March - April 2019
SURVEY OF MINING AND PETROLEUM
What’s inside?
1. Philippine Mining Law
2. Mineral Rights
2.1. Types of Mineral
Rights
3. Mineral Rights Under
the Philippine Mining Law
4. Mining in the
Autonomous Region
in Muslim Mindanao
(ARMM)
5. Overview of the
Philippine Service
Contract
6. Oil a Catalyst for Peace
or Seeds of Intensified
Conflict
6.1. A Nigerian Oil
Scenario?
This Policy Brief is published bimonthly.
Editor: Benedicto R. Bacani Associate Editor: Ramie P. Toledo
ISSN 2243-8173-19-02
ISSUES IN THE BANGSAMORO-ARMM
This paper was prepared by Atty. Ishak V. Mastura, LL. M. Petroleum Law and Policy (Centre
for Energy, Petroleum and Mineral Law and Policy, University of Dundee, Scotland, U.K., 2007).
Atty. Mastura is the Chief Operations Officer of IAG Development Consulting Inc. (IDCI), the
business and development consulting firm of IAG. Visit www.idci.com.ph to learn more.
INTRODUCTION
Mining has a long history in the Philippines going back to antiquity
when its inhabitants mined for gold and other valuable minerals. This
Southeast Asian country comprises an archipelago of 7,100 islands
divided into three geographic regions, Luzon, Visayas and Mindanao.
The country has rich mineral resources forming part of the “Pacific Rim
of Fire”, which is so called because of the intense volcanic activity at the
margins of the tectonic plates and is well-known for epithermal gold,
porphyry copper-gold, and volcanic-hosted massive sulfide deposits.”
Principal minerals found in the Philippines include gold, copper, nickel,
chromite and manganese. The Philippines has reserves of about 7
billion metric tons of metallic minerals and 52 billion metric tons of
non-metallic minerals making it among the countries with the richest
endowment in gold, copper and nickel. Despite its abundant mineral
resources, the Philippines never realized its full potential. The mining
Lay-out Artist: Jazz L. Cuaresma
 regime of the Philippines follows the Regalian Doctrine in which all mineral resources
of the country are owned by the State. Similar to other countries that were colonized,
its past colonial experience under Spain and then America has given the Philippines a
decidedly nationalistic view of the exploitation and development of its mineral resources
so that the general rule in the mining regime of the country is that the exploitation of
mineral wealth is reserved for Filipinos. Hence, the 1987 Philippine Constitution limits
the full participation of foreigners to financial or technical assistance in large-scale mining
projects.
In 1995, in an effort to revitalize the mining industry, the Philippine government enacted
a new mining law. The Philippine Mining Act of 1995 provides for mineral tenure and
mining rights under an Exploration Permit, Mineral Agreement (i.e. Mineral Production
Sharing, Co-Production and Joint Venture) allowing maximum 40% foreign equity, and
Financial or Technical Assistance Agreement (FTAA) for 100% foreign equity in mining.
1. PHILIPPINE MINING LAW
The 1987 Philippine Constitution states: “All lands of the public domain, waters,
minerals, coal, petroleum, and other minerals oils, all forces of potential energy,
fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are
owned by the State.” Unlike some other constitutional mining provisions that simply declare
only general mining principles to be implemented in mining statutes, the Philippine
Constitution itself specifies that the State may directly undertake mining activities or enter
into co-production, joint venture or production sharing agreements. For large-scale mining,
the government has the option under the Constitution to enter into financial or technical
assistance agreements with 100% foreign-owned entities. In case a mining agreement
or FTAA is obtained right from the start of mining activity, the exploration right is already
integrated into the mining agreement similar to the unified concession of Peru where a
single license provides for both exploration and mining rights.
2. MINERAL RIGHTS
Minerals are owned by the State in most countries. There are three main ways used by
governments in granting mineral exploration authorisation and mineral exploitation rights
(the combination of which is the essence of mineral rights). The first is based on a grant of
title to the minerals a licensing system defined by a Mining Law and national regulation.
Second, host governments might use only a mining agreement which becomes the
mining law that governs that project. Third, and by far the most widespread method,
is the hybrid system in which the mining title (and national regulations) and mining
agreement are used simultaneously or in turn. The difficulty is in determining exactly the
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nature of mineral rights granted by governments. Agreements and structures vary so
that it is difficult to determine whether a specific contractual or regulatory arrangement
is a concession, a license, or a permit. Sometimes these terms are used interchangeably.
Having contractual form does not in itself indicate the material substance of the
mineral rights because hybrid forms now predominate. Whether mineral rights are
called licenses, permits, leases, concessions or contract rights, what is essential is
that the nature and status of those rights are determined in a legal act that is binding
on the state and other parties.
2.1. TYPES OF MINERAL RIGHTS
Because of the prevalence of the hybrid approach to the grant of mineral rights
by governments, myriad labels have increasingly been utilized to describe these
arrangements. The difficulty with labeling mineral rights is that host governments
may negotiate varying terms for agreements over time. Having said that, among the most
common mineral contracts or agreements granting mineral rights are concessions,
production-sharing contracts, joint venture contracts, contracts of work, service contracts
and technical assistance contracts.
In the traditional concession, the State’s role was limited to granting the
concessionaire access to large areas with exclusive mining rights including complete
control over the disposition of mineral resources, in exchange for a production royalty.
In the Philippine context, a concession is described as follows: “[T]he concessionaire
makes a direct equity investment for the purpose of exploiting a particular natural
resource within a given area. Thus, the concession amounts to complete control by
the concessionaire over the country’s natural resource, for it is given exclusive and
plenary rights to exploit a particular resource at the point of extraction. In consideration
for the right to exploit a natural resource, the concessionaire either pays rent or
royalty, which is a fixed percentage of the gross proceeds.”
The modern concession is similar to what is described above but a more complicated
fiscal regime consisting of taxes and royalty. The joint venture is a participation agreement
between the State and the miner, which may be an equity joint venture or contractual
joint venture. In equity joint ventures, the State participates as an equity partner
in the mining venture while in contractual joint ventures, the miner is limited to a
contractual right for financial compensation. In production-sharing contracts, the State
and the miner share in the production of the mining venture with the miner shouldering
the management, the expense and risk of exploration and the development and utilization
of the mineral resources, while being entitled to cost recovery and a profit from production.
Service contracts are akin to production sharing contracts in the sense that the
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 contractor funds all the capital expenditures and operating costs, but differ with the
production sharing contract in that the contractor does not share in the production, but is
paid a fee for service or from a portion of the value of production. Service contracts
may be interchanged with contracts of work, but one author argues that the distinction
between the two is that: “In a contract of work, the contractor works independently
of the contracting State or its national enterprise, while the contractor in a service
contract undertakes to work under the supervision or control of the other contracting
party.”
In the Philippines context: “A service contract is a contractual arrangement for engaging
in the exploitation and development of petroleum, mineral, energy, land and other
natural resources by which a government or its agency, or a private person granted
a right or privilege by the government authorizes the other party (service contractor)
to engage or participate in the exercise of such right or the enjoyment of the
privilege, in that the latter provides financial or technical resources, undertakes
the exploitation or production of a given resource, or directly manages the productive
enterprise, operations of the exploration and exploitation of the resources or the
disposition of marketing or resources.”
In technical assistance agreements, the contractor provides technical services for the
execution of a project for a specified fee, “without any ownership in any form in
the production of the enterprise.” The structure of a technical assistance agreement has
been referred as the most radical departure from the traditional concession since it
completely relegates the miner from the status of owner to that of contractor.
3. MINERAL RIGHTS UNDER THE PHILIPPINE MINING LAW
The mineral rights in the Philippines, which has a civil law system, are based on a
mining agreement with the basic principles, terms and conditions of the agreement
provided by the mining law. RA 7942 states that for purposes of mining operations, a
mineral agreement may take the following forms – mineral production sharing agreement,
co-production agreement or joint-venture agreement.
FTAAs are excluded from the enumeration of authorized forms of mineral agreements.
However, the FTAA is defined under the Mining Act as a contract involving financial
or technical assistance for large-scale exploration, development, and utilization of
mineral resources In essence, it is a mining contract allowing 100% foreign equity in
mining investments in the country. But if we look at its ordinary meaning, the term
is deceptive and diverges from the accepted usage of the term “financial or technical
assistance” in the natural resources industry.
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Because of its nomenclature, the FTAA has caused confusion in the past and continues
to do so. One recent magazine article described the FTAA as: “Basically a concession
agreement, the FTAA is a contract involving financial or technical assistance for
large-scale exploration, development and utilization of mineral resources. The FTAA
provision of the Mining Act allows foreign companies to have full control of mining
projects.” The Mining Journal remarked about the Mining Act when it was first passed
that: “Most importantly, the new act abolishes the leasehold system for acquiring
mining rights and, through the FTAA, allows 100% foreign ownership in large-scale
mining projects. In a much later article referring to FTAA, the Mining Journal clarified
that: “Under the revised mining law, the old leasehold system has been replaced
with a service contract scheme whereby the government gives a qualified contractor
the exclusive rights to conduct exploration and develop and operate a mine in the
contract area for 25 years, renewable for the same period.”
In the case of the FTAA, there is some truth to the claim that it is just a new name
given for the original service contracts, which was the means of granting mineral rights
to foreign corporations under the 1973 Constitution. As previously stated, the Philippine
service contract was basically a version of the concession with production-sharing element.
An FTAA has a very large potential contract area of 81,000 hectares. It has a long duration
of up to fifty years. The FTAA provides limited real property right over mineral resources.
As written in the Mining Act, there is even no clear production sharing with the
State. These are some characteristics which it shares with the concession. But the
State ownership of minerals, the heavy involvement of the government in mining
operations, the reporting requirements and the requirement of area relinquishment are
characteristics of service contracts. Hence, the FTAA is actually a hybrid system just
like the Indonesian Contract of Work. Just like in Indonesia, it can be said that the FTAA
allows the government to continue claiming control and supervision over the country’s
mineral resources, while opening the door to foreign investments in its development.
4. MINING IN THE AUTONOMOUS REGION IN MUSLIM MINDANAO (ARMM)
While the ARMM has a lot of mineral potential according to the national geological maps,
this has not been exploited because of its long history as a conflict -affected area. The
discussion above on the Philippine Mining Law and legal regime is relevant to the ARMM
because for the most part mining in the Philippines is governed by the Constitution and
the ARMM cannot deviate much (if at all) from the national laws implementing those
Constitutional provisions on mining in the country, which have become entrenched as well
in legal jurisprudence arising from cases filed in the Supreme Court.
According to the data from the ARMM Regional Board of Investments, mining and quarrying
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 accounts for 18% of registered investments in the ARMM with agriculture consisting the
bulk of registered investments at 40% followed by downstream and renewable energy
investments at 24%.
The biggest bone of contention in the ARMM legal framework for mining is what constitutes
“strategic minerals” which issue arose of the 1996 GRP-MNLF Peace Agreement. The
ARMM for the most part has asserted that “strategic minerals” only refers to sources of
“potential energy” and fossil fuels in accordance with a vague enumeration found in the
expanded ARMM Organic Act (RA 9054). National government has asserted at one time
or another that it is the national government that ought to define what consists of “strategic
minerals” to include metals and metallic minerals. However, national government has
not gone to the extent of cancelling Mineral Production Sharing Agreements (MPSA) that
have been issued by the ARMM Department of Environment and Natural Resources. The
ARMM has not issued any new MPSAs from the first few that it issued particularly for
nickel mining in Tawi-Tawi province.
The issue on “strategic minerals” has affected even the issuance of Environmental
Compliance Certificate for mining in Tawi-Tawi because the national Department of
Environment and Natural Resources came out with Department Order No. 2012-7,
classifying nickel as one of the strategic minerals within the national government’s purview.
This issue of “strategic minerals” has been done away with in the recently passed
Bangsamoro Organic Law (BOL) by removing any distinctions regarding minerals but the
BOL is now very explicit that mining and mineral resources in the Bangsamoro-ARMM are
subject to the Constitution and national laws. Hence, the Bangsamoro cannot pass any
legislation in its parliament that would contravene the Philippine mining laws and legal
regime.
The current ARMM government has also imposed the 5% regional wealth tax on gross
sales provided by the ARMM Revenue Code on mining activities, which makes mining
relatively more expensive in the ARMM than in other areas of the country. Mining has
significantly contributed to the regional government’s own sources of revenues so that
taxes, fees and charges grew from P52.9 million or 8.1% of the total internally generated
revenues in 2013 to P267.8 million in 2014 due to the higher collection of the regional
wealth tax, which was raised from ½ of 1% to 5% of gross sales, so that taxes, fees and
charges jumped four-fold in 2014, constituting 31.2% of the sources of revenues of the
regional government.
With the increase in national excise taxes for mining from 2% to 4% in the recent tax
reform law of the national government and the 5% regional wealth tax, government take
for mining in the ARMM is now 9% of gross sales, which is double that of what miners
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pay in other mining areas in the country. Whether this makes the region less attractive to
mining investors really depends on a variety of factors depending on the particular mineral
resources found in the region and the quality of mineral reserves.
So far, the biggest and most active mining area in the ARMM is in the far flung Province
of Tawi-Tawi, where the MPSA of “SR Languyan” in Languyan Municipality has spawned
contractors for the mining of nickel ore, which are exported raw for processing in China.
Recently, this year, 2018 the ARMM regional government initiated the enactment of the
ARMM mining code entitled “An Act Providing for Responsible Mining of the Autonomous
Region in Muslim Mindanao, and for Other Purposes” principally authored by Assemblyman
Hannibal Tulawie of Sulu. The legislation is expected to be passed and signed into law
before the end of this year, 2018. As anticipated there is no significant deviation from the
Philippine Mining Law except that the Regional Wealth Tax is now imposed in addition to the
share of the ARMM regional government from the national taxes on mining. The Regional
Wealth Tax according to some quarters did not have legal basis and some have argued
that the ARMM Revenue Code was not sufficient basis for its imposition on mining so this
legislation is supposed to cure that perceived legal defect even though no one has actually
questioned the tax in court.
However, unlike in the national mining laws and legal regime, under the proposed ARMM
mining law the grant of mining license in the ARMM must have the concurrence of the
legislative branch of government, i.e. the Regional Legislative Assembly, and no longer
the sole prerogative of the executive branch, i.e. the ARMM Regional Governor. This
concurrence by the legislative for mineral licenses will probably be carried over in the BOL
because the structure of government under the BOL is parliamentary, wherein the executive
and legislative branches are fused or joined. This extra layer of consent from the legislative
branch for mining to take place may both be a boon and a bane depending on whether
mining becomes a significant economic activity and source of revenues for the regional
government.
5. OVERVIEW OF THE PHILIPPINE SERVICE CONTRACT
Presidential Decree (PD) 87 or “The Oil Exploration and Development Act of 1972” established
the Service Contract regime for petroleum exploration and production in the country. It
was later amended in 1983 by PD 1857 providing for better incentives to contractors for
deep water exploration and development. In the Philippine Service Contract, service and
technology are furnished by the contractor for which it shall be entitled to the stipulated fee
while financing is provided by the government to which all petroleum produced shall belong,
but where the government is unable to finance petroleum exploration operations and if the
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 contractor shall furnish services, technology as well as financing, the proceeds of the sale
of the petroleum produced under the contract shall be the source of funds for payment of
the service fee and operating expenses due the contractor.1
Aside from the basic provisions of the law on limitation of cost recovery up to 70% of
gross proceeds and profit sharing of profit oil of 60% for the government and 40% for
the contractor, all the other terms and conditions of the contract are negotiable. Current
Service Contracts cover a seven-year exploration with the first two years of the work
program devoted in conducting geological and geophysical studies and drilling of one
exploration well. In practice, the Philippine Service
6. OIL A CATALYST FOR PEACE OR SEEDS OF INTENSIFIED CONFLICT
The ARMM has some of the biggest untapped petroleum resources in the Philippines.
Two of the most highly prospective Petroleum Sedimentary Basins in the country lie within
the territorial jurisdiction of the ARMM, i.e. the Sulu Sea Basin and the major portion of the
Cotabato Basin. According to the Philippine Department of Energy, the offshore Sulu Sea
Basin has a potential 203 MMBOE, while the land-based Cotabato Basin has a potential
159 MMBOE with 29 BCF of gas already discovered.2
The hydrocarbon prospectivity of the ARMM is borne out by the fact that in previous years
three Service Contracts (SC) still at the exploration stage have been awarded by the
Philippine government in the offshore Sulu Sea Basin in the waters surrounding the Sulu
Archipelago. SC 41 with an area of 4,820 square kilometers is operated by Australian
company, Tap Oil.3 SC 64 with an area of 12,600 square kilometers is operated by
Malaysian company, Ranhill Berhad.4 Perhaps the most intriguing is SC 56 operated by
Malaysian-based Mitra Energy Ltd., wherein ExxonMobil signed a 50% farm-in agreement
in the past.5
This vote of confidence by ExxonMobil has significant value considering that oil analyst
Daniel Yergin calls it “no question, the gold standard, the company all others measure
themselves against.”6 ExxonMobil is known for its penchant for long-range thinking and
having a 10-year strategy and planning horizon, which bodes well for the Sulu Sea
acreage.7 The Sulu Sea Basin overlaps the Sandakan Basin on the Malaysian side of the
1 Dimagiba, V., “Service Contract Concepts in Energy”, The Philippine Law Journal, Vol. LVII, September 1982, pp. 321-322.
2 Cotabato Basin at http://www.doe.gov.ph/petroleum/cotabato_basin.htm and Aberga, E., The Sulu Sea /East Palawan Basins Resource
Assessment at http://www.ccop.or.th/ppm/document/PHWS1/Sulu%20Sea%20Resource%20Assessment.pdf
3 Philippines to Hold Public Contracting Round on Oil Exploration, December 15, 2006 at http://www.rigzone.com/news/article.asp?a_id=39192
4 Ranhill and Phil-Mal Awarded SC 64 in the Sulu Sea, December 05, 2006 at http://www.petroengineers.com/news/article.asp?a_id=38730
5 ExxonMobil Inks Deepwater Deal Off the Philippine Islands, December 05, 2006 at http://www.petroengineers.com/news/article.asp?a_
id=38822
6 Contreras, J., “Multiple Personality”, Newsweek Special Edition Issues 2007, December 2006-February 2007, p. 36.
7 Ibid, p. 36.
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Sulu Sea and as one Mitra Energy Ltd. geologist said about SC 56 “the integration of well
and seismic models in a robust analysis of the prospectivity of the SC 56 has led to the
upgrading of the Sandakan Basin for deepwater exploration. The “elephants” are waiting to
be tested.”8 On the other hand, natural gas reserves or oil equivalent are said to be found
in the geophysical terrain of the Cotabato Basin, the heart of which is the Liguasan Marsh
and the Pulangi River Delta, and by virtue of anecdotal evidence and actual discovery of 29
BCF of gas, it is suggested that it is more gas prone rather than suitable for oil discovery.9
The ability of Moro insurgents to disrupt any oil-related activities has been proven when
in June 1997 there was a reported kidnapping of 43 PNOC personnel conducting seismic
survey in the Cotabato Basin, and although the MILF denied that the alleged kidnappers
were their fighters they were said to have run to the MILF’s Camp Raja Muda provoking
a military offensive on the camp.10 Earlier in February of that year, two employees of the
PNOC were also kidnapped and released. The activities of the PNOC in the Cotabato
Basin were stopped altogether when President Estrada launched his “all-out war” against
the MILF in 2000. Even offshore oil sites are not immune to seaborne attacks. The MILF
has seaborne resources and it demonstrated its maritime capability in February 2000, when
they attacked the vessel Our Lady Mediatrix, killing forty persons and wounding fifty.11
Hence, the Philippine Human Development Report 2005 realizes the key importance of the
peace process with the MILF in resolving development and security issues in the country
by concluding that:
“Addressing the root causes of rebellion in Mindanao would also address the root
causes of terrorism there. The armed conflict on the Moro front had better evolve in
this direction, for the sake of human security and human development in Mindanao
and the rest of the Philippines. Of the three tracks constituting the current form
of evolution of this conflict, the MILF track seems to be a linchpin of the broader
Mindanao peace process and the legitimate fight in defense against terrorism. This
is because this track is still evolving. In the MNLF track, the final peace agreement
has encountered problems in implementation, some of which may be due to the
inadequacy of the agreement itself. The third track, the nature of the terrorist
problem with the Abu Sayyaf, does not partake of peace negotiations. The MILF
8 De Silva, S., Sandakan Basin: From Wildebeest to Zebra - Where are the Elephants?, 2006 AAPG International Conference, Perth,
Australia, November 5-8, 2006 at http://aapg.confex.com/aapg/2006int/techprogram/A106444.htm. The richest oil and gas fields are
categorized as “elephants” as opposed to “economic”, “large”, “big” or “giant” fields.
9 Arnado, J. and Arnado, M., Casualties of Globalization, Economic Interest, War and Displacement along Ligawasan Marsh Philippine,
Social Science Research Council’s Program on Global Security and Cooperation, Manila, November 2004, pp. 36-38. The study states
that: “While the marsh residents do not have technical know-how on recognizing natural gas, their actual contacts with this fuel confirms the
presence of natural gas. Focus group discussions with residents reveal stories of people being able to produce fire by lighting up matches
near the natural gas ‘pockets’. In fact, some residents have rigged improvised pipes to the source and in this way have tapped the natural gas
for their daily cooking.” Moreover, the same study says that PNOC Exploration Corporation gives an unverified estimate of potential reserves
of up to 1.7 trillion cubic feet of natural gas in the Cotabato Basin.
10 Gutierrez, E. and Guialal, A., “The Unfinished Jihad: The Moro Islamic Liberation Front and Peace in Mindanao”, in Kristina Gaerlan and
Mara Stankovitch (eds.), Rebels, Warlords and Ulama, A Reader on Muslim Separatism and the War in the Southern Philippines, Institute for
Popular Democracy, Quezon City, 2000, pp. 268-270.
11 Banlaoi, R., “Maritime Terrorism in Southeast Asia, The Abu Sayyaf Threat”, Naval War College Review, Autumn 2005, Vol. 58, No. 4.
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 track is the key link that merits priority.”12
For the international community, which has become increasingly concerned about the
terrorist “black hole” in Mindanao, an International Crisis Group report likewise concluded
that a peace agreement with the MILF providing for a genuine and fully implemented
autonomy for the Moros is a sine qua non for winning the long-term war on terror in
Mindanao.13
It follows that the key to the potential hydrocarbon bonanza in Mindanao is the completion
of the Mindanao peace process as this will remove a lot of risks and uncertainty in their
development.
Can oil be that catalyst?
Oil can be a catalyst for peace since the Philippines also needs to develop the petroleum
resources of the Bangsamoro to facilitate its economic growth which has not been high
enough to cope with a growing population and high poverty levels plus natural and man-
made disasters. Out of its estimated oil consumption of 335,000 barrels of oil per day,
the Philippines imports 312,000 barrels of oil per day.14 Unless alleviated, this high import
dependence and high energy intensity of GDP and continuing high oil prices would be
bound to undermine economic growth, increase inflation and weaken the balance of
payments.15 If worse comes to worst in the coming years and oil prices stay or go higher,
the Philippines would be prone to instability as opposition to rising fuel prices mounts.16
The Philippines is also highly indebted with debt at nearly two-thirds of GDP. An infusion
of export revenues from oil and gas and self-sufficiency in energy would surely assuage a
lot of the country’s problems.
The experience of the Sudan peace process is salutary. One Newsweek article about the
role of oil in the peace settlement in Sudan said:
“According to a source familiar with Sudan’s long conflict, it is no accident that
the government and its longtime enemy, the Southern People’s Liberation Army
(SPLA), began serious peace talks about three years ago, when the oil bounty was
becoming apparent. Nor is it a surprise that negotiators for the two sides made an
unexpected push to finish the deal late last year – when oil prices hovered near
record highs of close to $50 a barrel. ‘Oil has been the most important factor in
12 Supra note 14, p. 80
13 Southern Philippines Backgrounder: Terrorism and the Peace Process, ICG Asia Report No. 80, Singapore/Brussels, July 13, 2004, p.
26.
14 CIA World Factbook Philippines at https://www.cia.gov/cia/publications/factbook/print/rp.html
15 Donnelly, R., “Coping with dear oil”, Asia Today International, 2006, p. 20 at http://www.efic.gov.au/attachments/db/efi/110.pdf
16 Ibid.
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the push for peace in the north-south deal’, says the source, an African diplomat
long involved in the peace negotiations.”17
Another observer noted that “In the south, I think the existence of oil was a powerful force
behind the settlement, because the government realized it couldn’t fully exploit the oil while
the fighting was going on.”18 Most of the producing oilfields of Sudan are in the South so that
they had been subject to steady SPLA attacks. As the oil production and oil prices rose, it
became an economic bonanza such that according to a Sudanese representative to the UN
“Oil was a factor and a negotiating tool. We knew there would be a great deal more to share
in the future.”19 It is also mentioned that the Southern Sudan peace process was successful
largely because of U.S. pressure. “It’s because America and other countries need the oil,”
according to the media source.20
Also in Darfur, Sudan, oil is seen to lubricate peace. Observers are optimistic that the
promise of large profits from oil could provide a reason for the Khartoum government, rebels
and foreign governments to work towards peace.21 However, one observer warned that
“There’s several rebel groups, dividing like cells….They don’t seem to have a very coherent
and sophisticated view of what their demands are. Oil could help them focus their demands
or it could further fragment them.”22 Which sentiment I think is fair warning to the Moro rebel
groups in Mindanao. One recent opinion in the papers gave an unverified report that there
is now an ongoing “turf war” in Mindanao among the Moros in the MILF, MNLF and ARMM
government for access and control of mineral resources, not only in the Liguasan Marsh,
but also in the Sulu Sea and other parts of Mindanao.23
Sadly, the general experience regarding the correlation between petroleum and conflict is
negative. Petroleum and the rents it generates are a central mechanism for prolonging
violent conflict and only rarely as in Sudan a catalyst for resolution.24 One study provides
that point-source resources or those which are concentrated in a small area far from the
capital produce secession movements, while diffuse resources or those which are scattered
over a larger area far from the capital produce “warlordism.” 25
In the case of the Bangsamoro areas, the probable petroleum resources are both point-
17 Polier, A., “Sudan: A Catalyst for Peace, Oil has played a major role in ending Sudan’s civil war”, Newsweek, February 21, 2005.
18 Gidley, R., “Oil discovery adds new twist to Darfur tragedy”, Reuters AlertNet, June 15, 2005 at http://www.alertnet.org/thefacts/
reliefresources/111885496661.htm
19 Supra note 131.
20 Supra note 132.
21 Supra note 132.
22 Supra note 132.
23 Supra note 112.
24 Gary, I. and Karl, T., Bottom of the Barrel, Africa’s Oil Boom and the Poor, Catholic Relief Services, June 2003, p. 24.
25 Ross, M., “Oil, Drugs, and Diamonds: The Varying Roles of Natural Resources in Civil War”, in Karen Ballentine and Jake Sherman (eds.),
The Political Economy of Armed Conflict, Beyond Greed and Grievance, International Peace Academy, Lynne Rienner, London, 2003, pp.
53-54.
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 source as in the Liguasan Marsh and diffuse as in the Sulu Sea but both far from the
capital and hence we foresee the persistence of the phenomena of secession movements
and “warlordism” (exemplified by small armed groups like the Abu Sayyaf and the political
clans) co-existing.
The bad news according to studies is that petroleum being an unlootable resource – that
which cannot be easily appropriated by individuals or small groups such as diamonds – is
more likely to ignite separatist conflicts, and exacerbate grievances over the distribution
of resource wealth.26 Moreover, in cases where the resource is obstructuble such as
petroleum traveling through a pipeline (except when oil is offshore), it provides rebel
groups with unceasing flow of extortion opportunities.27 Anticipating that its resources
being obstructuble are subject to holdups, governments tend to act preemptively by using
terror and repression against local people.28
Hence in our case, where the MILF control the onshore Cotabato Basin, the development
of petroleum resources therein without substantial work on the implementation of the twin
2013-2014 Comprehensive Agreement on the Bangsamoro/Framework Agreement on the
Bangsamoro (CAB/FAB) peace agreement will likely exacerbate and prolong the conflict
by providing means of extortion or financing for disgruntled insurgents but increased
government repression can also be expected if there is petroleum development without
an acceptable implementation of the peace agreements by various constituencies in
Mindanao.
In the Sulu Sea Basin, even though the petroleum resources are offshore, they straddle
the border between the Philippines and Malaysia wherein small groups of saboteurs
can crisscross the border to evade pursuit and hide in the numerous islands and islets
in the area. The Sulu Sea is notorious for the kidnap-for-ransom activities and piracy of
the Abu Sayyaf wherein they were successful for a number of years in boarding vessels
and kidnapping crew members.29 The sea has never deterred Moro insurgent activities,
the Moros being a “maritime people” and renowned seafarers for centuries. For much
of the 1970s, 80s and 90s both the MNLF and MILF were linked to several attacks on
maritime vessels. 30
Another ominous research conducted on oil and violent conflict found that violent
conflict was most likely to occur when: a) oil revenues accounted for a substantial
percentage of government income, b) oil fields are located in a region with a distinct
ethnic or religious identity, c) the country had experienced ongoing unresolved
26 Ibid, pp. 64-65.
27 Ibid, p. 62.
28 Ibid.
29 Raymond, C., “Piracy in Southeast Asia: New Trends, Issues and Responses”, Harvard Asia Quarterly, Vol. IX, No. 4, Fall 2005.
30 Shie, R., Ports in a Storm? The Nexus Between Counterterrorism, Counterproliferation, and Maritime Security in Southeast Asia,
Issues & Insights Vol. 4 No. 4, Pacific Forum CSIS, Honolulu, July 2004, p. 11.
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12 | Survey of Mining and Petroleum Issues in the Bangsamoro-ARMM
conflicts within the past decade, d) economic destitution is pervasive in the region,
and e) weak government and ineffective institutions are incapable of managing
revenues. 31 The Bangsamoro areas fit all the categories in the list except the first
so there is more likelihood of continuing violent conflict in those areas in case oil is
found. But it also reinforces the strategic imperative of a genuine implementation
of the CAB/FAB peace agreement with the MILF as the starting point of peace and
development.
6.1. A NIGERIAN OIL SCENARIO?
If the petroleum in the Bangsamoro areas is exploited without a deliberate and
well-prepared effort of addressing security issues not only in the sense of physical
security but also relating to governance and human security as provided for, among
others, in the implementation of peace agreements with the MNLF and the MILF, a
likely scenario is that – with warring political clans, rebel groups and militias, corrupt
security forces, the presence of foreign terrorists, the proliferation of small arms,
the prevailing culture of impunity and the possibilities of competition for illegal oil
wealth through “bunkering” (i.e. theft of oil), as well as, opportunities for corruption
of revenues it brings – oil will foster in the same “resource curse”, 32 poverty, misery
and chaotic conditions found in the Niger Delta. 33
One caveat of what may happen in the Bangsamoro areas goes this way, “It is important
to note that illegal oil bunkering is probably the most significant accelerator of conflict
in the Niger Delta [and] one day’s worth of illegal oil bunkering in the Niger Delta
will buy quality weapons for and sustain a group of 1,500 youths for two months.” 34
A worse scenario that may also be replicated is an earlier communal uprising of the
Ijaw tribe in Delta State in 2003 to demand self-determination and recompense for
past grievances regarding oil, which killed scores of people and temporarily shut-off
40% of the country’s output.
Under the BOL, petroleum resources are supposed to be jointly awarded by the
Bangsamoro government and the national government. But national laws and
procedures of the national Department of Energy must be followed. Under those
national laws the national Department of Energy is the lead agency and the ultimate
responsibility for signing of petroleum licenses rests with the President of the
Philippines.
31 Shankleman, J. “The Role of Business in Peace Making: A Case Study of the Oil Industry”, USIP Fellow Project Report, July 8, 2004 at
http://www.usip.org/fellows/reports/2004/0708_shankleman.html
32 Supra note 138, p. 21. “Negative development outcomes associated with petroleum and other minerals are known as ‘resource curse.’
Essentially, this refers to the inverse association between growth and natural resource abundance, especially minerals and oils.”
33 See Rivers and Blood: Guns, Oil and Power in Nigeria’s Rivers State, A Human Rights Watch Briefing Paper, February 2005.
34 Mahtani, D., “Oil giant shell admits it fuels Nigeria violence”, The Sydney Morning Herald, June 14, 2004.
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Survey of Mining and Petroleum Issues in the Bangsamoro-ARMM | 13
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