Brazil’s 13th concession bid round – the challenging bid round


Financier Worldwide Magazine

November 2015 Issue

November 2015 Issue

On 7 October 2015, Brazil’s 13th concession bid round, held by the Brazilian National Petroleum, Natural Gas and Biofuel Agency (ANP), offered 266 exploratory blocks – 182 located onshore and 84 offshore. In addition, 11 marginal fields were offered.

Recently, the Brazilian oil & gas industry has been demanding from the ANP more frequent bid rounds for the consistent development of the exploratory industrial chain, comprising suppliers and services providers. From this angle, the bid round is good news.

On the other hand, the Brazilian oil & gas industry is now evaluating to what extent this is a good time to invite bids. In addition to the global oil price crisis, Brazil is currently facing a unique situation, not only economically and politically, but also in terms of the uncertainty surrounding its state-owned oil & gas company Petrobras, in the wake of a huge bribery scandal connected with several layers of government and major suppliers and services providers.

Considering that Petrobras is by far the most significant player in Brazil for the development of the entire oil & gas industrial chain, a culmination of factors is pressuring the company, and consequently the whole industry, to cut or postpone investments as far as possible.

In such an environment, a big question mark hung over the concession bid.

The ANP also decided to make some significant changes to this particular bidding process and to the wording of the concession contract template. These changes were not well received by the industry.

Bid procedure

With respect to the bidding procedure and documentation, the Petroleum Law (Federal Law No. 9.478 dated 6 August 1997), among other matters, created the ANP and established the basic rules allowing either state-owned or private companies to participate under similar conditions based on concessions granted by the ANP. Since the first concession bid round, any E&P company interested in participating in the ANP’s bid rounds would have to be individually qualified by submitting certain documents (e.g., announcement of interest, technical, legal and financial qualification documents) and paying a participation fee. After meeting the qualification requirements the qualified company would provide a bid bond for each corresponding block for which it planned to make offers, and the winner selection would be made based on a tripod method criteria contemplating the most attractive offer of cash as a signing bonus, along with the minimum quantity of work obligation and the percentage of local content.

Although these procedures changed slightly over subsequent bid rounds, the concept of qualification was maintained and has been satisfactory for all entities, although it demanded from the ANP a more robust analysis of all interested bidders before the bid, even if no offers were made.

As a result, particularly for this 13th concession bid round, the ANP decided that in order to present an offer, any bidder would not have to provide a whole qualification package, but just a statement. Only the winning bidders for each block would need to then provide the qualification package for the ANP’s analysis.

The ANP explained that this decision was made to optimise the qualification process; however, it was not well received by the industry. The reason is that the procedure triggers a high level of uncertainty, given that a bidder may present the best offer, be considered the winner entity, but later not be accepted by the ANP, claiming that the qualification package was not in compliance with the bidding process.

This uncertainty is even worse if bidders decide to enter into a consortium to make an offer. It may be that one member of the winner consortium later fails the ANP qualification process, and in such case the other members would have to re-discuss their participation interest in the block.

In summary, the change runs the risk of harming both the participation of players individually, as well as consortiums.

Notwithstanding the above, in an effort to attract as many interested players as possible, the ANP recently made a change in the bid documentation to reduce the minimum amount of the bid bond required for each block, as well as the commitment to be provided by an interested bidder for each minimum work obligation.

Draft of the concession contract

The concession contract for the 13th concession bid round is one of the attachments to the bidding documents. The chairman of the Brazilian Institute of Oil and Gas (IBP) has already stated that this is the worse concession contract ever put forward by the ANP, for a number of reasons.

Firstly, the current wording of the concession contract now demands that an appraisal plan is made before the declaration of commerciality, irrespective of whether the concessionaire has already decided to start the development or production process. The industry claims that the declaration of commerciality has always been a discretionary decision of the concessionaire, and it may be decided regardless of whether there is an appraisal plan beforehand.

Secondly, additional wording embedded in the draft of the concession contract seems to increase the liability exposure of the concessionaire. As an example, one of the main problems faced by concessionaires in starting any exploratory activity is attaining environmental licences. The wording in the concession contract provides that the lack of authorisation by environmental authorities can only be considered as force majeure if the concessionaire proves that it has not contributed to failure to attain the licence. The concern is over exactly how to prove this. Theoretically, the blocks nominated by the ANP for the bid should already have environmental authorisation from applicable authorities; however, the reality is that in some cases it is difficult to obtain such authorisation and it is always time consuming.

Thirdly, new wording in the concession contract for resolving disputes suggests that Petrobras, as a state-owned entity, could have any dispute with the ANP about the concession contract not being settled under the same mechanism provided in the concession contract for all private bidders, but rather under a specific department inside the federal government, at the Federal Attorney General Office. This possibility harms some constitutional principles, such as equal treatment and legality.

Those are just some of the remarks made by the industry, questioning the rationale behind the ANP’s decision to change the bidding procedure and the draft of the concession contract for the 13th bid round. The consensus is that the ANP should be concerned about the attractiveness of the bid round and that ‘fewer amendments would be better’, considering the success of past concession bid rounds and the current global and domestic challenges facing Brazil.

Based on the above, although the ANP announced that 37 entities from 17 different countries had declared their interest to participate in the 13th bid round, the result of the bid round was a clear message to the ANP about the concerns previously raised by the industry. From the 226 exploratory blocks offered in the bid, only 37 were awarded – 14 percent of the offered blocks. The majority of the major international oil companies, including Petrobras, did not participate and the government only received a total of R$121.1m as signing bonus, of which R$99.9m is to be paid solely by Queiroz Galvão Exploração e Produção, which acquired two deep water blocks in the Sergipe-Alagoas basin. It is worth mentioning that those were the only offshore blocks awarded; the additional 35 were onshore and from the 17 winning entities, 11 were from Brazil.

In conclusion, it was clear that the combination of the current political and economic scenario, along with the regulatory hurdles and challenges outlined above, made a huge impact on the 13th bid round. We do hope that any lessons learned will be implemented by the ANP.


Luis Antonio Menezes is a partner at Felsberg Advogados. He can be contacted on +55 21 2156 7539 or by email:

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