Oil & Gas Brazil – Q&A

Source: Lexology (www.lexology.com)

Authors: David Meiler, Barbara Bittencourt and Luise Moura

 

Domestic market overview

Production

What is the extent of oil and gas production in your jurisdiction?

In 2017 Brazil’s crude oil production reached 957 million barrels, which corresponds to a 4.2% increase when compared with 2016. This increase led to the improvement of production in pre-salt areas (which represented 49.1% of total national production). In turn, natural gas production yielded 40.1 billion cubic metres, which corresponds to a 7.2% increase when compared with 2016.

Consumption

How does domestic energy consumption break down with respect to oil and gas, as well as imports and exports?

The Brazilian domestic market offer of energy sources during 2017 was based on 42.9% of renewable energy sources and 57.1% of non-renewable energy sources. Natural gas corresponded to 13% of such market, while oil and its by-products corresponded to 36.4%.

During said year, Brazil imported 54.5 million barrels of oil, which is a reduction of almost 16.4% when compared with 2016. On the other hand, oil exports increased even more, amounting to 363.7 million barrels (an increase of 24.8% when compared to 2016). In regard to natural gas, imports amounted to 10.6 billion cubic metres, while exports amounted to 534.5 million cubic metres.

Trends

What are the current trends and future prospects for oil and gas supply and demand in your jurisdiction, and what policies has the government adopted to address these?

Based on recently released information by the Organisation of the Petroleum Exporting Countries (OPEC), the demand for oil in Brazil is 22,723 million barrels per day, which represents an increase of 1.4% of the country’s demand when compared to 2016.

With profitable exploration and production projects in post-salt and pre-salt layers offshore, the oil industry in Brazil looks set to continue to grow as a noteworthy investment opportunity. Recent studies estimate that by 2022, the daily production of oil in Brazil will be approximately 5.5 million barrels of oil equivalent and the country is expected to have a major role in the world’s oil market in the next 10 years.

While the demand for natural gas is not as relevant as that for oil and its by-products, there was a 6.1% increase in the total demand of cubic metres per day between 2016 and 2017.

In order to address the higher demand and safeguard the country’s increasing oil and gas production, the government recently introduced changes to key regulations applicable to the industry.

Accordingly, local content rules are now founded on a more reasonable basis, bidding rounds actively took place during 2018 and new bidding rounds are already scheduled for 2019. Further, the government extended the temporary admission regime of goods used in the exploration and production of oil and gas to 2040. Together these are key factors for the industry’s development going forward.

Regulatory overview

Regulation

What are the primary laws and regulations governing the oil and gas industry in your jurisdiction?

The 1988 Federal Constitution sets the basic provisions regarding the oil and gas sector. Accordingly, it grants the Federal Union ownership of mineral resources in the Brazilian territory which are deemed to be assets independent from the soil itself.

On the enactment of Constitutional Amendment (EC) 09/1995, which modified Article 177 of the Federal Constitution, the Federal Union was authorised to hire state-owned or private companies to perform activities relating to oil and gas exploration and production. Until then, only Petrobras – the Brazilian national oil company – had been entitled to conduct these activities.

EC 09/1995 was followed by the enactment of Law 9.478/1997 (the Petroleum Law), which transformed the Brazilian oil and gas sector’s legal regime.

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

In 2007 the discovery of large oil and gas reserves concentrated in the pre-salt layer encouraged the government to enact the so-called ‘Pre-salt Law’, which created a new regime for pre-salt and strategic areas by imposing the production sharing agreement in lieu of the concession agreement that is still legally applicable to other areas.

As regards natural gas, Law 11.909/2009 (the Gas Law) regulates its:

• transportation;
• treatment;
• processing;
• storage;
• liquefaction;
• regasification;
• commercialisation;
• import; and
• export.

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

A proposed change to the Brazilian regulatory framework for natural gas commercialisation and transportation is currently under review by Congress through the Bill of Law 6,102/2016, attached to the Bill of Law 6,407/2013, which, in turn, aims to promote the Brazilian natural gas industry.

What government bodies are charged with regulating the oil and gas industry and what are the extent of their powers?

The government bodies charged with regulating oil and gas activities in Brazil are as follows.

Ministry of Mines and Energy

The Ministry of Mines and Energy (MME) is the federal government body in charge of formulating public policies for the oil and gas sector, as well as other sectors, such as electric power, nuclear power and metallurgy.

National Council for Energy Policy

The National Council for Energy Policy (CNPE) was created by Law 9.478/1997 (the Petroleum Law) and is headed by the minister of mines and energy. The CNPE’s main duties are to:

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

ANP The ANP was 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:

• implement national policies relating to oil, natural gas and biofuels;
• promote studies for the delimitation of areas to be offered in bid proceedings;
• promote bid proceedings for the exploration, development and production of oil and natural gas, executing the relevant concession or production sharing agreement;
• authorise the refining, liquefaction, regasification, shipping, processing, treatment, transportation, storage and packaging of natural gas;
• regulate and authorise activities relating to fuel supply; and
• inspect activities relating to the oil, natural gas and biofuels industries, imposing administrative penalties (including fines) where necessary.

Exploration and production

Rights

Who holds the rights to oil and gas reserves in your jurisdiction?

The Federal Constitution grants the Federal Union title to mineral resources located in Brazil which are deemed to be distinct property from the land itself. The Federal Union may, upon compensation, allow companies to explore and produce such mineral resources.

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

Is there a distinction between surface and subsurface rights?

Yes. The ownership of mineral resources is distinct from the ownership of the land on which they are located. As mentioned above, the Federal Constitution grants the Federal Union title to mineral resources located in Brazil. The Federal Union can then allow companies to explore and produce such resources. With regard to landowners, both the Federal Constitution and Law 9.478/1997 (the Petroleum Law) guarantee their right to receive a monthly share of the oil and gas production, which – at present – corresponds to between 0.5% and 1% of the total volume of oil and gas produced in the area.

What rules and procedures govern the grant of rights for exploration and production purposes (eg, through licences, leases, concessions, service contracts, production sharing agreements)?

The Brazilian legal framework establishes different regimes for the exploration and production of oil and natural gas – namely: the concession regime and the production sharing regime.

Concession regime

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

Under the concession agreements entered into by the ANP and the oil companies that win bid proceedings, the exploration and production activities are undertaken at the sole risk of the oil companies, which will have ownership of the oil and gas produced.

Production sharing regime

The production sharing regime was established by the so-called ‘Pre-salt Law’ and is applicable to pre-salt and strategic areas.

According to the Pre-salt Law, Petrobras – the Brazilian national oil company – will always be granted a ‘right of first refusal’ to hold a minimum 30% stake and/or to be the operator in pre-salt and strategic area developments in any consortium formed with oil companies for the relevant pre-salt public bid proceedings.

Under the production sharing regime, oil companies will bear all of the activity’s risks – even though the oil and gas produced will be the federal government’s property. In the case of a commercial discovery, oil companies will recover the costs and investment made (ie, the cost oil) and will be entitled to a percentage of the remainder of the production (ie, the profit oil), in accordance with the provisions of the production sharing agreement (PSA).

The parties to the PSA will be:

• the Federal Union, represented by the Ministry of Mines and Energy (MME);
• the National Agency of Petroleum, Natural Gas and Biofuels, as the regulatory and supervisory agency;
• Pré-Sal Petróleo SA, a state-owned company which is part of the MME and was established to manage the PSAs; and
• Petrobras, if it uses its right to hold the minimum stake of the relevant area (and possibly other oil companies).

Although the execution of a PSA is usually preceded by a bid proceeding, Petrobras can also be directly hired if this is deemed relevant for preserving national interests and attaining the energy policy’s goals.

What criteria are considered in awarding exploration and production rights (eg, are there any restrictions on the participation of foreign investors/companies)?

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 the 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, whose headquarters and management are located in Brazil.

However, in certain exceptional circumstances, the National Council for Energy Policy can 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 national interests and fulfil Brazil’s energy policy.

Further, when it comes to pre-salt or strategic areas, the Pre-salt Law provides that Petrobras can execute its preferential right to be the operator and hold a minimum stake of 30% in any consortium formed with other oil companies for public bid proceedings.

Joint ventures

Are there any special legal provisions applicable to joint ventures?

Pursuant to the Petroleum Law, companies can carry out oil and gas exploration and production individually or through a consortium with other companies. Under a consortium agreement, a leader company will be appointed as responsible for the operations, while the other members will be joint and severally liable for the obligations undertaken under the agreement.

Each consortium member must submit to the ANP:

• documentary evidence of its economic and technical capacity; and
• the registered version of the instrument that set up the consortium.

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

Third parties

Can exploration and production rights be transferred to third parties?

Yes. The assignment of rights and obligations under a concession agreement can be authorised by the ANP if the assignee fulfils the technical, financial and legal requirements set out in the relevant bid invitation. The same rule applies to the PSA, but in such cases approval will be granted by the MME, although the ANP will be consulted.

In view of the Agreement for Technical Cooperation that the ANP entered into with the Administrative Council for Economic Defence (CADE), any company interested in the assignment of the concession agreement or PSA must present:

• a CADE technical opinion approving the asset acquisition; or
• a statement that such transaction is not included in the hypotheses of Article 88 of Federal Law 12.529/2011, which regulates the Brazilian System for Competition Defence.

Fracking

Is hydraulic fracturing (‘fracking’) permitted in your jurisdiction?

Fracking is permitted in Brazil, but there are rules regarding its regulation. After several discussions with the industry, the ANP issued Resolution 21/2014 on 10 April 2014, which aims to regulate fracking operations in non-conventional gas fields. The resolution’s enactment was mainly motivated by the fact that the 12th bidding round, which was held in 2013, encompassed potential non-conventional gas areas. Among other provisions, under Resolution 21/2014, operators must adopt an environmental management system and conduct technical studies to obtain approval for fracking operations. Accordingly, environmental licences are required before the ANP will authorise fracking. Despite the above, certain recent court decisions have temporarily forbidden such operations to take place.

Transport and storage

Legal framework

What is the general legal framework governing the transportation and storage of oil and gas resources in your jurisdiction?

Articles 53 and 56 of Law 9.478/1997 (the Petroleum Law) provide that any company or consortium of companies organised under Brazilian law, whose headquarters and management are located in Brazil, can obtain an authorisation or concession from the National Agency of Petroleum, Natural Gas and Biofuels (ANP) to transport and store oil and gas in Brazil. The ANP enacted rules in this regard, including:

• ANP Resolution 52/2015, which regulates the construction, expansion and operation of installations for the transportation of oil and its by-products, natural gas, biofuels and other products regulated by the ANP; and

• ANP Ordinance 170/2002, which regulates the transportation of oil and its by-products, natural gas, biofuels and diesel.

When it comes to the transportation of gas through pipelines, Law 11.909/2009 (the Gas Law) and Decree-Law 7,382/2010 provide for the following granting regimes:

• the concession regime, preceded by ANP auctions, which applies to pipelines of general public interest; and

• the authorisation regime, which applies in cases of transportation pipelines that involve international agreements, as well as those involving the specific interest of a single final user.

Both concessions or authorisations can be awarded for a 30-year period.

Transportation

How is cross-border transportation of oil and gas resources regulated?

As mentioned above, the Petroleum Law and the Gas Law provide that any company or consortium of companies organised under Brazilian law, whose headquarters and management are located in Brazil, can obtain an authorisation or concession from the ANP to transport oil and gas for both internal supply and importation and exportation purposes.

With specific regard to the transportation of gas through pipelines, whenever international agreements are involved, such as in cross-border transportations, the Gas Law provides that the interested party must obtain authorisation from the ANP to perform such activity. The same law establishes that the price for the transportation of natural gas through pipelines constructed after the enactment of the Gas Law must be proposed by the transporter and approved by the ANP. Further, any expansion, construction or operation of international pipelines must receive prior approval from the ANP, on a favourable opinion issued by the Ministry of Mines and Energy.

Are there specific provisions governing marine and ground transportation of oil and gas resources?

Please refer to the first question of this section.

Construction and infrastructure

How are the construction and operation of pipelines, storage facilities and related infrastructure regulated?

According to ANP Resolution 52/2015, the construction, expansion and operation of gas pipelines can be performed with the ANP’s authorisation, which will be issued in the following two-step licensing process:

• First, a construction licence will be issued, which the developer must request from the ANP on presentation of, among other documents:

• an environmental installation licence issued by the environmental authorities;

• a summary of the installation project;

• plans of the installation area;

• technical data (including engineering and control procedures as well as operational conditions);

• compliance certificates relating to the installation project; and

• the project’s financial timetable, containing the implementation steps, as well as detailing the main costs of each phase of the project.

• Second, an operation licence will be issued, which must be requested on presentation of an environmental operation licence and relevant commission certificate.

ANP will analyse the documents within 90 days for construction licence requests and 30 days for operation licence requests.

What rules govern third-party access to pipelines and related infrastructure?

Access to oil and gas transportation pipelines and related infrastructure is governed by the Gas Law and the Petroleum Law, as well as ANP regulations. Under these rules, the transporter must allow third parties non-discriminatory access to the available or idle transportation capacity of a pipeline. The transporter must inform the ANP of such capacity. Accordingly, the party interested in having access to the pipeline must enter into a transportation agreement with the transporter, which shall be duly and previously registered with the ANP. Such agreement must contain information regarding, among other things:

• the types of service;

• the terms and conditions thereof;

• the contracted transportation capacity;

• pricing; and

• timeframes.

Trading and distribution

Regulation

How are oil and gas resources traded in your jurisdiction and what (if any) regulations and procedures apply to oil and gas sales, distribution and marketing activities, both nationally and internationally?

Natural gas

Under the Federal Constitution, federal states must grant concessions for the distribution of piped gas for supplying final consumers. Further, Law 9.478/1997 (the Petroleum Law) provides that federal states can explore the distribution directly, instead of entering into a concession agreement with a private entity.

As a result, the regulation of such activity is the role of each federal state and their regulatory agencies. Although some states have organised their own regulatory system for gas distribution, others have not.

Oil and its by-products

According to National Agency of Petroleum, Natural Gas and Biofuels (ANP) Ordinance 16/2010, any company incorporated in Brazil, whose headquarters and management are located in Brazil, may be eligible to operate or build refineries.

Further, the distribution and resale of by-products may also be authorised by the ANP, on compliance with several applicable rules.

Exports In Brazil, oil and gas output is freely exportable as it is not subject to limits or quotas.

Both the Petroleum Law and Law 11.909/2009 (the Gas Law) provide that any company or consortium of companies incorporated under Brazilian law, whose headquarters and management are located in Brazil, can obtain authorisation to import and export oil and natural gas. ANP Rule 07/1999 sets out the requirements for such authorisation to be granted, including the documents and information that the exporter must submit.

Is oil and gas pricing regulated in your jurisdiction?

Oil and gas prices are not fixed by the government. Rather, they are freely negotiated and stipulated by the parties, based on market practice.

However, the ANP can establish a minimum price for oil and gas, as well as for cost oil in the production sharing regime.

Occupational health and safety and labour issues

Health and safety

What health and safety regulations and procedures apply to oil and gas operations (upstream, midstream and downstream)?

There are several provisions dealing with occupational health and safety in the Federal Constitution, the Labour Code, the Ministry of Labour rules and many other pieces of legislation. In addition to these general provisions, the National Agency of Petroleum, Natural Gas and Biofuels (ANP) has also issued regulations that are specific to the oil and gas sector.

For example, with regard to upstream activities, ANP Resolution 43/2007 introduced the Management System for Operational Safety for drilling and production offshore installations. As regards midstream activities – more specifically, oil refineries – ANP Resolution 05/2009 approved the Technical Regulation for Health and Safety for Oil Refineries.

Labour law

Are there any labour law provisions with specific relevance to the oil and gas industry (eg, with regard to use of native and foreign personnel)?

Yes. Law 5,811/1972 (the Oil Workers Law), which was enacted on 11 October 1972, applies to individuals who work in the exploration, drilling, production, refining and transportation of oil and natural gas.

The Oil Workers Law aims to accommodate certain working conditions specific to the oil and gas sector, such as:

• 12-hour work shifts;

• 14 consecutive days of work followed by a 14-day rest period; and

• the payment of additional allowances.

With regard to foreign employees, the Labour Code provides, as a general rule, that a company can employ foreign employees if:

• Brazilian employees constitute at least two-thirds of the company’s total workforce; and

• the compensation paid to Brazilian employees is equivalent to at least two-thirds of its payroll.

Brazilian immigration authorities usually grant residency based on an employment relationship between a foreign worker and his or her company. These temporary visas can be valid for up to two years.

Notwithstanding that, a temporary visa  can, in certain circumstances, be granted to a foreign employee who is not bound by a labour contract with a Brazilian company – for example, expatriates who come to Brazil to work via technology transfers to provide technical assistance or in emergencies.

With regard to maritime workers, the National Council for Immigration Normative Resolution 06/2017 (RN 06/2017) regulates the granting of a residence authorisation to foreign crew members who work on board foreign vessels or platforms that are operating in Brazilian territorial waters and have no employment relationship with a Brazilian company. RN 06/2017 allows for the requirement of a minimum two-thirds proportion of Brazilian employees to be relaxed for a certain period, depending on whether the company operates:

• supply vessels;

• vessels and platforms that are directly or indirectly applied in the exploration and production of mineral resources; or

• vessels used in coastal navigation.

An example of this exemption is as follows:

• The crew of a foreign drilling unit may comprise 100% foreign workers in the first 180 days of operation in Brazil.

• Between the 181st day and the 360th day, such crew must comprise at least one-fifth Brazilian employees.

• Between the 360th day and the 720th day, the crew must comprise one-third Brazilian employees.

• As of the 721st day, the Brazilian company must comply with the regular rule of having a workforce comprising two-thirds Brazilian employees.

Finally, residence authorisations are usually granted to foreign employees who will be directors, officers or managers of Brazilian companies. In order to grant such an authorisation, the government requires a minimum investment in Brazil of R600,000 per request of residence. Such investment may be reduced to R150,000 if the company commits to establishing at least 10 direct jobs within two years.

What is the state of collective bargaining/organised labour in your jurisdiction’s oil and gas industry?

Collective bargaining agreements are an important tool for regulating several aspects of the oil and gas sector that are not clearly foreseen in law. As Brazilian labour courts are known to be protective towards employees, such collective bargaining agreements may help to mitigate the risks of labour claims by regulating situations that are unique to the oil and gas sector.

Brazil’s various labour unions do not have equal political and economic strength. As such, some labour unions are more flexible in negotiations, while others are rigid. Two of the main unions representing oil workers are Sindipetro – the oil workers union – and Sinditob – the offshore employees union.

With the Labour Law Reform introduced through the publication of Law 13,467/2017, as well as the negotiation of work shifts, reduction of salary and overtime additional pay (as provided by the Federal Constitution), collective bargaining agreements may also establish terms and conditions regarding:

• hours on call;

• the working hours register or control;

• the exchange of holidays and the definition of positions of trust;

• the bank of hours covering one year; and

• overtime in case of hazardous working conditions.

However, other labour rights (ie, Christmas bonuses, the Working Time Guarantee Fund or additional pay for unhealthy or hazardous working conditions) may not be negotiated or waived by the parties.

Environmental protection

Authorisation

What preliminary environmental authorisations are required before commencing oil and gas-related activities?

Under National Council for the Environment (CONAMA) Resolution 23/1994, the following environmental licences apply to oil and natural gas exploration and production:

• the previous licence for drilling;

• the previous licence for research production;

• the installation licence; and

• the operation licence.

In addition to the above, CONAMA Resolution 350/2004 sets out the rules for the obtainment of the licence for seismic research, which is a specific licence for the acquisition of seismic data in maritime waters and transition zones.

As regards the resale of fuel, CONAMA Resolution 273/2000 provides rules regarding the procedures and documents required for the issuance of the relevant authorisations – namely:

• the previous licence;

• the installation licence; and

• the operation licence.

Brazilian Environment Institute Normative Instruction 05/2012 regulates the transportation of oil and natural gas and their by-products. Under the instruction, companies engaged in such activities must obtain an environmental authorisation for the transportation of dangerous products whenever such transportation encompasses more than one state. In the case of intrastate transportation, the environmental body of each federal state will regulate the activities.

Requirements

What environmental protection requirements apply to the operation of oil and gas facilities?

The Federal Constitution and several other pieces of federal, state and municipal legislation set out the rules for environmental protection. Besides the general rules, there are specific provisions that address oil and gas exploration and production.

For instance, the Federal Constitution provides that parties that exploit mineral resources must restore the environment following any degradation, as required by the relevant government body.

In addition, Federal Law 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.

Further, the National Agency of Petroleum, Natural Gas and Biofuels has issued several administrative rules concerning environmental aspects of the oil and gas sector, which cover matters such as:

• contamination caused by operations accidents;

• remediation of damaged areas;

• the final destination of solid wastes; and

• the recycling of lubricant oil.

As regards environmental licences, CONAMA Resolution 23/1994 sets out specific rules for the exploration and production of oil and natural gas.

Consequences

What are the consequences of failure to adhere to the relevant environmental regulations and to what extent can operators be held liable for environmental damage?

The Federal Constitution provides that individuals or companies that cause damage to the environment are subject to criminal and administrative penalties and must repair the damage.

The penalties for environmental damages are consolidated by Law 9,605/1998 (the Law of Environmental Crimes) and Decree-Law 6,514/2008, which regulates the Law of Environmental Crimes. This legislation covers aspects relating to crimes against the environment and administrative assessments.

The Law of Environmental Crimes defines companies’ liabilities – whether they be administrative or criminal – and provides the circumstances in which an individual can be held liable for damage caused.

Specifically in regard to the failure to obtain the relevant environmental licences, applicable penalties may include:

• the suspension or cancellation of the registry, authorisation or licence;

• the cancellation or restriction of fiscal benefits; and

• the cancellation or restriction of financing programmes.

Taxes and royalties

Taxes

What taxes (direct and indirect) and/or royalties apply to oil and gas activities in your jurisdiction (including upstream, midstream and downstream activities)?

Regarding upstream activities, government income comes mainly from taxation and the payments that oil and gas operators must make, which normally comprise the following:

• Signature bonuses – these are paid on the day on which a contract is signed and correspond to the amount offered in the bidding proposal, taking into consideration the minimum amounts established in the bid invitation.

• Royalties – these are paid on a monthly basis and can vary from 5% to 10% of oil and gas production, depending on such aspects as the geological risks and production expectations.

• Special participation – this is paid in cases of large production volumes, taking into account the conditions established in the relevant contract and bid invitation.

• Annual surface rentals – companies must pay to occupy or retain a site annually, the amount of which is established in the bid invitation and corresponding agreement.

Regarding midstream and downstream sectors (eg, the distribution and commercialisation of fuels), activities are subject to:

• state value added tax;

• social contributions; and

• the contribution for intervention on the economic domain.

Imports and exports

What taxes and duties apply to oil and gas imports and exports?

Imports in Brazil are usually subject to heavy taxes, such as:

• import tax;

• excise tax;

• social contributions on imports; and

• value added tax.

The REPETRO regime was introduced with the aim of promoting the oil and gas industry’s development and it represents an important tax benefit, as it enables the import of foreign goods to Brazil for oil and gas industry-related activities for a determined period with:

• an exemption from federal taxes; or

• the payment of 1% of federal taxes per month of permanence in Brazil.

Law 13,586/2017 extended the REPETRO regime’s term of application to 2040.

Normative Ruling 1,743/2017 was also enacted which:

• provided new regulations concerning the regime for the temporary import of goods used in oil and natural gas exploration, development and production activities (REPETRO-SPED);

• modified certain provisions of Normative Ruling 1,600/2015. Although similar to the former REPETRO regime, which is still in force, the REPETRO-SPED has its own set of rules and allows for the import of goods:

• temporarily and without customs duty (see the assets listed in Annex II of Normative Ruling 1,743/2017 (eg, drillships and floating production storage and offloading units);

• permanently, without customs duty and further exemptions (see the assets listed in Annex I of Normative Ruling 1,743/2017); or

• temporarily with proportional payment of federal customs duty (see the assets listed in Annexes I and II of Normative Ruling 1,743/2017).

Decommissioning

Regulation

How is the decommissioning of oil and gas facilities regulated?

Law 9,478/1997 (the Petroleum Law) was the first piece of legislation in Brazil to address decommissioning. In relation to the concession’s termination, the law prescribes that:

In any case of extinction of the concession agreement, the concessionaire shall, on its own account, remove the equipment and goods, which are not subject to reversion, repair or indemnity for possible damages arising out of its activities, and carry out any environmental recovery ordered by the relevant entities.

In addition, the law states that the concession agreement shall contain, as an essential clause, rules regarding the handing back and relinquishment of areas – including the removal of equipment and installations – as well as the reversion of goods.

As a result, concession agreements regulate decommissioning by establishing particular provisions regarding the allocation of obligations and liabilities, costs and guarantees, as well as compliance with applicable laws and industry best practices.

Further, the so-called ‘Pre-salt Law’ determines that a production sharing agreement (PSA) must contain an essential clause regarding the “criteria to relinquish and vacate the areas by the contractor, including the removal of equipment and installations and for reversion of goods”. As a result, PSAs also establish provisions regarding the procedures relating to decommissioning and the relinquishment of areas.

As regards technical aspects relating to decommissioning procedures, the  National Agency of Petroleum, Natural Gas and Biofuels (ANP) Resolution 27/2006  regulates the procedures and techniques for well abandonment. Recently, the ANP made public that Resolution 27/2006 is being reviewed and that a new resolution is expected to be published by December 2018. As per the information provided by the ANP, the new resolution will be the product of a collaboration between the Maritime Authorities and the Environmental Authorities in order to align operational safety with the relevant environmental regulation applicable to the activity.

Dispute resolution

Disputes

How are oil and gas disputes typically resolved in your jurisdiction?

Law 9,478/1997 (the Petroleum Law) establishes that one of the mandatory clauses of a concession agreement is the election of conciliation and arbitration as the dispute resolution method. Accordingly, concession agreements provide that any dispute or controversy that is not solved amicably by conciliation must be submitted to arbitration ad hoc, in which the United Nations Commission on International Trade Law (UNCITRAL) Model Law will apply.

The so-called ‘Pre-salt Law’ does not impose the use of conciliation and arbitration in a production sharing agreement (PSA). However, the PSAs relating to the first, second, third, fourth and fifth bidding rounds on pre-salt areas, which were held between 2013 and 2018, contain an arbitration clause similar to that of the concession agreement.

Finally, Law 11,909/2009 (the Gas Law) provides that arbitration can be used as the dispute resolution method in pipeline concession agreements and agreements for the transportation and commercialisation of natural gas.

Anti-corruption measures

Dishonest practices

What regulations and procedures are in place to combat bribery, fraud, collusion and other dishonest practices in the oil and gas sector in your jurisdiction?

At present, the following anti-corruption laws are in effect, all of which apply to the oil and gas sector:

• Decree 8.420/ 2015 (which regulates the Anti-Corruption Law);

• Law 12.846/2013 (the Anti-Corruption Law);

• Law 8.429/1992 (the Misconduct Law);

• Law 8.666/1993 (the Procurement Law);

• Law 12.579/2012 (the Antitrust Law);

• Federal Decree 1.171/1994 (the Code of Professional Ethics For Public Officials of The Federal Government); and

• Federal Decree 4.081/2002 (the Code of Ethical Conduct for Government Officials in the Presidency and Vice Presidency).

Law stated date
Correct as of
Please state the date of which the law stated here is accurate.

For more information, contact:

David Meiler
Partner
T: +55 21 3262-3006
E: david.meiler@cmalaw.com

Barbara Bittencourt
Lawyer
T: +55 21 2217-2070
E: barbara.bittencourt@cmalaw.com

Luise Moura
Lawyer
T:+55 21 2217-2076
E: luise.moura@cmalaw.com