Brazil's ANP publishes Open Acreage contract, rules for 11 subsalt blocks

Brazil's National Petroleum Agency, or ANP, published the preliminary production sharing contract and auction rules for 11 subsalt blocks recently included in the country's Open Acreage program amid a broader shift to a new sales model for oil and natural gas development, the regulator said Feb. 22.

The contract and rules will be out for public comment and criticism for 30 days, with a public audience scheduled for March 25, the ANP said.

The start of the comment period continues the strategic shift underway in Brazil after lackluster results at licensing sales held since late-2019, when many of the world's biggest oil companies sat out subsalt and transfer-of-rights production sharing auctions. Officials acknowledged the need to improve terms, reducing signing bonuses and minimum profit-oil guarantees when auctions restarted in 2021 but the lack of competition persisted.

Brazil's National Energy Policy Council, or CNPE, in December moved to include all onshore and offshore acreage, including areas inside the subsalt polygon that requires production sharing contracts for development, under the Open Acreage program. The decision effectively ended Brazil's use of the annual bid rounds and production sharing sales in place since 2000.

The Open Acreage program has been well received by companies and investors, lauded for its greater flexibility, reduced bureaucracy, and lower costs. The program allows oil companies to evaluate the portfolio of blocks and mature fields on their own time, free of the pressure-packed deadlines that typically surround bid rounds and production sharing auctions often scheduled closely together.

An Open Acreage cycle is triggered when any one of the 78 companies registered for the program makes a declaration of interest in any area included in the program's portfolio. That starts a countdown of up to 120 days until a public bidding session is held.

The regulator has so far held two successful Open Acreage cycles, including during the pandemic, with a third cycle triggered Dec. 16.

In September 2019, 33 onshore and offshore blocks and 12 mature fields were sold, raising $3.76 million in signing bonuses in the first Open Acreage cycle. The second Open Acreage sale was held Dec. 4, 2020, selling 17 onshore and offshore blocks for signing bonuses of $6 million.

The public bid session for the third cycle is scheduled to be held April 13, according to the ANP.

The Open Acreage program's portfolio includes all onshore and offshore exploration and production concessions that went unsold at previous auctions or were returned to the ANP. In addition, mature areas holding marginal accumulations of oil and gas previously returned to the ANP also are included.

The program currently covers 1,068 blocks, including 522 onshore and 546 offshore, according to the ANP. An additional 78 onshore blocks and 272 offshore blocks are currently under evaluation to be included in the program.

The third cycle portfolio, however, won't include the blocks unlocked by the CNPE's December resolution. The blocks need to pass a preliminary environmental analysis as well as the public comment period before they can be added.

Brazil, however, expects the process to be completed and the 11 subsalt blocks eligible for nomination yet in 2022, the CNPE said Feb. 10.

Better terms

The CNPE set preliminary signing bonuses and minimum profit-oil guarantees for the 11 blocks in December, further improving terms from previous sales.

The Agata, Agua Marinha, Esmeralda, Jade, Turmalina and Tupinamba areas were set to be sold during the seventh and eighth subsalt production sharing auctions, the ANP said. Bumerangue, Cruzeiro do Sul, Itaimbezinho, Norte de Brava and Sudoeste de Sagitario, meanwhile, failed to sell at the country's fourth and sixth subsalt production sharing auctions.

State-led oil company Petrobras exercised its preferential right to hold at least a 30% operating stake in the Agua Marinha and Norte de Brava areas Feb. 3.

Signing bonuses for the 11 subsalt production sharing areas were set at a total of $229 billion, with Norte de Brava featuring the largest signing bonus at $101 million. That was followed by Sudoeste de Sagitario at $65.3 million and Cruzeiro do Sul at $26.5 million.

The CNPE also set minimum profit-oil guarantees for the 11 fields at 4.88%-22.71%. Norte de Brava had the highest minimum profit-oil guarantee at 22.71%, followed by Sudoeste de Sagitario at 21.3% and Cruzeiro do Sul at 14.13%.

Potential investments in the areas could be worth up to $150 billion, according to the ANP.