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Exploration and production
Rights Who holds the rights to oil and gas reserves in your jurisdiction?
The Federal Constitution grants the Federal Union title to mineral resources located in Brazil which are deemed to be distinct property from the land itself. The Federal Union may, upon compensation, allow companies to explore and produce such mineral resources.
Accordingly, any company organised under Brazilian law whose headquarters and management are located in Brazil can obtain an authorisation or concession for the exploration and production of mineral resources, subject to certain technical, financial and legal conditions.
Is there a distinction between surface and subsurface rights?
Yes. The ownership of mineral resources is distinct from the ownership of the land on which they are located. As mentioned above, the Federal Constitution grants the Federal Union title to mineral resources located in Brazil. The Federal Union can then allow companies to explore and produce such resources. With regard to landowners, both the Federal Constitution and Law 9.478/1997 (the Petroleum Law) guarantee their right to receive a monthly share of the oil and gas production, which – at present – corresponds to between 0.5% and 1% of the total volume of oil and gas produced in the area.
What rules and procedures govern the grant of rights for exploration and production purposes (eg, through licences, leases, concessions, service contracts, production sharing agreements)?
The Brazilian legal framework establishes different regimes for the exploration and production of oil and natural gas – namely: the concession regime and the production sharing regime.
Concession regime The concession regime was established by the Petroleum Law and has been successfully used in Brazil since the oil and gas market was opened to private companies.
Under the concession agreements entered into by the ANP and the oil companies that win bid proceedings, the exploration and production activities are undertaken at the sole risk of the oil companies, which will have ownership of the oil and gas produced.
Production sharing regime The production sharing regime was established by the so-called ‘Pre-salt Law’ and is applicable to pre-salt and strategic areas.
According to the Pre-salt Law, Petrobras – the Brazilian national oil company – must be the operator and hold a minimum stake of 30% in any consortium formed with oil companies that win public bid proceedings.
Under the production sharing regime, oil companies will bear all of the activity’s risks – even though the oil and gas produced will be the federal government’s property. In the case of a commercial discovery, oil companies will recover the costs and investment made (ie, the cost oil) and will be entitled to a percentage of the remainder of the production (ie, the profit oil), in accordance with the provisions of the production sharing agreement (PSA).
The parties to the PSA will be:
the Federal Union, represented by the Ministry of Mines and Energy (MME); the National Agency of Petroleum, Natural Gas and Biofuels, as the regulatory and supervisory agency; Pré-Sal Petróleo SA, a state-owned company which is part of the MME and was established to manage the PSAs; and Petrobras (and possibly other oil companies).
Although the execution of a PSA is usually preceded by a bid proceeding, Petrobras can also be directly hired if this is deemed relevant for preserving national interests and attaining the energy policy’s goals.
What criteria are considered in awarding exploration and production rights (eg, are there any restrictions on the participation of foreign investors/companies)?
Both the concession and production sharing regimes will be preceded by a public bid proceeding, which is open to Brazilian and foreign companies. Under the Petroleum Law, only companies that comply with certain technical, economic and legal requisites established by the ANP can obtain authorisation for oil and gas exploration and production.
If a foreign company wins the bid proceeding, it must set up a company organised under Brazilian law, whose headquarters and management are located in Brazil.
However, in certain exceptional circumstances, the National Council for Energy Policy can propose that Petrobras be directly contracted for the exploration and production of oil and natural gas under the production sharing regime, in order to secure national interests and fulfil Brazil’s energy policy.
Further, when it comes to pre-salt or strategic areas, the Pre-salt Law provides that Petrobras must be the operator and hold a minimum stake of 30% in any consortium formed with other oil companies for public bid proceedings. This rule may be amended by Congress shortly.
Joint ventures Are there any special legal provisions applicable to joint ventures?
Pursuant to the Petroleum Law, companies can carry out oil and gas exploration and production individually or through a consortium with other companies. Under a consortium agreement, a leader company will be appointed as responsible for the operations, while the other members will be joint and severally liable for the obligations undertaken under the agreement.
Each consortium member must submit to the ANP:
- documentary evidence of its economic and technical capacity; and
- the registered version of the instrument that set up the consortium.
Further, parties under a consortium normally enter into a joint operating agreement (JOA), which regulates their commercial relationship and allocates control, risk and reward among them. As a private instrument, the JOA is not subject to the ANP’s analysis and approval.
Third parties Can exploration and production rights be transferred to third parties?
Yes. The assignment of rights and obligations under a concession agreement can be authorised by the ANP if the assignee fulfils the technical, financial and legal requirements set out in the relevant bid invitation. The same rule applies to the PSA, but in such cases approval will be granted by the MME, although the ANP will be consulted.
In view of the Agreement for Technical Cooperation that the ANP entered into with the Administrative Council for Economic Defence (CADE), any company interested in the assignment of the concession agreement or PSA must present:
- a CADE technical opinion approving the asset acquisition; or
- a statement that such transaction is not included in the hypotheses of Article 88 of Federal Law 12.529/2011, which regulates the Brazilian System for Competition Defence.
Fracking Is hydraulic fracturing (‘fracking’) permitted in your jurisdiction?
Fracking is permitted in Brazil, but there are rules regarding its regulation. After several discussions with the industry, the ANP issued Resolution 21/2014 on April 10 2014, which aims to regulate fracking operations in non-conventional gas fields. The resolution’s enactment was mainly motivated by the fact that the 12th bidding round, which was held in 2013, encompassed potential non-conventional gas areas. Among other provisions, under Resolution 21/2014, operators must adopt an environmental management system and conduct technical studies to obtain approval for fracking operations. Accordingly, environmental licences are required before the ANP will authorise fracking. Despite the above, certain recent court decisions have temporarily forbidden such operations to take place.
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