With the expectation that the areas offered in the Brazil Round 12 may result in the discovery of reservoirs of unconventional resources, the National Agency of Petroleum, Natural Gas and Biofuels (“ANP”) has introduced relevant innovations to the Concession Contract.

The bidding round, which will be held by ANP on November 28 and 29, will offer exclusively areas in onshore basins with high potential for natural gas from conventional and unconventional sources.

The main innovation of the Concession Contract in this regard is the concessionaire’s option to enter into the so-called Extended Exploratory Period if there is a discovery of unconventional resources. This new exploratory period will apply exclusively to the concession areas with evidence of unconventional resources, and may have a maximum duration of six years, divided into three Extended Exploratory Periods of up to two years each.

The commencement of such extension is subject to the fulfillment of the following conditions:

  • ANP’s certification of the discovery of unconventional resources.
  • Approval of an Unconventional Resource Exploration and Appraisal Plan, which shall contain the description and planning of all exploratory activities to be performed by the concessionaire. The plan must contain the drilling of at least two wells in each Extended Exploratory Period in the case of new frontier basins, or one well in the case of mature basins.

    The Unconventional Resource Exploration and Appraisal Plan must be prepared based on specific instructions provided in an annex to the Concession Contract and delivered within one hundred and twenty days counted as from the ANP certification of the discovery. The Exploration Phase will be automatically suspended until ANP’s decision regarding the referred plan is reached.
  • Submission of a financial guarantee in the amount equivalent to the cost of the exploratory wells and activities committed to each of the Extended Exploratory Periods.
  • Obtaining, before ANP, a new legal, technical and financial qualification specific to the exploration and production of unconventional resources. This qualification requires a minimum net equity equivalent to three times the net equity applied for qualification as Operator C, fixed at R$3.8 million, as well as the filing of a technical summary attesting a minimum experience of five years in unconventional resource exploration and production activities.

    The technical experience may relate to the concessionaire itself or to a service contractor hired for the performance of the operations, and must consider the following criteria regarding unconventional resources: fracturing; well completion; abstraction, usage, treatment, reuse, and/or disposal of water; environmental licensing; involvement and increase of consciousness of civil society in the exploration and production process.

    The contract, however, is not clear about the terms for conclusion of such additional qualification.

In addition to the innovations in connection with the unconventional resources, improvements in the wording and a few other inclusions, the draft of the Concession Contract for the Brazil Round 12 has remained substantially the same as that for the Round 11 Contract. In any case, the contract is a preliminary version of the definitive contract and may still be subject to amendments after the period of public consultation that ends on September 11.

The final term for the submission of the expression of interest and qualification documents for Brazil Round 12 will end on October 11. The qualification criteria has remained the same as for Brazil Round 11, including the score required for technical qualification and levels of minimum net equity (R$1.9 million for Non-Operator; R$3.8 million for Operator C; R$59 million for Operator B and R$107 million for Operator A). Except for the blocks located in the Acre-Madre de Dios basin, which require qualification of the operator in categories A or B, all other blocks offered in the Brazil Round 12 require qualification as Operator C only.

The draft of the Concession Contract and the Preliminary Tender Protocol may be found on the ANP website (documents in Portuguese).

For more information about Brazil Round 12, or any other matter regarding this Legal Update, please contact Alexandre R. Chequer, Leonardo P. Costa, Victor Galante or Bruno Belchior.