Deductibility of Abandonment Losses Subject to Write-Off

April 19, 1999 BIR RULING NO. 054-99 054-99 Coplex Energy Corporation Unit 18-1, 18/F Citibank Center Bldg. 8741 Paseo de Roxas corner Villar St. Salcedo Village, Makati City Attention: Ms . Esperanza M . Dela Cruz Chief Financial Officer Gentlemen : This refers to your letter dated September 15, 1998 stating that your Company, Coplex Energy Corporation (Coenco) , is a domestic corporation; that it is primarily engaged in oil and gas exploration by conducting geological, geophysical and all kinds of exploration works; that it was able to obtain a Geophysical Survey & Exploration Contract (GSEC) with the Philippine Government for oil exploration along the Manila Bay area (GSEC 72 and 92); that the expenditures for GSEC 72 and 92 as reflected in your latest balance of the Deferred Oil Exploration Charges amounts to P318,109,982.00; and that currently, the management of Coenco is contemplating on writing off all its interests in GSEC 72 and 92 due to abandonment. dctai Based on the foregoing, you now request for a ruling on the deductibility of the abandonment losses that you are going to write-off with respect to your interest in GSEC 72 and 92 from Coenco's gross income. In reply, please be informed that Section 34 (D)(7)(a) of the Tax Code of 1997 allows as deduction from gross income losses actually sustained during the taxable year and not compensated for by insurance or otherwise, viz: "(7) Abandonment Losses . (a) In the event a contract area where petroleum operations are undertaken is partially or wholly abandoned, all accumulated exploration and development expenditures pertaining thereto shall be allowed as a deduction: Provided, That accumulated expenditures incurred in that area prior to January 1, 1979 shall be allowed as a deduction only from any income derived from the same contract area. In all cases, notices of abandonment shall be filed with the Commissioner." Accordingly, Coenco's interests in GSEC 72 and 92, the same being classified as abandonment losses are deductible from its gross income under Sec. 34(D)(7)(a) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements set forth in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue