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(G.R. No. 170867, December 04, 2018)


On December 11, 1990, the Republic of the Philippines (Republic or National Government), through
the Department of Energy (DoE), entered into Service Contract No. 38 with Shell Philippines
Exploration B.V. and Occidental Philippines, Incorporated (collectively SPEX/OXY), as Contractor, for
the exclusive conduct of petroleum operations in the area known as "Camago-Malampaya" located
offshore northwest of Palawan. Exploration of the area led to the drilling of the Camago-Malampaya
natural gas reservoir about 80 kilometers from the main island of Palawan and 30 kms from
the platform. The Provincial Government of Palawan asserted its claim over forty percent (40%) of
the National Government's share in the proceeds of the project. It argued that since the reservoir is
located within its territorial jurisdiction, it is entitled to said share under Section 290 of the Local
Government Code. The National Government disputed the claim, arguing that since the gas fields
were approximately 80 from Palawan's coastline, they are outside the territorial jurisdiction of
the province and is within the national territory of the Philippines.


a. Whether Palawan is entitled to 40% share in the proceeds of the Project? (Is the reservoir
within the territorial jurisdiction of Palawan so that it is entitled to such share?) NO

b. Corollary, is the Doctrine of Federal Paramountcy Applicable in the Philippines? NO


First Issue:

No. The Local Government Code does not define the term "territorial jurisdiction." Provisions therein,
however, indicate that territorial jurisdiction refers to the LGU's territorial boundaries. In the creation
of municipalities, cities and barangays, the Local Government Code uniformly requires that the
territorial jurisdiction of these government units be "properly identified by metes and bounds:. The
intention, therefore, is to consider an LGU's territorial jurisdiction as pertaining to a physical location
or area as identified by its boundaries. That "territorial jurisdiction" refers to the LGU's territorial
boundaries is a construction reflective of the discussion of the framers of the 1987 Constitution who
referred to the local government as the "locality" that is "hosting" the national resources and a "place
where God chose to locate His bounty." It is also consistent with the language ultimately used by the
Constitutional Commission when they referred to the national wealth as those found within (the
LGU's) respective areas. By definition, "area" refers to a particular extent of space or surface or
a geographic region.

The importance of drawing with precise strokes the territorial boundaries of a local unit of
government cannot be overemphasized. The boundaries must be clear for they define the limits of
the territorial jurisdiction of a local government unit. It can legitimately exercise powers of
government only within the limits of its territorial jurisdiction. Beyond these limits, its acts are ultra
vires. Needless to state, any uncertainty in the boundaries of local government units will
sow costly conflicts in the exercise of governmental powers which ultimately will
prejudice the people's welfare. This is the evil sought to be avoided by the Local
Government Unit in requiring that the land area of a local government unit must be
spelled out in metes and bounds, with technical descriptions. Clearly, therefore, a local
government's territorial jurisdiction cannot extend beyond the boundaries set by its
organic law.
Territorial jurisdiction is defined, not by the local government, but by the law that creates
it; it is delimited, not by the extent of the LGU's exercise of authority, but by physical
boundaries as fixed in its charter.

Since it refers to a demarcated area, the term "territorial jurisdiction" is evidently

synonymous with the term "territory." In fact, "territorial jurisdiction" is defined as the
limits or territory within which authority may be exercised.

The parties all agree that the Camago-Malampaya reservoir is located in the continental
shelf. If the marginal sea is not included in the LGU's territory, with more reason should
the continental shelf, located miles further, be deemed excluded therefrom. An LGU's
territorial jurisdiction refers to its territorial boundaries or to its territory. The territory of
LGUs, in turn, refers to their land area, unless expanded by law to include the maritime
area. Accordingly, only the utilization of natural resources found within the land area as
delimited by law is subject to the LGU's equitable share under Sections 290 and 291 of
the Local Government Code.

Furthermore, the Court examined the organic law creating municipalities of Palawan and found that
the municipalities of Palawan do not include the continental shelf where the Camago-Malampaya
reservoir is concededly located. In fact, with the exception of Kalayaan, which includes the seabed,
the subsoil and the continental margin as part of its demarcated area, the municipalities are either
located within an island or are comprised of islands.
Second Issue:

No. Doctrine of Federal Paramountcy is A doctrine of constitutional law which gives priority to the
application of a federal statute where those terms conflict with the operation of a provincial statute.
(In this case, if there is a conflict between the claim of federal government and the coastal state over
the natural resources found in the area of the coastal state, the claim of the Federal Government is
given priority.)

There are several reasons why the foregoing doctrine cannot be applied to this case. First, the U.S.
does not appear to have an equitable sharing provision similar to Section 7, Article X of the 1987
Constitution. Second, the Philippines is not composed of states that were previously independent
nations. Third, the resolution of these cases does not necessitate distinguishing
between dominium and imperium since neither determines the LGU's entitlement to the equitable
share under Section 7 of Article X. Fourth, the Court is not called upon to determine who between the
Province of Palawan and the National Government has the paramount or dominant right to explore or
exploit the natural resources in the marginal sea or beyond. Fifth, adjudication of these cases does
not entail upholding the dominion of the National Government over a political subdivision since
ownership of the natural resources is concededly vested in the State. Sixth, it is settled that dominion
over national wealth belongs to the State under the regalian doctrine. Ownership of the subject
reservoir, therefore, is a nonissue and what simply needs to be determined is whether said resource
is located within the area or territorial jurisdiction of the Province of Palawan.