Government Aims to End Petrobras Favoritism and Flexibilize Pre-Salt Exploration Regime

Change Has Potential to Increase Revenue in the Short Term and End Petrobras’ Right of First Refusal

The government intends to end Petrobras’ favoritism and relax the pre-salt exploration regime, allowing blocks in these areas to be auctioned under the concession model – where the company becomes the owner of the oil but assumes the risk of the activity, and the winner of the bid is the one who offers the highest price. Learn About the 9 State-Owned Companies That Will Be Privatized by the Government.

The change has the potential to increase federal revenue in the short term, which would allow for improvements in public finances at a time of resource scarcity.

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To achieve this, the government decided to amend the pre-salt law and eliminate Petrobras’ right of first refusal in the selection of blocks. The goal is to approve the proposal this year and for the changes to be implemented in next year’s auctions.

Currently, the areas of the pre-salt are auctioned under the sharing regime, established in 2010. In this model, the Union owns the oil, and companies act as partners. The auction revenue is fixed, and the winner is the one who offers the highest percentage of oil to the Union.

According to the current rule in the mega auction, the text establishes that the concession regime could also be used for hiring areas within the pre-salt polygon — a region defined by law that encompasses oil exploration fields between the Santos and Campos basins.

Brazil currently has two main oil exploration regimes: concession and sharing, with different tax criteria and royalty payments.

There is a third oil exploration model in the country, called onerous assignment. But this involved a single contract between the government and Petrobras, governed by specific law, for the exploration of five blocks in the Santos Basin, following the discovery of pre-salt.

Everything auctioned in the pre-salt polygon must be offered under the sharing regime. However, the government assesses that there are fields with lower productivity than the standard for this regime, which is why the Ministry of Economy advocates for the CNPE, advised by the ANP, to determine which legal regime is more advantageous for each block: sharing or concession.

More Competition

It’s as if the Union became a partner in the exploration, sharing risks with the companies. In the Libra area, the first granted under the sharing regime, the Union has the right to 41.65% of the produced oil, after production costs are deducted. This share of the oil is sold by the government itself, through the PPSA.

In the concession, the royalties are 10%, in addition to the payment of special participation — which progressively applies to the profits of very productive fields.

Therefore, the assessment is that, in fields with low levels of information or attractiveness, the concession model would be better suited to the exploratory risk level. There would be fewer risks for both the Union and the companies, making the fields more appealing to investors.

“The sharing regime does not lead to efficiency. It originated not to maximize efficiency but to meet political conveniences, when it was first adopted in Indonesia in 1966, to allow foreign companies to explore oil in Indonesia without having direct participation,” said Castello Branco at an event organized by the Brazilian Institute of Oil, Gas and Biofuels (IBP) in Rio de Janeiro.

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