Resolution on Decommissioning Guarantees Approved by Regulatory Agency for Oil, Natural Gas, and Biofuels Industries in Brazil

Decommissioning Is the Set of Activities Associated With the Definitive Cessation of Operations of Facilities, the Permanent Abandonment and Demolition of Oil and Gas Wells

On September 23rd, the ANP approved a resolution that regulates procedures for presenting guarantees and instruments that ensure the decommissioning of production facilities in oil and natural gas fields. This issue has gained particular importance in the current context, with the approaching end of contracts from the Zero Round and the execution of divestment projects by Petrobras, transferring the rights and obligations of a significant number of contracts to other companies.

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Decommissioning of Facilities Was Already Foreseen in Oil and Natural Gas Exploration and Production Contracts

The presentation of financial guarantees for decommissioning facilities was already foreseen in the oil and natural gas exploration and production contracts established between the ANP and the companies. The resolution provides predictability regarding the timing of the guarantee presentation and legal security regarding the criteria required for its acceptance by the ANP, respecting the Agency’s discretionary authority.

The decommissioning is the set of activities associated with the definitive cessation of operations of facilities, the permanent abandonment and demolition of wells, the removal of installations, the proper disposal of materials, waste, and by-products, the environmental recovery of the area, and the preservation of local navigation safety conditions.

This activity is a contractual obligation and is carried out at the end of the productive life of the field when production is no longer sufficient to cover operating costs.

Decommissioning Requires Contractors to Incur Expenses at a Time When the Field No Longer Provides Financial Returns

Decommissioning requires contractors to incur expenses at a time when the field no longer provides financial returns. Therefore, the contracts for oil and natural gas exploration and production dictate, in addition to the obligation to conduct the abandonment and deactivation of facilities, the obligation to present financial guarantees to secure the necessary resources for this purpose.

The ANP started debating the topic in 2015, and from 2018 onward, during the Public Hearing No. 8/2018, discussions were intensified through working groups with stakeholders, allowing the consolidation of the types of guarantees, the methodology for calculating decommissioning costs, and the progressive contribution model, with the aim of financially securing decommissioning for the Union.

The ANP submitted the draft for market consideration through a prior consultation in March 2020, followed by public consultations and hearings, resulting in the new resolution approved yesterday.

The resolution will come into effect following its publication in the Official Gazette, in accordance with Decree 10.139/19.
See HERE for presentations on the topic.