On 12th April 2018, the National Agency of Oil and Gas (“ANP”) published Resolution ANP no. 726/2018 (“Resolution”) to regulate the procedures regarding the fulfillment, adjustment or transfer of local content obligations. This regulation has been expected by the industry for years due to the difficulty found in fulfilling the obligations acquired since the local content policy was implemented.
However, the resolution not only regulates the documents included in the contracts signed after the 7thBidding Round, in 2005, the Resolution also makes it possible for operators of contracts signed before the 3rd Pre-Salt Bidding Round and the 14th Bidding Round, both held in 2017, to amend the local content clause in their contracts, and, consequently, make their obligations more flexible.
The contractual amendments which alter the local content clause will only affect the phases which have not yet ended. In cases where the exploration or development phases have finished, the concessionaire or the contracted party will not benefit from the new rules. Equally, the signing of contractual amendments for areas which have already been returned is not possible.
If an operator chooses to amend this clause, the termination and respective shelving of any request for exemption and/or adjustment of the local content shall automatically occur. As a result, a practical question to be analyzed by the concessionaire or the contracted party arises: they should choose to (i) assume the risk of facing any eventual fines for the obligations which are not fulfilled in phases which are already finished (which are objects of exemption or adjustment requests), but simplifying its obligations in the present phase of the contract, or (ii) keep the (uncertain) possibility of approval by the ANP of the adjustment and/or exemption request of the obligations of the contract phases.
If companies choose to adopt the new local content rules, their obligations will be adjusted to reflect the following percentages:
|Phase||Blocks||New Local Content Percentages|
|Offshore||Construction of Well||25%|
|Collection and Draining||40%|
|Stationary Production Unit||Engineering||40%|
|Machines and Equipment|
|Construction, Integration and Assembly|
Those interested in amending the contract shall have 120 days, counting from the publishing of the Resolution, to manifest their interest before the ANP. Therefore, those interested will have until August 10th, 2018 to present their interest to the ANP.
The ANP did not clearly establish how the procedure of signature of amendments will occur. Those interested may, therefore, find it difficult to clarify potential questions about the procedure or necessary documentation. Some common issues have already been identified by the ANP and its answers have been made available to the public, however, in our opinion, this was not enough to answer all questions that oil industry players might have.
However, it is clear that the Resolution is a fundamental mark in the regulatory legal framework of oil and natural gas exploration and production activities. It is believed that this rule will be fundamental in unlocking investments and stimulating the development of the local industry. Furthermore, the fact that the ANP adopted, in the Resolution, the local content obligation percentages suggested by the representatives of the oil operators and of the service providers should diminish the litigious potential of the act. The Resolution represents a significant advance in Brazil’s local content policy.
RESULTS OF THE 4TH PRE-SALT BIDDING ROUND
The National Agency of Oil, Natural Gas and Biofuels (ANP) held, on June 7th, 2018, the 4th Pre-salt Production Sharing Round. This round offered 4 blocks in the maritime sedimentary basins of Campos and Santos.
The winning companies, in bids under the production sharing regime, are ones which offer to the Brazilian State, from a minimum percentage fixed in the tender protocol, the largest portion of oil surplus. The signature bonuses listed in the tender protocol are fixed.
In the 4th Round, 3 of the 4 offered blocks were allocated, earning a total of about R$ 3,15 billion in signature bonuses. It is expected that the Round will generate investments of, at least, R$ 738 million, in the first phase of concession contracts alone.
According to the current legislation, Petrobras has the preferential right to act as operator in the Pre-Salt blocks and, as demonstrated below, the company has decided to be the operator in the 3 blocks allocated.
The following blocks were allocated: (i) Três Marias Block by the consortium formed by Petrobras (30% and operator), Chevron Brazil (30%) and Shell Brasil (40%), having offered R$ 100 million in signature bonus and 49.95% in offered oil surplus; (ii) Uirapuru by the consortium formed by Petrobras (30% and operator), Petrogal Brasil (14%), Statoil Brasil O&G (28%) and ExxonMobil Brasil (28%), having offered R$ 2,65 billion in signature bonus and 75.49% in offered oil surplus; and (iii) Dois Irmãos by the consortium formed by Petrobras (30% and operator), Statoil Brasil O&G (25%) and BP Energy (30%), having offered R$ 400 million in signature bonus and 16.43% in offered oil surplus.
The 4th Production Sharing Round continued the schedule of Rounds envisaged by the ANP. The 5th Pre-Salt Production Sharing Round is scheduled for 28th September and will offer the areas of Saturno, Titã, Pau-Brasil and Sudoeste de Tartaruga Verde, located in the Campos and Santos basins, inside the Pre-salt Polygon and in a strategic area.
Aside from the 4th and 5th Rounds mentioned above, the ANP has demonstrated interest in holding the following Rounds:
- The 6th Pre-salt Production Sharing Round, expected to occur in the second semester of 2019, with the possibility of offering the prospects of Aram, Sudeste de Lula, Sul e Sudoeste de Júpiter and Bumerangue, in the Santos basin;
- The 16th Exploratory Blocks Bidding Round, expected to occur in the second semester of 2019, regarding which the ANP has been authorized by the National Council of Energy Policy to select blocks from the basins of Camamu-Almada (sectors SCAL-AP1 and AP2) and Jacuípe (sector SJA-AP) and the ultra-deepwater outside the pre-salt polygon in the basins of Campos (sector SC-AP4) and Santos (sector SS-AUP5), and the onshore basins of Solimões (sector SSOL-C) and Parecis (sectors SPRC-L e O), and also the onshore sectors of the basins of Sergipe-Alagoas, Recôncavo, Potiguar and Espírito Santo;
- The 17th Exploratory Blocks Bidding Round, expected to occur in 2020; and
- The 18th Exploratory Blocks Bidding Round, expected to occur in 2021
NEW PUBLIC CONSULTATIONS FOR REGULATORY UPDATES
- Public Consultation and Hearing No. 13/2018: seeks to unify and update the regulation on importation and exportation of oil, natural gas, and their derivatives. Currently the applicable regulation is scattered across different resolutions for each type of fuel. The deadline for submission of suggestions and comments to the draft of the resolution will end on 24th July 2018. The public hearing is scheduled to be held on 26th July.
- Public Consultation and Hearing No. 12/2018: seeks to unify and update the regulation on the acquisition, commercialization and processing of technical data used to explore and evaluate the Brazilian sedimentary basins. Currently, ANP Resolutions No. 11/2011 and 01/2015 deal with such matters. The public hearing to discuss the suggestions sent by interested parties was held on July 17th.