Sub Salt Play 2017 – 2nd and 3rd PSA Rounds
Our previous issue (read it here) highlighted the 14th concession round scheduled for late September this year. That round is distinguished as the actual relaunch of a calendar of more vigorous exploration and production (“E&P”) bid rounds, as well as for the incentives that should particularly attract the so-called small and midsized companies.
Besides the 14th concession round, this second half of 2017 will host two other bid rounds within the sub salt play, ruled by production sharing rules and agreement (“PSA”) and expected to be the room particularly for the so-called oil majors.
Those bids are the 2nd PSA Round for areas under unitization (neighboring already awarded blocks) and the 3rd PSA Round for lower exploratory risk areas.
The effects of such bids, alongside the 14th concession round, will certainly echo in the mid and downstream, therefore it is also a great opportunity for suppliers, contractors and lenders to reposition their strings.
In this issue, we highlight what, in our view, are the key features of those two bids scheduled for late October, at the very same date.
Profiles of the two groups of opportunities
Petrobras preference right – Late last year a new and welcome law softened the PSA legal framework by means of an overruling of the mandatory operatorship by Petrobras.
As opposed to a controversial benefit of operatorship, Petrobras was granted a preference right to be the operator of any blocks on auction under the PSA rules . Basically, at each such auction there will be information on the blocks selected by Petrobras to be the operator, and the minimum participation interest of Petrobras in an eventual consortium with other players (i.e. in case other players have decided to be in consortium with Petrobras).
The 2nd PSA Round and the 3rd PSA Round will be the first ones under those new rules and the result of such preference right of Petrobras on each of those rounds are as follows:
Unitization (2nd PSA Round) – The areas on offer in this bid are made of reservoirs that expand into areas under concession contracts, therefore requiring unitization procedures. The bid protocol itself anticipates most of the main issues to be addressed by the relevant parties, such as the very unitization agreement, local content, incurred expenses within the joint deposit before unitization and eventual appropriation of production.
What the terms are
A new mindset and approach towards local content was introduced within the 14th concession round and also followed on the coming PSA rounds.
As we observed in our previous notes on opportunities in oil & gas, despite the merits of the existing model and the efforts, from time to time, implemented by the regulator for harmonization with the industry’s best practices, the government has recognized that lower international oil prices and local bottlenecks should be addressed rapidly and efficiently, in preparation for the return of the bid rounds.
Henceforth, local content requirements for the 2nd PSA Round was set as 35% to 55% for exploration and 30% to 65% for development. In turn, for the 3rd PSA Round the thresholds are:
Stationary production units 25%
Well construction 25%
Collection and disposal system 40%
Overall, the bid documentation process, which was already well known but cumbersome, has been softened. For example, the bid rules acknowledge the effects of the Hague Apostille Convention that took effect in Brazil on August 14th, 2016 in order to simplify the legalization of documents between the signatory countries/Member States.
Next steps – target dates
ANP (National Agency of Petroleum, Natural Gas and Biofuels) has recently held public hearings on the bid process (including the bid protocol) and draft concession contract and, so far it has scheduled the public auction session for October 27th.
In order to participate in the auction, potential bidders must observe two other deadlines: registration of the bidding company until September 8th (condition for obtaining the relevant data package), and submitting the bid bonds until October 11th.
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.
Our Oil & Gas team has industry expertise and is constantly mapping potential business opportunities, studying and getting involved on legal and regulatory discussions. We have broad experience in oil & gas matters and transactions and in complementary areas of law, as well as on the liaison with the relevant authorities.