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 create.

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 agreement.
  • 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 Industry Practice".

The draft concession agreement is available on the ANP website and the ANP is inviting comments from the public until 14 April 2011.