Concession regime and production sharing regime
Before 1995, the exploration and exploitation of oil and gas reserves were federal government monopolies carried out exclusively by the federal government-controlled company Petróleo Brasileiro SA (Petrobras). The enactment of Constitutional Amendment No. 09/1995 loosened the federal government’s monopoly over such activities, allowing the federal government to contract these from state-owned or private companies.
Additionally, Federal Law No. 9,478/1997 (the Petroleum Law), enacted on 6 August 1997, established a new regulatory framework for the performance of the aforementioned activities and introduced new regulatory bodies, such as the Brazilian National Oil, Natural Gas and Biofuels Agency (ANP) and the National Energy Policy Council (CNPE).
The CNPE was created with the main purpose of fostering rational use of the nation’s energy resources, reviewing energy matrixes for different Brazilian regions and setting guidelines, while the ANP was created to regulate the oil and natural gas sector and to promote the development and production of oil and natural gas in Brazil’s sedimentary basins through a transparent and competitive bidding process in a concession regime.
In December 2010, three separate laws, including Law No. 12,351/2010 (Pre-Salt Law) entered into force addressing the exploration and production (E&P) of strategic areas and Brazil’s offshore pre-salt reservoirs. These laws introduced a production sharing contract (PSC) regime applying for future licensing of pre-salt areas and certain other areas to be deemed strategic by the federal government, as well as the implementation of an oil fund to support social and economic development in Brazil.
In addition to the law governing pre-salt areas, a 100 per cent state-owned company, Empresa Brasileira de Administração de Petróleo e Gás Natural SA - Pré-sal Petróleo SA (PPSA), was created by Federal Law No. 12,304/2010 to represent the federal government in the consortium to be awarded the rights to explore and develop blocks within the pre-salt area. The PPSA does not perform upstream oil and gas activities and does not engage in investments, but has very important roles, such as management, audit and supervision of oil and gas activities performed under the PSC regime, as well as the negotiation of unitisation involving unlicensed acreage.
On 7 February 2013, the CNPE issued Resolution No. 01/2013 regarding incentives for the involvement of small and medium-sized players in oil and gas exploration, development and production. Pursuant to this Resolution, the ANP must hold bidding rounds focused on blocks located at mature basins and inactive areas with marginal fields. The environmental feasibility of these blocks and areas must be assessed by the ANP and the competent environmental authorities. Blocks with the potential for development of non-conventional resources will be excluded from those specific bids, and the ANP must designate criteria for the eligibility of companies that will benefit from such new policies and measures. The criteria are established in ANP Resolution No. 32/2014, and list small players as the companies qualified as operator ‘D’ or ‘C’, and whose production does not exceed an annual average of 1,000boe/d. In turn, medium-sized players are those qualified as operator ‘B’ or ‘C’, and production does not exceed an annual average of 10,000boe/d. Note that, for the purposes of calculating the production of the companies, the ANP considers the production of their corporate group, either in Brazil or abroad. As a result, in 2018 the ANP established a permanent bid round of mature blocks. In the first stage of the permanent round, 884 blocks were made available, located in 14 sedimentary basins, with 722 blocks in the onshore basins of Amazonas, Espírito Santo, Paraná, Parnaíba, Potiguar, Recôncavo, São Francisco, Sergipe and Alagoas and 162 blocks in the offshore basins of Campos, Ceará, Pará-Maranhão, Potiguar, Santos and Sergipe-Alagoas.
Onerous assignment regime
Law No. 12,276 was enacted in conjunction with the Pre-Salt Law. The objective of this Law was to allow Petrobras to attract new investors and to keep the Federal Union as the main shareholder, holding at least 50 per cent of the voting shares. The law authorised the government to sign the Onerous Assignment Agreement with Petrobras, giving the company the right to explore and to produce up to 5Bboe of crude oil in the pre-salt areas of Atapu, Buzios, Itapu and Sépia.
The federal government’s estimate, however, is that the areas could yield another 6Bboe. For this reason, the government will bid the rights to explore the exceeding volumes in the largest bid round to date, scheduled to take place on 28 October 2019, in which it expects to collect nearly $100 billion reais as the market’s expectations soar.
Since 1999, following the opening of the market, the ANP has conducted 16 bidding rounds for exploration blocks. After almost five years with no new licensing rounds, on 14 May 2013, the ANP promoted the 11th bidding round, which offered 289 blocks, among which 142 were awarded. In the same year, the ANP promoted the first pre-salt bid round for Brazil’s Libra offshore area and the 12th bidding round, which offered 240 onshore blocks with both conventional and non-conventional gas potential, out of which 72 blocks, located across five sedimentary basins, were awarded. The first specific round focused on the pre-salt area offshore of Brazil occurred on 21 October 2013; the winner was a consortium led by Petrobras with Shell, Total, CNPC and CNOOC as the other contractors.
Despite the oil prices and the corruption scandal involving Petrobras, the federal government held the first stage of the 13th bidding round for exploration and production of concession areas on 7 October 2015. Initially, 182 onshore and 84 offshore blocks were offered across 10 sedimentary basins: Amazonas, Parnaiba, Potiguar, Recôncavo, Sergipe-Alagoas, Jacuípe, Camamu-Almada, Espírito Santo, Campos and Pelotas, out of which 35 onshore and two offshore blocks were awarded. On 10 December 2015, the second stage of the 13th bidding round offered concessions agreements for recovery and production of oil and natural gas in more than 10 inactive areas with marginal accumulations, out of which nine were awarded.
In 2017, the ANP held the 14th concession regime bidding round, which offered 287 blocks, among which 37 were awarded, the second production-sharing bidding round - concerning areas that are to be unitised with licence areas - and the third production-sharing bidding round.
For the 2018-19 period, the federal government plans to hold four additional bidding rounds, offering areas in both concession and production-sharing regimes. The ANP has already promoted the 15th bidding round for exploratory blocks in March 2018, which resulted in an amount higher than 8 billion reais, setting the highest financial results in the history of concession regimes in Brazil. Together, the fourth and fifth production-sharing bidding rounds that took place in June and September 2018 amounted to nearly 10 billion reais in signature bonuses.
The 16th bidding round for exploratory blocks is scheduled for the second half of 2019 and plans to offer blocks in the Camamu-Almada and Jacuípe basins, as well as ultra-deepwater areas in the Campos and Santos basins, among others. The sixth production-sharing bidding round, also expected for the second half of 2019, intends to offer several blocks in the Santos basin.
As mentioned above, the government also plans to hold the Onerous Assingment Bid Round in October 2019 for the large-scale oil volumes in the areas of Atapu, Buzios, Itapu e Sépia, which is expected to be the largest bid round in history and has created great expectations among the major players.
Oil production in Brazil has increased considerably in recent years. Brazil produced 668.3Mmbbl in 2007, and in 2017 oil production reached 988Mmbbl, representing a growth of 4 per cent compared with 2016. This increase relates to the extraordinary production in pre-salt areas, which in June 2017 surpassed post-salt production for the first time and in 2018, reached an average of 1.428Mmbbl/d a day. The volume of oil reserves in Brazil was approximately 12.9Bboe, the 15th largest amount of proven reserves in the world in 2018. According to the ANP, Brazil had more than 100 concessionaires operating in the E&P oil sector, and by the end of 2018, 329 blocks were in the exploration and evaluation phase and 458 fields were in production.
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