Brazil: Second Transfer of Rights Surplus Volume Bidding Round: Ordinance Regulating Co-participation Agreement Published

On June 1, 2021, Brazil’s Ministry of Mines and Energy (“MME”) published Ordinance No. 519/2021 ("Ordinance"), which regulates the Co-participation Agreement to be executed between the Assignee of the Transfer of Rights Agreement and the Contractor of the Production Sharing Contract of the Surplus Volume for the Sépia and Atapu Fields, during the Second Transfer of Rights Surplus Volume Bidding Round (“Co-participation Agreement”).

Minimum Content.

The Ordinance establishes that the Co-participation Agreement must include at least the following information: (i) identification and definition of the Co-participated Area; (ii) the Co-participated Area Operator, as designated by the Parties; (iii) the division of rights and obligations of Parties that involve or impact the Federal Union and the public interest; (iv) Participating Interests of the Parties; (v) the possibility of amending the Participations; (vi) the obligations of the Parties related to the payment of Government takes; (vii) percentages and Local Content rules; (viii) the Development Strategy of the Co-participated Area, to be replaced by the Development Plan by means of an Amendment; (ix) the term of the Co-participation Agreement; (x) the amount due to the Assignee as Compensation before the gross up, pursuant to the Tender Protocol of the Second Production Sharing Surplus Bidding Round; (xi) the possibility of adopting a procedure to propose sole risk operations; and (xii) dispute settlement mechanisms.

E&P Regime.

The Exploration and Production regime to be applied in the Sépia and Atapu Co-participated Areas is unrelated to the regime applicable to the area contracted under the Transfer of Rights regime and to the area contracted under the Production Sharing regime.

Operator Appointment.

The Parties shall appoint the operator from the Sépia and Atapu Co-participated Area within a maximum term of 60 days counted from the date of the public session of the Second Transfer of Rights Surplus Volume Bidding Round contracted in the Transfer of Rights of the Atapu and Sépia fields. If the operator is not designated as noted above, the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (“ANP”) will make the appointment, explaining its choice.

Redeterminations.

The Co-participation Agreement Redeterminations will be submitted for ANP’s approval in the Amendment to the Co-participation Agreement.

A Redetermination will not necessarily mean a revision of the Compensation amount before the gross up, the firm Compensation or its complement, or the Cost in Oil account, without prejudice to the execution of any private agreements between the Assignee and the Contractors.

Moreover, alterations in the obligations related to the payment of Government takes and third-party shares and revenues arising from Redetermination shall become effective as of Effective Date of Redetermination (noted in the item “Effectiveness” below) and shall not have retroactive effect on payments already made.

Effectiveness.

The Co-participation Agreement  will prevail and become effective from the first business day subsequent to the attestation, by the Empresa Brasileira de Administração de Petróleo e Gás Natural S.A. – Pre-Sal Petróleo S.A. (“PPSA”), of the Contractor's compliance with the payment of the Compensation ("Effective Start Date").

Possible Amendments will become effective from the first day of the month immediately after the Co-participated Area Operator becomes aware of ANP’s approval of the respective Amendment (“Effective Date”).

Transitional and General Provisions.

The Ordinance establishes that until the Effective Start Date of the Co-participation Agreement, the rules of the transfer of Rights Agreement shall apply, especially regarding the procurement of goods and services and the original acquisition of the production.

Unless otherwise agreed between the Parties, Contractors' liability under the Production Sharing regime for the Development and Production of the Surplus Volumes to the Contractors under the Transfer of Rights regime will not retroactively apply to:

(i) Administrative proceedings, arbitration and/or lawsuits in which the Assignee has already been notified or summoned, as the case may be, before the Effective Start Date; and

(ii) Local Content obligations regarding the procurement of goods and services related to activities of the partial Development Plan.

For more information in relation to this Legal Update, please  contact EnergypartnersTC@mayebrown.com.