InternationalPolitical Economy

THE THREE INTERNATIONAL PETROLEUM AGREEMENTS
COEXISTENCE IN PRE-SALT AREA AND THE IMPACTS

OVER THE UNITIZATION PROCESS
Luciana Braga
M.Sc. Energy Planning
Analyst at Brazilian National Petroleum Agency
BRAZILIAN CONTEXT
BRAZILIAN CONTEXT
• Pre-salt discover in 2007: 50 billion barrels of estimated reserves; oil of good

quality – approximately 29° API.
• Changes in Brazilian Petroleum Legal Framework: Law n.° 12.276/2010

(Petrobras Capitalization e Onerous Assignment Agreement); Law n.°
12.304/2010 (create Pré-Sal Petróleo S.A.) e Law n.° 12.351/2010 (Production
Sharing Agreement and Social Fund)
• Three International Petroleum Contracts (IPAs) in Pre-salt Area:
Concession Onerous Assignment Production Sharing Agreement
28% 2,46% 69,50%
55 Blocks/Fields 7 Fields _
UNITIZATION
UNITIZATION
Definitions
• Ribeiro (2005) defines unitization as the coordinated operation of the entire or

extensive part of an oil or gas reservoir by the owners or holders of rights of
the blocks situated over the reservoir, whose basic function is to provide an
efficient drainage of the reservoir, using the best engineering techniques, which
are economically viable
• Weaver e Asmus (2006) classifies unitization in three phases: Pre-agreement;

Agreement and Redetermination
• To Owen Anderson (1984) unitization process is usually complex and slow,

that begins with the operational committee creation, constituted by the
companies which has E&P rights under the shared reservoir
UNITIZATION IN PRE-SALT AREA
UNITIZATION
Pre-salt Area
• Tomasquim e Pinto Júnior (2011): considering that Pre-salt reservoirs can

have several sections hydraulically connected, unitization agreements (AIPs)
will be inevitably signed.
• Derman e Melsheimer (2010): Pre-sal area, due to geological structure, has

multiple reservoirs and, due the size and number of blocks, there is high
probability of many shared reservoirs, under different IPAs.
BRAZILIAN REGULATION
UNITIZATION
Brazilian Regulation
Law n.° 9.478/97
Art. 27 - Revoked
Law n.° 12.351/2010
Art. 33 - Compulsory, even when the same company or consortium has

the E&P rights of the blocks where the shared deposit is located
Art. 34 – ANP’s obligation to regulate unitization procedures and
guidelines, and monitor agreement negotiation
Arts. 36 e 37 – The Government (PPSA or ANP) will enter into an
unitization agreement in cases where the deposits from the Pre-salt
polygon and the strategic areas extend to areas which are not granted
or shared. The E&P regime is regardless of regime effective in the
adjacent areas
Art. 38 – Petrobras could be contracted directly in order to carry out the
evaluation activities
Art. 40 - Absence of agreement between the parties: ANP shall determine
based on technical report or termination of the IPA
UNITIZATION
Brazilian Regulation
Concession Agreement
• Regarding unitization clauses, Bucheb (2007) indicates three generation of

concession agreements: one from First Round until Forth Round; other of Fifth
Round; and other from Sixth Round onwards. However the basic structure was
kept in all the concession agreements.
• Foresee some of Law n.° 12.351/2010 dispositions, such as: use of the term
‘deposit’ instead of field; predicting that ANP will enter into an unitization
contract in case of not granted areas; requiring minimum information that
should be included in the agreement; monitoring the negotiations by ANP, and
predicting the operations suspension during the transactions. From the Fifth
Round, also predicted the IPA termination, if one party refuses to sign the
agreement.
POTENTIAL PROBLEMS
UNITIZATION
Practical Potential Problems in Pre-salt Area
Ribeiro (2010) says the coexistence of different regimes (concession and

producting sharing) in neighboring areas can cause huge technical difficulties in
case of unitization
UNITIZATION
DIVISIBLE OBLIGATION x INDIVISIBLE OBRIGATION*
The fiscal systems should be applied independently (and proportional) for each
portion of unitized field, respecting the contracts involved original features,
admitting specific ruling by regulator only to the contractual obligations that
need to be fulfiled entirely, observing the public interest, the social function of
the contract, the best practices of the oil industry, the principles of contracts
preservation and proportionality. (DAVID e LOPES, 2011 - Parecer n.°
094/2011/PF-ANP/PGF/AGU)
* Art. 258 of Brazilian Civil Code provides that indivisible obligation occurs when the installment has as
object a thing or fact that cannot be divided by nature, by economic ordem reason, or given the legal
business reason
UNITIZATION
First hypothesis:
• the deposit extends to three blocks, one under concession agreement,

other under onerous assignment and the third block under production
sharing agreement
Concession PSA
Onerous
Assignment
UNITIZATION
o Potential Problem:
• Definition of percentages and rules for local content commitment, given

the difference in contractual dispositions and the difference in
percentage of each International Petroleum Agreement (IPA)
o Indivisible Obligation
o Possible Solutions:
• adopt the lowest commitment defined in IPAs involved;

• adopt the biggest commitment;
• adopt an intermediate value in accordance with a rule of ponderation;
• define a specific rule for unitization cases
UNITIZATION
• Defining the government take
o Divisible Obligation
• Calculation by IPA, proportional to participating interests

UNITIZATION
• Gold Plating: tendency of the contractor under the production sharing

regime to be less efficient in its spending
• Pré-Sal Petróleo S.A. (PPSA) monitor and audit costs and investments
related to Producing Sharing Contract.
UNITIZATION
• Define the operator: Petrobras as the unique operator of Pre-salt Area
o Indivisible Obligation (carryng out the operations)
• Art. 35 of Law n.° 12.351/2010 permits an indication of a different

operator for AIP
UNITIZATION
• Definition of unitized area: several alternatives in AIPN model of

unitization agreement (reservoir/deposit; stratigraphic horizon; depth or
full depth)
• Art. 33 of Law n.° 12.351/2010 establish that unitization procedure

must be done by deposit
UNITIZATION
• Definition of unitization agreement duration
• ANP could standardize the IPAs’ duration authorizing, at its sole

discretion, the extent of the validity of IPA with lower lifetime to reach
the one with highest validity
UNITIZATION
Second hypothesis:
• the deposit extends to an area whose E&P rights were not granted or
shared
Concession Onerous
Assignment
Area not granted

or shared
UNITIZATION
• Lack of IPA for the area not granted or shared
• Replicate the IPAs’ parameters - operator, local content, duration

(WEAVER e ASMUS, 2006)
• Government Take according the legislation in force– royalties rates

probably different
• Adopting an independent fiscal regime, according art. 36, § 2° of Law

n° 12.351/2010)
UNITIZATION
• The future concessionaire or contracted under producing sharing regime

is obligate to obey the unitization agreement dispositions signed by
PPSA
• Permit the future concessionaire or contracted under producing sharing

regime make the necessary adjustments in the unitization agreement,
since they do not harm the public interest, and be approved by ANP
UNITIZATION
• Government participation in E&P investments
• Exploration costs: the Government can not assume any risk and,
therefore, operating costs
• Production costs: the Government will assume the costs in proportion to

its participation, to prevent unjust enrichment. This payment must be
made in kind, being compensated by the share of production due to the
Government
UNITIZATION
• Evaluation of the adjacent area not granted or not shared
• Art. 38 of Law n.° 12.351/2010: allows to contract Petrobras directly to

carry out the evaluation activities – exception to art. 23 of Law n. °
9.478/97
UNITIZATION
• Share of production due to Government
• Art. 45 of Law n.° 12.351/2010: establishes that the share of the

Government shall be delivered in kind, which will be commercialized by
Petrobras, after being hired directly by the PPSA
FINAL REMARKS
FINAL REMARKS
o For a more detailed analysis is necessary the analysis of the contractual terms
of the Brazilian PSA and the unitization procedure to be published by ANP as
well as their specific regulations
o Hypothetic analysis: none AIP involving more than a kind of IPA or involving
an area whose E&P rights were not granted or shared was signed in Brazil
o The solutions presented may not be the most suitable when faced with a
factual situation.

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THE THREE INTERNATIONAL PETROLEUM AGREEMENTS

COEXISTENCE IN PRE-SALT AREA AND THE IMPACTS

• Pre-salt discover in 2007: 50 billion barrels of estimated reserves; oil of good

• Changes in Brazilian Petroleum Legal Framework: Law n.° 12.276/2010

• Three International Petroleum Contracts (IPAs) in Pre-salt Area:

Concession Onerous Assignment Production Sharing Agreement

28% 2,46% 69,50%

• Ribeiro (2005) defines unitization as the coordinated operation of the entire or

• Weaver e Asmus (2006) classifies unitization in three phases: Pre-agreement;

• To Owen Anderson (1984) unitization process is usually complex and slow,

• Tomasquim e Pinto Júnior (2011): considering that Pre-salt reservoirs can

• Derman e Melsheimer (2010): Pre-sal area, due to geological structure, has

Law n.° 9.478/97

Law n.° 12.351/2010

Art. 33 - Compulsory, even when the same company or consortium has

• Regarding unitization clauses, Bucheb (2007) indicates three generation of

Ribeiro (2010) says the coexistence of different regimes (concession and

DIVISIBLE OBLIGATION x INDIVISIBLE OBRIGATION*

• the deposit extends to three blocks, one under concession agreement,

• Definition of percentages and rules for local content commitment, given

• adopt the lowest commitment defined in IPAs involved;

• Defining the government take

• Calculation by IPA, proportional to participating interests

• Gold Plating: tendency of the contractor under the production sharing

• Define the operator: Petrobras as the unique operator of Pre-salt Area

o Indivisible Obligation (carryng out the operations)

• Art. 35 of Law n.° 12.351/2010 permits an indication of a different

• Definition of unitized area: several alternatives in AIPN model of

• Art. 33 of Law n.° 12.351/2010 establish that unitization procedure

• Definition of unitization agreement duration

• ANP could standardize the IPAs’ duration authorizing, at its sole

Area not granted

• Lack of IPA for the area not granted or shared

• Replicate the IPAs’ parameters - operator, local content, duration

• Government Take according the legislation in force– royalties rates

• Adopting an independent fiscal regime, according art. 36, § 2° of Law

• The future concessionaire or contracted under producing sharing regime

• Permit the future concessionaire or contracted under producing sharing

• Government participation in E&P investments

• Production costs: the Government will assume the costs in proportion to

• Evaluation of the adjacent area not granted or not shared

• Art. 38 of Law n.° 12.351/2010: allows to contract Petrobras directly to

• Share of production due to Government

• Art. 45 of Law n.° 12.351/2010: establishes that the share of the

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