1. General Structure of Petroleum Ownership and Regulation
1.1 System of Petroleum Ownership
The Brazilian Constitution of 1988 provides that the Federal Government has ownership over the petroleum and mineral resources located in the subsoil, in the continental shelf and in the exclusive economic zone (ZEE) [Arts. 20 and 176]. Also, pursuant to the Brazilian Constitution, oil and natural gas exploration and production activities, refining, the importation and exportation of by-products, maritime transportation of crude oil or by-products and pipeline transportation of petroleum and natural gas are activities under the monopoly of the Federal Government [Art. 177].
However, the Federal Government can contract with stateowned or private entities to conduct the petroleum activities referred to above, subject to certain conditions set forth in the applicable laws.
The economic reforms in the early 1990s brought about an exception to the Federal Government monopoly over petroleum activities. After several years of monopoly over petroleum activities (exclusive to Petróleo Brasileiro S.A. - Petrobras since 1953), the government authorities concluded that keeping the Federal Government's monopoly on the exploration and production of oil and natural gas could be an obstacle to the development of the petroleum industry.
Thus, aiming to provide legal mechanisms to attract both domestic and international private capital to Brazil, the Brazilian Congress enacted Constitutional Amendment No. 9/95, which amended the first paragraph of Art. 177 of the Brazilian Constitution and allowed petroleum activities to be contracted by the Federal Government with state-owned or private entities (subject to certain conditions set forth in the applicable laws).
In this context, Law No. 9,478/97 (the Petroleum Law) was enacted and, among other provisions, implemented the concession regime for the award of E&P rights by the Federal Government in Brazil. A few years later, following the discoveries of huge oil reserves in ultra-deepwaters of the pre-salt layer in the Campos and Santos basins announced by Petrobras in 2007 and several discussions within the Federal Government and Congress about the best way to exploit those resources, Law No. 12,351/2010 (the Pre-Salt Law) introduced the production sharing regime in Brazil, which is applicable to areas located within the pre-salt areas (within the limits of a defined pre-salt polygon) and other strategic areas.
In addition, in the face of massive investments that Petrobras was required to make in the oil and gas sector, Law No. 12,276/2010 introduced the so-called Transfer of Rights (ToR), which defined a special capitalisation of Petrobras at the time and gave Petrobras (upon consideration) the right to produce up to five billion BOE (barrels of oil equivalent) in certain presalt areas.
1.2 Regulatory Bodies
Petroleum activities are regulated by the following main governmental bodies:
- the Ministry of Mines and Energy - Ministério de Minas e Energia;
- the National Council of Energy Policy - Conselho Nacional de Política Energética; and
- the National Agency of Petroleum, Natural Gas and Biofuels - Agência Nacional do Petróleo, Gás Natural e Biocombustíveis.
The Ministry of Mines and Energy
The Ministry of Mines and Energy (MME - www.mme.gov.br) was originally created by Law No. 3,782/1960 and then later recreated by means of Law No. 8,422/1992, which governs its organisational structure. The MME's main activities are focused on political co-ordination and interaction with its related entities.
The MME promotes and supervises the implementation of public policies in the following sectors:
- geology, mineral and energy resources;
- hydraulic energy;
- mining and metallurgy; and
- oil, fuel and electricity, including nuclear energy.
The National Council of Energy Policy
The National Council of Energy Policy (CNPE - www.mme. The National Council of Energy Policy (CNPE - www.mme. gov.br/web/guest/conselhos-e-comites/cnpe) was created by the Petroleum Law. It is a joint ministerial entity, presided over by the Minister of Mines and Energy and formed by representatives of other Ministries and relevant entities, such as the Energy Research Office (EPE).
The CNPE is a consulting body and assists the President of Brazil with recommendations and proposals regarding policies and guidelines for the energy sector. In general, it is responsible for promoting rational use of the energy resources in Brazil and ensuring the proper supply of energy throughout the country.
The attributions of the CNPE have been amplified under recent regulations. One of the main changes in this regard was brought by the Pre-Salt Law, which provides that the CNPE is entitled to define the blocks to be offered in bid rounds for the exploration and production of oil and natural gas.
The National Agency of Petroleum, Natural Gas and Biofuels
The National Agency of Petroleum, Natural Gas and Biofuels (ANP - www.anp.gov.br) is the regulatory agency for petroleum activities. It is connected to the MME and is part of the indirect public administration.
The ANP was created by the Petroleum Law and has the authority to regulate, intervene and oversee petroleum activities, including the creation of infra-legal rules (eg, the ANP resolutions), the institution of administrative proceedings and the application of the relevant penalties, the issuance of authorisations to companies that carry out the relevant regulated activities, and the promotion and disclosure of geological and geophysical studies related to petroleum activities, including official statistics on the national reservoirs and production.
The ANP is also authorised to promote and organise bid rounds for the award of E&P rights, and to execute concession contracts on behalf of the Federal Government. It must be pointed out that the attribution to execute production sharing contracts was granted to the MME, as a representative of the Federal Government, in accordance with the Pre-Salt Law. The ANP executes the sharing contracts as the regulatory body responsible for supervising petroleum activities.
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