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October 02, 2017

Opportunities in Oil & Gas

Oil & Gas / Mergers & Acquisitions

A group of operational assets are in the brink of an opportunity to strengthen their attractiveness as targets for potential M&A.

A one-off, but substantial, revision of the “Local Content” (CL) rules was brought into public discussion by the regulator ANP (Brazilian Agency of Petroleum) proposing the adoption of the most recent CL rules (14th Bidding Round) in the previously executed agreement (since 7th Bidding Round until the 13th); and, in return, it also searches a solution for the operational imbroglio imposed to ANP by countless requests for waiver of Local Content obligation that have already been submitted (and not definitely decided) or that could be submitted.

A Public Hearing is scheduled for October 1st, 2017 and we would expect that shortly after that the new rules will be effective.

For ease of reference, LC requirements 14th Bidding Round were set as follows:

Offshore: exploration - 18%, stationary production units - 25%, well construction - 25% and collection and disposal system - 40%

  • Onshore: exploration - 50% and production - 50%
  • On the other hand, LC requirements for the 7th through the 13th Bidding Rounds may be summarized as follows:
     
Round R7 R9 R10 R11 R12² R13³
  2005 2007 2008 2013 2013 2015
LC (Average) - Exploration 74% 69% 79% 62% 73% 73%
LC (Average) - Development 81% 77% 84% 76% 84% 80%

 

Moreover, a map of the current operations per Round may be found at:

http://www.brasil-rounds.gov.br/arquivos/mapas/Setembro_2017/Mapa_Brasil-Rounds_SET_17.pdf

It is indeed a new (or recovered) and welcome mindset of flexibility in fulfilling obligations of those who deal with the public administration, in face of a complex economic scenario.

On the other hand, it is common sense that, if the original rules caused (and/or still cause) severe difficulties to the parties in the agreements – to the point of being revised for the current rounds – it is fair to open possibility for certain equality for previous agreements, which brought a systematic of CL at least questionable with regards to the possibility of its fulfillment.

We would expect that, if and once the new rules are in place, assets that operators decide to adhere to new LC standards should open a new (or strengthen an existing) window for M&A transactions.

TozziniFreire

Notwithstanding the merits of the changes already made and those that may come out of the public hearings, the process towards the auction is thorough and encompasses other important areas of law such as tax and environmental. Thus, the sooner adjustments start to be made the better.

 

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