Whether Gain or Loss Shall be Recognized on the Transfer by Coplex Resources, Coplex Cebu, Coplex Palawan, Pacrim and EFDA of portion of their Respective Participating or Working Interests in Geophysical Survey and Exploration Contract (GSEC) Nos. 64, 69 and 72 in Favor of Cophil in Exchange for Its Shares of Stock

August 29, 1995 BIR RULING NO. 132-95 34 (c) (2) & (6) (c) 000-00 132-95 Law Offices of Bautista, Picazo Buyco, Tan & Fider 8th Floor, Singapore Airlines Bldg. 138 H.V. dela Costa St., Salcedo Village Makati City Attention: Atty . Erlito S . Fider Gentlemen : This refers to your latter dated December 9, 1994 requesting for a ruling that no gain or loss shall be recognized on the transfer by Coplex Resources N.L. (Coplex Resources), Coplex (Cebu) Limited (Coplex Cebu), Coplex (Palawan) Limited (Coplex Palawan), Pacrim Energy N.L. (Pacrim) and E.F. Durkee & Associates, Inc. (EFDA) of portion of their respective participating or working interests in Geophysical Survey and Exploration Contract (GSEC) Nos. 64, 69 and 72 in favor of Cophil Exploration Corporation (Cophil) in exchange for its shares of stock pursuant to Section 34(c)(2) and (6)(c) of the Tax Code, as amended. LLjur Documents submitted show that Cophil is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) as a gas and oil exploration Company; that it has an authorized capital stock of P10,000,000.00 divided into 1,000,000,000 shares with a par value of P0.01 per share; that the incorporators of the corporation with their corresponding number of shares subscribe and paid-up are as follows: NAME NO. OF AMOUNT AMOUNT SHARES SUBSCRIBED PAID Sixto S. Orosa III 10,000,000 P100,000.00 P25,000.00 Edward F. Durkee 10,000,000 100,000.00 100,000.00 Josue A. Camba, Jr. 10,000,000 100,000.00 100,000.00 Ruben M. Gan 210,000,000 2,100,000.00 750,000.00 Arthur R. Ponsaran 10,000,000 100,000.00 25,000.00 Total 250,000,000 P2,500,000.00 P1,000,000.00 ========= ========= ========= that on April 18, 1994, Cophil amended its Articles of Incorporation increasing its authorized capital stock from P10,000,000.00 to P500,000,000.00 divided into 50,000,000,000 shares with a par value of P0.01 per share; that the incorporators of Cophil under its Amended Articles of Incorporation with their corresponding number of shares subscribed and paid-up are as follows: NAME NO. OF AMOUNT AMOUNT SHARES SUBSCRIBED PAID Sixto S. Orosa III 10,000,000 P100,000.00 P25,000.00 Edward F. Durkee 10,000,000 100,000.00 100,000.00 Josue A. Camba, Jr. 10,000,000 100,000.00 100,000.00 Ruben M. Gan 210,000,000 2,100,000.00 525,000.00 Arthur R. Ponsaran 10,000,000 100,000.00 25,000.00 Total 250,000,000 P2,500,000.00 P775,000.00 ========= ========== ========= that as of December 9, 1994, the stockholders of Cophil with their corresponding number of shares subscribed and paid-up are follows: NAME NO. OF AMOUNT AMOUNT SHARES SUBSCRIBED PAID Edward F. Durkee 10,000,000 P100,000.00 P100,000.00 Ruben M. Gan 4,675,000,000 46,752,000.00 12,176,269.00 Arthur R. Ponsaran 30,000,000 300,000.00 75,000.00 Geronimo F. Velasco, Jr. 401,000,000 4,010,000.00 1,010,000.00 Metro Mgt. Corp. 1,500,000,000 15,000,000.00 3,750,000.00 Federico E. Puno 101,000,000 1,010,000.00 260,000.00 Wenceslao dela Paz 200,000,000 2,000,000.00 500,000.00 Peter Paul Gepuela 2,167,000,000 21,670,000.00 5,417,500.00 Benjamin B. Trinidad 1,120,000,000 11,200,000.00 2,800,000.00 Penta Capital Inv. Corporation 400,000,000 4,000,000.00 1,000,000.00 E.F. Durkee & Asso., Inc. 2,591,000,000 25,910,000.00 6,710,000.00 Total 13,195,200,000 P131,952,000.00 P33,798,769.00 =========== ============ =========== that EFDA is likewise a domestic corporation duly registered with the SEC; that Coplex Resources and Pacrim are foreign corporations uncorporated under the laws of Australia, while Coplex Cebu and Coplex Palawan are foreign corporations incorporated under the laws of Cayman Islands, British West Indies; that Coplex Resources, Coplex Cebu, Coplex Palawan, Pacrim and EFDA are the owners of various working interests in GSECs 64, 69 and 72 as follows: A. GSEC 69 ( Northern Cebu ) Existing Working Interest Historical/ Working to be Assigned Acquisition Interest to Cophil Cost Coplex Cebu 66.25% 5.25% Phil. P687,110.00 Pacrim 30.00% 6.00% " P1,479,800.00 EFDA 3.75% 3.75% " P490,793.00 B. GSEC 64 ( South Palawan ) Existing Working Interest Historical/ Working to be Assigned Acquisition Interest to Cophil Cost Coplex Palawan 30.52% 10.00% US$1,918,064.00 C. GSEC 72 ( Manila Bay ) Existing Working Interest Historical/ Working to be Assigned Acquisition Interest to Cophil Cost Coplex Resources 32.50% 10.00% Phil. P369,495.41 Pacrim 27.50% 7.50% " P139,200.00 EFDA 10.00% 10.00% " P401,116.44 that the above existing working interest of Coplex Resources, Coplex Cebu, Coplex Palawan, Pacrim and EFDA in GSECs 64, 69 and 72 have a fair market value of P270,000,000.00; that on December 15, 1994, a Deed of Assignment of Participating Interest in GSEC 64 was executed by and between Coplex Palawan and Cophil whereby the former transferred in favor of the latter 10% out of its existing 16.10% Working Interest in GSEC 64 in exchange for P16,227,920.00 (1,622,792,000 shares) worth of shares of stock of the unsubscribed portion of the authorized capital stock of the latter; that as an additional consideration for the said assignment, Cophil agreed to assume a portion of the initial exploration cost with respect to GSEC 64 (which liability for exploration cost is referred to as "Paying Interest") in such amount as shall be equivalent to not less than 20% of said exploration costs; that on even date (December 15, 1994) a Deed of Assignment of Participating Interest in GSEC 72 was likewise executed by and between Coplex Resources, Pacrim and EFDA and Cophil whereby Coplex Resources, Pacrim and EFDA transferred respectively in favor of Cophil 10.00% 7.50% and 10.00% out of their respective existing 32.50%, 27,50% and 10.00% Working Interests in GSEC 72 in exchange for Coplex Resources P16,093,805.00 (16,093,805.00 shares), Pacrim P10,325,189.00 (1,032,518,900 shares) and EFDA P23,734,475,00 (2,373,447,500 shares) worth of shares of stock of the unsubscribed portion of the authorized capital stocks of Cophil; that as an additional consideration for the said assignment, Cophil agreed to assume a portion of the initial exploration cost with respect to GSEC 72 (which liability for exploration cost is referred to as "Paying Interest") in such amount as shall be equivalent to not less than 45% of said exploration costs; that on the same date (December 15, 1994) a Deed of Assignment of Participating Interest in GSEC 69 was also executed by and between Coplex Cebu, Pacrim and EFDA and Cophil whereby Coplex Cebu, Pacrim and EFDA transferred respectively in favor of Cophil 5.25%, 6.00% and 3.75% out of their respective existing 66.25%, 30.00% and 3.75% Working Interest in GSEC 69 in exchange for Coplex (Cebu) P67,176,275.00 (6,717,627,500 shares), Pacrim P65,674,811.00 (6,567,481,100 shares) and EFDA P70,765,525.00 (7,076,552,500 shares) worth of shares of stock of the unsubscribed portion of the authorized capital stock of Cophil; that as an additional consideration for the said assignment, Cophil agreed to assume a portion of the initial exploration cost with respect to GSEC 69 (which liability for exploration cost is referred to as "Paying Interest") in such amount as shall be equivalent to not less than 30% of said exploration costs; that as a result of the above transactions, the transferors gained control of Cophil by owning at least 54% of the total voting stocks of the said corporation as follows: llcd NAME NO. OF AMOUNT AMOUNT SHARES SUBSCRIBED PAID Edward F. Durkee 10,000,000 P100,000.00 P100,000.00 E.F. Durkee & Associates 12,041,000,000 120,410,000.00 101,210,000.00 Ruben M. Gan 4,675,200,000 46,752,000.00 12,176,269.00 Arthur R. Ponsaran 30,000,000 300,000.00 75,000.00 Geronimo F. Velasco, Jr. 401,000,000 4,010,000.00 1,010,000.00 Metro Management Corp. 1,500,000,000 15,000,000.00 3,750,000.00 Federico E. Puno 101,000,000 1,010,000.00 260,000.00 Wenceslao dela Paz 200,000,000 2,000,000.00 500,000.00 Peter paul Gepuela 2,167,000,000 21,670,000.00 5,417,500.00 Benjamin Trinidad 1,120,000,000 11,200,000.00 2,800,000.00 Rental Capital Investment Corporation 400,000,000 4,000,000.00 1,000,000.00 Coplex Resources, N.L. 1,609,380,000 16,093,805.00 16,093,805.00 Coplex (Cebu) Ltd. 6,717,827,500 67,178,275.00 67,178,275.00 Coplex (Palawan) Ltd. 1,622,792,000 16,227,920.00 16,227,920.00 Pacrim Energy, N.L. 7,600,000,000 76,000,000.00 76,000,000.00 Various (allotted for public offering) Total 40,195,200,000 P401,952,000.00 P303,798,769.00 =========== ============ ============ and that in support of your request you submitted the following documents: 1. Copy of Deeds of Assignment of Participating Interest in GSECs 64,69 and 72; 2. Copy of SEC Registration of Cophil and EFDA; 3. Copy of Articles of Incorporation of Cophil, Coplex Resources, Coplex Palawan, Coplex Cebu, Pacrim and EFDA; 4. Certification of percentage of ownership of EFDA, Coplex Resources, Coplex Palawan, Coplex Cebu and Pacrim in the shares of stock of Cophil; 5. Certification by Corporate Secretary of Cophil of its authorized capitalization and par value of shares of stock; 6. Certification as to the historical cost of the properties transferred in the amounts of: A) GSEC 69 (Northern Cebu) Working Interest Historical Cost Coplex Cebu 5.25% Phil. P 687,110.00 Pacrim 6.00% " 1,479,800.00 EFDA 3.75% " 490,793.00 B) GSEC 64 (Southwest Palawan) Working Interest Historical Cost Coplex Cebu 10.00% US$1,918,064 C) GSEC 72 (Manila Bay) Working Interest Historical Cost Coplex Resources 10.00% Phil. P369,495.41 Pacrim 7.50% " P139,200.00 EFDA 10.00% " P401,116.44 7. Copy of Vending-In Agreement and Farm-In Option Agreement between Coplex Resources, Pacrim, EFDA and Cophil; 8. Copy of Letter of the Department of Energy Confirming the fair market value of the working interests of Coplex Resources, Coplex Cebu, Coplex Palawan, Pacrim and EFDA in GSECs 64, 69 and 72; and 9. Copy of letter of the Department of Energy recognizing Cophil as a co-contractor in GSECs 64, 69 and 72. In reply, please be informed that pursuant to Section 34(c)(2) and (6) (c) of the Tax Code, as amended by R.A. No. 4522 and P.D. Nos. 1705 and 1773, no gain or loss shall be recognized if property is transferred to a corporation by a person, in exchange for stock in such a corporation of which as a result of such exchange, said person, alone or together with others, not exceeding four persons, gains control of said corporation. The term "control" shall mean ownership of stocks in a corporation possessing at least 51% of the total voting power of all classes of stocks entitled to vote. Control is determined by the amount of stocks received i.e., total subscribed, whether for property or for services by the transferor or transferors. In determining the 51% stock ownership, only those persons who transferred property for stocks in the same transaction may be counted up to a maximum of five. Accordingly, no gain or loss shall be recognized both to the transferors and the transferee corporation on the transfer of Coplex Resources, Coplex Cebu, Coplex Palawan, Pacrim and EFDA of their property (Working Interest in GSECs 64, 69 and 72) in exchange for shares of stock of the transferee corporation, Cophil, considering that as a consequence of the exchange, the transferors gained control of the transferee corporation by owning 54% of its total voting stocks. It should be emphasized, however, that Section 34 (c)(2) and (6) (c) of the Tax Code merely defers recognition of the gain or loss from such transaction, for in determining the gain or loss from a subsequent transaction of the properties or of the stocks involved in ht exchange, the original or historical cost of the property or stocks is considered. Thus, if the transferors later sell or exchange the shares of stock acquired by them in the exchange, they shall be subject to income tax on gains derived from such sale or exchange, taking into consideration that the cost basis of the shares shall be the same as the original acquisition cost or adjusted cost basis to the transferors of the properties exchanged therefor; and that the cost basis to the transferee of the properties exchanged for stocks shall be the same as it would be in the hands of the transferors. [Section 34(c)(5)(a) and (b) of the Tax Code, as amended by Presidential Decree No. 1773] cdtech If pursuant to the exchange transaction and as a part of the consideration, the transferee corporation assumes the liability of the transferor or acquires from the transferor property subject to a liability, such assumed or acquired liability shall not be treated as money and/or other property, and shall not prevent the exchange from being tax free [see Sec. 34(c)(4)(a) of the Tax code as amended by P.D. No. 1773]. If the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceed the total of the adjusted basis of the property transferred pursuant to such exchange, then such excess shall be considered as a gain from the sale or exchange of a capital asset or of property which is not a capital asset as the case may be [Sec. 34(c)(4)(b) of the Tax Code, as amended] The cost basis or value of the stocks received by the transferor of property subject to a liability, where the liability transferred and assumed by the transferee corporation does not exceed the transferor's basis or the original and/or acquisition cost of the property transferred, shall be the difference between the liability or liabilities assumed by the transferee corporation and the acquisition or original cost of the property transferred. On the other hand, where the total liabilities to be assumed by the transferee corporation exceed the original or acquisition cost of the property transferred, the excess shall be recognized as gain to the transferor and the value or cost basis of the stocks to the transferor shall be the difference between the original cost of the property transferred subject to a liability (plus the gain recognized to the transferor and the liability or liabilities assumed by the transferee corporation. [Sec. 34(c)(5), supra.) In this connection, you are further their income tax return that the parties to the exchange can avail of the non-recognition of gains provided for in Section 34(c)(2) and (6)(c) of the Tax Code, as amended, they should comply with the requirements hereunder mentioned: a. The transferors must file with their income tax return for the taxable year in which the exchange transaction was consummated, a complete statement of all facts pertinent to the exchange, including: 1. A description of the properties transferred, or of their interest in such properties, together with a statement of the original acquisition cost/adjusted cost basis or other basis thereof at the time of the transfer; 2. The kind of stocks received and preference, if any; 3. The number of shares of each class received; and 4. The fair market value per share of each class at the date of the exchange. b. On the other hand, the transferee corporation must file with its income tax return for the taxable year in which the exchange was consummated the following: 1. A complete description of all properties received from the transferors; 2. A statement of the original acquisition cost or other basis of the properties in the hands of the transferors and the adjusted cost basis thereof at the time of the transfer; and 3. Information with request to the capital stock of the corporation including: a. The total issued and outstanding capital stock immediately prior to and immediately after the exchange with a complete description of each class of stock; b. The classes of stocks and number of shares issued to the transferors in the exchange; and c. The fair market value as of the date of the exchange of the capital stock issued to the transferors. In addition to the foregoing requirements, permanent records in substantial form must be kept by the taxpayers participating in the exchange showing the information listed above in order to facilitate the determination of gain or loss from a subsequent disposition of stocks/properties received in the exchange transaction. The parties shall cause the Assignment Agreement to be approved and filed with the Department of Energy and shall also cause the assignment of the property to be annotated at the back of the Certificate of Stocks and recorded in the books of Coplex Resources, Coplex Cebu, Coplex Palawan, Pacrim, and EFDA and Cophil Exploration Corporation, the date the deed of exchange was executed, the original or historical cost of acquisition of the shares of stock involved, and the fact that no gain or loss was recognized as a result of such exchange. Finally, the certificates of stock to be issued by Cophil Exploration Corporation are, in all probability original issues, which are subject to the documentary stamp tax imposed by Section 175 of the Tax Code, as amended. After payment of the corresponding documentary stamp tax, the properties may be registered in the name of the transferee corporation, Cophil Exploration Corporation. 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 imposed in this letter are not complied with, then this ruling shall be considered null and void. (BIR Ruling No. S-34-063-95 dated March 8, 1995) Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue