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The regimes of concession and production sharing

Published: Tuesday, 24 October 2017 14:32 | Last Updated: Tuesday, 14 August 2018 10:34 | Hits: 2263

The discovery of the pre-salt polygon, in 2007, made the government establish, in 2010, the regime of production sharing. Until then, all the areas were granted under the concession regime. Ever since, Brazil has a mixed regulatory regime.

 

How the concession regime works

In the concession regime, the concessionary company assumes the risk of investing and finding – or not – oil or natural gas. The company will have the property of the oil and gas discovery in the conceded area. Through this model of contract, the company pays the government takes, such as the signature bonus, payment for the occupation or retention of the area (in the case of onshore blocks), royalties and, in the case of fields the produces large volumes, a special participation. The contracts are signed by the ANP on behalf of the Federal Union.

In these bidding rounds, the interested companies offer, individually or in a consortium, an amount for the bonus signature and propose a minimum exploratory program (PEM), that is, the activities, such as the seismic and well drilling that the company commits itself to carry out in that area. The company or consortium that presents the most advantageous bid, according to the norms established in the tender protocol, receives the right to explore that area to verify the existence of oil and/or natural gas deposits


The Open Acreage Concession Offer for the Marginal Accumulations Oil Fields areas

Until May, 2017, ANP has promoted 4 bidding rounds of areas with Marginal Accumulations, that from April, 2018, on are included in the Open Acreage Concession Offer. The Open Acreage consists in the permanent offer of relinquished fields - or in the process of relinquishment) and the exploration blocks that had been offered in past bidding rounds and were not auctioned or devolved to ANP.

 

How the production sharing agreement works in Brazil

For the areas located in the pre-salt polygon and other considered strategic, the CNPE decides if bidding rounds will be held or if Petrobras will be directly hired, in order to preserve the national interest and achieve other energy policy objectives. In both cases, contracts are signed under the regime of production sharing.

If it decides to conduct the bidding round, CNPE first offers Petrobras the preference to be the operator of the blocks to be contracted. When Petrobras expresses the interest of acting as the operator, it must inform in which areas it wants to exercise this right, indicating its participation in the consortium, which cannot be less than 30%.

The blocks and the technical and economic parameters of the production sharing agreement are defined by CNPE and the bidding round promoted by the ANP. The Ministry of Mines and Energy (MME) is responsible for establishing the guidelines to be observed by the ANP for the promotion of the bidding round and for the drafting of bidding documents and contracts, later approved by the ministry.

In the bidding rounds under the regime of production sharing, the winning company is the one that offers the Brazilian State the largest share of oil and natural gas (that is, the largest portion of the exceeding oil).

The consortia that explore the pre-salt are composed by the Pré-sal Petróleo S.A. (PPSA) , representing the Federal Union, and the winning companies of the bid. The contracts are signed by the MME, on behalf of the Federal Union.

The 1st Production Sharing Bidding Round took place in 2013 and offered the Libra area, sold to the consortium formed by Petrobras, Shell, Total, CNPC and CNOOC. The percentage of exceeding oil for the Federal Union was 41.65%.

 

Check here the results of the bidding rounds.

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