ANP publishes resolution that regulates the assignment of contracts and security over E&P emerging rights
The National Agency of Petroleum, Natural Gas and Biofuels - ANP published its Resolution 785/2019 last Friday (05/17), in the Official Federal Gazette. The Resolution regulates the procedures to be adopted in the assignment of E&P rights in contracts, change in corporate control and of operator, exemptions and replacement of performance guarantees, as well as the constitution of guarantees over the contractual E&P rights related thereto.
Resolution 785/2019 in general reflects ANP’s prior practices and understanding on the subject and consolidates, in a single piece of regulation, the procedures for assignment of rights, which were formerly described sparsely in E&P contracts, in the Agency’s assignment guidelines and in the opinions of the Federal Attorney's Office.
GUARANTEES OVER RIGHTS ARISING FROM E&P CONTRACTS:
The new Resolution broadens the range of allowed securities over E&P rights arising from E&P contracts, among which the guarantees over credit rights originated from such contracts. By means of such innovation, ANP intends to incentivize financing in the Brazilian E&P sector, upon approximating the regulatory framework with international market practices of Reserve Based Lending (RBL), since Brazilian Law does not allow the operator to constitute any guarantees over the property of oil reserves in connection with E&P contracts (as typically in RBL transactions), because such property is State owned
Therefore, the Resolution has introduced a system which allows securities over rights from E&P contracts, as well as over the contracts themselves, while regulates the enforcement of such securities by creditor.
We highlight below the main new rules introduced by the Resolution:
- Security over quotas or shares of the companies that hold the concession (Article 21): Such guarantee may be constituted regardless of prior consent or communication to ANP. Therefore, the Resolution allows pledges and chattel mortgages over shares or quotas in theory.
However, should the enforcement of the guarantee result in a change in the corporate control of debtor, to the extent that it may require the replacement of the performance guarantee issued by the previous holding company, such enforcement will require the filing of a specific assignment process and prior approval by ANP
- Security over credit rights arisen from E&P contracts (Articles 20, 23 and 24): For the execution of security agreements on receivables arising from E&P contracts, it is solely required to issue a formal notice to ANP, accompanied by a signed copy of such guarantee agreement, within thirty (30) days counted as of the respective signature.
Therefore, the Resolution dismisses any obligation to obtain prior approval by ANP for giving such rights as collateral, provided that the debtor remains part of the E&P contract and in its effective management.
We understand that the above limitations will also apply to those agreements on the quotas or shares of the concessionaires/contractors.
- Prohibited Clauses in E&P rights security agreements (Article 22): The Resolution prohibits any clauses in the security agreements over rights arising from E&P contracts which may lead to a de facto transfer of concession rights: (i) imply in the transfer of ownership of the E&P contract prior to the approval by ANP and the execution of any amendment to such E&P contract; (ii) allow the creditor to influence on the management or operation of the E&P contract; or (iii) restrict the exercise of voting rights by the concessionaire or contractor related to the management or operation of the E&P contract.
The restrictions provided for in items (ii) and (iii) above shall not apply following the beginning of the enforcement of the security, to the extent that such influence is required to preserve and maintain the assets, to ensure the fulfillment of the obligations of the E&P contract, for the conclusion of the assignment procedure and transfer of the operation.
- Creditor rights (Article 24 and 26): Until the security is not foreclosed, the Resolution allows creditor to only monitor the performance of the guaranteed E&P contract, in order to take any required credit protection measures and ensure the effectiveness of the security.
Additionally, the Resolution forbids creditor to exercise the rights arising from the E&P contracts before the initial term of the amendment to the E&P contract, even following the enforcement of the guarantee (formal amendment is required).
- Notice of the enforcement of the guarantee (Art. 25 and 27): Creditor must notify ANP regarding the foreclosure of the security, within five (5) days (and also notify its consortium members, should there be a consortium, within thirty (30) days) counted from the first related foreclosure act.
- Transfer of title (Art 26, 27 and 28): The transfer of title of the E&P contract resulting from security rights foreclosure shall be deemed as an E&P contract assignment, and shall comply with the procedure established in the Resolution, subject to prior and express authorization by ANP or Federal Government. Such transfer of title will only be effective upon the execution of an amendment to the E&P contract.
The creditor must, in this event, submit an assignment request within one hundred and eighty (180) days, counted from the enforcement of the guarantee.
We kindly note that creditor may represent debtor throughout the entirety of the assignment procedure, regardless of consent from the latter, provided that (i) the security contract contain a clause or provision of representation, (ii) the default which led to the security foreclosure has been unequivocally acknowledged by creditor, or (iii) such representation has been expressly approved by the other participants of the E&P contract.
We understand that the above procedures will also apply to the assignment resulting from the enforcement of securities over quotas or shares of the concessionaires/contractors which imply in need for replacement of the performance guarantee.
- Security foreclosure against operators (Article 29): whenever debtor is the operator of an E&P contract during the exploration phase, the Resolution allows creditor to request the suspension of the E & P contract for up to one hundred and eighty (180) days.
Upon filing of the relevant assignment request, such suspension shall remain valid until the initial term of the amendment to the E&P contract.
On the other hand, should the deadline of up to one hundred and eighty (180) days have elapsed without any request for assignment, or should such request be rejected by the ANP, the E&P contract will be automatically resumed.
JOINT APPROVAL OF THE ASSIGNMENT AND THE NEW DEVELOPMENT PLAN
Another very welcome addition brought by the Resolution is the possibility of jointly submitting the assignment request with the new development plan intended by the assignee, with the approval of such assignment request and new development plan being carried out simultaneously by ANP.
This new dynamic allows the assignee and its investors, even before undertaking their respective obligations pursuant to the E&P contracts, to exclude significant uncertainties regarding the project, especially i) whether the new development planned for the fields is acceptable; ii) whether the term period of the E&P Contracts will be extended by ANP; iii) whether the decommissioning (deactivation and abandonment) planned for the fields and their respective guarantees will be deemed acceptable by ANP.
For more information regarding such matter, please refer to the full content of Resolution 785/2019 (PT/BR).