Oil and Gas 2017

Last verified on Friday 9th June 2017

Brazil

David L Meiler and Barbara Bittencourt
Campos Mello Advogados (in Cooperation with DLA Piper)
  1. 1.

    What is the legislation applicable to oil and gas activities in your country? Is it federal or state legislation, or both?

  2. Both federal and state legislation regulate oil and gas activities in Brazil.

    The 1988 Brazilian Federal Constitution grants to the Federal Union ownership over mineral resources within the Brazilian territory, which are deemed an independent asset from the soil where they are located.

    During the nineties, certain constitutional amendments were introduced in order to create the basis for an open market policy and minimum state intervention in Brazilian economy. In such scenario, constitutional amendment EC No. 09/1995, which modified article 177 of the Federal Constitution, authorised the Federal Union to hire state-owned companies or private companies to perform activities related to oil and gas exploration and production. Up until then, only Petroleo Brasileiro SA – Petrobras (Petrobras), the Brazilian national oil company, had been entitled to conduct those activities.

    Such EC No. 09/1995 was followed by the enactment of Law No. 9.478/1997, also known as the Petroleum Law, which changed the entire legal regime of the oil and gas sector in Brazil.

    The Petroleum Law introduced the concession regime for the exploration and production of oil and gas in the country. Per such new approach, the government authorised different economic agents to explore and produce oil and gas under particular concession agreements, upon bid proceedings conducted by the National Agency of Petroleum, Natural Gas and Biofuels (ANP).

    Later on, the discovery in 2007 of large oil and gas reserves concentrated in the pre-salt layers encouraged the Brazilian government to enact Law No. 12.351/2010 (the Pre-Salt Law), which created a new regime for the pre-salt and strategic areas, by imposing the Production Sharing Agreement (PSA) in lieu of the concession agreement that is still applicable to other areas.

    When it comes to activities related to natural gas, Law No. 11.909/2009 (the Gas Law) regulates the transportation, treatment, processing, storage, liquefaction, regasification and commercialisation of natural gas, as well as the import and export thereof.

    As to the supply of piped gas, the Brazilian Federal Constitution authorises the states to exploit either directly or through concessions the services related thereto. Therefore, such activity is regulated by the states and their respective agencies.

  3. 2.

    Are oil and gas activities carried out by the state or a state-owned agency or national oil company?

  4. Until 1995 Petrobras, the Brazilian national oil company, used to have the operational monopoly over the activities of oil and gas exploration and production. Upon the enactment of constitutional amendment EC No. 09/1995, such monopoly was broken, so as to allow the Federal Union to hire state-owned or private companies for the performance of those activities. Accordingly, from thereon, Petrobras carries out the activities related to the oil and gas industry in free competition with private companies.

    It is important to note, however, that Law No. 13,365/2016 currently provides that Petrobras will have the preference to be the operator in the pre-salt and strategic areas, holding a minimum 30 per cent stake in any consortium formed with oil companies that win the public bid proceedings for such areas, upon the execution of a Production Sharing Agreement, with the ANP. The above-mentioned preference was regulated by Decree No. 9,041/2017, which provides the rules thereunder, being those:

    (i) Petrobras shall decide whether to participate as the operator of the offered areas, within 30 days counted from the publication of a resolution from the National Energy Policy Council (CNPE), establishing the technical and economic parameters of the blocks offered under the production sharing regime;

    (ii)  The aforementioned decision shall include the blocks and the participation percentage intended by Petrobras, which cannot be lower than 30 per cent;

    (iii) The CNPE will then propose to the Brazilian President which blocks shall be operated by Petrobras, indicating its participation in the consortium to be formed, which may range between 30 per cent and the percentage indicated by the latter. 

    Decree No. 9,041/2017 also provides that in case Petrobras exercises its preferential rights, after the conclusion of the bidding round’s judgment phase, it must join the winning consortium, as the operator, if said winning consortium offered to the Brazilian Union the minimum percentage of profit oil previously specified in the tender rules. On the other hand, Petrobras will just have the option to join the winning consortium, in case such winning consortium offers to the Brazilian Union a percentage of profit oil superior to the one previously specified in the tender rules. In the last case, the winning consortium must indicate to ANP’s approval the operator and the percentages of participation of each of its parties.

    It shall be highlighted that, if Petrobras opts not to exercise its preferential rights, it may than participate in the bid round, but in equal conditions with the other participants, having the option to do it as a party of a consortium or independently. 

    Finally, a stated-owned company, Empresa Brasileira de Administracao de Petroleo e Gas Natural SA – Pre-Sal Petroleo SA – PPSA (PPSA), was created with the task of managing the PSAs.

  5. 3.

    Is oil and gas a regulated business that can only be carried out by companies that are licensed or that receive government concessions to operate?

  6. Yes. See questions 2 and 6.

  7. 4.

    Identify the regulatory agencies charged with regulating oil and gas activities in your country and describe the role each agency plays in regulating such activities. 

  8. The regulatory agencies charged with regulating oil and gas activities in Brazil are the following:

    Ministry of Mines and Energy (MME)

    The MME is the federal government body in charge of formulating public policies for the oil and gas industry, as well as for other sectors such as electric power, nuclear power, metallurgy, etc.

    National Council for Energy Policy (CNPE)

    The CNPE was created by the Petroleum Law and it is headed by the minister of the MME. The main duties of the CNPE are:

    • to propose national policies and measures aiming to promote the rational use of energy resources;
    • to guarantee the energy supply in remote areas or areas of difficult access;
    • to periodically review the energy matrix that is applied to different regions of the country;
    • to establish guidelines for the import and export of oil and its by-products;
    • to define the areas to be offered in ANP’s bid proceedings for exploration and production of oil and natural gas; and
    • to define strategies and policies for the economic and technologic development of the oil, natural gas, other hydrocarbons and biofuels industry. 

    National Agency of Petroleum, Natural Gas and Biofuels (ANP)

    The ANP was created in 1997 by the Petroleum Law with the purpose of being the government agency in charge of regulating, contracting and supervising the economic activities related to the oil, natural gas and biofuels industry. Its main duties encompass the following:

    • to implement national policies related to oil, natural gas and biofuels;
    • to promote studies for the delimitation of the areas to be offered in bid proceedings;
    • to promote bid proceedings for the exploration, development and production of oil and natural gas, executing the relevant concession agreement or PSA;
    • to authorise the activities of refining, liquefaction, regasification, shipping, processing, treatment, transportation, storage and packaging of natural gas;
    • to regulate and authorise activities related to fuel supply; and
    • to inspect the activities related to the oil, natural gas and biofuels industry, imposing administrative sanctions and fines when necessary.
  9. 5.

    Are all hydrocarbons in your country deemed to be originally owned by the state? If so, when does ownership transfer to the extractor or buyer of the hydrocarbons?

  10. Yes. The Federal Constitution grants to the Federal Union title to mineral resources located in the Brazilian territory, which are deemed a distinct property from the land itself. The Federal Union, in turn, may allow companies to explore and produce such mineral resources, upon compensation.

    Accordingly, any company organised under Brazilian law, with headquarters and management in Brazil, may obtain an authorisation or concession for the exploration and production of mineral resources, subject to certain technical, financial and legal conditions.

    When it comes to oil and gas that are produced under a concession agreement, the ownership thereof is transferred to the concessionaire in the measurement point.

    In the production sharing regime, the ownership is transferred at the share point, where the oil and gas so produced are shared between the Federal Union and the contractors, according to the provisions of the relevant PSA. 

  11. 6.

    How are oil and gas exploration and production rights or concessions granted? Is there more than one method for granting such rights (ie, concession and joint exploration agreements) or co-existing regimes applicable to different exploration or production areas?

  12. The Brazilian legal framework provides two different regimes for the exploration and production of oil and natural gas, namely the concession regime and the production sharing regime.

    The concession regime

    The concession regime, which was established by the Petroleum Law, has been successfully used in Brazil since the opening of the oil and gas market to private companies.

    Under the Concession Agreement that is entered into by and between ANP and the companies that win the bid proceedings, the exploration and production activities are carried out at the sole risk of the oil companies, who will have ownership over the oil and gas so produced.

    The production sharing regime

    The production sharing regime was established by the Pre-Salt Law and it is currently applicable to pre-salt areas and strategic areas.

    According to the Pre-Salt Law, Petrobras, the Brazilian national oil company, may hoose to be the operator and it hold a minimum stake of 30 per cent in any consortium formed with oil companies that win the public bid , according to the proceeding outlined in question 2.

    Under the production sharing regime, oil companies shall bear all the risks of the activity, even though the production is the property of the federal government. In case of a commercial discovery, oil companies will then recover the costs and investments made (cost oil) and they will be entitled to a certain percentage of the remainder of the production (profit oil), according to the provisions of the Production Sharing Agreement (PSA).

    The parties to the PSA shall be the Federal Union, represented by the MME; ANP, as the regulatory and supervising agency; PPSA, the state-owned company that was created to manage the PSAs; and Petrobras and other possible oil companies.

    Although the execution of the PSA is usually preceded by a bid proceeding, Petrobras may also be directly hired, whenever such measure is deemed relevant for preserving national interests and the attainment of the energy policy’s goals. 

  13. 7.

    Is there a public bidding or similar process for oil and gas exploration and production licences? If so, is it open to foreign companies and investors?

  14. Yes. As mentioned under question 6, both the concession regime and the production sharing regime for oil and gas exploration and production shall be preceded by a public bid proceeding, which is open to Brazilian and foreign companies. In case a foreign company wins the bid proceeding, it shall set up a company organised under Brazilian law, with headquarters and management in Brazil.

    In certain exceptional circumstances, however, the CNPE may propose that Petrobras be directly contracted for the exploration and production of oil and natural gas under the production sharing regime, in order to secure the national interest and the fulfillment of the country’s energy policy.

    Moreover, when it comes to pre-salt areas or strategic areas, the Pre-salt Law provides that Petrobras shall be able to choose to be the operator and hold a minimum stake of 30 per cent in any consortium that might be formed with other oil companies for the public bid, according to the proceeding outlined in question 2. 

  15. 8.

    Are there any minimum local content requirements related to international bidding processes?

  16. Yes. Local content rules were introduced by ANP in the first bidding round for exploration and production of oil and gas, which was held in 1999 (Round 1). By that time, local content was used as a criteria for assessment of bid offers.

    Until Round 4, which was held in 2002, the bidders were free to estipulate any local content percentage in their offers. However, in Rounds 5 and 6, which were held, respectively, in 2003 and 2004, ANP established minimum percentages, which would vary according to the location of the blocks (for instance, whether onshore or offshore, in shallow or deep water, etc).

    As for Round 7, which was held in 2005, ANP established not only a minimum percentage, but also a maximum global local content percentage. Additionally, the Concession Agreements contained provisions establishing local content requirements concerning a set of items used in the exploration and production phases. Such rules were maintained in the last bidding rounds.

    In the first bidding round under the production sharing regime, which was held in 2013 and was related to the Libra pre-salt field, the bid invitation only provided for minimum local content percentages, but established a similar set of items to the one that is foreseen in the Concession Agreements.

    Recently, in February 2017, the Brazilian government announced changes in local content rules for oil and gas activities that shall apply during the next bidding rounds, aiming to encourage investments, create jobs and generate income to the country. In regard to offshore areas, it was established four local content “macro-groups”, while in previous auctions there were up to 70 items and sub-items. 

    Accordingly, as announced by the Brazilian government, CNPE’s Resolution No. 07/2017, provides the rules to be applied by ANP in the next bidding rounds scheduled to occur on late 2017, as well as to areas subject to unitisation, being the local content requirements drastically reduced when compared to the ones applied to the last bids, being defined as follows:

    (i) Onshore areas:

      • - Exploration phase: 50 per cent;
      • - Development and production phase: 50 per cent

    (ii) Offshore areas:

      • - Exploration phase: 18 per cent;
      • - Development and construction phase: 25 per cent or reservoir construction, 40 per cent for submarine equipment, and 25 per cent for the vessel/platform to be used. 
  17. 9.

    Are there any restrictions on foreign participation in such rights or concessions or in companies holding any such rights?

  18. See question 7.

  19. 10.

    Are there any restrictions on the participation in such rights or concessions by state-owned entities or local national oil companies?

  20. No restrictions apply to state-owned entities and local oil companies in relation to their participation in rights or concessions for oil and gas exploration and production, as long as they comply with certain requirements.

    In spite of the above, as outlined in questions 2 and 7, the Pre-Salt Law granted Petrobras certain preference privileges in relation to the pre-salt areas and strategic areas. 

  21. 11.

    Are companies or consortia that are awarded exploration and production rights given priority to operate and exploit the corresponding oil and gas fields? If so, how is such priority structured and documented?

  22. Yes. Both the Concession Agreement and the Production Sharing Agreement contain provisions ensuring that the company or consortium that is awarded with the exploration and production rights will be entitled to operate and exploit the relevant oil and gas fields. 

  23. 12.

    What rights does the holder of an exploration and production licence or concession have to the hydrocarbons discovered during exploration and subsequently produced? 

  24. See question 5. 

  25. 13.

    May a holder of an exploration and production licence or concession transfer such right?

  26. Yes. The assignment of rights and obligations under the Concession Agreement may be authorised by ANP, as long as the assignee fulfils the technical, financial and legal requirements that were set forth in the relevant invitation to bid. The same rule applies to the PSA, but in such case the approval shall be granted by the MME, even though the ANP is also consulted.

    In view of the Agreement for Technical Cooperation that ANP entered into with the Administrative Council for Economic Defence (CADE), any company interested in the assignment of the Concession Agreement or the PSA shall present (i) a technical opinion, issued by CADE, approving the asset acquisition, or (ii) a statement that such transaction is not encompassed in any of the hypothesis of article 88 of the Federal Law No. 12.529/2011, which regulates the Brazilian System for Competition Defence.

  27. 14.

    Who has title to assets imported to develop and produce hydrocarbons, including any technology or expertise provided by foreign participants in the local oil and gas sector? 

  28. Imports in Brazil are usually subject to heavy taxes, such as: (i) import tax (II); (ii) excise tax (IPI); (iii) social contributions on imports (PIS/COFINS Importacao); and (iv) the state value added tax (ICMS).

    In light of this, the special customs regime of export and import of goods intended for the exploration and production of oil and natural gas (REPETRO) represents an important tax benefit. Said regime, which is currently regulated by Normative Instruction No. 1415/2013 (IN 1415/2013), issued by the Brazilian Federal Revenue Agency, allows the entrance of foreign goods in Brazil, for a limited period of time, with total suspension of the federal taxes that would levy on a regular import operation.

    Such IN 1415/2013 provides a list of goods that might be submitted to the REPETRO, which encompasses items like drilling and production platforms, supply vessels, tools and pieces of equipment which customs value is higher than US$25,000, etc. It is important to note that certain spare parts or accessory items of those goods may also be subject to the REPETRO, as long as they are intended to guarantee the operational capacity thereof.

    One of the conditions for a Brazilian company to apply for such a special customs regime is that the ownership of the imported good shall remain with the foreign entity, which means that there shall be no transfer of property upon the entrance of said good in Brazil.

    Those goods that do not qualify for REPETRO may still be subject to a “generic” temporary admission regime, regulated by Normative Instruction No. 1600/2015, which requires payment of 1 per cent of the applicable federal taxes that would levy on a regular import, per each month of permanence of the relevant good in Brazil.

  29. 15.

    How are federal, state and local governments recompensed for granting companies rights or concessions to conduct oil and gas exploration and production?

  30. The government takes come mainly from taxation and the payments that the operator of an oil and gas field is obliged to make, normally consisting of (i) signature bonus, (ii) royalties, (iii) special participation, and (iv) annual surface rentals.

    The signature bonus is paid on the day the contract is signed and it corresponds to the amount offered in the bidding proposal, considering the minimum amounts established in the bid invitation. The royalties are paid on a monthly basis and may vary from 5 per cent to 10 per cent of the oil and gas production, depending on aspects such as the geological risks and production expectations. The special participation shall be paid in case of large volumes of production, respecting the conditions established in the relevant contract and in the bid invitation. Finally, companies shall pay for the area occupancy or retention on an annual basis, the amount of which is established in the bid invitation and in the corresponding agreement.

  31. 16.

    May companies or consortia that hold oil and gas exploration and production rights compulsorily acquire property or rights of way to carry out exploration or production activities? Are these compulsory acquisitions governed by special judicial or administrative proceedings?

  32. Pursuant to the Petroleum Law and the Gas Law, ANP is in charge of analysing the possibility to have certain locations declared as public utility, so as to allow the expropriation or the administrative easement thereof, whenever such areas are necessary for the exploration, development and production of oil and natural gas, as well as for the construction of refineries, pipelines and terminals.

    ANP Resolution No. 44/2011 sets forth the administrative proceedings and conditions that the interested party shall observe in order to request such expropriation or easement of areas. 

  33. 17.

    Are natural gas exploration and production activities regulated separately or subject to the same regulation applicable to oil exploration and production? Are there different royalties or other government charges payable by companies that conduct natural gas exploration and production activities?

  34. The exploration and production of oil and natural gas in Brazil are subject to the same regulations, which are the Petroleum Law and the Pre-Salt Law. Accordingly, there are no different royalties nor other government charges applicable to companies that carry out natural gas exploration and production activities.

  35. 18.

    Do foreign ownership restrictions apply to the oil and gas sector in your country?

  36. No. As mentioned under question 7, any company organised under Brazilian law, with headquarters and management in Brazil, may obtain an authorisation or concession for exploration and production of oil and natural gas, subject to compliance with certain prerequisites.

  37. 19.

    Are there any minimum domestic participation rules or any labour law rules relating to domestic and foreign workers?

  38. Yes. The Brazilian Labour Code provides, as a general rule, that a company may employ foreign workers as long as (i) Brazilian employees correspond to at least two-thirds of the total workforce of said company; and (ii) the compensation paid to Brazilian employees is equivalent to at least two-thirds of its payroll.

    Brazilian immigration authorities usually grant temporary visas based on an employment relationship between the company and the foreign worker. Such temporary visa may be valid for up to two years and it may be renewed for the same period of time.

    Notwithstanding that, in certain circumstances, a temporary visa may be granted to a foreign worker that is not bound by a labor contract with a Brazilian company. This is the case, for instance, of expatriates who come to Brazil to work via technology transfer, for technical assistance or in emergency situations.

    With specific regard to maritime workers, it is worth mentioning Normative Resolution No. 72/2006 (RN 72/2006), issued by the National Council for Immigration, which regulates the granting of a temporary visa to foreign crew members working aboard foreign vessels or platforms that are operating in Brazilian territorial waters, with no employment relationship with a Brazilian company.  

    Such RN 72/2006 allows the relaxation, for a certain period of time, of that minimum two-thirds proportion of Brazilian employees, depending on whether it is related to (i) supply vessels; (ii) vessels and platforms that are directly or indirectly applied in the exploration and production of mineral resources; or (iii) vessels used in coastal navigation.

    Just as an example, the crew of a foreign drilling unit may be formed by 100 per cent of foreign workers in the first 180 days of operation in Brazil. Between the 181st day and the 360th day, such crew shall have at least one-fifth of Brazilian manpower. From the 360th day until the 720th day, such proportion of Brazilian workers shall be increased to one-third. As of the 721st day, the Brazilian company shall comply with the regular rule of two-thirds of Brazilian employees.

    Finally, permanent visas are usually granted to foreign workers that will occupy positions of directors, officers and managers of Brazilian companies. In order to grant such type of visa, Brazilian government requires a minimum investment in Brazil of 600,000 reais per permanent visa application. Such investment may be reduced to 150,000 reais if the Brazilian company commits to create at least 10 direct job positions within a two-year period.

  39. 20.

    Are there any limitations on vertical integration in the oil and gas industry in your country?

  40. Yes. Although vertical integration in the Brazilian oil and gas industry usually does not suffer restrictions, there are some limitations to such a general rule.

    This is the case, for instance, of fuel distribution and retail. Pursuant to Resolution ANP 41/2013, the distributor of liquid fuels is forbidden to act as a retailer or to have equity interest in a retailing company.

    Another exception is related to the activity of natural gas shipping, which is regulated by ANP Resolution No. 51/2013. According to such Resolution, a company or consortium that has authorisation or concession for natural gas transportation shall not perform activities of natural gas shipping. Additionally, natural gas shipping shall not be executed through transportation pipelines whose concessionaire is a parent company or an affiliate of the shipping company.

    In addition to the above, it is worth noting that the players of the oil and gas industry are subject to the rules of the Brazilian competition legislation. In this sense, Law No. 12.529/2011 provides an objective list of transactions that require CADE’s approval, which are: typical merger and acquisition transactions (acquisition of companies or part of companies, shares – even acquisition of minority shares is reportable – stock and assets); and associative agreements, consortia and joint ventures, except those formed for the purposes of participation in public bids. However, in view of the Agreement for Technical Cooperation between ANP and CADE, such exception may not apply to ANP bidding rounds.

    The aforementioned Law No. 12.529/2011 establishes a pre-merger notification rule, which requires the parties to obtain prior approval from the Brazilian antitrust authorities to close a transaction. Thus, transactions cannot be implemented without clearance from the Brazilian authorities. As per said regulations, the parties will have to keep the physical structure and the competitive conditions in the markets unchanged until such final approval is granted, and any transfer of assets or any influence of one party over the other, as well as any exchange of competitive relevant information is prohibited, unless strictly necessary for the execution of the agreements related to the transaction. Non-compliance with such rules may give rise to the application of high pecuniary fines.

  41. 21.

    Are oil and gas activities carried out through incorporated entities with limited liability or by consortia or other types of unincorporated joint ventures? Are joint venture partners jointly and severally liable for the obligations undertaken in connection with such activities?

  42. Pursuant to the Petroleum Law, companies may carry out oil and gas exploration and production activities either individually or through a consortium with other companies. Under a consortium agreement, a leader company shall be appointed to be responsible for the operations, being the other members joint and severally liable for the obligations undertaken under the relevant agreement.

    Each of the consortium members shall submit to ANP documentary evidence of its economic and technical capacity, as well as the registered version of the instrument that sets up the consortium.

    In addition, the parties under a consortium normally enter into a joint operating agreement (JOA), which regulates their commercial relationship, allocating control, risk and reward among them. As a private instrument, the JOA is not subject to ANP’s analysis and approval.

    The Pre-Salt Law provides that any consortium that aims to explore and produces oil and natural gas under the production sharing regime shall be formed by the bidding winners, Petrobras (mandatorily if it exercises its preference rights) and PPSA.  

  43. 22.

    May oil and gas reserves be pledged or encumbered to secure the repayment of debt? How?

  44. Yes. Both the Concession Agreement and the PSA contain provisions authorising the pledge of oil and gas production. Such pledge shall be preceded by ANP’s authorisation, as well as be formalised in accordance with a model document set forth in the Concession Agreement or in the PSA, as the case may be.

  45. 23.

    Can oil and gas rights that are subject to a lien be sold or transferred freely by the secured creditor? What issues, if any, do secured creditors face in enforcing liens on oil and gas rights?

  46. The sale and transfer of oil and natural gas rights by the secured creditor are allowed, but subject to previous authorisation from ANP, as outlined in question 13.  

  47. 24.

    Is oil and gas output freely exportable in your country? Are there any limits or quotas applicable to oil and gas production? Is there access to export pipelines? What licences are required for oil and gas exports? Are duties or tariffs applicable?

  48. In Brazil, oil and gas output is freely exportable, being such production subject to no limits or quotas.

    Both the Petroleum Law and the Gas Law provide that any company or consortium of companies incorporated under Brazilian law, with headquarters and management in the country, is eligible to receive authorisation to import and export oil and natural gas. Accordingly, ANP Rule No. 07/1999 sets forth the requirements for such authorisation to be granted, including the documents and pieces of information that the exporter shall submit. 

  49. 25.

    Are prices for oil and gas set or fixed by the government?

  50. No. Prices for oil and gas are not fixed by the Brazilian government. Instead, it is freely negotiated and stipulated by the parties, based on market practice/prices.

    Nonetheless, ANP may establish a minimum price for purposes of calculation of government takes and of the cost oil in the production sharing regime.

  51. 26.

    Are oil and gas exports taxed under the general income tax regime or is there specific hydrocarbons tax legislation?

  52. There is no specific legislation ruling income tax applicable to oil and gas exports, being such operation governed by the general income tax regime.

  53. 27.

    Do special environmental rules apply to oil and gas exploration and production?

  54. Yes. The relevance of environmental protection is highlighted not only in the Brazilian Federal Constitution, but also in several pieces of federal, state and municipal legislation. Besides the general rules, there are specific provisions that address the activities of oil and gas exploration and production.

    For instance, the Federal Constitution provides that those that exploit mineral resources shall be obliged to recover the environment from any degradation, as required by the relevant governmental body.

    Also, Federal Law No. 9.966/2000 deals with the preservation, control and supervision of pollution caused by oil and other harmful or dangerous substances in Brazilian territorial waters.

    Furthermore, ANP issued several administrative rules dealing with environmental aspects of the oil and gas industry, which cover matters like contamination caused by accident in operations, recovery of damaged areas, final destination of solid wastes, recycling of lubricant oil, etc.

    When it comes to environmental licences, the National Council for Environment (CONAMA) issued Resolution No. 23/1994, which sets forth specific rules for the activities of exploration and production of oil and natural gas. 

  55. 28.

    Are environmental regulations in your country consistent with any international standards?

  56. Yes. Such consistency with international standards is evidenced not only in the licensing requirement, but also in the environmental provisions that are foreseen both in the invitation to bid and in the Concession Agreement or PSA.  

    Such requirements exist since the first bidding round, in 1999, and are constantly updated in accordance with new legislation and with the observation of the industry’s best practices.

    For instance, as of Round 8, which was held in 2006, objective criteria have been adopted to score points for the technical qualification of the bidding participants. In Round 9, the environmental criteria included previous experience in dealing with social and environmental issues according to the operation area (ie, onshore, shallow water or deep water, etc), certification of an Integrated Management System for Health, Safety and Environment (HSE) and evidences that the bidder imposes specific HSE requirements when contracting suppliers.

  57. 29.

    Must companies that participate in the oil and gas industry obtain special environmental or other government permits (other than licences or concessions to carry out oil and gas exploration and production) to operate in your country?

  58. Yes. As per Resolution No. 23/1994 of CONAMA, four environmental licences apply to the activities of oil and natural gas exploration and production, namely: Previous Licence for Drilling, Previous Licence for Research Production, Installation Licence and Operation Licence.

    In addition to the above, Resolution CONAMA No. 350/2004 sets forth the rules for the obtainment of a specific licence for the activity of acquisition of seismic data in maritime waters and in transition zones, called a Licence for Seismic Research.

  59. 30.

    Does the government (including any development banks or agency) provide financing, subsidy or other support to companies undertaking oil and gas exploration or production?

  60. Yes. The three largest Brazilian federal banks, namely, the Brazilian Development Bank (BNDES), Banco do Brasil and Caixa Economica Federal, provide financing to companies engaged in activities related to oil and gas exploration and production.

    Also, it is worth mentioning the National Programme for the Mobilization of the Oil and Gas Sector (PROMINP), coordinated by the MME, which has the scope to support and stimulate the participation of local companies in the oil and gas industry.

    Finally, there are certain oil and gas institutes and associations such as the Brazilian Institute of Petroleum, Gas and Biofuels (IBP) and the Brazilian Association of Oil Services Companies (ABESPETRO) that promote relevant debates and trainings for the industry’s players.

  61. 31.

    Are there any tax stability or similar regimes available to foreign investors undertaking investment in the oil and gas industry in your country?

  62. There is no tax stability or similar regimes available in Brazil to foreign investors with regard to the oil and gas industry.

  63. 32.

    Are oil and gas activities generally protected under bilateral investment treaties entered into by your country?

  64. Currently, the oil and gas activities in Brazil are not protected or affected by bilateral investment treaties or conventions.

  65. 33.

    Are there any dispute resolution systems specific to the oil and gas industry? Does state immunity apply in such disputes?

  66. No, there is no specific dispute resolution system for the oil and gas industry.

    The Petroleum Law establishes that one of the essential clauses of a Concession Agreement shall the election of conciliation and arbitration as dispute resolution methods. Accordingly, the Concession Agreement provides that any dispute or controversy that is not amicably solved by conciliation shall be submitted to arbitration ad hoc, which will apply the Regulation of Arbitration of the United Nations Commission on International Trade Law – UNCITRAL.

    The Pre-Salt Law, however, provides that the PSA may set forth the use of conciliation and arbitration as dispute resolution method. It is noteworthy that the PSA related to the 1st bidding round of the pre-salt areas, which was held in 2013, contains an arbitration clause similar to that one of the Concession Agreement.  

  67. 34.

    Do anti-corruption rules apply to the oil and gas industry?

  68. Yes, anti-corruption rules apply to the oil and gas industry in Brazil. Currently, the Brazilian anti-corruption pieces of legislation are the following:

    • Decree No. 8.420/ 2015 (which regulates the Brazilian Anti-Corruption Law); 
    • Law No. 12.846/2013 (the Brazilian Anti-Corruption Law);
    • Law No. 8.429/1992 (the Brazilian Misconduct Law);
    • Law No. 8.666/1993 (the Brazilian Procurement Law);
    • Law No. 12.579/2012 (the Brazilian Antitrust Law);
    • Federal Decree No. 1.171/1994 (the “Code of Professional Ethics For Public Officials of The Federal Government); and
    • Federal Decree No. 4.081/2002 (the Code of Ethical  Conduct  for  Government  Officials  in  the  Presidency  and  Vice Presidency).
  69. 35.

    Has your jurisdiction adopted any legislation or regulations governing the exploitation of shale gas (fracking)? Are any special licences or environmental permits required for such activities?

  70. Yes. After several discussions with the industry, ANP issued Resolution No. 21/2014 on 10 April 2014, aiming to regulate the operations of hydraulic fracking in non-conventional gas fields. The enactment of such Resolution was mainly motivated by the fact that the 12th bidding round, which was held in 2013, encompassed potential areas of non-conventional gas.

    Among other provisions, Resolution No. 21/2014 imposes the obligation for operators to adopt an environmental management system and to perform previous technical studies, in order to obtain approval for the operations. Accordingly, the environmental licences are required prior to ANP’s authorisation for the hydraulic fracking activities.

  71. 36.

    Has your jurisdiction adopted any legislation or regulations governing ultra-deep-water exploration or drilling activities? Are any special licences or environmental permits required for such activities?

  72. Brazilian legislation and regulations do not provide specific rules for exploration or drilling activities in ultra-deep-water. That is to say, oil and gas activities in such areas are subject to the same rules that are applicable to other areas.

  73. 37.

    Have there been any recent material amendments to the laws, rules or regulations governing hydrocarbon exploration and exploitation? Have any new laws, rules or regulations governing hydrocarbons exploration and exploitation been passed in your jurisdiction?

  74. The most relevant piece of legislation for the Brazilian oil and gas industry enacted recently is Law No. 13,365/2016, which modified Pre Salt Law and changed the current criteria for investments and operations in the Brazilian pre-salt areas.

    As detailed under question 2, Petrobras’ mandatory participation as the exclusive operator in all pre-salt areas has been revoked. Further, said company is no longer required to hold a mandatory stake of 30 per cent in any consortium to be formed with oil companies for the exploration and production of oil and gas in the pre-salt areas. Thus, Petrobras shall be granted a right of “first refusal” in regard to such obligations. In view of the aforementioned alterations and considering the high potential of the areas to be offered during the next pre-salt bidding rounds, it is expected a massive participation of international oil companies, either in a consortium operated by Petrobras or independently.

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Questions

  1. 1.

    What is the legislation applicable to oil and gas activities in your country? Is it federal or state legislation, or both?


  2. 2.

    Are oil and gas activities carried out by the state or a state-owned agency or national oil company?


  3. 3.

    Is oil and gas a regulated business that can only be carried out by companies that are licensed or that receive government concessions to operate?


  4. 4.

    Identify the regulatory agencies charged with regulating oil and gas activities in your country and describe the role each agency plays in regulating such activities. 


  5. 5.

    Are all hydrocarbons in your country deemed to be originally owned by the state? If so, when does ownership transfer to the extractor or buyer of the hydrocarbons?


  6. 6.

    How are oil and gas exploration and production rights or concessions granted? Is there more than one method for granting such rights (ie, concession and joint exploration agreements) or co-existing regimes applicable to different exploration or production areas?


  7. 7.

    Is there a public bidding or similar process for oil and gas exploration and production licences? If so, is it open to foreign companies and investors?


  8. 8.

    Are there any minimum local content requirements related to international bidding processes?


  9. 9.

    Are there any restrictions on foreign participation in such rights or concessions or in companies holding any such rights?


  10. 10.

    Are there any restrictions on the participation in such rights or concessions by state-owned entities or local national oil companies?


  11. 11.

    Are companies or consortia that are awarded exploration and production rights given priority to operate and exploit the corresponding oil and gas fields? If so, how is such priority structured and documented?


  12. 12.

    What rights does the holder of an exploration and production licence or concession have to the hydrocarbons discovered during exploration and subsequently produced? 


  13. 13.

    May a holder of an exploration and production licence or concession transfer such right?


  14. 14.

    Who has title to assets imported to develop and produce hydrocarbons, including any technology or expertise provided by foreign participants in the local oil and gas sector? 


  15. 15.

    How are federal, state and local governments recompensed for granting companies rights or concessions to conduct oil and gas exploration and production?


  16. 16.

    May companies or consortia that hold oil and gas exploration and production rights compulsorily acquire property or rights of way to carry out exploration or production activities? Are these compulsory acquisitions governed by special judicial or administrative proceedings?


  17. 17.

    Are natural gas exploration and production activities regulated separately or subject to the same regulation applicable to oil exploration and production? Are there different royalties or other government charges payable by companies that conduct natural gas exploration and production activities?


  18. 18.

    Do foreign ownership restrictions apply to the oil and gas sector in your country?


  19. 19.

    Are there any minimum domestic participation rules or any labour law rules relating to domestic and foreign workers?


  20. 20.

    Are there any limitations on vertical integration in the oil and gas industry in your country?


  21. 21.

    Are oil and gas activities carried out through incorporated entities with limited liability or by consortia or other types of unincorporated joint ventures? Are joint venture partners jointly and severally liable for the obligations undertaken in connection with such activities?


  22. 22.

    May oil and gas reserves be pledged or encumbered to secure the repayment of debt? How?


  23. 23.

    Can oil and gas rights that are subject to a lien be sold or transferred freely by the secured creditor? What issues, if any, do secured creditors face in enforcing liens on oil and gas rights?


  24. 24.

    Is oil and gas output freely exportable in your country? Are there any limits or quotas applicable to oil and gas production? Is there access to export pipelines? What licences are required for oil and gas exports? Are duties or tariffs applicable?


  25. 25.

    Are prices for oil and gas set or fixed by the government?


  26. 26.

    Are oil and gas exports taxed under the general income tax regime or is there specific hydrocarbons tax legislation?


  27. 27.

    Do special environmental rules apply to oil and gas exploration and production?


  28. 28.

    Are environmental regulations in your country consistent with any international standards?


  29. 29.

    Must companies that participate in the oil and gas industry obtain special environmental or other government permits (other than licences or concessions to carry out oil and gas exploration and production) to operate in your country?


  30. 30.

    Does the government (including any development banks or agency) provide financing, subsidy or other support to companies undertaking oil and gas exploration or production?


  31. 31.

    Are there any tax stability or similar regimes available to foreign investors undertaking investment in the oil and gas industry in your country?


  32. 32.

    Are oil and gas activities generally protected under bilateral investment treaties entered into by your country?


  33. 33.

    Are there any dispute resolution systems specific to the oil and gas industry? Does state immunity apply in such disputes?


  34. 34.

    Do anti-corruption rules apply to the oil and gas industry?


  35. 35.

    Has your jurisdiction adopted any legislation or regulations governing the exploitation of shale gas (fracking)? Are any special licences or environmental permits required for such activities?


  36. 36.

    Has your jurisdiction adopted any legislation or regulations governing ultra-deep-water exploration or drilling activities? Are any special licences or environmental permits required for such activities?


  37. 37.

    Have there been any recent material amendments to the laws, rules or regulations governing hydrocarbon exploration and exploitation? Have any new laws, rules or regulations governing hydrocarbons exploration and exploitation been passed in your jurisdiction?


Other chapters in Oil and Gas 2017

  • Bolivia
    Quintanilla, Soria & Nishizawa Soc. Civ Becerra de la Roca Donoso & Asociados (BDA Abogados) Law Firm
  • Brazil
    Campos Mello Advogados (in Cooperation with DLA Piper)
  • Dominican Republic
    Coiscou & Asociados, Attorneys at Law
  • Ecuador
    Sempertegui Ontaneda Abogados
  • Mexico
    Nader, Hayaux y Goebel SC
  • Venezuela
    D'Empaire Reyna Abogados