Brazil has established itself as the world’s largest offshore market.\u00a0 Far from approaching decline, the country is undergoing a phase of technological sophistication that points to decades more of hydrocarbon production. Pre-salt activity, combined with the influx of global majors and independent operators, is creating a landscape rich in opportunity.\u00a0 However, turning this geological potential into stable, financially sustainable contracts requires mastering Brazil’s regulatory nuances.<\/p>\n
Daniela Davila<\/strong>, a pioneer in structuring Oil and Gas projects in Brazil and partner in the Energy & Natural Resources area, points out that the future will be marked both by the consolidation of existing assets and by the opening of new exploratory frontiers, such as the Equatorial Margin. The latter, she emphasizes, presents challenging conditions \u2014 given strong ocean currents and its distance from the coast \u2014 that will require intensive drilling activity and larger, more powerful support vessels.<\/p>\n For multinational and E&P companies, the main operational and financial bottleneck is the mismatch between the timelines of the Minimum Exploration Program (PEM), regulated by the ANP, and the licensing schedule conducted by IBAMA. While the PEM has strict deadlines, environmental licensing follows its own schedule, generating delays that can cost millions of dollars a day. To mitigate this exposure, Daniela highlights the need to build a rigorous documentary record from contract signing, capturing triggers for suspending deadlines due to environmental agency delays, supported by evidence such as protocols, requests for additional information, and meeting minutes. “This regulatory record is what supports the request for the extension of the PEM or, ultimately, arbitration years later,”<\/em> she explains.<\/p>\n Furthermore, when contracting drilling rigs \u2014 where the daily cost of downtime is the leading source of value destruction \u2014 it is advisable to adopt back-to-back clauses between the ANP contract and the charter\/service agreements, providing for reduced standby rates or conditioning the exercise of the rig’s slot on actual issuance of the license (LI, LO, or LAE) by a set deadline (longstop date).<\/p>\n Additionally, the restructuring of consumption taxes in the country requires oil companies and operators to take a fresh look at the offshore supply chain and the chartering of drilling rigs and FPSOs. According to Tiago Severini<\/strong>, partner in the Tax & Customs area, replacing the previous fragmented system with the dual VAT model (CBS and IBS) introduces the concept of “onerous operation,” which changes the tax treatment of structures essential to the sector’s logistics. “This transformation should generate significant effects on the sector, as it affects quite common contracts \u2014 such as vessel chartering and the onerous transfer or onerous sharing of asset use \u2014 which fell into a gray area under the previous system, since they did not qualify as the circulation of goods or the provision of services, and will now be fully taxable under the new regime,”<\/em> explains Severini.<\/p>\n He notes that, despite the uncertainties and the lengthy transition period, the market is already moving decisively to revisit contractual clauses \u2014 such as change-in-law provisions \u2014 and to introduce new ones, such as new procedural obligations.<\/p>\n The transactional market also demands sophisticated legal architectures.\u00a0 In farm-in and farm-out operations, Daniela considers it advisable to tie conditions precedent to licensing milestones, with longstop and walk-away rights without penalty, to ensure corporate safeguards.\u00a0 Additionally, contingent payments (earn-outs) should be staggered based on licenses obtained, rather than on calendar dates. Another concern is consortium governance, where licensing delays and resulting cost increases can strain partner relationships. From a corporate-structuring standpoint, the partner warns that clear sole-risk\/non-consent rules must be established for cases where a partner is unwilling to bear the costs of prolonged licensing.<\/p>\n Additionally, since environmental civil liability in Brazil is strict, joint and several, and imprescriptible (Brazilian Supreme Federal Court, Topic 999), simple contractual indemnity clauses do not prevent the State or the Public Prosecutor’s Office from suing any link in the production chain for ecological damages. Therefore, investors should demand tangible security to protect their capital, such as parent company guarantees, escrow accounts, environmental impairment liability (EIL) insurance, and partial price retention in transactions.<\/p>\n Although often relegated to the end of an asset’s useful life, decommissioning wells and platforms have become one of the sector’s most costly obligations. The specialist warns of the risk of residual liability falling on the seller (assignor) even after a farm-out is completed, as well as the need to allocate decommissioning costs in proportion to the consortium members\u2019 historical participating interests (rather than their current interests), and to plan for the effect of early abandonment resulting from licensing infeasibility.<\/p>\n In the mature post-salt field market, which offers rich opportunities for revitalization and secondary recovery, new entrants face specific logistical bottlenecks, especially in independent gas transportation, due to difficulties negotiating reasonable tariffs for using Petrobras\u2019 gas pipelines and natural gas processing units (UPGNs). Furthermore, the domestic model’s Reserve-Based Lending (RBL) constraints must be considered. In Brazil, exploration and production economic activities are contracted (through concession or production-sharing arrangements), but the Federal Union owns the reserves. As a result, they cannot be pledged as collateral; only the production itself.<\/p>\n