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ANP approves resolution that regulates waiver and amendments of contracts to reflect new local content rules

Oil and Gas

The Federal Official Gazette  published on April 12th Resolution No. 726/2018 ("Resolution"), which was approved by the National Agency for Petroleum, Natural Gas and Biofuels (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis - “ANP) on April 11, 2018. 

The Resolution regulates: (i) the requirements and procedures for approval of waiver of compliance with local content rules, (ii) rules for adjustment and transfer of surplus of local content, and (iii) the possibility of amendment of local content clauses in valid contracts to reflect the new rules currently in effect. 

The Resolution’s seeks to give transparency to the procedures adopted by ANP in its analysis of request for waivers, adjustments and transfer of surpluses, which are applicable to concession contracts for the 7th to the 13th bid rounds, the transfer of rights contracts, the production sharing contract for the 1st production sharing bid round and the contract regarding the unitized area neighboring the Gato do Mato (2nd production sharing bid round).

Waiver requests

Request for waivers will be applicable, if: (i) there is no national supplier, (ii) proposals from Brazilian commercial suppliers contain excessive prices, (iii) proposal from Brazilian commercial suppliers contain excessive delivery deadlines, and (iv) use of new technology that does not exist in Brazil.

The operator must file the waiver request by the date for filing the last local content report of each local content measurement, submitting all necessary documentation and observing the requirements established in the Resolution.

The ANP will hold a public consultation during the waiver's instruction process to enable interested parties' to provide comments.

Adjustments and transferring of surpluses

Any adjustment request to review the local content percentage for a certain item or sub item must be filed within the same deadline for filing the last local content report of each local content measurement. The authorization for the adjustment will be granted at the ANP's sole discretion, in exceptional cases and duly justified by public interest.

The Resolution also establishes deadlines and rules to be adopted in connection with the request for transfer of surpluses (i) from the exploration phase to the development of the production stage or (ii) among specific commitments regarding the same development phase or stage.

Amendment of valid contracts to reflect the new local content rules

The Resolution also introduced the possibility to amend the local content clause of  concession contracts up to the 13th round, of transfer of rights contracts and of production sharing contracts, which are currently in effect, to reflect the new local content commitments in line with those established in the most recent bid rounds, as follows:

(i) On-shore projects: for exploration and development: 50%;

(ii) Off-shore projects:  (a) For exploration: 18%; (b) For development of the production: (1) for the construction of wells: 25%; (2) for collection and flow: 40%; and (3) commitments related to the Stationary Production Units (Unidade Estacionária de Produção – UEP), which is divided into three segments: 40% for engineering, 40% for machines and equipment and 40% for construction, integration and assembly.

However, if the concessionaire choses to amend the contract it will lose the right to submit waiver and adjustment requests. Furthermore, the concessionaire will have to waive any and all claims that it has against the ANP regarding fines already imposed by the ANP as a result of any failure to comply with local content commitments.

Concessionaries have 120 days, as of the publication of the Resolution (i.e. until august 10th, 2018), to express their interests in amending their contracts.  

The entire content of the Resolution, in Portuguese, can be found in the follow link.

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