management Services division stating the nature of the assistance request and

specifying the services required, the purpose of the request, and the willing to pay the fees which may

vary and may include the transportation cost, board and lodging of the PMDC personnel. Site visits and

monitoring requests should be received by the PMDC at least seven (7) working days prior to the

requested date of the visit or monitoring. For the collection of royals, commitment fees and other

receivables, the Operator must file a statement of account, demand letter, or order of payment in the

Finance and Accounting Services department.8

c) PMDC’s projects

The PMDC projects are classified into Mineral Reservations, Privatization Management Office

(PMO) Assets and Cancelled Tenements.

4

i) Mineral Reservations

Mineral Reservations were formerly administered by the Mines and Geosciences Bureau through

the DENR. However, it was transferred to the PMDC to make these activities revenue-generating.

Currently, there are two Mineral Reservations projects under the PMDC: 1) the Diwalwal Gold Mining,

and 2) the Dinagat Chromite-Nickel Mining Projects.

(1) Diwalwal Gold Mining

In 2002, former President Gloria Macapagal-Arroyo proclaimed the Diwalwal Mining Reservation

in the Municipality of Monkayo, Compostela Valley Province as a mineral reservation and an

environmentally critical area. (Proclamation No. 297) It covers the municipalities of Monkayo, in the

Province of Compostela Valley and of Boston and Cateel, Davao Oriental Province.9

In 1983, gold deposits have been found in the 81,000-hectare area now known as the Diwalwal

Mining Reservation. Since then, small to medium-scale mining operations undertaken by different groups

caused environmental, health, and peace and order problems in the area.10

In order to address these problems, the DENR, by virtue of Administrative Order No. 2003-308

designated PMDC to undertake mining and mineral processing operations in certain identified areas in

the Diwalwal Mineral Reservation.11 In line with this responsible, The PMDC must formulate and

implement the exploration work program and mine management plan for the reservation. They must

secure the necessary permits and licenses and comply with all requirements for mining and mineral

processing operations. They should construct and operate mineral processing plants and mill tailings

disposal systems and initiate clean-up of the mining areas, the nearby Naboc River and other affected

areas. They are tasked to pay the Government’s share from the utilization of the mineral resources in the

reservation.12

(2) Diwata Gold Project: Buenas-Tinago and Balite Veins

The Diwalwal Mineral Reservation has various gold vein systems such as the Diwata Gold Project,

Buenas-Tinago and Balite. They produce gold-bearing fissure or breccia veins. The minerals found are

“sheared, translucent, and dirty white to greenish gray, quartz-calcite and calcite.” They are hosted in

“volcaniclastics, andesitic volcanic flows and pyroclastics.”13

The Buenas-Tinago Vein is consists of “white, massive to brecciated, sugary crystalline, vuggy,

crustiform and colloform banded quartz-calcite with silvers of chloritized volcanic host rock.” It has an

average gold grade of 10.93 gpt. The vein is one to four meters wide with a strike length of 925 meters, a

vertical extent of 254 meters from elevation mast down to 746 masl. It is open-ended to the Northeast

and still persists below 746 masl.14

5

The Balite vein consists of “pyritic, white, massive, crystalline, vuggy and colloform quartz-calcite.”

The vein. The vein is 2.5 to 6 meters wide and a measured strike length of 1.2 kilometers, a vertical extent

of 450 meters from elevation 970 down to 525 masl. It has an average gold grade of 9.6 gpt.15

(3) Upper Ulip/Mtangap Copper-Gold (Cu-Au) Prospect

The Quartz-calcite veinlets of this Cu-Au Prospect have visible copper minerals which are

chalcopyrite and bornite. These veining and stockworklngs are found along the rock outcrops of Upper

Uplip and Matangap rivers. The veins are “white to grey, massive to brecciated, with rhodochrosite,

epidote, pyrite, chalcopyrite, sphalerit, bornite and gray silicified, pyritized inclusions.” Chloritic and

pyritic andesite porphyry is the host rock in the area. The outcrops in the creak and on the walls of the

abandoned and active adits in the area are stained with malachite and azurite. The channel cuts have

copper values ranging up to 0.97% Cu with minimal gold values less than 0.2 ppm. The point samples have

copper values ranging from 2.2% to 4.3% with gold values pegged at 0.08 to 0.15 ppm. The Prospect is

located 3 kilometers northwest of Diwalwal. Its Quartz-calcite veinings are 0.5 to 2.7 meters wide and

trend north-south to NNW and dips 45-85 to the east and west.16

(4) Mabatas I Higanteng Bato Copper-Gold Prospect

Located 3 kilometers southwest of Diwalwal is the Mabatas I Higanteng Bato Copper-Gold

Prospect. It is defined by a zone measuring 2.7 kilometers by 3.6 kilometers of widespread advanced

“argillic alteration with associated silica cap/feeder zone-remnants underlain by altered/mineralized

hydrothermal breccias in places.” The Higanteng Bato, Asawa HGB and Anak HGB are massive silicified

outcrops found to the east and south of the proposed dam. These outcrops are 3 to 50 meters high above

its argillic floor. “The outcrops are clay-pyrite-quartz altered, light reddish-brownish at its outer

weathered shell and grades into light grayish vuggy, silicified, highly pyritic, and brecciated.” The prospect

has sporadic quartz-clay-pyriate alternations mapped at its western, northern and southern drainage

system. In the eastern, western and southern drainage systems of the prospect are hydrothermal breccia

outcrops which are essentially “silicified, pyritic and with clasts of sub-rounded to sub-angular silicified

volcanic rock fragments with micro quartz vein lets, fine pyrite disseminations, minor chalcopyrite and

bornite specks.” Gold assays from the breccias yielded up to 7.233 ppm Au are believed to be pushed from

the Prospect’s mineralized porphyry Cu-Au deposit.17

(5) Fregor Gold Prospect

The Fregor Vein trends N300E and dips 45°NW towards the Military Camp in the area. Its vein and

veinlets are densely developed, highly sugary white quartz along both walls. It is located 2 kilometers to

the west of Diwalwal field office of PMDC. Muck grab samples from this area yielded 1.79 to 7.90 ppm

Au.18

6

(6) Pagasa I Paraiso Prospect

There are several small adits present in the Pagasa I Paraiso Prospect, located 1 kilometer to the

north of the Diwalwal gold veins. The gold values from the adits ranged up to 4 gpt. 19

(7) Simulao Gold Prospect

From 1987 to 1988, this prospect which is located 2 kilometers east-northeast of Mt. Diwata, has

has been the site of small-scale gold mining activities. Gold occurs in its pyriticcalcitic quartz veins. The

vein walls are stained with rare malachite where pyrite is found.20

(8) Mapaso I Letter V/Bermuda Gold Prospects

Small-scale mining activities have been present in these areas. Its quartz veining may be

“synchronous with the formation of the Diwalwal gold veins.” These are 0.5 to 2 meters wide east-west

and is located one to 7 kilometers to the south of the Diwalwal gold deposits.21

ii) Privatization Management Office

Executive Order No. 323 was issued in December 31, 2000 restating its privatization policy to

promote an orderly, coordinated and efficient privatization of remaining government corporations,

assets, activities and idle properties which have been identified as unnecessary and inappropriate for the

government sector to maintain.22

The EO created the Privatization Management Office (PMO) under the Department of Finance.23

The Privatization Council was created to direct, supervise and coordinate all privatization and similar

disposition efforts undertaken by the Government.24 In line with these functions, the Privatization Council

entrusted to the PMO, as a disposition entity, the Batong Buhay Gold Mines, Inc. and North Davao Mining

Corporation. Eventually, the Privatiziation Council decided to designate the PMDC as “Trustee” and

disposition entity for both mining corporations in 2006. This was because PMDC was incorporated

primarily to engage in the business of exploration and development of minerals and natural resources

with an end to have a holistic approach on mining development in the country.25

(1) North Davao Mining Corporation

The North Davao Mining Corporation (NDMC) is located in the province of Davao del Norte. Since the

1940’s, the mineral property of NDMC been subjected to gold and copper mining conducted by two major

mining operations: the Amacan Copper which operated until 1992 and Hijo Gold Projects. Due to alleged

Marcos-sponsored behest loans, the NMDC was sequestered by the Philippine Commission on Good

Governances and its account was transferred to the Assets Privatization Trust (APT) which was the

predecessor of PMO. In 2006, when it was transferred to the PMDC for proper disposal through public

bidding, the PMDC executed a Memorandum of Agreement with the Mines and Geosciences Bureau

7

(MGB) for the purpose of conducting an assessment of the copper or gold potential of the property with

an area of 20,237 hectares. Its assets include:

1. Two partially mined deposits consisting of several other gold and copper-gold prospects (Amacan

Copper and Hijo Gold Projects)

2. Seven (7) porphyry copper prospects

3. Sixteen (16) meso-epithermal gold prospects.26

(a) Hijo Gold Mine

In 1939, Samar Mining Company (SAMICO) began running gold ore at 150 tonnes per day from

the Hijo Area, formerly known as the Davao Gold Mine (DGM). In 1979, SAMICO transferred its operating

rights to NDMC under a profit sharing agreement with Apex Mining Company. Under the agreement, the

ore was delivered to the Apex Mill at the Masara mine site for processing. Before the transfer, about

57,000 tonnes of gold (averaging 12 g Au/t) were mined by open pit and underground methods but

eventually stopped because of the outbreak of World War II. It resumed operations in 1960 but once again

stopped because of high production costs. From pre-war years up to 1985, a total of 131,091 ounces of

gold were extracted from the Hijo Gold Mine.27

(b) Amacan Copper Project

The Amacan Copper mine was operated by SAMICO from August 1982 to May 1992. It closed in

1992 because of low copper prices, decreasing copper grades, deteriorating equipment with an increase

operational costs, and was accumulating debts. A total of 50,241,716 tons of copper and gold were mined

during its operations. “The remaining drill-indicated reserve is 65 million MT at 0.34% Cu and 0.412 g Au/t

at 0.22% Cu cut-off.”28

(2) Batong Buhay Gold Mines, Inc. (BBGMI)

Batong Buhay Gold Mines is located in Pasil, Kalinga. It was established in 1934 and closed when

World War II broke out. From 1969 to 1970, the exploration for disseminated copper was undertaken by

Nippon Mining Company of Japan for BBGMI. BBGMI itself drilled 17 drilling holes from 1977 to 1978. In

1979, the Development Bank of the Philippines (DBP) took over the management, control and operation

off BBGMI and appointed Philex Mining Corporation as the new operator. As of 1984, the mine has

produced 926,478 DMT at a mine head of 1.25% Cu. It stopped operations that year due to insurgency

problems. In 1986 it was turned over to the APT and has since been under the receivership of the

government through the PMO. It was turned over in 2006 to the PMDC.29

Mineralization styles recognized at the Batong Buhay area are porphyry copper-gold and high

sulphidation quartz-enargite gold vein mineralization. The latter was observed to be superimposed on the

earlier porphyry gold-copper mineralization and alteration. The same was also observed for the associated

advance argillic alteration. The mineable reserve of BBGMI is 86.9 M metric tons at 0.599% Cu and 0.253

gpt Au.30

8

iii) Cancelled Tenements

Due to the failure of mining contractor to commence and undertake mining activities under their

respective contracts for a long period of time, then-DENR Secretary Michael T. Defensor ordered the

cancellation of these non-performing mining tenements in 2005. A total of 68,750 hectares of land for 65

cancelled tenements used for mining operations has been declared as cancelled tenements. These were

transferred to the MGB under the DENR and then to PMDC in 2007 for public bidding of Joint Operating

Agreements for interested local and foreign mining companies. 31

As of December 2007, the PMDC awarded the winning bidders the following properties which were

subject of the cancelled tenements:

1. Masada Resources and Mining Corporation: Hernani Chromite, located in Hernani, Eastern Samar

with a total land area of 503 hectares;

2. Mt. Sinai Exploration and Development Corporation:

a. Homonhon Chromite in Homonhon Island, Eastern Samar with a total land area of 286

hectares; and

b. Opol Chromite in Misamis Oriental covering an area of 27 hectares.32

9

d) Philippine National Oil Company

The Philippine National Oil Company (PNOC) was created by Presidential Decree 334 in the year

1973 to answer the need for stable supply of petroleum products in order to sustain the growth of the

economy and of the social well-being of the nation.33 It was tasked to undertake and transact the

corporate business relative to oil petroleum operations and other energy resources exploitation. Oil or

petroleum operations means actual exploration, production, refining, tankerage, and/or shipping,

storage, transport, marketing, and related activities concerning oil and petroleum products. Energy

resources exploitation, on the other hand, includes exploration, discovery, development, extraction,

utilization, refining, processing, transport, and marketing of all forms of energy resources. Energy

resources was defined under PD 334 as any substance, mineral or otherwise, generates or causes the

emanation or generation of heat or power or energy, such as, but not limited to, petroleum or oil, coal,

marsh gas, methane gas, geothermal sources of heat and power, uranium and other minerals and fossils

deposits.34

e) PNOC Corporate Governance Structure

Figure 235

The PNOC has a five subsidiaries: 1) PNOC Exploration Corporation (PNOC-EC); 2) PNOC

Alternative Fuels Corporation; 3) PNOC Shipping and Transport Corporation; 4) PNOC Development and

Management Corporation; and 5) PNOC Renewables Corporation.

Of these subsidiaries, it is the PNOC-EC which is responsible for the exploration, development,

utilization, and marketing of oil and gas and other viable energy resources. It was formerly the Exploration

Department of the PNOC but later on incorporated as its subsidiary in 1976. The Philippine government,

through the PNOC, owns 99.78% of the subsidiary’s shares of stock. The remainder is held by public

shareholders. PNOC-EC focused its activities in frontier onshore areas in Cagayan Valley, Central Luzon,

10

and Samar. Throughout years of exploration and discovery of gas wells, PNOC-EC became the key

promoter of domestic petroleum exploration, together with the PNOC. Onshore exploration efforts

expanded to Mindoro, Isabela (San Antonio-1A gas well), Cagayan (Nassiping-2 gas well), Cebu (South

Cebu-2 oil well), and Cotabato. Operations in the San Antonio Gas Power Plant in in Isabela provided

electricity to more than 10,000 households making PNOC-EC the first producer of indigenous natural gas

in 1994. The PNOC-EC continued to expand its operations in Palawan and offshore Mindoro by way of

joint ventures with local and foreign companies. Continued partnership efforts led to oil discovery in

Antique (Maniguin-2), gas discovery (Tukanakuden-1) and two (2) gas flowers (Sultan Sa Barongis 1 and

2) in Maguindanao, and gas well shows in Tarlact (Victoria-3).36

The PNOC-EC has a Board Secretariat composed of different committees which are the: 1)

Executive and Governance Committee; 2) Project Development New Ventures, Environment, Community

Relations and Quality Control Committee; 3) Legal Sub-Committee; 4) Audit and Risk Management

Committee; and, 5) Compensation, Education, and Employee Welfare Committee.37

The Executive and Governance Committee of the PNOC advises and aids the Officers of the

Company in matters regarding management of business. This committee may act on specific matters

within the competence of the Board as may from time to time be delegated to the Committee in

accordance with the company’s By-Laws. It also assists the Board in fulfilling its corporate governance

responsibilities.38

The Project Development, New Ventures, Environment, Community Relations and Quality Control

Committee shall have the following key functions:

1. Recommend to and assist the Board:

a. on matters affecting current and new projects of the Company;

b. on environmental community relations and quality control issues affecting the company.

2. Review, evaluate and monitor:

a. current and new projects being undertaken by the Company

b. the Company’s projects and programs and their effects on the environment;

c. the conduct of the Company’s community or external relations activities;

d. the quality control process of the Company.39

The Legal Sub-Committee has the following functions:

1. Oversee the legal aspects of projects and contracts entered into by the Company.

2. Review the proposed suggestions concerning legal aspects of projects and contracts that will be

entered into by the Company.

3. Strategize, in coordination with the Legal Department, the terms and conditions of contracts and

ensure that they will be beneficial to the Government and the Company.40

11

f) PNOC Service Contracts (This whole portion has been given by PNOC through the EITI

Secretariat)

The Company has oil and gas SCs that are in the exploration stage where the Company, or through

its joint venture partners or contractors, conducts geologic and geophysical activities, seismic surveys and

drilling. The Company initially evaluates the area using existing data and based on the results of the

evaluation, acquires new data through geologic mapping, sampling and either 2-dimensional ("2D") or 3-

dimensional ("3D") seismic surveys. The Company then interprets the old and new data, and identifies

and defines structures that may contain oil and gas accumulation. The best prospects are subjected to

further study to determine the most advantageous sites for exploratory drilling of wells to determine if

the area contains commercial quantities of oil and/or gas. If the well is dry or if there are no commercial

quantities of oil and/or gas, the well will be plugged and abandoned. However, if there is a discovery and

significant oil and/or gas is tested, the Company conducts appraisal drilling and possibly a 3D seismic

survey to determine if commercial production can be undertaken on the prospect.

The Company has seven (7) SCs in the exploration phase. Each of these projects is described below.

i) Service Contracts

(1) SC-37, Cagayan

The Company has a 100.0% interest in SC-37, which was awarded by the DOE on July 18, 1990 and

covers 2,200 sq. km. in the southern part of the onshore Cagayan Basin within the city of Santiago and the

provinces of Isabela and Quirino. On July 18, 1997, a smaller area covering 360 sq. km. entered into a 25-

year production period. PNOC EC has used the natural gas from the San Antonio field to power the

Company-owned and -operated 3 MW San Antonio gas-fired power plant until July 31, 2008. The Company

then decommissioned the San Antonio power plant due the depletion of gas within the drilled reservoir.

The Company conducted a re-assessment of the block and identified several prospects and leads.

The Company has also confirmed other structures mapped in earlier works. Land gravity and magnetic

surveys were conducted in July 2010 to validate the presence of a fault-bounded structure which is a

potential drilling target. Results of the surveys were integrated with seismic interpretation and other

geological and geophysical studies that matured the prospect for exploration drilling. The Company

conducted geological mapping, rock sampling and other geological and geophysical data collection in 2010

and 2011. The Company plans to drill an exploration well in late 2014. If the exploration is successful, the

Company plans to construct and operate a new gas-fired power plant in the area to replace the Company's

San Antonio power plant.

(2) SC-47, Offshore Mindoro

The Company has a 97% participating interest in SC-47, which was awarded by the DOE on January

10, 2005 to the Company and Petronas Carigali Overseas Sdn Bhd ("Petronas Carigali"). The block is

located in offshore Mindoro and northeast of the Palawan Islands, covering an area of 10,480 sq. km. The

12

Company became the operator after Petronas Carigali"", the former operator, withdrew from the block

in January 2008. The Company currently has joint venture partners PetroEnergy Resources Corporation

and Basic Energy Corporation which have 2% and 1% participating interests, respectively. The block

includes the Maniguin-2 oil discovery well which yielded 300 barrels of oil per day ("bopd") during tests.

Significantly, all six exploration wells drilled in the block have oil and/or gas indications providing evidence

of an existing petroleum system.

As operator, the Company has conducted various geological and geophysical studies to re-

evaluate the block, enhance its prospect and lead inventory and mitigate exploration risks. The

exploration program includes the acquisition, processing and interpretation of 1,091 km. of 2D seismic

data, re-interpretation of the re-processed 894 km. of 2D and 133 sq. km. of 3D seismic data and other

vintage data, evaluation of well data and re-processing of the controlled source electromagnetic data. In

addition to evaluating potential drilling targets in the Sibay and Tablas sub-basins, the Company is also

assessing structures with untested potential in the Semirara and Maniguin areas.

(3) SC-57, Calamian

The Company has received a 100% participating interest in SC-57 from the DOE on September 15,

2005. SC-57 covers 7,200 sq. km. in offshore Northwest Palawan, west of the Calamian Islands and

northeast of the Malampaya gas field. The Company subsequently entered into joint venture

arrangements for the exploration of SC-57 in 2006 with CNOOC and Mitra Energy Inc. ("Mitra Energy") to

form a consortium with CNOOC, Mitra Energy and the Company having a 51%, 21% and 28% participation

interest, respectively. The Company's exploration costs up to, and including the drilling of the first well,

are covered by the other joint venture partners. [PNOC EC is the currently the project operator.] However,

approval by the Office of the Presdient for the transfer of the participating interests to CNOOC and Mitra

Energy is pending. Between 2009 and 2010, the consortium conducted geological and geophysical studies

to complement the SC-57 seismic program which included the acquisition of 2,000 km. of 2D seismic data.

The consortium has acquired more than 2,268 km. of new 2D seismic data and re-processed 1,078 km. of

vintage 2D seismic data. Results of the seismic interpretation and additional geological and geophysical

studies have provided a large prospect and lead inventory. Some of these prospects are potential drilling

targets and will be subject to further detailed evaluation to minimize exploration risks as most of them

are in deep water. However, further exploration of SC-57 is currently on hold pending the Government's

approval of the farm-in agreement.

(4) SC-58, West Calamian

The Company received a 100% participating interest in SC-58 from the DOE on January 12, 2006.

SC-58 covers 13,440 sq. km. of deepwater acreage in offshore Northwest Palawan. SC-58 is located west

of SC-57 and adjacent to the Malampaya Gas field. The Company subsequently entered into a joint

venture arrangement for exploration with Nido Petroleum Philippines Pty. Ltd. ("Nido Petroleum") in July

2006 for a 50% participating interest. Under the arrangement, Nido Petroleum is the operator and will

fund a work program, including all associated costs, such as 2D and 3D seismic surveys and the drilling of

the first well to earn its farm-in interest. In 2010, seabed surveys were conducted. In 2011, a third-party

13

consultant conducted a seismic inversion and amplitude versus offset project, a special technique for

processing seismic data that minimizes reservoir risk among potential drilling targets. To date, the joint

venture has acquired, processed and interpreted over 6,000 km. of 2D seismic data and 661 sq. km. of

pseudo-3D seismic data, resulting in a large prospect and lead inventory. Various geological and

geophysical studies were conducted to mitigate source and reservoir risks of the SC-58 prospects. The

results of the geochemical program that included multi-beam bathymetry and seabed coring have

provided evidence of an active source system in SC-58 that can charge the large prospects mapped in the

block. These results will be integrated with the seismic re-processing studies to determine the extent of

the source system in the block. Additional subsurface work is being planned to further mitigate remaining

exploration risks which are critical in selecting the optimum location for the first deepwater well in SC-58.

The processing and interpretation of the new seismic data should enable the consortium to select a target

for exploration drilling in SC-58 in 2013.

(5) SC-59, West Balabac

The Company received a 100% participating interest in SC-59 from the DOE on January 13, 2006.

SC-59 covers 14,760 sq. km. of deepwater acreage located offshore west of Balabac Island in the

Southwest Palawan Basin. SC-59 is located north of deep-water petroleum discoveries in offshore

Malaysia and may share a common petroleum system with those discoveries. The Company subsequently

entered into a joint venture arrangement for exploration with BHP Billiton in 2009 for a 75% participating

interest. Under the arrangement, BHP Billiton is the operator and will fund a work program, including all

associated costs, such as 2D and 3D seismic surveys and the drilling of up to three wells. The Company

acquired 2,056 km. and 363 km. of 2D seismic data in 2006 and 2009, respectively. The data provided an

initial prospect and lead inventory, some of which are similar to recent discoveries in adjacent blocks in

offshore Sabah and the existing fields in Northwest Palawan. In December 2010, the joint venture

completed the acquisition of 3,076 sq. km. of 3D seismic data, currently the largest single 3D seismic

coverage in the country, aimed at evaluating multiple Miocene carbonate leads in SC-59 that are potential

drilling targets. In 2011, a total of 4,687 km. of 2D seismic data and 3,702 km. of gravity/magnetic data

were acquired. The final processed data are currently being interpreted. The processing and

interpretation of the acquired seismic data should enable the consortium to select a target for exploration

drilling in SC-59 in 2013.

(6) SC-63, East Sabina

The Company and Nido Petroleum entered into SC-63 with the DOE for 10,560 sq. km. in offshore

Southwest Palawan on November 24, 2006. The Company and Nido Petroleum each has a 50%

participating interest in SC-63 and equally share exploration costs. PNOC EC is the project operator. SC-63

is located south of the oil and gas fields in offshore Palawan, including the Malampaya gas field. A gas

discovery well, the Abo-abo A-1X well, was previously drilled in SC-63 and reported to have produced 50

mmscf of gas per day during testing. The joint venture acquired 3,254 km. of 2D seismic data in 2007 and

754 sq. km. of 3D seismic data in 2009. It has also reprocessed 867 km. of vintage 2D seismic data in 2009.

A micropaleontological and petrographic evaluation of selected SC-63 wells was also conducted under a

14

technical cooperation arrangement between the Company and the DOE's Geoscientific Research and

Testing Laboratory. The joint venture also conducted other geological and geophysical studies including

basin modeling, petrophysical evaluation of wells, and structural studies to complement its seismic

interpretation and prospect generation. In 2012, the joint venture has matured a prospect as drilling

target and initiated well planning and drilling preparations.

(7) SC-75, Northwest Palawan

In December 27, 2013, the SC 75 was granted by the DOE to PNOC EC, Philex Petroleum

Corporation (Philex) and Petroenergy Resources Corporation (PERC) with participating interest of 35%,

50% and 15%, respectively. Philex is the operator of SC 75.

ii) Coal Mining

(1) COC-41, Zamboanga Sibugay Coal Mining Project

The Company's current mining operation is at COC-41 located within the Malangas Coal

Reservation in Zamboanga Sibugay, Mindanao, in the municipalities of Malangas, Diplahan and Imelda.

The Company's current concession area is composed of six coal blocks, which together cover 6,000

hectares. The DOE awarded COC-41 on August 14, 1980 to Malangas Coal Corporation ("MCC"). MCC

subsequently assigned and transferred its interest and obligations to PNOC CC. On December 12, 2002,

PNOC CC executed a Deed of Assignment in favor of PNOC EC effective June 1, 2002. There is one mine

currently in production at COC-41, the ILB mine, and two mines under development, the Lumbog Project

and the Lalat Project. The Lalat Project is a joint venture between the Company and A Blackstone Energy

Corporation ("ABEC"). In addition, the Company oversees 27 Small Scale Coal Mines (“SSCMs”) within

COC-41. A fourth mine, the Lower Butong project, has been approved for development by the Board.

All of the COC-41 mines are underground. COC-41 has been producing commercial quantities of

coal since 1996. With the expiration of the 20-year term for COC-41 in 2000, PNOC EC renewed its COC

with the DOE in August 2006 for a third time, for the period from 2006 to 2009, and a fourth time in

December 2009, for the period from 2009 to 2012. COC-41 may be renewed four times for three-year

periods each time. The Company applied for an 18-year extension in July 2012, providing rights until

August 2030. The Company is currently undertaking additional exploration and drilling activity in the

Malongon and Lower Butong areas of COC-41.

(2) Exploration within COC-41

The Company continues to engage in exploration activities within the COC-41 area. Key areas

include the Lower Butong Project area, the Santa Barbara-Malongon Exploration area and the Gotas North

Limb Exploration area. Drilling in Malongon commenced on October 20, 2011. The drilling program for

the Lower Butong Project was completed in March 2012, with the drilling of 13 infill holes, which

confirmed previous drilling results and supported the Company's previous feasibility analysis. The Santa

Barbara-Malongon Project drilling program is ongoing.

15

(3) Coal Mines under Exploration or Development

The Company currently conducts coal exploration activities in two COC areas. Coal exploration

activities typically involve geological surveys and drilling to identify concealed coal deposits. Geological

studies usually include review of secondary information on the exploratory area's geological

characteristics and a field or reconnaissance survey of coal outcrop. These surveys are normally

undertaken by a team of ten people who trek across the terrain to document coal occurrences. Once the

outcrops are mapped, a drilling program is designed. The more uncertainties and irregularity of the coal

formation, the more core holes may be drilled to obtain more data on the coal seam. Cores are subjected

to laboratory analysis for identification of sediment, rock types and coal bed layers. Data from laboratory

analysis and field surveys are then subjected to an integrated analysis for determination of specific

location, extent and other dimensions of the coal formation.

(a) COC-122, Isabela Integrated Coal Mine

The Company initially had exploration rights under COC-122 which covered nine potential coal

blocks over 9,000 hectares. During exploration, the Company conducted two drilling programs from 1999

to 2000. Following the successful exploration programs, the COC was converted to a development and

production COC on December 23, 2002. The Coal Technical Report estimates that the mine contains about

[28.9] million MT of coal resources and 25.3 million MT of coal reserves. The development and production

phase of the COC expires in December 2034.

The coal at COC-122 is lignite, a coal classification that is characterized by high moisture content

and not easily transportable due to its highly liquid quality. To utilize the coal, the Company intends to

build a 100MW mine-mouth power plant adjacent to the Cagayan River within the COC area. An open-pit

progressive mining rehabilitation method will be adopted by the Company to mine the COC area.

The Company requested from the DOE a moratorium on COC-122 which was granted for the

period from April 19, 2007 to April 18, 2008 and reinstated on April 19, 2008 while the Company was

unable to progress development due to social and environmental issues. During that time, the Company

faced opposition from the Isabela communities because of the effects on the mine and power plant on

neighbouring households. In 2010, after securing the Environmental Compliance Certificate ("ECC"), the

Company increased its information, education and communication campaign and corporate social

responsibility activities to address the opposition against the project. The Company also conducted a

series of workshops and meetings with [LGU] officials and affected households at the barangay level. In

addition, the Company set up an educational scholarship program for high school and college students

and provided relief assistance to the victims of typhoons Pedring and Quiel. In 2011, the Company

acquired the formal endorsements of the four affected barangays in Cauayan City, namely Cabugao,

Casalatan, San Pablo and Sinippil and developed the Land Acquisition and Resettlement Plan ("LARP") for

the affected households in coordination and consultation with the residents in the project areas.

In April 2012, as approved by the Board in January 2012, the Company disclosed the entitlement

package (compensation, relocation, assistance and benefits) under the LARP to the concerned LGUs.

16

Starting in June 2012, the Company will disclose the entitlement package to the individual households and

thereafter enter into right of way agreements. In May 2012, the City Council of Cauayan issued a

resolution of endorsement and full support for the project.

(b) COC-141, Isabela Coal Project

Adjacent to COC-122 is COC-141, which is also located in province of Isabela in Northern Luzon.

COC-141 was acquired in July 2005. COC-141 is in the exploration stage and covers three blocks with an

area of 3,000 hectares.

The Company requested from the DOE a moratorium on COC-141, in addition to COC-122, which

was granted for the period beginning from April 19, 2007 to April 19, 2008, but was not reinstated. The

project expired on July 5, 2009, however on October 26, 2011, the DOE approved a one-year extension of

COC-141 to November 30, 2012.

(c) COC-140, Surigao del Sur Coal Project

The Company has exploration rights under COC-140 covering 3,000 hectares in the Municipalities

of Cagwait and Tago Surigao del Sur located in northeastern Mindanao. The Company acquired from the

DOE a 100% interest in COC-140 on July 5, 2005. Due to reported insurgent activities in adjacent

municipalities and a heightened military alert in the area, the DOE placed COC-140 under a moratorium

on October 12, 2006 and again beginning on July 6, 2007, which expired on July 6, 2008. The COC expired

on July 5, 2009. However on December 1, 2011, the DOE approved the extension of the COC until

December 12, 2013.

(d) Coal Operating Contract Nos. 184, 185, and 186

On February 2013, DOE Secretary Petilla signed the coal operating contracts in the three (3) new

areas namely: COC 184 - Agusan del Sur-Surigao del Sur, COC - 185 Buug-Malangas, COC - 186 Diplahan-

Imelda. In 2013, reconnaissance geologic mapping was conducted over approximately 350 hectares (ha.)

and 850 ha., in COC 185 and COC 186, respectively. On July 2013, PNOC EC filed the applications for

Certificate of Non-Coverage (CNC) for COCs 184, 185 and 186 at the Environmental

Management Bureau. On September 2013, PNOC EC received the CNC for the three (3) COCs.

17

1 1987 PHILIPPINE CONSTITUTION Article 12 § 2

2 Ibid.

3 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Philippine Mining Development Corporation Mandate. [online]

[viewed 11 October 2014] Available from: http://pmdc.com.ph/mandate.htm

4 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Philippine Mining Development Corporation History. [online]

[viewed 11 October 2014] Available from: www.pmdc.com.ph/history.htm

5 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Governance Structure of PMDC. [digital image] [viewed 18

October 2014] Available from: http://pmdc.com.ph/orgstructure.htm

6 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Governance Structure of PMDC. [online] [viewed 11 October

2014] Available from: www.pmdc.com.ph/citizencharter.pdf

7 Ibid.

8 Ibid.

9 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Mineral Reservations of PMDC. [online] [viewed 18 October 2014]

Available from: http://www.pmdc.com.ph/mineralreservations.htm.

10 Proclamation No. 297, Whereas clause.

11 DENR DAO 2003-308 § 7.

12 Id. at §§ 7-9.

13 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Mineral Reservations of PMDC. [online] [viewed 18 October 2014]

Available from: http://www.pmdc.com.ph/mineralreservations.htm.

14 Ibid.

15 Ibid.

16 Ibid.

17 Ibid.

18 Ibid.

19 Ibid.

20 Ibid.

21 Ibid.

22 Executive Order No. 323, Whereas Clause.

23 Id. at Article 3 § 1.

24 Id. at Article 2 § 3.

25 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. PMO Assets of PMDC. [online] [viewed 18 October 2014]

Available from: http://www.pmdc.com.ph/pmoassets.htm

18

26 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. North Davao Mining Corporation, PMDC. [online] [viewed 18

October 2014] Available from: http://www.pmdc.com.ph/projects-ndmc.htm

27 Ibid.

28 Ibid.

29 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Batong Buhay Gold Mines, Inc., PMDC. [online] [viewed 18

October 2014] Available from: http://www.pmdc.com.ph/projects-batongbuhay.htm

30 Ibid.

31 PHILIPPINE MINING DEVELOPMENT CORPORATION, 2014. Cancelled mining tenements handled by PMDC. [online] [viewed

18 October 2014] Available from: http://www.pmdc.com.ph/cancelledtenements.htm

32 Ibid.

33 Presidential Decree No. 334, Whereas clause.

34 Id. at § 3.

35 PHILIPPINE NATIONAL OIL COMPANY, 2007. Corporate Structure of PNOC. [digital image] [viewed 18 October 2014]

Available from: http://www.pnoc.com.ph/aboutpnoc.php?sectionid=ac587724-1514-11df-a7de-92d1637a39b1&menuid=0a208d44-

154f-11df-93b0-42bae035655c

36 PHILIPPINE NATIONAL OIL COMPANY, 2007. Philippine National Oil Company Exploration Corporation. [online] [viewed 17

October 2014] Available from: http://www.pnoc.com.ph/subsidiaries.php?sectionid=e4f3bb95-1514-11df-a7de-92d1637a39b1

37 www.pnoc-ec.com.ph/docs/2013%20ANNUAL%20REPORT.pdf

38 Ibid.

39 Ibid.

40 Ibid.