Keywords: Energy, National Agency of Petroleum Natural Gas and Biofuels, ANP, royalties, Resolution No. 862, Concession Contracts and Production Sharing Agreements, Onerous Assignment Contracts,

The National Agency of Petroleum, Natural Gas and Biofuels ("ANP") adopted a new rule for royalties charged on oil and gas produced during well formation tests, pursuant to the ANP Board of Directors Resolution No. 862 dated August 13, 2014.

According to the resolution, for Concession Contracts and Production Sharing Agreements, the royalties will always be due on formation tests during the Production Phase. During the Exploration Phase, royalties will be due only in case of economic use of the production.

For Onerous Assignment Contracts (which are exclusive for Petrobras), the resolution clarifies that royalties have always been due on formation tests.

The formation test is an important instrument for analysis of the well after the drilling of a potentially productive area, which allows the evaluation of the extension and potential of the reservoir. For ANP, the need for the revision of rules resulted from an expected increase of production in the pre-salt areas, where the volumes produced during the formation tests are substantial.

The resolution also reiterates that the production from formation tests subject to payment of royalties shall be reported to ANP through monthly production reports, and that all measurement systems shall be implemented in accordance with the specific technical regulation.

The ANP Board of Directors' Resolution 862/2014 is available on the ANP website (document in Portuguese).

Originally published September 4, 2014

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