Jan 30, 2020
With the possibility of postponing to 2021 the auctions under the sharing regime and the surplus Transfer of Rights of the Sépia and Atapu areas, the market’s attention is focused on the next auction in the concession model, the 17th Bidding Round of the National Agency Petroleum, Natural Gas and Biofuels (ANP), scheduled for the second semester. The traditional auction may have an additional factor of attractiveness: the offer of blocks in a promising area in the pre-salt layer located beyond the limits of the Exclusive Economic Zone (EEZ), 200 nautical miles off the Brazilian coast.
“The idea of including the blocks beyond the EEZ arose for three reasons: the occupation of our economic spaces, using the principle of ‘utis possidetis’ [principle that establishes a country’s right to a territory], the increase in the attractiveness of the 17th round and the acceleration of the exploitation of the resources contained therein ”, said the director general of ANP, Décio Oddone.
Due to the potential for resources indicated in preliminary studies by third parties, the government has announced the area as the “mirror of the pre-salt”. A positive point is that, as it is not included in the “pre-salt polygon” – a region defined by law and where blocks can only be offered under the sharing regime – the area can be bid under the concession model, which is more attractive to the market.
The development of the region, however, involves adaptations in regulation, to incorporate definitions of the United Nations (UN), in addition to demanding challenging logistics, due to its distance from the coast.
Interpretation by ZAG Consultoria, by geologist and former Petrobras senior consultant Pedro Zalán, based on a seismic survey prepared by the multinational TGS in an area at the height of the Santos Basin beyond 200 nautical miles indicated potential contingent resources of 20 billion to 30 billions of barrels of oil “in situ” (total oil not yet certified, contained in a reservoir and not necessarily recoverable).
The case involves geological and legal concepts. The continental shelf is a legal term that encompasses the space at sea that the country is entitled to and exclusive in the exercise of economic activity, of 200 nautical miles. This is the EEZ. The continental margin is a geological concept. In some cases, it exceeds 200 miles.
In these situations, the country can claim from the UN the right to explore this area, by paying a contribution to the International Seabed Authority (ISBA). The contribution, of 7%, is a kind of royalty charged on oil production. In 2019, the UN approved the Brazilian request to explore the area.
Since then, the Brazilian government has been analyzing ways to offer blocks in the region. Earlier this year, the National Energy Policy Council (CNPE) formed a working group to study the feasibility of including these areas in the 17th round. The team has until March 10 to report.
In practice, the group’s objective is to discuss possible political, legal and legal barriers to bid blocks beyond the EEZ. Among the uncertainties raised is the need to publish a presidential decree or some other device that regulates the continental shelf. In addition, regulation regarding the payment of the contribution to ISBA is required.
Today it is not clear whether the payment of the contribution should be made by the requesting country or if it can be made by the operator of the oil and gas exploration block.
In case the payment is made by the operator, it will also be necessary to define whether a specific law is required or if it is enough to include the obligation in the auction notice. The payment of signature bonuses, royalties and special participations, related to conventional auctions, are provided for in Law 9.478 / 1997 – the Petroleum Law.
According to Rafael Feldmann, partner at Themudo Lessa Advogados, the notices and legal instruments related to the theme will need, for the first time, to contemplate and provide for the payment of the contribution to ISBA. He believes that these points can be resolved, from a legal point of view. The biggest challenge, in his opinion, may be the economic and financial viability of the projects, considering the distance from the Brazilian coast and the payment of the contribution.
In the same vein, professor at the School of Chemistry at UFRJ and specialist in energy planning Luís Eduardo Duque Dutra points out that, in addition to the international legal issue, three points are important: geological risk, logistical cost and investment in the exploration and production of area.
According to the specialist’s accounts, due to the risks and costs involved, including the payment of the contribution to ISBA, the area is only economically viable from a volume of 2 billion barrels of oil and at a price of a barrel above US $ 50. Considering the need for scale, the business, pointed out the professor, is accessible only to large oil companies.
“We are talking about the last oil frontier,” he said.
Internally, the government discusses the best time to bid on blocks in the area. Due to the frustrating recent results in the sharing auctions and the fact that the main international oil companies already have a robust exploratory portfolio in Brazil, one possibility would be to auction the areas from 2021. On the other hand, considering the ongoing energy transition process , it is necessary to accelerate the supply and development of these areas.
Due to its complexity, the topic has demanded special attention from various spheres of government, such as the Ministries of Mines and Energy, Foreign Affairs and Economy, the Navy and ANP.
Source: Valor
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