On 16 March, the Brazilian oil and gas industry
regulator, the Agência Nacional do Petróleo, Gás Natural e
Biocombustíveis (ANP), published a consultation draft of a
revised concession agreement for the exploration and production of
oil and gas.
It should be noted that this concession agreement
will not be used in Brazil¢s prolific pre-salt province or in other
areas that the federal government may consider "strategic".
Legislation enacted last year introduced a production sharing
regime for those areas. However, no bid round has yet been
held for pre-salt blocks because of disagreement between different
branches of federal, state and municipal government regarding the
allocation of oil revenues. There are also concerns that
Petrobras, as exclusive operator of pre-salt blocks, and the
Brazilian oil and gas industry generally, do not have capacity to
handle the rapid growth that a major pre-salt bidding round would
The publication of a revised concession agreement,
seems to support the idea that a new licensing round for
non-strategic blocks will be held this year, but that pre-salt
bidding may be further delayed.
The main changes proposed to the existing Brazilian
concession agreement include:
- For ease of administration, in future, each oil and gas block
will be subject to an individual concession agreement.
- Failure to comply with the minimum exploration programme will
allow the ANP to terminate the concession agreement, as well as to
call upon the financial guarantees provided by the
concessionaire. In certain circumstances, where the
concessionaire has completed at least 90% of the minimum
exploration programme, the ANP may elect to fine the
concessionaire, instead of terminating the concession
- Changes to the process for unitisation, where fields extend
into two or more adjacent exploration blocks, including
introduction of the concept of a pre-unitisation agreement for
appraisal of such fields. As Brazilian oil and gas provinces
mature and exploration blocks become smaller, unitisation is
becoming increasingly important.
- Further definition of the requirements for application of
research and development funds. This draft concession
agreement maintains the existing requirement that 1% of gross
revenues are applied to research and development in Brazil.
It additionally specifies that at least 50% of this amount must be
used to finance activities or projects pre-approved by the ANP at
accredited universities or research institutions. Up to 20%
of R&D spending may be applied to research in social sciences
and humanities to the extent that these are relevant to the
petroleum, natural gas and biofuel industries.
There are many other proposed changes.
Although many of them are quite technical and may be of little
practical effect, oil and gas companies intending to participate in
future licensing rounds should review the new draft carefully,
because there are certain drafting changes that could increase
their obligations, such as the revised definition of "Best Oil
The draft concession agreement is available on the
ANP website and the ANP is inviting comments from the
public until 14 April 2011.