Brazil Extends Contracts and Tax Breaks for Oil & Gas Industry

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The Brazilian government has announced measures that it hopes will encourage the exploration and production of petroleum and natural gas in the country, including the extension of concession contracts for exploration signed in 1998. The measures are part of a resolution by the National Council of Energy Policies (CNPE) signed by President Dilma Rousseff this week.

“The initiative is part of a development policy for the oil and gas industry, representing almost fifteen percent of Gross Domestic Product (GDP), and should unchain investments that can total US$120 billion,” said Minister of Mines and Energy, Eduardo Braga.

According to officials the extension of Round Zero Award contracts signed in the late 1990s will allow for further investment in already mature oil fields whose concessions end starting in 2025.

“Several investment decisions in existing wells, for example, were paralyzed, since the remainder of the contract period would not allow for the recovery of the amount invested. With the extension of Round Zero Awards, such investments can be resumed quickly by companies, benefiting the entire industry chain,” said Braga in a press release after President Rousseff signed the resolution.

Other measures include the extinction of concessions of fields which have been unproductive for more than six months and whose production will not be restarted in the next twelve months. These fields may have their exploration rights transferred to another company. According to the resolution the oil fields affected are located in the states of Bahia, Espirito Santo, Sergipe and Rio Grande do Norte.

In addition, the resolution also extends tax exemptions for investment in the oil and gas sector that is in effect until December 31, 2020. According to the Ministry of Mines and Energy, the extension at this point is very important since most investments in the oil and gas sector are conducted years after the decision (to invest) has been made.