Originally published March 25, 2011

Keywords: ANP, draft concession contract, exploration of oil and natural gas, pre-salt reserves

On March 16, 2011, the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) has submitted to public comments and suggestions the draft of a new Concession Contract for Exploration and Production of Oil and Natural Gas (Draft Concession Contract) to be used in future bidding rounds for exploratory blocks in Brazil. The Draft Concession Contract is directed only to areas that are not located within the Brazilian pre-salt reserves, which are now subject to a specific production sharing regime.

The publication of the Draft Concession Contract is consistent with ANP's recent announcements that a bidding round was expected to occur in 2011, which will end the industry's long wait since Brazil Round 10 was held at the end of 2008. At that time, discussions in Congress concerning the pre-salt reserves prevented ANP from including offshore areas in Brazil Round 10, which was entirely comprised of less-attractive onshore blocks.

Three months after enactment of the new pre-salt legislation, the publication of the Draft Concession Contract indicates that ANP wants to resume the regularity of Brazilian bidding rounds, which used to occur every year since 1999. According to media recent announcements, Brazil Round 11 is likely to occur in the second quarter of 2011 and will be focused on new frontier offshore basins from the equatorial coast of Brazil, a promising area expected to share the same potential of the huge reserves discovered in the Gulf of Guinea, West Africa.

Although the Draft Concession Contract preserves the same structure, and most of the provisions, of previous concession contracts, it has introduced some significant revisions:

  • While previous concession contracts allowed the inclusion of multiple adjacent blocks, each concession contract now will comprise only one block in order to simplify the administration of areas under concession by ANP.
  • In addition to the execution of financial guarantees, noncompliance with the minimum exploratory program will result in termination of the concession contract. However, if the parcel of non-performed activities is equal or smaller than 10 percent of total amount, ANP may release the concessionaire after the payment of a fine of twice the value of such non-performed activities.
  • Concessionaires from blocks under unitization will be able to enter into a pre-unitization agreement for the conduction of joint exploration activities prior to the execution of a definitive unitization agreement. This concept is already adopted in many other countries, and it helps concessionaires to evaluate the extension and financial viability of reserves to be unitized, making the negotiation and execution of a final unitization agreement easier and faster.
  • The Draft Concession Contract preserves the requirement that, in case special participation is due in a certain field, 1 percent of gross revenues of such field is to be invested in research and development activities, but specifies that at least 50 percent of such resources shall be destined to projects previously approved by ANP in Brazilian accredited universities and institutes.

The Draft Concession Contract may be found in the ANP website (document in Portuguese) and the deadline for submission of comments or suggestions is April 14, 2011.

Observations in this update about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.

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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.