A recent decision rendered by the Brasilia Federal Court of Appeals suspended one of the most anticipated Petrobras international tenders for the charter and operation of a floating production, storage and offloading unit in the Libra field, the largest oil field in the pre-salt region. The suspension will remain in effect until the Brazilian National Agency of Petroleum, Natural Gas and Biofuels rules on Petrobras's local content waiver request.
President Michel Temer recently enacted Law 13.365/2016. The law makes the participation of Petrobras as the exclusive pre-salt operator optional, while setting out Petrobras's pre-emptive right. With the enactment of the new law, the Brazilian government is preparing to conduct the second production sharing round, which will offer four pre-salt areas, in the second half of 2017.
As of May 2016 Rio de Janeiro has begun to levy a new state environmental control and inspection tax on the control, monitoring and supervision of research, mining, exploration and production of oil and gas. All legal entities authorised to conduct such activities are subject to the tax.
The end of Petrobras's monopoly in the pre-salt exploration may become a reality in the near future. Bill 4567/2016, which was recently approved by the Senate and remitted to analysis and approval by the Chamber of Deputies, aims to amend Law 12.351/2010, which regulates the exploration and production regime in the pre-salt area. If passed, the bill will help to attract new investors and allow other companies to be in charge of the exploration.
The Rio de Janeiro government recently approved Law 7,182/2015. The law introduces a state environmental control and inspection tax on the control, monitoring and supervision of research, mining, exploration and production of oil and gas. The tax has faced strong criticism from oil companies which emphasises that, in addition to being questionable from a juridical standpoint, it may have a devastating effect on investments in the sector.
The Rio de Janeiro government recently released Law 7,183/2015, which was published on December 30 2015. The law establishes a value added tax system (ICMS) for operations related to the circulation of goods and on the performance of services for interstate and intercity transport and communication. It will be levied on oil transfer operations between oil wells and concessionaires.
The Brazilian Agency for Petroleum, Natural Gas and Biofuels has launched a public consultation on drafts of the tender protocol and the concession agreement for the 13th bidding round for oil and natural gas blocks. The launch of the 13th bidding round is a milestone, as a successful round will demonstrate that the sector is focusing on the long term, despite the pessimism surrounding Brazil and the difficulties affecting the oil industry worldwide.
The recent worldwide drop in oil prices and the significant increase in the global supply of oil have created concerns for international oil companies such as Petrobras regarding the feasibility of their exploration and production projects. As such, amendments to the legal framework are being considered, including the introduction of more oil companies in the pre-salt area and changes to Petrobras's obligations.
As demand for natural gas increases, Brazil will likely find itself short of gas pipelines. As such, the Gas Law was enacted to establish contractual arrangements for the construction and operation of gas pipelines, which will largely be granted via concession agreements. This regime is now being tested with the Petroleum, Natural Gas and Biofuels Agency's launch of the first pipeline bidding round.
The Brazilian Agency for Oil, Natural Gas and Biofuels has ruled that royalties will be due for oil and natural gas produced during well formation tests – a phase that was previously royalty free. While the rule discourages companies from extending well formation tests unreasonably to avoid royalties, it might make well formation tests too burdensome and oil companies might choose to invest their money elsewhere.
A recent decision of the Brazilian National Council for Energy Policy (CNPE) has brought uncertainty to the Brazilian market. The CNPE – which is responsible for establishing national energy policy – has decided to increase the amount of oil that Petrobras, a state-controlled company, is entitled to produce without competition in the pre-salt area by means of a mixed oil and gas regime.
The National Agency of Petroleum, Natural Gas and Biofuels recently released its decision regarding Chinese companies that qualified for the first pre-salt bidding round, held in Rio de Janeiro. The tender documents for this bidding round set forth an obligation for all companies within the same economic group to present their bids together in the same consortium.
The National Agency of Petroleum, Natural Gas and Biofuels recently published a Portuguese draft of the preliminary tender package for the first production sharing bidding round. The preliminary tender package lists the rules and procedures that companies willing to participate in this bidding round must follow. Among other documents, the draft of the new production sharing agreement has been made available.
Both history and recent events demonstrate that investment in the Brazilian oil and gas industry has increased significantly since acknowledgement of the sector's existence in the country over 60 years ago, and is likely to continue to do so in future. If the country can overcome the many obstacles still present in the sector, the industry could create even more benefits to society in the long run.
The Brazilian Constitution provides oil-producing states and municipalities with the right to receive a larger share of royalties as indemnification for allowing potentially hazardous activities to be carried out in their jurisdiction. However, following the 2007 discovery of huge oil and gas reservoirs in the pre-salt layer offshore Brazil, the existing system for the distribution of royalties has been called into question.
Following the discovery of the so-called 'pre-salt area' offshore southern Brazil, the government enacted a new law that established the production sharing agreement as the contract that would govern exploration and production activities in the area. However, licences to blocks outside this area are still granted through a concession agreement. Whether this mixed regime will be positive for the sector remains to be seen.
The National Agency of Petroleum, Natural Gas and Biofuels (ANP) recently published a draft of the preliminary tender package for the 11th oil and gas bidding round. The package lists the procedures that companies willing to participate in this bidding round must follow. Through a public consultation procedure, ANP hopes to gather additional information on the bidding round's rules and on the draft concession agreement.
Investors are concerned that resource nationalism is again emerging in Latin America. In addition, changes to rules and delay in definitions and bid rounds within the Brazilian oil and gas industry have created unrest among investors. However, the size of the investments and the technological challenges should encourage Brazilian authorities to continue to welcome other international players, from private and public sectors.
The legislature recently proposed a new regulatory milestone for mining that aims to adjust the current regulation and simplify procedures. It is hoped that the modernisation will, as far as possible, reflect and respond to the need for synergy between the private and public sectors, in a realistic vision of compromise between monitoring, survey and acceleration of growth of the Brazilian economy.
The events of the past three years have been highly significant for the exploration and production of oil and gas in Brazil. Following the implementation of three new laws, there will be three types of exploration and production contract in Brazil - the existing concession contract, the new production sharing contract and the draft transfer of rights agreement. All innovations are still subject to further discussion.