Brazil has three government bodies charged with regulating oil and gas activities in the country (as follows), with the National Agency for Petroleum, Natural Gas and Biofuels (ANP) being the body with the most interface with the petroleum-related companies and service providers – for this reason, we will focus on its activities and regulations.
- The Ministry of Mines and Energy (MME), a federal government body in charge of formulating Brazil’s energy policies, which encompasses the oil and gas sector, as well as electric power, nuclear power and metallurgy sectors.
- The National Council for Energy Policy (CNPE): an entity created by Law 9.478/1997 (the Petroleum Law) and administered by the minister of mines and energy. CNPE’s main duties are to: (i) propose national policies and measures to promote the rational use of energy resources; (ii) guarantee energy supply in remote areas or areas of difficult access; (iii) review periodically the energy matrix that is applied to different regions; (iv) establish guidelines for the import and export of oil and its by-products; (v) define the areas to be offered in ANP bid proceedings for the exploration and production of oil and natural gas; and (iv) define strategies and policies for the economic and technological development of the oil, natural gas and other hydrocarbons and biofuels sectors.
- The National Agency for Petroleum, Natural Gas and Biofuels (ANP): agency created in 1997 by the Petroleum Law, which sought to establish a government agency to oversee the regulation, contracting and supervision of economic activities relating to the oil, natural gas and biofuels sectors. ANP’s main duties are to: (i) implement national policies relating to oil, natural gas and biofuels; (ii) promote studies for the delimitation of areas to be offered in bid proceedings; (iii) promote bid proceedings for the exploration, development and production of oil and natural gas, executing the relevant concession or production sharing agreement; (iv) authorise the refining, liquefaction, regasification, shipping, processing, treatment, transportation, storage and packaging of natural gas; (v) regulate and authorise activities relating to fuel supply; and (vi) inspect activities relating to the oil, natural gas and biofuels industries, imposing administrative penalties (including fines) where necessary.
Non-compliance with regulatory body regulations may results in sanctions that range from conduct adjustment term, fines, infraction notice and administrative proceedings, as it will be further analysed below.
Reporting and disclosure obligations
There are many reporting and disclosure obligations that companies have towards the ANP, however, we listed a few that are considered to be the most relevant and/or common in everyday activities:
- Monthly Production Report (Boletim Mensal de Produção);
- Annual Reservoir Report (BAR);
- Development Plan (Plano de Desenvolvimento) – related to oil and gas concessions;
- Annual Production Plan (PAP) – related to oil and gas concessions;
- Annual Work Plan (PAT) – related to oil and gas concessions;
- presenting the Technical Data for the Exploration and Production Data Bank (BDEP);
- obtaining of Authorisation and Registry of the Natural Gas Commercialisation Agreements;
- local content certification and reports;
- health and safety audits and management programmes; and
- registry, commercialisation and import or export control of certain hydrocarbons and its by-products.
Monetary sanctions and recent behaviour
Federal Law No. 9847/1999 is the main statute that currently guides the applicable monetary sanctions applicable to regulated players. Specifically, when it comes to local content, ANP Resolution 19/2013 includes fines in the case of non-compliance with local content requirements. The main provisions of each such statute are the following.
Federal Law No. 9847/1999
Federal Law No. 9847/1999’s main purpose is the implementation of rules regarding the applicable inspection to activities regulated by the Petroleum Law and by the ANP. Also, it establishes the administrative sanctions to be applied by the Agency against companies or regulated players in default to its rules and regulations.
Among the different types of sanctions, the law provides for the application of fines to non-compliant companies or players, upon the occurrence of certain infractions (which are broad enough to cover different situations established by ANP’s regulations). Federal Law No. 9847/1999 also provides a range of applicable fines to each of the infractions it lists. The amount to be actually imposed, based on the range provided, will depend on the severity of the infraction, the company’s financial capacity, re-offending circumstance and advantage it has gained as a result of the infraction.
We have listed below some examples of the most relevant infractions/ fines imposed by Federal Law No. 9847/1999:
- perform activities related to the oil industry, the biofuels industry, the national fuel supply, the National Fuel Stock System and the Annual Strategic Fuel Stock Plan, without prior registration or authorisation required by the applicable legislation – fine: 50,000 to 2,000 million reais;
- import, export or commercialise oil, natural gas, their derivatives and biofuels in a different quantity or specification from the authorised one, as well as giving the product an unauthorised or different destination, as provided for in the applicable legislation – fine: 20,000 to 5 million reais;
- build or operate facilities and equipment necessary to carry out the activities covered by this Law in violation of the applicable legislation – fine: 5,000 reais to 2 million reais; and
- refrain from sending, in the form and within the period established in the applicable legislation, the activities monthly information – fine: 20,000 reais to 1 million reais.
ANP Resolution 19/2013
ANP Resolution 19/2013 set forth rules regarding the achievement of local content percentages committed by operators of E&P concessions. For compliance purposes, the operator shall achieve both the global percentage of local content offered for exploration and production development phases, and local content referring to each item and sub-item. Otherwise, the operator shall be subject to a fine applied by the ANP, as provided in the concession or production sharing agreement, which varies in accordance with the percentage of the not achieved local content, as per the following formula:
- If 0 < NR (%) < 65% M (%) = 60 (%)
- If NR (%) ≥ 65% M (%) = 1,143 NR (%) – 14,285
(*) NR: non-accomplished local content percentage
(**) M: fine
The same criteria apply to local content concerning items and sub-items, even if the operator accomplishes the global local content provided for each phase. In a worst-case scenario, the concession or production sharing agreement may be terminated by ANP, and the operator may even be prevented from taking part in ANP’s bids for five years, depending on whether the bidder’s intent to defraud is clearly established.
In certain cases (such as when it comes to health and safety matters), the ANP may inspect the facilities to verify if the companies are complying with the applicable norms. If the Agency understands that it is not conforming, it will issue a report indicating the inspection’s findings and requesting the operator to address the appointed non-conformities. If the operator fails to address them, or if the ANP understands the measures were insufficient, it may issue an infraction notice, which may be subject to the application of a fine by the end of the relevant administrative proceeding.
The ANP may also issue an infraction notice right away, without giving the company the opportunity to address a non-conformity, eg, in cases of non-compliance with the issuance of monthly reports, registry of products, obtaining of authorisations, etc. In these cases, an infraction notice will be issued, and the company will have the opportunity to present its administrative defence within 15 days of its receipt. ANP will then analyse the arguments provided and grant a first report related to the case. The company will have the opportunity to file its final arguments (within five days of receiving ANP’s notice), and afterwards the Agency will render an administrative decision, either dismissing the assessment notice or confirming the assessment notice and, consequently imposing a fine (based on the amounts provided by Federal Law No. 9847/1999.
It is important to highlight that if the operator opts to pay the fine without contesting the matter administratively, the ANP may provide a discount of 30% of the amount of the fine. If not, it may still file an administrative appeal, within 10 days of receiving a notice from the decision rendered by the ANP. It should be noted that after a final administrative decision is rendered, the company has the option to discuss the matter in court, upon the filing of an annulment lawsuit (in this case, it will need to deposit or guarantee the amount of the fine in court).
Finally, the statute of limitation for the administrative sanction mentioned above is five years, counting from the commitment of the infraction. Also, the statute of limitation is interrupted by the notification of the offender, or by any unequivocal act that results in the investigation of the irregularities.
Non-monetary sanctioning powers and behaviour
Federal Law No. 9847/1999 also provides for non-monetary sanctions. Accordingly, the following non-monetary sanctions may apply in the event of an infraction or appointment of a non-conformity with the legal normative that regulates the oil, natural gas and biofuel activities in Brazil, such as: (i) goods and products apprehension; (ii) loss of apprehended; (iii) cancelling of the product’s register with ANP; (iv) suspension of product supplying, (v) temporary suspension, partially or whole, of the installation’s or facility’s activities; (vi) cancelling of the facility’s or installation’s register; (vii) revoking of the authorisation for the performance of activities related to the oil, natural gas and biofuel industry; (viii) warning; (ix) temporary suspension of the rights to participate in the bid rounds offered by ANP; (x) interdiction of installations or facilities; and (xi) termination of the concession agreement. The sanctions above may be applied cumulatively, and in addition to monetary sanctions.
Without prejudice to the administrative sanctions, the inspection may be of a preventive measure, which can result in the complete or partial interdiction of the facilities or installations and equipment when verified that there are ongoing activities related to the industry that have not been authorised by the ANP. The complete or partial interdiction of the facilities or installations may be applied when the fine, alone, does not suffice due to avoid the potential damage arising out of the infraction, or in some circumstances when the operator is a recurrent offender.
Furthermore, a warning will be issued when the operator does not comply with the duty to notify and/or does not present the mandatory documents (in the term and form required), among others. ANP may also order the temporary suspension of a company to participate in its bid rounds, as punishment for acts practised “to the detriment of the goals established by the bid rounds”, or for not presenting technical reports after the execution of concession agreements.
Finally, the termination of a concession agreement may occur as a result of the noncompliance with the obligations set forth thereunder, if the operator does not remedy such non-conformity within the deadline prescribed by the ANP and/or the agreement itself.
Recent and upcoming developments
Although the covid-19 pandemic has brought many challenges to the industry worldwide, Brazil has managed to keep itself afloat. The main ongoing changes of the previous years have not ceased to exist in this current scenario that, although challenging, has shown to be promising.
The Petrobras divestment programme, encouraged mainly in the past couple of years by the current government, is responsible for Petrobras sale of 40% of its refining capacity, the sale of onshore and offshore fields, and the exit from the gas pipeline transportation and distribution activities, maintaining the company’s focus on the pre-salt areas and creating space for new players in the industry, as well as new kinds of consumer or producer relationships that will be regulated by the Agency.
Meanwhile, the New Gas Bill No. 14.134/2021 and the Presidential Decree No. 10.712/2021 – which regulates the New Gas Bill – were recently published under a programme established by the government aiming the opening of the gas market (previously concentrated with Petrobras). Such new rules introduced challenges and opportunities in the market, such as a new classification for consumer (depending on the activities performed), the unbundling of infrastructure, and the changes in the commercialisation model that will allow the contracting of gas capacity by virtual hubs. As for ANP, its main challenge is to adapt to this new scenario, and make sure that all internal regulations or interpretations are in line with the new legal framework.
When it comes to new bid rounds, ANP is preparing for the concession fields (rounds 17 and 18), and for the 7th and 8th Pre-Salt Bid Rounds under the Production Sharing Regime, as well as for the 2nd Transfer of Rights Surplus Bid Round.
Furthermore, ANP has worked on the Decommissioning Resolution that aims to regulate the procedures for the presentation of guarantees that ensure decommissioning of production facilities in oil and natural gas fields. Currently, it is awaiting the passing and approval of all internal procedures within the Agency. This Resolution is of great importance to both the industry and the Agency when considering that the Round Zero concession contracts are about to end, and that the decommissioning procedures for said fields are about to take place. Finally, Petrobras has been divesting several mature fields to smaller players, to which the assignment of the concession depends on the operator presenting a decommissioning guarantee. So, we believe this will be a hot topic to be closely followed in the near future.
In view of operational and economic difficulties imposed by the pandemic, some flexibility was verified in the relationship between the Brazilian government and the oil and gas market, aiming to prioritise the continuity of national supply and mitigation of losses.
As a result, ANP has issued specific resolutions to deal with the effects of the covid-19 pandemic on the gas industry, promoting the extension of deadlines applied under upstream agreements, suspending certain obligations regarding demobilisation of operational personnel, and even reducing contractual commitments in the exploration and production phases, among other appropriate measures to assist companies during the pandemic period.
As also mentioned in the last item, ANP is currently dealing with the change in the natural gas market, due to the publication of the New Gas Bill No. 14.134/2021 and the Presidential Decree No. 10.712/2021. The innovations brought up by the new gas market will require ANP’s best efforts to adapt its regulation to this new scenario and its emerging issues.
Interacting with the regulator
When planning a new regulation or updating an existing one, ANP involves the society or players' participation by means of public hearings and queries, in which the upcoming legal instruments or measures are discussed with participants for an estimated period of three months.
The Agency also attends queries of regulated agents regarding the regulation and proceedings by means of its superintendencies. The communication with the Agency is mostly performed by email or Serviço de Informação ao Cidadão (SIC), but, in specific cases, it is possible to schedule a meeting to discuss sensitive matters and obtain instructions from ANP. The speed of the answers depends on the availability of ANP specialists and the complexity of a particular matter, but Law No. 12527/2011 provides for a deadline of 20 days for the authorities to respond by means of the SIC. Communication with ANP is normally held in Portuguese.
Notes for foreign investors
Regarding E&P activities, both the concession and production sharing regimes will be preceded by a public bid proceeding, which is open to Brazilian and foreign companies. Under the Petroleum Law, only companies that comply with certain technical, economic and legal requisites established by ANP can obtain authorisation for oil and gas exploration and production.
If a foreign company wins the bid proceeding, it must set up a company organised under Brazilian law, with headquarters and management located in Brazil.
The activities of transport, storage and distribution of natural gas in Brazil are also limited to companies organised under Brazilian law and headquartered in Brazil, which companies may be controlled by their foreign shareholders.
Other regulators it works closely with
ANP is associated with the Ministry of Mines and Energy (MME) and the National Energy Policy Council (CNPE). Given the environmental impact associated with the oil and gas industry, ANP frequently works with the Institute of Environment and Renewable Natural Resources (IBAMA) and state environmental authorities when required. The Brazilian Navy (Marinha do Brasil) is also in cooperation with ANP concerning the prevention and control of incidents in offshore operations.
Rio de Janeiro, State of Rio de Janeiro, Brazil (main office)
Useful pages on the regulator website
Rodolfo Saboia - General Director ANP
- Communication and Institutional Relations Superintendency (SCI)
- People Knowledge Management Superintendency (SGP)
- Administrative Management and Acquisition Superintendency (SGA)
- Financial and Budget Management Superintendency (SFO)
- Information Technology Superintendency (STI)
Symone Christine de Santana Araújo – Director 1
- Biofuels and Product Quality Superintendency (SBQ)
- Development and Production Superintendency (SDP)
- Supply Inspection Superintendency (SFI)
José Cesário Cecchi – Director 2
- Infrastructure and Movement Superintendency (SIM)
- Exploration Superintendency (SEP)
- Geological and Economic Assessment Superintendency (SAG)
Dirceu Cardoso Amorelli Junior – Director 3
- Bidding Promotion Superintendency (SPL)
- Local Content superintendency (SCL)
- Fuel Production Superintendency (SPC)
Raphael Moura – Substitute Director 4
- Distribution and Logistics Superintendency (SDL)
- Technical Data Superintendency (SDT)
- Operational Safety and Environment Superintendency (SSM)
- Technological Research and Development Superintendency (SPD)