On May 2nd, 2017, Brazilian president Michel Temer enacted Decree No. 9.041 (“Decree”) that regulates Petróleo Brasileiro S.A.’s (“Petrobras”) right to be the operator in the consortia formed for the exploration and production of blocks under the product sharing regime.

As previously indicated by CNPE Resolution No. 9/2017, which approved the 3rd Pre-salt Bid Round, the Decree establishes that, counted from the publication of the National Energy Policy Council’s (“CNPE”) resolution that will contain the technical and economic guidelines of the blocks to be contracted under the production sharing regime, Petrobras will have a thirty (30) day term to express its participation interest as operator, indicating the blocks of interest and the participating interest intended, which cannot be lower than thirty percent (30%).

The CNPE, in turn, after Petrobras’ expression of interest, will propose to the President of the Republic the blocks to be operated by the company, indicating its minimum participation in the consortium [between a minimum of thirty percent (30%) and that indicated by Petrobras].

According to the Decree, if Petrobras opts not to exercise its preferential right, the blocks will be offered in the bidding round, and Petrobras may participate on equal terms and conditions with the other bidding companies.

Furthermore, for Petrobras’ interest areas, the Decree provides the company with the “pull out option” to refuse to enter into a product sharing agreement with another company or consortium declared as the winner of the bidding round. This only applies in cases where the Federal Government’s profit oil percentage offered by another consortium is higher than the minimum percentage established in the tender protocol. In such cases, however, if the Federal Government’s profit oil offered by another consortium (winner) is equal to the minimum established in the tender protocol, Petrobras will integrate into the consortium with the winning bidder.

Lastly, the Decree establishes that in the cases where Petrobras does not integrate into the consortium, as defined above, the winning bidder shall appoint the operator and the participating interest of each integrating party of the consortium – a necessary condition for the approval of the results by the National Agency of Petroleum, Natural Gas and Biofuels – ANP.

It is understood that the tender protocol shall define the procedures related to the new composition of the consortium in the cases in which Petrobras enforces its “pull out option”.