May 14, 2020

Legal Update: New Regulation from the Brazilian National Petroleum Agency (ANP) on Decommissioning

On 27 April 2020, the Brazilian National Petroleum Agency (''ANP'') published a Resolution (n. 817/2020) establishing the rules for decommissioning of exploration and production facilities, as well as for the return of deactivated areas to the ANP (for the inclusion in future bids) and the sale and reversal of assets.

The Resolution marks an important stage in the Brazilian regulatory framework on decommissioning of exploration and production units, which was previously spread accross ANP Resolutions 27 and 28 of 2006 and Resolution 25 of 2014. Now, all the rules governing decommissioning have been unified under Resolution n. 817/2020.

The resolution is the result of a joint effort between the ANP, the Brazilian Environmental Agency (IBAMA) and the Brazilian Navy, who have now unified their rules and procedures.

Accordingly, instead of having to submit different documents to each agency, companies will now deliver a single Decommissioning Plan (''PDI'') to the ANP . The PDI will provide greater legal certainty and speed up the process, and will include environmental aspects and requirements on a case-by-case basis.

Other innovation brought by the Resolution is the public aspect of the decommissioning programs, which is intended to give greater predictability and to enable the market to organise and plan the offer of associated services (for example, shipyards to perform the dismantling of units), which will increase opportunities for the offshore market.

Further, the Resolution states that the ANP may include fields which are the object of approved decommissioning plans in new bidding rounds, 24 months before the date scheduled for the end of production, so that there is a transition of operators without interruption in the production. This simplification of rules for transferring fields from one company to the other will allow the extension of the useful life of the fields and the expansion of its recovery factor.

In a note to the press, the Agency stated that the new regulation is a milestone for the industry, since the modernization and simplification of procedures will provide opportunities for new businesses and more investment in the country. In their words, "only regarding decommissioning, the forecast is that the new standards will result in at least R$ 26 billion in investments within the next five years. The funds will be invested in contracting services for demolition and abandonment of wells, removal of equipment and recovery of areas, amongst others''.

The importance of the new regulation is also its momentum, given that these rules are capable of being applied immediately in the anticipation of decommissioning and deactivation of units by virtue of the outbreak of Covid-19, and its impacts on the offshore market.

Considering that decommissioning of offshore units imposes ongoing challenges to the oil and gas industry on a worldwide basis, it is crucial for players to keep updated on the new regulations in order to take advantage of new opportunities in the market, such as the one brought by this new Resolution in Brazil.

If you would like to know more about any of the information contained in this legal update please contact Senior Associate Denis Medeiros, Associate Patrick Carvalho and Partner Stirling Leech in our local Brazilian offices.