OVERVIEW OF BRAZILIAN OIL AND GAS LAW (ENGLISH VERSION)
| Jurisdiction | Derecho Internacional |
(2001)
OVERVIEW OF BRAZILIAN OIL AND GAS LAW (ENGLISH VERSION)
Pinheiro Neto, Advogados
Sço Paulo, Brazil
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1. INTRODUCTION
1.1 Since the creation of the state owned company, Petróleos Brasileiros S.A. (Petrobrás), in 1953 by Law 2004, the petroleum and petroleum-related activities were carried out exclusively by the Petrobrás to which the monopoly of such activities was delegated by the Federal Government.
1.2 It was only in 1995 when the 1988 Federal Constitution was amended so as to allow petroleum and petroleum related activities to be carried out also by private companies, by means of concession or authorization to be granted by the Federal Government. This was the end of the monopoly of Petrobrás, which would then have to compete with private companies.
1.3 Accordingly article 177 of the Brazilian Federal Constitution, as amended in 1995, listed the petroleum and petroleum-related activities subject to concession or authorization to be granted by the Federal Government: (i) prospecting and working deposits of petroleum, natural gas and hydrocarbons; (ii) oil refining; (iii) import/export of products or basic derivatives resulting from the activities of research and working of petroleum, natural gas and other hydrocarbons, as well as petroleum refining activities; and (iv) marine transport of crude oil or basic petroleum derivatives produced in Brazil, as well as pipeline transport of crude oil, petroleum derivatives and natural gas from any source whatsoever.
1.4 All the above referred activities can be undertaken by public or private companies, provided such companies are organized under Brazilian law and headquartered and administered in Brazil.
1.5 The rules and regulations for participation of private and public companies in petroleum and natural gas exploration and production were established under Law n° 9.478 of August 6, 1997, better known as the Petroleum Law. This law regulated concession contracts as well as the granting of authorization and created both the Brazilian Energy Policy Council (CNPE) and the Brazilian Petroleum Agency (ANP).
2. REGULATORY ENTITIES CNPE/ANP
2.1 The Petroleum Law created the CNPE for the drafting of broad national policies and the ANP, as the regulatory entity for the oil & gas industry, exercisign a direct impact in the players of such industry.1
2.2 The CNPE shall submit to the approval of the President, proposals of national policies related to the rational use of mineral resources, the supply of energy inputs in
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remote areas within Brazilian territory, the review of the Brazilian energetic matrix; the set up of specific programs for the improvement of use of natural gas and the set up of parameters and guidelines for the importation and exportation of oil & gas products.2
2.3 The Decree n° 3.520 dated June 21, 2000 set up the structure and functioning of the CNPE, as a counseling organ of the President of the Republic for the drafting of new energetic policies and guidelines.3
2.4 The ANP is the regulatory body of the petroleum industry and is affiliated to the Ministry of Mines and Energy. It was organized and regulated by Decree n° 2455 dated January 14, 1988 and its main purpose is to promote the regulation, contracting and inspection of the economic activities included in article 177 of the Brazilian Federal Constitution.
2.5 According to article 8 of the Petroleum Law, among other responsibilities, the ANP shall draft invitations to bid and conduct bidding processes for exploration, development and production concessions, executing the respective contracts and supervising its performance, as well as shall implement the petroleum and natural gas policy under the terms set forth by the CNPE.
3. EXPLORATION, DEVELOPMENT AND PRODUCTION OF OIL & GAS FIELDS
3.1 As provided for in the Brazilian Federal Constitution the exploration and production of deposits of petroleum, natural gas and other fluid hydrocarbons shall be undertaken by means of a concession agreement, which rules and regulations were set forth by the Petroleum Law.
3.2 The Petroleum Law set up as the general rule that concession agreements shall be preceded of a public bid process being the ANP responsible for the definition of the blocks where concession contracts shall be offered as well as for the drafting of the regulation and the invitation to offer.4
3.3 In fact, the ANP enacted the Legal Ordinance n° 174 dated October 10, 1999 approving the General Rules about the bidding proceeding for the concession of oil & gas fields which shall be divided into the following phases: (i) pre qualification; (ii) technical, economic and legal qualification; (iii) publishing of the invitation to offer; (iv) selection of the offer; (v) confirmation of the bidding procedure; (vi) execution of the concession agreement.
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3.4 The concession agreement is divided into two phases, the first one for exploration works which is referred to as the "Exploration Phase" and the second one for the development and production works which is referred to as the "Production Phase" provided a commercial discovery notice has been made by the concessionaire and consequently a Development and Production Plan of Work has been submitted to the ANP.
3.5 During the Exploration Phase, there is a Minimum Work Program to which the concessionaire is committed and which is included in the invitation to offer. Such phase is in average a three year period and it can be renewed for one or more equal period provided a new Minimum Work Program is submitted to and approved by the ANP and provided 50% of the area awarded is released at the beginning of the second period and in the event of a third renewal period additional 25% of the remaining area shall be released.
3.6 Upon the expiration of the Exploration Phase, 100% of the area awarded except for the portion linked to a commercial discovery notice must be released and returned to the ANP. There are specific rules regarding the delimitation of each one of the oil & gas reservoirs discovered and if provided in the concession agreement, the simple discovery of oil traces could imply in the extension of the Exploratory Period but only for the portion of land and time required for the evaluation of the commercial possibilities of the discovery.
3.7 The Production Phase is of average a 27 years period counted as from the date the concessionaire send a commercial discovery notice to the ANP for a specific oil & gas reservoir. Therefore there shall be independent production blocks with different dates of termination depending on the pertinent notice of commercial discovery linked to the specific production block. During this period a Development and Production Plan shall be submit to and approved by the ANP, and the concessionaire of the concession is obliged to comply with.
3.8 After the 15 of each month, the concessionaire is obliged for each production block to supply ANP with a bulletin giving the monthly production, specifying the volume of petroleum and/or natural gas produced in the previous month, the operating consumption, and the accrued production. In the same time frame, the concessionaire must inform ANP as to the quantities of petroleum and/or natural gas sold and the price paid.
4. RIGHTS, OBLIGATIONS AND LIABILITIES OF THE CONCESSIONAIRE
4.1 The main right of the concessionaire consist of a guarantee of title to the petroleum and/or natural gas produced and extracted from the block, provided it complies with any legal, taxes or royalties owed, as well as of the exclusivity granted for the development of exploration and development works in the area awarded.5
4.2 Additionally the concessionaire can carry out petroleum and natural gas exploration, development and production works on area in the public domain or owned by private parties, and is entitled to expropriation and establishment of easement to make any...
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