Research And Development In The Oil & Gas Industry In Brazil

Keywords: research, development, oil, gas, Brazil, exploration, regulations,

As exploration and production (E&P) activities advance in the oil & gas industry, the host countries are challenged to create new, beneficial and efficient regulations that will ensure the development of a strong local industry. Also, the continuing demand for innovation and the increasing technological challenges faced by the sector make it clear that fostering national investments in research and development (R&D) is vital to building local industry. Establishing a legal obligation to invest in R&D has proven to be a crucial tool for encouraging a strong national development policy, which helps boost social and economic indicators.

Taking into account the numerous local content obligations imposed by developing countries in the oil & gas industry, the R&D investment obligation seems to be one of the cleverest and most efficient strategies in a long-term public policy. Investments in R&D can: (i) foment the development of a national technological industry; (ii) enable the increase of competitiveness of the country in the global market; (iii) indirectly or directly result in improved technical and upper-level education; and (iv) enable the creation of partnerships between government entities and private investors, especially in developing countries.

Current R&D Structure in the Concession Regime

In the Brazilian Concession Contract regime (Concession Regime), the R&D investment obligation derives from a combination of legal and contractual aspects. In actual terms, according to the Petroleum Law and Federal Decree 2,705, if production of oil or natural gas in a certain field reaches a specified volume of production, the concessionaire shall pay an additional financial compensation to the government—this is called Special Participation. In such cases, the Concession Contract also requires the concessionaires to invest an amount equal to 1 percent of the field's gross production income in R&D projects. This obligation is also established by the National Agency of Petroleum, Natural Gas and Biofuels (ANP) in Resolution No. 33/2005 (ANP Resolution), which provides detailed guidance on the performance of the R&D expenditures, including models of standard reports to be used by the concessionaires when evidencing their R&D investments to ANP.

Up to one-half of that 1 percent R&D expenditure may be directed to development activities in the concessionaire's own facilities...