On September 24, 2018, Resolution No. 749/2018 ("Resolution") of the National Agency for Petroleum, Natural Gas and biofuels ("ANP") was published in the Official Gazette, regulating the procedure for the reduction of royalties up to 5% on incremental production of mature fields.

The Resolution establishes that only mature fields will be eligible to obtain the reduction of royalties on incremental production, upon request of the operator and proof of the economic benefit to federal entities. For the purposes of the Resolution, a mature field constitutes one with 25 years or more of production or that has accumulated production equal to or greater than 70% of the volume expected to be produced, considering the proven reserves.

Operators interested in receiving the incentive must submit a request to the ANP, accompanied by a revised version of the Development Plan, containing:

  • description of projects supporting the incremental production forecast;
  • detailed schedule of activities and investments;
  • detailed estimate of investments and operational costs;
  • estimate of recoverable volumes and projections of oil and natural gas production associated with projects;
  • detailed cash flow on activities and investments with regard to   the incremental production of oil and natural gas; and
  • evidence of economic benefit to federal entities in the application for the incentive, including extension of the field's life, incremental recovery factor, additional governmental participations.

The ANP will examine requests to obtain the incentive together with the revised Development Plan within 180 days, calculated from the date of the request.

Once the reduction and the respective Development Plan are approved, the concession contracts relating to the fields pending request will be changed by means of an amendment containing the production curve reference and the granted royalties rate.

The Resolution also provides for the different criteria for determining the rates of royalties reduction for mature fields of small and large production.  The reduction of royalties will be applied from the month following the completion of the first activity set out in the Development Plan, and upon the incremental production effectively carried out.

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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.