Tender protocol for 10th Brazilian licensing round

The Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP) of Brazil has now published the tender protocol and draft concession contract for its 10th licensing round. This bid round includes 130 onshore blocks in mature basins (Potiguar, Recôncavo, Sergipe-Alagoas) and new frontier basins (Amazonas, Parecis, São Francisco, Paraná).

The tender protocol sets out pre-qualification requirements, bid procedures and the main commercial terms of the concession contracts on offer, with pre-qualification documents to be submitted by 14 November 2008 and bidding to take place from 17 to 19 December 2008.

To pre-qualify, the ultimate parent company of a proposed concession holder must demonstrate its technical and financial capability. Successful applicants may qualify as an A, B or C Operator or a non-operator depending on their level of technical experience and their net equity position. The majority of blocks available in this licensing round may be operated by C Operators, although those blocks in the Amazonas basin require a B Operator, with A Operators being those entitled to operate in deep and ultra-deep water.

Pre-qualified companies may bid individually or in consortia, provided that all consortia must consist entirely of pre-qualified companies, with at least one pre-qualified operator holding at least a 30% interest. Each bidding company and each member of a bidding consortium must pay a participation fee of R$35,000 per sector or R$175,000 for all sectors, which will give them access to data packages covering the relevant blocks.

Where a bidding company is headquartered outside Brazil, it must undertake to incorporate or appoint a Brazilian subsidiary with its main office and administration in Brazil to hold the concession. In this case, the pre-qualified bidder must guarantee the obligations of its Brazilian subsidiary. In addition, each bidder must submit a bid bond of R$50,000 per block as security for the due execution of the concession agreement, payment of the signature bonus, provision of security for the mandatory exploration programme and the parent company guarantee referred to above.

Bids will be assessed by the ANP according to the (a) signature bonus (40%); (b) mandatory exploration programme (40%); and (c) minimum local content requirement (20%) offered by the bidder. The protocol sets out minimum signature bonuses ranging from R$65,000 to R$530,000, minimum mandatory exploration programmes and an acceptable range of local content requirements. The latter is 70% to 80% during the exploration phase and 77% to 85% during the development stage.

The term of the concession is up to 34 years, with an exploration phase of three to seven years and a development and production stage of 27 years.

Other significant terms of the concession include a government royalty of 10% and annual surface rental of R$27.66/km2 (new frontier basins) or R$130.13/km2 (mature basins) during the initial exploration phase. The latter will be increased by 100% during any extension to the exploration phase and during development and by 900% during production. Concession holders will be subject to Brazilian taxes, including the “Special Participation”, which is calculated according to the volume of production, location and year of production. Finally, the concession holder will be liable for payment of 1% of production to the landowner, as well as the cost or any rights of way or easements necessary to obtain access to the land.