On 4 May 2017 and 27 April 2017 the Brazilian Energy Council (“CNPE”) issued Resolutions No. 2/2017 and 9/2017 respectively, authorizing the National Agency of Petroleum, Natural Gas and Biofuels (“ANP”) to hold the second and third Bidding Rounds for pre-salt areas. The bidding rounds are expected to be held in the second semester of 2017.

The local content requirements for the offered areas have also been determined by the CNPE by means of Resolution No. 7/2017, issued on 9 May 2017.

1. 2nd Production Sharing Bidding Round

The second pre-salt bid round will offer adjacent areas to the prospects of Carcará and Gato do Mato, in the Santos basin, and to the Sapinhoá and Tartaruga Verde fields, in the Santos and Campos basins, respectively. Each area has a specific signing bonus, as well as a minimum percentage of profit oil to be offered to the Brazilian Government:

  • Adjacent area to Carcará prospect (block BM-S-8): BRL 3 billion as signing bonus and 22.8% as minimum profit oil share;

  • Adjacent area to Gato do Mato prospect (block BM-S-54): BRL 100 million as signing bonus and 11.53% as minimum profit oil share;

  • Adjacent area to Sapinhoá field: BRL 200 million as signing bonus and 10.34% as minimum profit oil share; and

  • Adjacent area to Tartaruga Verde field: BRL 100 million as signing bonus and 12.98% as minimum profit oil share.

The parameters for establishing the profit oil share are (i) Brent oil price at US$ 50; and (ii) an average daily production of 11.000 barrels of oil per producing well.

During the production phase, the winning bidder(s) will be entitled to receive, monthly, as cost oil up to 50% of the gross production for the Carcará prospect and up to 80% of the gross production for the other areas. Costs that supersede such percentages will be carried forward and recovered in following years.

The minimum global local content requirement for the offered areas will be the same as established for the adjacent areas already contracted:

  • For the adjacent areas to Carcará and Sapinhoá: 35% for the exploration phase and 30% for the development and production phase;

  • For the adjacent area to Gato do Mato: 38% for the exploration phase and 60% for the development and production phase; and

  • For the adjacent area to Tartaruga Verde: 55% for the exploration phase and 65% for the development and production phase.

For the areas adjacent to Carcará and Sapinhoá, each of the items and sub-items of local content established for Carcará and Sapinhoá shall also be observed. This is in addition to the global local content requirement,

As a consequence of the prospective unitization of the non-contracted areas adjacent to existing prospects, the following information regarding existing prospects and fields can be material for those interested in the 2nd bidding round:

  • the Carcará prospect is located in block BM-S-8 (where Statoil has a 66% participating interest, Petrogal Brasil has a 14% participating interest, Queiroz Galvao Exploracao e Producao has a 10% participating interest and Barra Energia has the remaining 10% participating interest). Pursuant to the current appraisal plan, the deadline to conclude activities and decide on its commerciality is March 2018. Only by then further detailed information regarding the development plan will be obtained.

  • the Gato do Mato prospect is located in block BM-S-54 (where Shell has an 80% participating interest and operatorship, while Total holds a 20% participating interest). The appraisal plan submitted to the ANP for this area remains suspended while studies are being conducted by the Ministry of Mines and Energy (MME) with respect to the unitizable adjacent area.

  • Tartaruga Verde is an oil field located in block BM-C-36 (where Petrobras has a 100% interest). According to the development plan approved by ANP in July 2016, Tartaruga Verde will have 18 wells (12 producing and 6 injection wells) connected to the FPSO Campos dos Goytacazes, which has a capacity to process approximately 180,000 bpd. Between 2011 and 2016, Petrobras used the FPSO Cidade Rio das Ostras to conduct extended well tests and implement its anticipated production system.

  • Sapinhoá is an oil field located in block BM-S-9, which has been developed by a consortium consisting of Petrobras (who holds the operatorship with a 45% interest), BG (with a 30% interest) and Repsol-Sinopec (with a 25% interest). Petrobras has two FPSOs in the Sapinhoá field (FPSO Cidade de São Paulo and FPSO Cidade de Ilha Bela) with a processing capacity of approximately 120,000 bpd each.

 

2. 3rd Production Sharing Bidding Round

This bid will offer four pre-salt areas: Pau-Brasil, Peroba and Alto de Cabo Frio – Oeste, in the Santos basin and Alto de Cabo Frio – Central, in the Santos and Campos basins. Individual signing bonus and minimum percentages of profit oil to be offered to the Brazilian Government have also been established for each area:

  • Pau Brasil: BRL 1.5 billion as signing bonus and 14.4% as minimum profit oil share;

  • Peroba: BRL 2 billion as signing bonus and 13.89% as minimum profit oil share;

  • Alto de Cabo Frio – Oeste: BRL 350 million as signing bonus and 22.87% as minimum profit oil share; and

  • Alto de Cabo Frio – Central: BRL 500 million as signing bonus and 21.38% as minimum profit oil share.

The parameters for establishing the profit oil share are (i) Brent oil price at US$ 50; and (ii) an average daily production of 12.000 barrels of oil per producing well.

The monthly recovery of cost oil during the production phase will be of up to 50% of the gross production for each of the areas and acknowledged costs that supersede such percentage will be carried forward and recovered in following years.

The minimum global local content requirement for the offered areas will be:

  • 35% for the exploration phase;

  • 25% for the construction of wells;

  • 40% for the collection and disposal system; and

  • 25% for stationary production units.

3. Petrobras pre-emption rights to act as operator

To increase competitiveness on the upcoming bid rounds the Brazilian Government has revoked the mandatory operatorship of Petrobras in the pre-salt areas. Petrobras, however, will be entitled to a pre-emption right to act as operator (holding a participating interest of at least 30%) in pre-salt areas of its choice. The pre-emption right can be exercised by Petrobras within 30 days from the publication of the CNPE Resolutions No. 2/2017 and No. 9/2017 and, if exercised, the CNPE will recommend blocks in which Petrobras shall act as operator and the participating interest it will hold, respecting the minimum percentage of 30%.

If Petrobras elects not to exercise its pre-emption rights, the blocks will follow on for bid, in which Petrobras may still participate on equal terms with other bidders.

It is important to note that should Petrobras exercise its pre-emption right, it will have the option, upon completion of the bid assessment for the respective area, to withdraw from the winning consortium if the percentage of profit oil offered to the Brazilian Government is higher than the minimum provided in the invitation for bid. This decision must be taken during the bid round and, in case of Petrobras’ withdrawal, the winning bidder shall specify the new operator and the respective participating interest of each consortium member. If, on the other hand, the profit oil offered to the Brazilian Government is equal to the minimum established in the invitation for bid, Petrobras shall not have the right to withdraw from the winning consortium.