Brazil round

Dec. 20, 1999
Re: Brazil touts better terms in new bid round (OGJ, Nov. 22, 1999, p. 30).

Re: Brazil touts better terms in new bid round (OGJ, Nov. 22, 1999, p. 30).

While we are very pleased by the Oil & Gas Journal's interest in Brazil, there are a couple of factual errors contained in the article, and other points on which we believe clarification may help.

You will appreciate that a large number of companies relies on respected publications such as yours for information on industry events, and therefore having the facts correct for these is critically important for both of us. We believe it would be helpful if you could publish the appropriate clarifications in your next issue:

  • Paragraph 10 states, "Data packages with geophysical information to be purchased by interested parties will remain available until yearend"-and repeat this point later on. Actually, companies do not purchase data, but pay participation fees, which gives them access rights to the data. However, more importantly, those fees may be paid starting shortly, and data will be made available to companies paying fees from the start of January 2000 until about a month before the bidding takes place (likely to be in June 2000).
  • You also note that "ANP will classify competing operators as: C, small companies; B, midsized independents; and A, multinationals." The ANP will indeed classify operators as A, B, or C. However the classification is based on the demonstrated experience of the company and its personnel, not the size classification of the company. It is quite possible for companies to be qualified as operators otherwise than as suggested by yourselves.
  • Paragraph 14 states "the minimum financial requirements were reduced to $3 million for C operators, from the $10 million in net assets required for all bidders for the first licensing round." This is not quite correct. Eight of the 10 onshore blocks, deemed to be in mature areas, have been designated as capable of being operated by companies who only require a C classification as operator. In Round 1, all participants were required to demonstrate a minimum of $10 million in equity (not just net assets) to participate. In Round 2, companies (operators and nonoperators) need only demonstrate $3 million of equity in order to bid (and participate if successful) in those eight onshore blocks. However, in order to participate in the other blocks, companies (including companies categorized as C operators, although for these other blocks they would only be able to participate in consortia as nonoperators) will still have to demonstrate $10 million of equity.
  • You also add, "The B type operators will only be able to bid for 15 of the blocks." As operator, companies classified as B operators can only bid for B and C category blocks. However, assuming they have paid the appropriate participation fee, and have met the minimum equity requirements, any qualified company may bid on any block in a consortium as a nonoperator.
  • The articles states, "Winning bidders will have 1 year within the first exploratory phase to analyze technical data and decide whether to proceed with investments or not." It is important to note that this 1 year period for analysis only applies to the mature area onshore blocks with C category operators.

Finally, I would like, if I may, to address a couple of points of style. You state in the second paragraph of the article that "ANP had responded to a flurry of complaints from companies that accompanied its first exploration licensing round." As an explicit part of the Round 1 process, the ANP engaged in an active dialogue with companies, that included a 2-day seminar where technical, legal, and commercial issues were discussed. Comments on the Concession Agreement were also solicited from the companies. While it is true that there were issues raised by the companies that they considered very important (indeed, I refer to these in my article in the same OGJ issue), I feel it is wrong to characterize this as a "flurry of complaints."

Additionally, while the issue of royalty rates was one of those raised, I think it is inappropriate to call it "hefty." The royalty rate in Brazil is 10%, although the ANP has the right to reduce this to as low as 5% (the legal minimum) in appropriate circumstances and is actively considering options for royalty reductions in Round 2. For those countries that have, or retain, royalty in their petroleum fiscal system, 10% can hardly be described as hefty. It makes me wonder what word you would therefore use to describe the royalty regime in the US. I hope that you find these comments helpful, and look forward to the corrections and clarifications being published shortly.

Ivan Simoes Filho