Brazilian Energy Policy Council authorizes royalty rate reduction for marginal fields

On August 12, 2022, Brazil’s Ministry of Mines and Energy (MME) published a presidential order approving the National Energy Policy Council’s (CNPE) Resolution No. 5/2022, which provides for measures to stimulate the development and production of hydrocarbon accumulations or in economically viable marginal fields.

The reduction in royalties was already expected for incremental production in mature fields and production by small and medium-sized companies. However, after years of studies and regulatory discussions within the E&P industry, the CNPE has also extended this incentive to marginal fields.

Since the Oil and Natural Gas Exploration and Production Policy (Policy) was published via CNPE Resolution No. 17/2017, the CNPE has been implementing measures aimed at maximizing the recovery of reservoir resources in situ, quantifying the national oil potential and intensifying exploration activities in the country, as well as promoting the adequate monetization of existing reserves.

Among other objectives, the policy provides for the MME to establish specific guidelines for the National Agency of Petroleum, Natural Gas and Biofuels (ANP) in order to stimulate the exploration and production of oil and natural gas.

Published in May 2022, ANP Resolution No. 877/2022 defined the oil and gas fields and deposits with economic potential, as well as those corresponding to marginal fields. However, a CNPE resolution expressly authorizing the ANP to establish incentives for marginal fields was still pending prior to CNPE Resolution No. 5/2022.

Now that the new resolution has been published, the ANP is authorized to adopt the following measures for oil and gas exploration and production in marginal fields and hydrocarbons accumulations:

• A reduction in royalties to 5% – the minimum rate permitted by law;

• Implement strategies to reduce costs imposed on the sector’s economic agents, in line with the Policy that aims to increase the country’s attractiveness and improve the efficiency of processes;

• Three guidelines for extending contracts related to marginal fields: only contracts with production periods that are viable beyond the original term may be extended; plans and programs outlining the activities necessary for operation and production must be evaluated and approved in line with the best practices of the petroleum industry; and extended terms must be compatible with the expected production volume (limited to 27 years).

The ANP still needs to publish specific regulations to implement these measures.

Moreover, the ANP also has 180 days to present a report with proposals for reducing greenhouse gas emissions linked to E&P activities.

Finally, the CNPE has also determined that the ANP must notify companies operating in fields with no production for over six consecutive months to resume production based on the new plans and programs within 12 months – though this period may be extended. Otherwise, these companies must transfer the rights over the fields to others that have the capacity and are committed to resuming production.

For further information on CNPE Resolution No. 5/2022, please contact Mattos Filho’s Infrastructure & Energy practice area.