Overview of Brazil’s Petroleum Industry and Law No. 15,075/2024
Brazil’s petroleum industry is a significant contributor to both the national economy and the global oil market.As of 2022, the country produced approximately 3 million barrels of oil per day, positioning it among the top oil producers worldwide.The industry is characterized by substantial offshore reserves, particularly in the pre-salt layer, which have attracted both domestic and international investments.
In December 2024, the Brazilian government enacted Law No. 15,075/2024, introducing several changes aimed at enhancing the oil and gas sector’s efficiency and competitiveness.This legislation allows for the transfer of local content surpluses among exploration and production contracts, permits the reduction of royalty rates for certain concession contracts, authorizes differentiated depreciation rates for specific vessels, enables the extension of production sharing contracts, and adjusts the management of commercialization expenses.These measures represent a shift from previous regulations, aiming to incentivize investment and streamline operations within the industry.
Petrobras: A Brief Overview
Petróleo Brasileiro S.A., commonly known as Petrobras, is Brazil’s state-controlled oil company and a dominant player in the country’s energy sector. Established in 1953, Petrobras has evolved into a major integrated energy company, engaging in exploration, production, refining, and distribution of oil and gas products.The company is renowned for its expertise in deepwater and ultra-deepwater oil exploration, particularly in the pre-salt fields off the Brazilian coast.Despite facing challenges over the years, Petrobras remains a pivotal entity in Brazil’s economic landscape and a significant contributor to the global oil supply.
Petrobras’ Press Release on Law No. 15,075/2024
On December 27, 2024, Petrobras issued a press release detailing the implications of the newly enacted Law No. 15,075/2024 for the oil and gas sector. The key points are as follows:
- Admits the transfer of local content surpluses among contracts in exploration and production of oil and natural gas, including the possibility of accounting for surpluses in contracts where there is no minimum commitment, such as the “Round Zero” contracts.
This means that if a company exceeds its local content requirements in one contract, it can apply the surplus to other contracts, even those without minimum local content obligations, thereby promoting flexibility and efficiency in meeting regulatory standards. - Allows the Brazilian Executive Branch to reduce the royalty rate of concession contracts for oil and natural gas exploration and production from the “Round Zero” by up to 5% as an incentive for investments in local content, as per the regulations to be published.
This provision enables the government to lower royalty fees by up to 5% for early concession contracts, provided companies invest in local goods and services, aiming to boost domestic industry participation. - Authorizes the granting of differentiated accelerated depreciation rates for tankers employed exclusively in cabotage activities of oil and its derivatives and for maritime support vessels used for logistical support and services to offshore fields, facilities, and platforms, provided they are built in national shipyards.
This allows companies to depreciate the value of domestically built vessels more quickly for tax purposes, reducing taxable income and encouraging the construction of such vessels in Brazilian shipyards. - Possibility of extending production sharing contracts, including ongoing contracts, as long as it is demonstrated that it is advantageous for the Federal Union of Brazil.
Companies can request extensions of their production sharing agreements if they can prove that prolonging the contract benefits the Brazilian government, potentially leading to sustained production and revenue. - Inclusion, in the amount to be deducted from the Union’s oil and natural gas commercialization expenses, of costs incurred by PPSA (Pré-Sal Petróleo S.A.) in managing the production sharing contracts and the contracts for the commercialization of the Union’s oil and natural gas.
Expenses borne by PPSA in overseeing production sharing and commercialization contracts can now be deducted from the government’s oil and gas sales revenues, ensuring PPSA’s operational costs are covered.
Law No. 15,075/2024 introduces significant reforms to Brazil’s oil and gas sector, aiming to enhance operational flexibility, incentivize local industry participation, and optimize contract management.These changes are expected to stimulate investment, potentially leading to increased production and job creation within Brazil. However, the global impact will depend on how these reforms influence Brazil’s oil output and its position in the international market.While the legislation offers opportunities for growth, it also presents challenges that will require careful navigation by industry stakeholders.