Web Alert: Brazilian Senate approves a new bill to amend the pre-salt E&P regulation

On 24 February 2016 the Brazilian Senate approved Bill of Law no. 131/2015 to amend the production sharing regime in the pre-salt oil fields.

The current legislation, Bill of Law 12,351, was enacted on 22 December 2010 to regulate the exploration and production of Oil & Gas under the regime of Production Sharing Agreements (PSA) in the pre-salt or strategic areas. Law 12,351 provides that Petrobras will be appointed as the sole operator responsible for the execution of the E&P projects and will hold a minimum participating interest of 30% in each field.

Petrobras is in the middle of a financial and political crisis which has raised concerns about its ability to carry out its E&P programs in the pre-salt. The failing oil prices, the drop of Petrobras shares, the downgrading of its ratings and its involvement in the lava-jato corruption scandal have considerably affected the company. This has triggered a wave of debates about whether amendments should be made to the legal framework in order to ease the financial obligations that Law 12,351 imposes on Petrobras and to attract foreign investors.

In June 2015 Senator Jose Serra, former PSDB presidential candidate, submitted to the Senate under the urgent business procedure Bill 131/2015  revoking Petrobras’ mandatory role as the exclusive operator and its requirement to hold a 30% participating interest on all pre-salt developments under the production sharing regime.

The Brazilian Senate approved an amended version of the Bill, where Petrobras is granted the right of first refusal on future pre-salt blocks tenders. Under the new drafting of the Bill, the National Council of Energy Policy (CNPE) will offer Petrobras a right of first refusal to be exercised within a period of 30 days. Should Petrobras exercise this right, it will have a minimum share of 30% in the block.

The Bill has been sent to the Brazilian Congress, where it is currently under analysis by a Special Commission.

Some quarters in the oil and gas industry see the Bill as a pragmatic movement to encourage international investment in Brazil. However, in the current economic climate, it is difficult to gauge the impact of a measure like this would have in  E&P of oil and gas in such a challenging and expensive area as the pre-salt.