ANP Resolution 817/2020, published on April 27, establishes rules for the decommissioning of oil and natural gas exploration and production facilities and procedures for returning areas to ANP (National Agency of Petroleum, Natural Gas, and Biofuels), disposal and reversion of assets.1
This was an important step by the agency in the broader effort to make the Brazilian regulatory framework more robust and detailed in the final stage of the E&P cycle, which begins with asset disposal and preparation of the activities necessary for decommissioning, goes through investment by companies focused on buying and (re)developing these assets, and culminates in the decommissioning itself. In more mature markets, such as the North Sea and Gulf of Mexico, this stage of the E&P chain is an important segment for the industry, ranging from providing specialized services to transferring mature assets from large producers (IOCs and NOCs) to smaller and/or companies specialized in the acquisition of assets of this profile. In the case of the latter, this process often takes place on the basis of financing raised with the assets themselves as collateral.
One of the most relevant aspects of ANP Resolution 817/20 is the consolidation, into a single regulation, of the main rules regarding the abandonment of fields and decommissioning of facilities. The resolution also establishes detailed roadmaps for the preparation and execution of studies and programs related to decommissioning, setting clearer timeframes for the presentation of these instruments to the ANP.
The resolution represents the first part of a set of two regulations that ANP will publish on the subject. The second part (for which public consultation is currently suspended due to the Covid-19 pandemic) will specifically address the criteria for submission and approval of abandonment guarantees, a relevant issue as it represents an important financial impact for E&P companies, as well as its relevance in the context of M&A transactions involving assets in production.
We highlight below some of the main topics and innovations brought about by ANP Resolution 817/20:
- Facility Decommissioning Program: the resolution initially provides for the presentation of a conceptual Facility Decommissioning Program (PDI), which should provide for the general scope of the decommissioning actions proposed. After this document is approved by ANP, the company must prepare and submit for the approval of the agency an executive PDI, with effective planning of actions, including information, projects, and studies for execution of decommissioning. The resolution mandates that the PDIs must be made publicly available and may, if ANP deems it necessary, be submitted for public consultation.
- Decommissioning Rationale Study: the resolution creates the process for the Decommissioning Rationale Study (EJD), an instrument that must be presented together with the conceptual PDI and contain information that will allow ANP to evaluate the reasons for abandonment and the decommissioning options studied. Among the most relevant information required for this study, the parties should demonstrate that they have analyzed the possibility of increasing the recovery factor in the field by extending the useful life of equipment, replacing it with more modern equipment or implementing other improved recovery techniques. For each possibility studied, a technical and economic feasibility study (EVTE) must be presented. The EJD will only apply to maritime fields, however, it may be required for onshore fields upon formal request from ANP.
- Technical regulation for decommissioning: the resolution approves a technical regulation with instructions for the decommissioning of offshore and onshore facilities, with a series of principles and rules to be observed by parties throughout the planning and execution of activities.
- Decommissioning in the assignment of contracts: one of the main innovations brought about by the resolution is the possibility that, in the course of an E&P contract assignment process, the assignor retains the obligation to decommission part of the facilities, with the consent of ANP. In this way, a clearer timeframe would be established, removing the joint liability of the assignee for activities that have been retained by the assignor.
- Bidding for fields in production: another important innovation brought in by the resolution allows ANP to bid for onshore fields in production that are already close to the decommissioning stage, in order to enable their acquisition by other companies that have an interest in extending their useful life. In this context, should the area be auctioned, ANP would enter into a new concession agreement, and there would be no assignment procedure between the old and the new concessionaires (which would rule out joint liability between assignor and assignee). However, the resolution provides for a negotiation stage between the old and the new concessionaire for the transfer of operations, a procedure that may present significant complexities for the regulation of interests and allocation of risks between the buyer of the assets and the current operator.
ANP Resolution 817/20 entered into force on May 4, 2020. The E&P contracts intended for decommissioning in a period shorter than those established for presentation of a PDI and EJD will be analyzed individually, based on a proposed schedule to be presented by the parties and approved by ANP.
1 With the entry into force of ANP Resolution 817/20, the former ANP Resolutions 06/25, 06/27, and 06/28, which for many years regulated the procedures related to return of areas and reversion of assets, will be revoked.