ARTICLE IN PRESS

Energy Policy 35 (2007) 2899–2911

www.elsevier.com/locate/enpol

Oil and gas exploration and production activities in Brazil:

The consideration of environmental issues in the bidding rounds
promoted by the National Petroleum Agency
Jacqueline Mariano, Emilio La Rovere
Programa de Planejamento Energético/COPPE/UFRJ, Centro de Tecnologia, Bloco C, Sala C-221—Cidade Universitária, Ilha do Fundão—CEP:
21945-970, Brazil

Received 18 August 2006; accepted 3 October 2006

Available online 1 December 2006

Abstract

This paper aims to address and analyze the environmental issues related to the Brazilian bidding rounds for exploration and
production of oil and natural gas held by the National Petroleum Agency (ANP) from 1999 to 2005. To do so, after a brief retrospective
of the seven rounds, the four main points of the bidding process are analyzed from an environmental perspective: the selection criteria for
choosing the areas to be offered, the Minimum Exploration Program required by ANP, the eligibility criteria for the oil companies to
take part of the bids and the concession agreements. Thus, it is possible to present the evolution of the environmental component
insertion from the first to the seventh bidding round, and then to assess its efficiency in each round, apart from offering suggestions for its
improvement. The suggestions presented are based on the related international experience and on the lessons learned during the last
seven years.
r 2006 Elsevier Ltd. All rights reserved.

Keywords: Brazil; Bidding rounds; Environment

1. Introduction The Oil Act determined that, in the new sectoral model,
contracting exploration and production (E&P) of the oil
In August 1997, Federal Law No. 9478 was enacted in and natural gas deposits, and of other liquid hydrocarbons,
Brazil, determining the flexibilization of the state mono- would be executed through concessions preceded by calls
poly in the oil and gas industry, under Petróleo Brasileiro for tenders.
S.A. (Petrobras,—a state-owned company), since 1953, The bidding rounds are at the core of the planning of the
when it was created. This Law, known as the Oil Act, expansion of the Brazilian oil and natural gas industry
established a new regulatory framework for the industry (current production, and projections for short- and long-
and created the National Petroleum Agency—ANP, with term production, reflects Petrobras’ strategic planning,
the responsibility for regulating, overseeing and contract- which, in fact, still owns most of the oil and gas production
ing activities for the industry. Other ANP responsibilities in the country) insofar as it is through them that the rights
include ‘‘enforcing good practices for the conservation and to E&P are awarded to entrepreneurs.
sound use of oil and natural gas and for the preservation of ANP begins the tenders process by defining the areas to
the environment, namely, to ensure environmental protec- be offered, establishes technical qualification criteria
tion, operational safety and conservation of oil resources’’. for the candidates to be eligible to participate in the
auction, defines the minimum exploration program
(MEP) to be carried out in each area and drafts the
Corresponding author. Tel.: +55 21 21128362; fax: +55 21 21128129. concession agreement. Clearly, environmental issues
E-mail addresses: [email protected] (J. Mariano), permeate all these stages and need to be considered to
[email protected] (E. La Rovere). the extent that these are determining factors for the

0301-4215/$ - see front matter r 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2006.10.005
 ARTICLE IN PRESS
2900 J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911

Table 1
Characteristics of the bidding rounds held by ANP

Bidding round First round Second Third round Fourth Fifth round Sixth round Seventh
(1999) round (2000) (2001) round (2002) (2003) (2004) round (2005)

Offered blocks 27 23 53 54 908 913 1134

Awarded blocks 12 21 34 21 101 154 251
Awarded onshore blocks 0 9 7 10 20 89 n.a.
Awarded offshore blocks 12 12 27 11 81 65 n.a.
Awarded area (sq km) 54,660 48,074 48,629 25,289 21,951 39,657 194,739
Awarded offshore area (sq km) 54,660 37,846.7 46,266 14,669 21,254 36,811 7735
Sedimentary basins 8 9 12 18 9 12 18
Successful companies 11 16 22 14 6 19 41
New operators 6 8 8 5 1 n.a. n.a.
Average local content—exploration 25 42 28 39 78.8 85.7a 74b
phase (%)
Average local content—development 27 48 40 54 85.6 88.8a 81b
and production stage (%)
Minimum 2D seismic survey (km of 43,000 45,850 44,700 17,000 83,700 Variable Variable
lines)
Minimum number of exploratory wells 58 96 136 83 210 Variable Variable
to be dilled
Signature bonus (million US$)c 181.0 262 241 34 9 222 485
Minimum investment in the first 65 60 51 28.5 121d 681d 828.9d
exploration period (US$ million in three
years)

Source: ANP (2005a–c).

a
Weighted average from the fourth quarter on.
b
Only exploration blocks (marginal fields with mandatory minimum local content of 70%).
c
These figures are expressed at the dollar exchange rate of the day of the auction, they were not updated to 2006 dollars.
d
Amounts expressed in dollars at the going rate on the day of the round, supplied in work units.

decisions of the company that applies for the concession of became known as the round zero of concessions. Table 1
an offered area. summarizes the information about the seven rounds.
In order to evaluate the type and effectiveness of the After concessions are acquired, successful companies
approach to environmental issues in the bidding rounds must obtain the environmental licenses for the specific
held by ANP, the following topics will be analyzed in this exploration, production and development activities they
paper: intend to carry out from the competent environmental
agency (in the case of offshore activities or when the areas
 The criteria for selecting the areas to be offered in the fall under the jurisdiction of two or more states where the
rounds. competent agency is IBAMA—the Brazilian Institute for
 The technical qualification criteria for the eligibility of the Environment and Renewable Natural Resources1, and
the companies that apply to participate in the rounds in the case of onshore activities, the environmental agencies
and which are published in each of the calls for tenders. of the states).
 The MEP defined for each of the rounds. In the environmental licensing model currently used in
 The concession agreements signed by ANP and the Brazil, there is no prior licensing during the planning stage,
successful companies in each of the rounds. as in other countries. This is one of its weak points and the
greatest source of complaints by investors and future
concessionaires. In the prevailing model, the government
As a result of this analysis, suggestions will also be
(through ANP) first auctions the areas and then issues the
presented for improving the most crucial points, based on
licenses (through IBAMA). Nevertheless, this format
international experience, as well as on the lessons learned
contributes to increasing wariness and tension among
over the seven years since the monopoly was made more
investors who wish to operate in the country, as well as to
flexible.
the loss of its credibility abroad, because of the increased
risks for those who come to operate in Brazil (Malheiros,
2. The bidding rounds promoted by ANP 2002).

ANP has held seven bidding rounds for blocks since 1

Federal body under a special legal regime with the responsibility for
1999, annually. Before that, in 1998, the ANP and assisting the Ministry of the Environment in the formulation and
Petrobras signed 397 concession agreements. This process coordination of environmental policies.
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J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911 2901

Table 2
Environmental licensing for E&P of oil and natural gas and respective requirements

Activity ANP requisite Environmental Required environmental study Aim

license

Acquisition of Authorization to carry out survey of Seismic research Class 1: Surveys at a depth of less Authorizes, after approval
seismic data non-exclusive marine seismic data or license—SRL than 50 m, or in areas of of the required studies, the
concession agreement for the block environmental sensitivity, subject to start of the collection of
that provides for research, including the development of PECS and SES/ marine seismic data
survey of exclusive marine seismic SEIR
data Class 2: Surveys at a depth of between
50 m and 200 m, subject to the
development of PECS and SES/SEIR
Class 3: Surveys in depths greater
than 200 m, subject to the
development of PECS
Drilling Minimum Exploration Program Prior drilling Environmental control report—ECR Authorizes drilling activity
contracted with ANP license—PDL
Production for Authorization for long-term testing— Prior license for Environmental feasibility study— Authorizes long-term
research LTT production for EFS, which must contain the testing—LTT
research—PLPR description of the drilling activity,
environmental risks, identification of
impacts and mitigating measures
Installation of Authorization for production and Installation Environmental impact assessment and Authorizes, after approval
units and systems transfer systems in new field or license—IL environmental impact assessment of the EIA/EIAR, and
for production and block—approbation of the report—EIA/EIAR or environmental respective public hearing,
transfer development plan approved assessment report—EAR, which the installation of systems
should contain an environmental and units required for
diagnosis of the area where the production and transfer
activity is located, description of the
new works or expansion,
identification of the environmental
impacts and mitigating measures to be
adopted, taking into account the
introduction of other undertakings.
Operation of units, Authorizations for operation Operation Environmental control project—ECP, Authorizes, after meeting
installations and license—LO which should contain the executive the IL conditionsa, approval
systems part of the projects for minimizing the of the ECP, of the individual
activity environmental impacts assessed in the emergency plan—IEP—and
PDL, PLPR and IL, with their after technical inspection,
respective documents. the start of the operation of
the undertaking

Source: IBAMA (2004) and ANP (2005a–c).

a
The environmental agency will establish conditions according to the following categories: (i) general conditions, which include the set of legal
requirements related to environmental licensing and (ii) specific conditions, which include a set of restrictions and technical requirements specifically
related to the activity being licensed.

Thus, because the environmental variable was not  Asks for environmental licenses refused by IBAMA
considered during the phase of definition of the areas to (enterprises: Devon and Sipetrol asks for drilling
be offered, various problems were generated for the licenses in sensitive areas, in 2001, Newfield, in 2005).
entrepreneurs and also for the environmental authorities.  Removal of extreme sensitive areas that were already
The main problems raised were: being announced for fifth and sixth bidding rounds, by
ANP.
 Offering of blocks in extreme sensitive areas, which gene-  Conflicts with NGOs about some of the offered areas
rated many conflicts between the oil E&P industry and (blocks located in very sensitive areas), before the fifth
other sectors of the economy, such as fishing and tourism. bidding round, in 2003.
 Constant and crescent conflicts between seismic activ-
ities and fishing activities.
 Delays on the obtention of the environmental licenses of Table 2 shows the environmental studies required to
some companies, with the possibility of compromising obtain each of the environmental licenses and its relation
the execution of the MEP, contracted with ANP. with the attributions of ANP.
 ARTICLE IN PRESS
2902 J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911

3. Criteria for selection of the areas offered in the bidding that ANP must, from that point on, detail the environ-
rounds mental conditions used as criteria for defining the areas
offered in the bidding rounds.
In the new sectoral model, ANP, in accordance with the Both the experience of other countries and the various
guidelines of the National Energy Policy Council—CNPE,2 problems faced in Brazil by concessionaires showed that
defines the areas that will be offered in the bidding rounds. inclusion of environmental considerations in the process of
The definition of the blocks is one of the decisive moments selecting the offered areas reduces the regulatory risk,
of the process and it strongly influences its results. associated to the uncertainties of environmental licensing,
By the end of 2005, ANP had already held seven bidding thus improving the conditions for new upstream market
rounds to offer areas for oil and natural gas E&P activities. agents. Therefore, the number of MEPs that are not
Nevertheless, until the fourth round, held in 2002, the executed because licenses have not been granted has been
process of defining the areas to offer was essentially based reduced. Furthermore, an adequate environmental map-
on geological prospecting data and prognoses, environ- ping, in addition to possible restrictions to the development
mental aspects were not considered. According to ANP, of the economic activity itself, is useful information to help
the decision to place a certain area under bidding, took into agents determine the level of technical–operational diffi-
account, above all, the existence of enough geological and culties, as well as the costs and time required for the
geophysical data for an adequate technical analysis of the environmental licensing process of each venture.
blocks located in these sectors. In the case of E&P contracts for oil and natural gas, not
For the Agency, ‘‘enough’’ meant that there was obtaining the environmental license and, as a consequence,
sufficient amount of information to determine the explora- interrupting activities is a contractual risk undertaken by
tory risks associated to each block. In the areas in which the concessionaire. If the responsibility of the environ-
the amount of data were not deemed adequate, the Agency mental agency in the licensing process is not proved, the
sought to carry out exploratory activities to acquire data, full burden arising from the impossibility of implementing
so as to enable these areas to be offered in future bidding the undertaking is borne by the investor. Not obtaining
rounds and to foster exploratory activities in the region in environmental licenses for E&P in an awarded area could
question. In choosing the areas, other factors were also prevent execution of the MEP, and, in this case, the
considered such as the situation of the national and concessionaires lose the money used for the signature
international oil markets and the existence of oil industry bonuses and in exploratory investments, in addition
infrastructure in the regions where they were located. to being subjected to enforcement of guarantees and
Furthermore, not providing environmental information sanctions.
before the block auctions, until the fourth bidding round, Because of these facts, the entrepreneurs harshly
increased the risks to which entrepreneurs were subject. criticized ANP. In response, it alleged that environmental
The oil industry, in addition to the market risks inherent to information was being used in the definition of blocks as
all sectors of the economy, incurs an exploratory risk, far as it was made available by the competent environ-
associated to geological issues, an internal and external mental agencies. That is, if the environmental agencies
political risk associated to uncertainties in the different (IBAMA and state environmental agencies) did not make
levels of government and a regulatory risk. The latter is the data available, then it was not possible to take them
strongly influenced by environmental licensing issues. into account. Nevertheless, the selection criteria for the
Specifically with regard to environmental impacts, until blocks offered up to the fourth bidding round and
2002, ANP believed that the environmental legislation published by the ANP show that the areas were for the
prevailing at the start of the bidding rounds did not require most part defined by the interest shown by investors and by
prior environmental studies. Specifically with respect to the amount of available geological data. This also
environmental licensing, all associated proceedings and demonstrates that the lack of environmental information
costs remain the responsibility of the future concessionaire. was never an impediment to selection of a given area for
Nevertheless, this strict legal provision did not prove to be bidding, since several of them were in environmentally
adequate in practice because, in several cases, the sensitive areas. Furthermore, neither the Federal Govern-
concessionaire was not able to obtain the license, and, as ment (through CNPE) nor ANP established a bidding
a result, the MEP was jeopardized. Due to these problems, schedule that allowed these areas to be offered in the
the Federal Audit Court3—TCU—determined, in 2003, future, after the offer of less environmentally sensitive
areas, as is the practice in some developed countries, such
2
The Oil Act (Federal Law 9.478/97) has created the CNPE, in order to as the USA and the UK.
substitute the National Energy Commission. CNPE is a Council of the
Federal Government, which has the attribution of purposing to the
President national policies and specific measures related to the energy (footnote continued)
question. entities of the direct and indirect administration, with respect to their
3
As established in the Federal Constitution, the Federal Audit Court, in legality, legitimacy, economics and inspection of the application of grants
assisting the National Congress, can exert accounting, financial, budget- and waiver of income. The Federal Audit Court—TCU—is a collegial
ary, operational and property oversight of the Federal Government and body and its decisions are made in Plenary or in its two chambers.
 ARTICLE IN PRESS
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As a result of the aforementioned problems and the work and to issue the licenses in a reasonable period of
decision of the Federal Audit Court, ANP began, in 2002, time.
to consider the inclusion of environmental aspects during
the definition of the blocks to be auctioned, starting in the 3.3. Fourth round—2002
fourth bidding round, and in 2003 it defined the main goals
to be achieved. These were: This was the first round in which ANP included an
(a) Use of environmental criteria in the process of environmental criterion during the definition of the blocks
selecting areas: to be offered, and this criterion was the existence and
Criteria: Exclusion of sensitive areas. location of environmentally sensitive areas. IBAMA,
Objective: Avoid superimposing conflicting uses of soil. together with MMA, carried out the environmental
mapping of the marine and coastal blocks offered in the
 Protected areas: Conservation units and their respective fourth bidding round. Mapping consisted of superimposing
buffer zones (10 km radius, or according to the manage- the blocks offered with the map of environmental
ment plan of the respective area). sensitivity related to drilling wells, with respective specifi-
 Urban areas. cations. These specifications identified the basic require-
 Indigenous areas. ments for licensing the activity in each of the offered
blocks. The environmental sensitivity map for drilling was
Since the fourth bidding round, the areas classified as developed taking into account the environmental char-
priority areas for biodiversity conservation were also added acteristics relevant to the direct impacts of the activity (the
to the exclusion criteria, using IBAMA definitions and criteria include fishing resources, biodiversity, the existence
recommendations. of protected areas, socioeconomic aspects, the coastal zone
(b) Adoption of new procedures: and the area of influence of the activities). Nevertheless, the
interaction of drilling activities with other anthropic
 Presenting the areas in advance to the environmental activities (such as fishing, tourism, etc.) was not considered,
agencies, establishing dialogue and cooperation with but the risks of impacts on sensitive areas by oil spills were
them. taken into account. The sensitivity map established a scale
 Adapting to the best practices adopted by industry. and of 1–5 to designate the level of requirements needed for
 Reporting the levels of environmental requirements of licensing by the environmental agency. The greater the
the areas under bidding, helping in the decision making detected sensitivity (level 5), greater will be the difficulties
process of companies (ANP, 2003a, b). the entrepreneur will face to license the block, and as a
consequence, more environmental studies, financial re-
3.1. Round zero—1998 sources and time will be required for the process.
However, IBAMA, in the licensing guidelines for the
Definition of areas awarded to Petrobras during Round fourth round, mentioned that there was a big lack of
Zero was guided essentially by technical criteria, based on environmental information necessary to support them,
the analysis of the documentation sent to the Agency by about the human activities and about the environmental
the company. Taken into consideration were: the effective resources potentially affected by the E&P activities, which
state of production of the requested fields, the existence of generated direct implications on the environmental licen-
past activity and the commitment to investments in the sing process, more specifically on the environmental studies
areas of exploration and development as well as compat- necessary to get the licenses. This, according to IBAMA,
ibility among the existing conditions, the proposed reflected on the quality of the studies, and also on the
programs and the requested areas. duration of the licensing process, which is incompatible
with the dynamics of the sector (IBAMA, 2002; ANP,
3.2. First round (1999)–Third round (2001) 2002).
Prior knowledge of the environmental sensitivity proved
To define the areas offered in the first bidding round, to be successful during the fourth round, because instead of
ANP adopted as criteria the availability of technical data inhibiting the interest of participants, it contributed to
and prospectivity of the blocks, as a means to attract reducing uncertainties and risks (Tribunal de Contas da
interested investors. In any of these rounds, no information União, 2002,b).
was supplied to entrepreneurs on environmental aspects.
It is important to mention that during the period from 3.4. Fifth round—2003
1998 to 2002, the IBAMA authorities warned ANP about
further problems with the environmental licensing of the During the fifth round, ANP, following IBAMA
areas offered, criticizing not considering the environmental recommendations, excluded 162 blocks from the Espı́rito
questions during the planning phase. Until 2001, the Santo and Potiguar Basins because of their environmental
institution had serious problems with lack of equipments sensitivity, meeting the demands of the NGO Conservation
and technicians that were not enough to do the necessary International, which carried out a study called
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2904 J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911

‘‘Assessment of the Impacts of Exploration and Production This conservative orientation has been criticized both by
of Hydrocarbons in the Abrolhos Bank and its Surround- ANP and the entrepreneurs, as considered excessive.
ings’’. Other important problem caused by the lack of an
Second editions of the Guide for Licensing Seismic and official environmental data bank is the fact that environ-
Drilling Activities were also published, with the levels of mental studies about the same regions are done several
requirements for environmental licensing of seismic activ- times by different enterprises that ask for licenses. Thus,
ities and drilling for oil and gas for the blocks offered in the the same environmental information is collected several
fifth bidding round. times by different consulting firms, so as to carry out the
same studies for different enterprises. The data collected
are not made available in a public bank. Currently,
3.5. Sixth round—2004
National Observatory is developing an environmental data
bank (BAMPETRO), with resources from CTPETRO.4
In this round, the same procedures were used as for the
fifth round, through the third edition of the Guide for
Licensing of Exploration and Production, with the same 4. Technical qualification of companies and the environment
objectives of the earlier editions. Environmental considera-
tions excluded 61 blocks of the 975 that were initially In the calls for tenders of the Brazilian bidding rounds,
offered by ANP because they were close to protected areas criteria for technical, legal and financial qualification are
or were located in areas of ecological interest. The guide to defined to establish the eligibility of oil companies to
the sixth round was more detailed in comparison to earlier participate in the auction. The technical qualification
editions. criteria are based on their proven experience in E&P of
In addition to issuing the licensing guides, IBAMA also oil and natural gas. With respect to the environment, ANP
established technical guidelines for modeling oil spills in started to establish in the second bidding round, a technical
the sea. qualification item, corresponding to a type of ‘‘environ-
mental qualification’’, which consists in companies proving
their experience in operations in environmentally sensitive
3.6. Seventh round—2005 areas, in addition to a history of environmental preserva-
tion. However, ANP did not define what is an environ-
In this round, the same procedures were used as for the mental sensitive area, or neither what consists a history of
sixth round, through the fourth edition of the Guide for environmental preservation.
Licensing of Exploration and Production, containing the From the second to the sixth round, a scale of points was
environmental guidelines and the levels of requirements for defined and its variation is shown in Table 3. It is
licensing seismic activities and drilling in the offered important to note that this item represents only 6% of
blocks, to reduce the uncertainties and to ensure environ- the total points that can be obtained by the enterprises,
mental protection and sustainable development of the oil which want to take part in auctions, in the technical
and natural gas industry. IBAMA also issued, for the qualification. For the seventh round this item was excluded
seventh round, guidelines for modeling oil spills in the sea. of the Final Tender Protocol, and ANP did not inform the
For the first time, according to IBAMA, all the blocks reasons why.
offered in the seventh round are apt to obtain environ- It is also important to mention that the Article No. 100
mental licensing, since their offer was the result of a joint of Federal Law No. 9.605/1998, dealing with environ-
decision of the Ministry of Mines and Energy and ANP on mental crimes, determines that the companies found guilty
the one hand, and between MMA and IBAMA on the of environmental crimes in Brazil may not take part in
other. The environmental guidelines presented to the public tenders for a period of five years, if they have been
entrepreneurs resulted from an agreement signed among condemned for crimes with malice, and for three years in
the parties. Evidently, the licenses will be obtained since the the case of crimes with fault.
entrepreneurs complain with all the requirements of
IBAMA, regardless of environmental studies and other
conditioning measures, such as emergency response plans. 5. The MEP
Finally, it is also important to mention that IBAMA,
from the fourth round on, complained with ANP that the When the applying companies become concessionaires,
time necessary for the environmental analysis of the areas they commit themselves with ANP to explore the awarded
to be offered to the issuing of the licensing guidelines was area according to a minimum program of exploration
very small, smaller than that necessary to give accuracy to activities, the so-called MEP, which is established in the
the mapping. concession agreement and varies according to the round in
Other important problem faced by IBAMA during the 4
CTPETRO is a sectorial fund for the oil and natural gas industry that
last eight years is the lack of environmental information aims to stimulate development and innovation in the sector, through
and data about the Brazilian regions. It is the cause of the partnerships between companies and universities and/or research centers.
excessive use, by the institution, of the cautionary principle. It is supported by the royalties’ payment.
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Table 3
Maximum points for the technical qualification criterion: environment item for bidding rounds

Criterion/bidding round First Second Third Fourth Fifth Sixth Seventh

Volume of production (boe) – 40 40 40 40 40 20

Onshore exploration activities – 10 10 10 10 10 10
Onshore production activities – 10 10 10 10 10 10
Offshore exploration activities – 15 15 15 15 15 10
Offshore production activities – 15 15 15 15 15 10
Deepwater exploration activities – 10 10 10 10 10 10
Deepwater production activities – 10 10 10 10 10 10
Exploration and production activities in adverse environments – 20 20 20 20 10 10
Operation in sensitive environments and history of environmental preservation – 10/-999 10/-999 10/-999 10/-160 10/-150 –
International experience – 20 20 20 20 20 25
Experience in services – 10 10 10 10 10 –
Technical board with experience – – – – – – 36
Maximum total points – 170 170 170 170 160 151
% environmental criterion (%) – 6 6 6 6 6 0

Source: ANP (1999, 2000a,b, 2001, 2002, 2003a,b, 2004a–d, 2005a–c); ANP—Comissão Especial de Licitac- ão (1999, 2000, 2001, 2002, 2003, 2004, 2005).

Table 4
Minimum exploration programs for the ANP bidding rounds for offshore areas

Round (duration of MEP period, in years) First period Second period Third period Total number of wells

First round (3+3+2) or (3+3) or (3+2+2) Seismica 2 wells 3 wells 5

Second round (3+2+2) or (3+3+2) Seismic 2 wells 3 wells 5
Third round (3+2+2) or (3+3+2) Seismic 2 wells 2 wells 4
Fourth round (3+3+2) or (3+2+2) Seismic or a well 2 wells 2 wells 4
Fifth roundb * * * *
Sixth round * * * *
Seventh round * * * *

Source: ANP (1999, 2000a,b, 2001, 2002, 2003a,b, 2004a–d, 2005a–c); ANP—Comissão Especial de Licitac- ão (1999, 2000, 2001, 2002, 2003, 2004, 2005).
a
Each sq km of 3D seismic research is deemed to be equivalent to 5 km of 2D seismic research.
b
Start of the definition of MEPs by the applying companies.

which the E&P rights were acquired. The MEP consists of activity, it can be seen that the minimum required amount
the definition of exploration activities that the concessio- is fairly proportional to the area of the block, but there is
naire must execute at the very minimum over a previously no relation to its sensitivity. For environmental licensing
established period of time (carrying out 2D and 3D seismic purposes, drilling is a far more critical activity than seismic
research and drilling of exploratory wells), and these activity, due to the potential impacts on the environment.
activities are all subject to obtaining environmental With respect to the length of the exploratory periods, it
licensing. In this context, it is crucial that the environ- was also not possible to identify any type of correlation
mental variable is considered when the MEPs are defined between their increase and greater environmental sensitiv-
and dimensioned for the rounds. ity of a given area (the maximum environmental sensitivity,
In rounds 1–4, ANP divided the MEP into three periods. according to the licensing guide, is 5). Once again, it can be
For the seven bidding rounds held by ANP until the end of seen that strictly technical criteria guided the definition of
2005, the MEPs of the marine blocks are shown below in these variables.
Table 4. With respect to the results of the fourth round,
In order to better analyze this issue, we should evaluate concessions for three of the seven blocks with maximum
the fourth bidding round, since this was the first round to environmental sensitivity (equal to 5) were successfully
have a mapping of environmental sensitivity of the offered acquired, as were three blocks with an environmental
marine areas, carried out by IBAMA. Table 5 presents a sensitivity of 4. Thus, it may be said that some
summary of the MEP and of the environmental sensitivity entrepreneurs were not disturbed when faced the possibility
of the marine blocks offered in the fourth round. of a complex environmental licensing process.
Table 5 shows that all the marine blocks offered in the Starting in the fifth round, the companies, with their
fourth round had to have the same number of wells drilled signature bonus offers, define a proposal for MEPs,
as in the second and third periods, regardless of their expressed in work units (WUs), which also became another
environmental sensitivity. With respect to the seismic assessment factor (WUs were previously defined by ANP).
 ARTICLE IN PRESS
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Table 5
Summary of the MEP and of the environmental sensitivity of the marine blocks offered in the
fourth bidding round

Basin Block Exploratory Area (km2) First period Second period Third period Environmental Concession
periods (years) (seismic km) (number of (number of sensitivity—
wells) wells) drilling (1–5)

Barreirinhas BM-BAR-2 3+3+2 5125 3000 2 2 4 No

BM-BAR-3 3+3+2 2180 2000 2 2 5 Yes
Campos BM-C-20 3+3+3 2232 2000 2 2 1 No
BM-C-21 3+2+2 1073 1000 2 2 4 No
BM-C-22 3+2+2 973 1000 2 2 4 No
BM-C-23 3+2+2 1073 1000 2 2 4 No
BM-C-24 3+3+2 603 1000 2 2 2 Yes
BM-C-25 3+3+2 960 1000 2 2 3 Yes
Cumuruxatiba BM-CUM-3 3+2+2 1392 1500 2 2 5 No
BM-CUM-4 3+3+2 1718 1500 2 2 4 No

Espı́rito Santo BM-ES-16 3+2+2 904 1000 2 2 5 No

BM-ES-17 3+2+2 685 1000 2 2 4 No
BM-ES-18 3+2+2 738 1000 2 2 4 No
BM-ES-19 3+2+2 1216 1500 2 2 5 No
BM-ES-20 3+2+2 1219 1500 2 2 5 Yes
Foz do BM-FZA-2 3+3+2 7683 5000 2 2 4 No
Amazonas BM-FZA-3 3+3+3 7548 5000 2 2 2 No

Jequitinhonha BM-J-2 3+2+2 743 1000 2 2 5 Yes

BM-J-3 3+3+3 1856 2000 2 2 4 Yes
Pará- BM-PAMA-5 3+3+2 3077 3000 2 2 1 No
Maranhão BM-PAMA-6 3+2+2 2949 3000 2 2 2 No
BM-PAMA-7 3+3+2 2821 3000 2 2 1 No
Pelotas BM-P-1 3+3+3 11,043 5000 2 2 2 No
Pernambuco- BM-PEPB-1 3+3+3 3555 3000 2 2 5 No
Paraı́ba
Potiguar BM-POT-11 3+2+2 983 1000 2 2 4 Yes
BM-POT-12 3+2+2 826 1000 2 2 4 No
BM-POT-13 3+2+2 841 1000 2 2 3 Yes
BM-POT-14 3+3+2 1655 1500 2 2 3 No
BM-POT-15 3+3+2 1920 2000 2 2 3 No
Santos BM-S-28 3+2+2 1495 1500 2 2 1 No
BM-S-29 3+2+2 2092 2000 2 2 1 Yes
BM-S-30 3+2+2 2105 2000 2 2 1 No
BM-S-31 3+2+2 2118 2000 2 2 1 Yes
BM-S-32 3+3+2 2059 2000 2 2 1 No
BM-S-33 3+3+2 2076 2000 2 2 1 No
BM-S-34 3+3+2 2762 2500 2 2 1 No
BM-S-35 3+3+2 2311 2500 2 2 1 No

Sergipe- BM-SEAL-8 3+3+2 4018 4000 2 2 1 No

Alagoas BM-SEAL-9 3+2+2 1089 1000 2 2 4 Yes

Source: ANP (2002).

The process then becomes more efficient, at least with 6. Concession agreements
respect to the environment, to the extent that in having
available the data on the environmental sensitivity of the The concession agreement model used in Brazil takes
region (previously disclosed in the round’s Guide for into consideration several aspects such as: the Oil Act, the
Seismic Activities and Drilling), the entrepreneur is better Brazilian legal framework, specificities of the oil and
equipped to estimate what will be environmentally feasible, natural gas industry, international practice and experience,
as well as to plan the schedule of activities. as well as suggestions received during the virtual public
 ARTICLE IN PRESS
J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911 2907

hearings, held during the periods in which ANP receives concession of the areas, trying to anticipate the benefits and
suggestions from the entrepreneurs for improving the disadvantages of the oil and natural gas upstream
concession agreements. activities, and considering the environment already at the
The agreements have a clause that provides for environ- sector-planning phase.
mental control and liability for environmental damages, In developed countries, environmental management of
and the requirements included in this clause refer the upstream oil industry is addressed in a differentiated
exclusively to the awarded areas. These are: fashion, with the exception of areas considered environ-
mentally sensitive: in general, environmental impact
 The concessionaire must adopt, at his own cost and risk, assessments are not required for individual projects, as is
all the measures required for conservation of reservoirs the case in Brazil. Normally, licenses or authorizations are
and other natural resources, and for protecting the air, granted by the responsible government agencies after
soil and surface of the water or subsurface, subject to analysis and planning of each operation.
Brazilian legislation and environmental regulations and, Nevertheless, this type of environmental licensing is only
in their absence, must adopt the best practices of the oil possible because these countries have the basic instruments
industry. that allow the adoption of this type of model. Some
 The concessionaire must adopt measures to ensure that examples of the environmental management instruments
operations do not lead to damages or losses that affect used in the oil and natural gas industry in certain developed
other economic or cultural activities in the area of countries include a detailed environmental database, the
concession, such as agriculture, herd raising, forestry, use of the strategic environmental assessment (SEA) of the
extractivism, mining, archeological, biological and areas to be offered, and a set of consolidated laws and
oceanographic research and tourism, or that disturb regulations specifically for oil E&P.
the well-being of indigenous communities and urban The use of these instruments does not only lend a greater
and rural applications. transparency to the processes for bidding for areas and for
 The concessionaire must send copies of the environ- environmental licensing, resulting in greater security for
mental studies required for obtaining environmental entrepreneurs and ensuing reduction of regulatory risks to
licenses, whenever so requested by the Agency. which they may be subjected, but it also provides a greater
 The concessionaire must immediately inform whenever efficiency to the subsequent environmental management of
any spill occurs or any leakage of petrol or natural gas, the areas, since the most relevant aspects of upstream
as well as the measures already taken to address the activities are taken into account.
problem (ANP, 2004a–d). In this context, Brazil can learn many lessons with the
international experience, particularly from the experience
This clause has been included in every agreement, from of those countries that are at the forefront of managing
the first to the seventh bidding rounds (both Part A— environmental issues of offshore oil and natural gas
blocks with exploratory risk, and Part B—marginal fields). industry activities, such as the USA, Norway, Australia,
The concession agreements in all the bidding rounds also Canada and the UK, whose actions are mentioned below.
state that the concessionaire will be fully responsible for all
damages and losses to the environment that arise, directly 7.1. USA
or indirectly, from the execution of their operations.
In the concession agreement for Part B (marginal fields) In the USA the oil and natural gas activities developed
of the seventh round, there is another paragraph, which on places distant up to 3 miles (4.8 km) from the shoreline
determines that the new concessionaire will be responsible are regulated by the states. From 3 miles on, these activities
for complying with the provisions of the corresponding are under federal regulation, and the Minerals Manage-
environmental license, and that the environmental damage ment Service—MMS—is the federal agency responsible for
resulting from the action of the concessionaire is liable to the E&P licenses in the offshore areas. MMS is a bureau in
penalties, according to the legislation in effect. The Article the Department of the Interior.
28 item 2 of the Oil Act states the following: ‘‘If the The MMS implements, every five years, a program with
concession is terminated for any reason, the concessionaire the licensing of the oil and natural gas activities schedule
will, at his own cost, remove the equipment and materials for the next five-year period. This program is called Five-
that are not subject to reversion, and must repair or Year Program, and purposes different planning alterna-
compensate for the damage arising from their activities and tives to achieve the supply objectives of the country. Thus,
carry out the environmental recovery measures established the Five Year Program is submitted to an environmental
by the competent bodies’’. assessment, which determines what is the best between the
alternatives purposed, under the environmental point of
7. The international experience view. Although this assessment is not called SEA, it has the
same objectives. The USA is a pioneer in this kind of
The international experience demonstrates that devel- initiative, already provided for in law since 1969, when it
oped countries discuss the environmental issues before the instituted its National Environmental Policy Act—NEPA.
 ARTICLE IN PRESS
2908 J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911

7.2. United Kingdom consequences of the upstream activities on industry,

commerce and environment are made. The risks of
In the UK, the environmental licenses are issued by the pollution and its social and economic effects are also
Department of Trade and Industry—DTI, and there is no assessed. This study is called regional environmental
need for environmental impact assessment studies for each assessment that, although having another name, has the
project. However, SEAs have been carried out in UK since same objectives and characteristics of the SEAs. The
1999, annually, for each bidding round, and have Norwegian Government also stipulates that the enterprises
supported the process of concession of offshore areas to must consider the cumulative and synergistic aspects of its
the oil and natural gas E&P activities. The SEA process projects and remarks the needs for pollution control and
guarantees previous and detailed knowledge about the effluents monitoring. In Norway, two types of licenses are
areas offered and about the sensitive periods of time for issued: exploration licenses and production licenses. On
each biological resource. For every round, specific and each license it is determined that the licensee cannot hold
distinct measures of environmental protection can be back the exploration of other natural resources existent
stated, such as the enlarging of protected areas and the within the licensed area, since there is no significant
prohibition of some activities during certain periods of interference. In such situations, one of the activities can
time. The applicant enterprises for operating in the offered be interrupted and it can be the petroleum activity.
areas must comply with the requisites of the Joint Nature
Conservation Committee (JNCC), that is, the UK Govern-
7.5. Australia
ment’s wildlife adviser, undertaking national and interna-
tional conservation work. This is also a requisite for the
In Australia, each state or territory has autonomy to
obtaining of the licenses.
create specific regulations for the offshore regions within
the limit of 3 miles from the shoreline, which can generate
7.3. Canada
distinct licensing procedures in the country. Beyond this
limit there is a major uniformity of the procedures used. In
In the oil and natural gas sector, the environmental
sensitive areas, an environmental impact assessment for
assessment process that is being used in Canada begins
each operation is necessary. In the other cases, the
with a call for bids for offshore activities. At this step, it is
authorizations are issued by the Minerals and Energy
carried out as an SEA or any other kind of comprehensive
Department, which imposes spatial and time restrictions
environmental assessment to identify the major issues and
for some activities, in order to protect calving and breeding
principal concerns. The study can lead to the decision of
areas. The species considered more important and sensitive
not offering an area or parts of areas.
are marine mammals and turtles.
In the next step, the public review, the SEA is made
Besides these provisions, the Minister for Industry,
available for comments by the interested public and by the
Science and Resources and the Minister for Environment
social agents involved. Hence, the final statement is
and Heritage have been working together since 2000, in
submitted to the Council of the Provinces, the Federal
carrying out an SEA process so as to verify the environ-
Minister and the Minister of the Province approbation, in
mental feasibility of the oil and natural gas exploration
order to proceed with the licensing process. In this way, the
activities that will take place at the Australian continental
carrying out of the SEA is only the beginning of a process
shelf (EA, 2004).
that culminates with the concession of the areas for the oil
and gas E&P activities to the oil companies (LIMA—
Laboratório Interdisciplinar de Meio Ambiente, 2002). 8. Critical analysis of the procedures adopted and
Besides that, in Canada, the E&P of oil and natural gas suggestions for their improvement
permitting process is carried out through licenses and
authorizations, annually renewable, issued by the National 8.1. Selection of areas to be offered
Energy Board. The application of SEA to the oil industry is
accounted to the Councils of the Provinces (Canada— Although IBAMA began to issue a set of recommenda-
Nova Scotia, Newfoundland and Labrador Offshore tions for the offered areas since the fourth bidding round,
Petroleum Board), promoting agents and regulators, at no point was there any guarantee by the environmental
responsible for the environmental protection throughout agency that the environmental licenses would be granted to
all the phases of the offshore activities, from exploration to the concessionaires when so requested. Thus, at least
decommissioning (La Rovere et al., 2002). theoretically, it is possible that areas are still being offered
with such environmental difficulties that it becomes
7.4. Norway unfeasible to carry out oil and natural gas E&P activities.
The only difference, after the introduction of the guide-
In Norway, before the Federal Government opens areas lines, was that future concessionaires have more informa-
for oil and natural gas E&P activities, an assessment of the tion with regard to the degree of future difficulties in
social agents involved and of the potential impacts and obtaining environmental licenses for each of the areas.
 ARTICLE IN PRESS
J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911 2909

So, although environmental aspects are already being  Existence of environmental liability of the company,
considered when the blocks are defined, licensing of activities including in other countries.
and projects individually is still necessary (although not
guaranteed), differently to what happens in other parts of the As an example of international experience, the UK
world. Furthermore, the guides prepared by IBAMA merely analyses the environmental background of the company’s
give an overview to future concessionaires of the level of performance in other similar undertakings.
requirements of the environmental studies that must be
carried out to obtain the licenses. These are preliminary 8.3. Minimum Exploration Program—MEP
studies that indicate the sensitivity of the areas, but still do
not address the issue of impacts on the environment. It would be more suitable that the Agency would prepare
Thus, we may conclude that the system for defining differentiated MEPs according to the environmental
blocks was improved when it began to consider environ- sensitivity of the areas being offered. In this sense, the
mental information, starting in the fourth bidding round. best would be if the Agency could define longer exploratory
Nevertheless, the selection criteria are still mostly concen- periods for the areas with greater environmental sensitivity,
trated on the availability of geological data and on the because the licensing of these areas tends to be more
interest shown by companies (attractivity for the investors). expensive and more drawn out.
The environmental variable has only been used in Improving this point would be another benefit arising
determining the exclusion areas, whereas it is possible from the inclusion of the environmental variable in the
and feasible to use it in a more comprehensive manner. definition of blocks to be auctioned, since it would allow
The main criticism to be made with respect to the ANP to assess, individually, the targets and deadlines for
licensing guides is the lack of adequate consideration of the meeting the MEP according to the environmental specifi-
economic and social aspects resulting from the interaction city of a certain area, in which the period could be longer or
of the offshore oil industry with other sectors whose uses shorter.
are conflicting, in particular tourism and fishing.
It is also important to mention that the fact that ANP 8.4. Concession agreements
did not use environmental information until the fourth
bidding round was, to a certain extent, associated to The environmental clause of the ANP concession
external factors, such as the unavailability of sufficiently agreements is very general. It does not establish any kind
consolidated or complete environmental databases, as well of detail regarding the attention required for the environ-
as the lack of closer coordination among the Ministry of ment. In other parts of the world, there has been a
Mines and Energy (to which the ANP is associated) and substantial and gradual increase in the scope and volume of
the Ministry of the Environment (to which IBAMA is environmental provisions over the past few years. More
associated). modern and specific provisions include:

8.2. Technical qualification  Mandatory submission of independent environmental

reports.
Notwithstanding the determination of defining para-  Mandatory submission of a comprehensive environ-
meters for the ‘‘environmental qualification’’ item, the mental management plan.
points received by the companies represent a high degree of  Designation of environmental responsibilities in the
subjectivity, insofar as there is no definition as to how organization of the operating company.
(qualitatively and quantitatively) the criteria are accounted  Mandatory independent audits or permission for audits
for, nor what means each parameter. Thus, there is no way to be carried out by the government agency, to verify
a company can assess its qualification previously, despite and assess practices and compliance, and to identify the
the Agency’s evaluation. largest environmental risks and the most effective risk
The ideal situation would be the adoption of some basic mitigation and disaster management programs.
and comprehensive criteria for the qualification of the  Mandatory securities or guarantees to cover environ-
companies wishing to participate in the bidding rounds. mental liability and to include environmental liability in
Analysis would include verification of meeting minimum the mandatory insurance.
requirements, which would make the whole process simpler  Mandatory recovery of degraded or depleted areas
and clearer. Examples of these criteria are: (Martins, 1997).

 Environmental background of the company. Although it is desirable to improve the contracts with
 History of environmental accidents. regard to environmental issues, it is not very realistic to
 Existence of legal proceedings for environmental crimes expect that an oil agreement could address all of them in
in other countries. detail. The best arrangement would be to ensure that the
 Certification of the Environmental Management System agreements include the formal commitment of the
of the company by an internationally recognized entity. concessionaire and leave an opening, through which
 ARTICLE IN PRESS
2910 J. Mariano, E. La Rovere / Energy Policy 35 (2007) 2899–2911

internationally accepted environmental management and Technical Directions for Oil Spills Modeling could be used
protection standards and procedures could be incorporated to feed the SEA process, helping the selection of the areas
in the concession agreements. The addition of clauses that to be offered.
represent a concrete protection against possible damage to
the environment will not diminish the attractiveness of 9. Conclusions
Brazil to foreign investments.
The flexibilization of the state monopoly of oil and gas
8.5. Suggestions for improvements industry introduced a series of changes and challenges that
still must be faced by the regulatory agency (ANP) and by
As demonstrated before, there are still many opportu- the environmental agencies, especially IBAMA, with
nities to improve the bidding process currently being respect to the consideration of the environmental issues
employed by the National Oil Agency, with respect to in the sector-planning phase.
environmental issues. The critical point among those A similar situation occurred with the Brazilian power
described in this paper seems to be the definition of the industry. In 2004, the Brazilian Federal Government
areas being offered in the bidding rounds, and ensuing concluded the institutional reorganization of the power
application for environmental licenses required to conduct sector. The new model reestablishes long-term industry
E&P activities. planning and determines that new generating projects can
In this context, the importance of the SEA of the areas to only be included in calls for tenders once they have the
be offered in the Brazilian bidding rounds, prior to the prior environmental license, which certifies the prior
tender process, is clear, as it is done in the developed environmental feasibility of the undertaking. Thus, the
countries whose experience was mentioned. The carrying prior license needs to be obtained by the government
out of SEAs could support the issue, by ANP with before placing the undertakings in calls for tenders. This
IBAMA, of an environmental previous license to the measure is part of a set of rules included in the new model
E&P activities, or at least, to guarantee that the enterprises to reduce the risks to investors and this same experience
will be able to get the licenses. It would be the ideal could be used in the oil and natural gas industry, with the
procedure to solve the main problems presented, to reduce adoption of similar rules adapted to their context. The SEA
the risks faced by the entrepreneurs and to ensure the of the areas to be offered could be the management tool
environmental protection. The international experience that would permit the issue of an environmental previous
demonstrates the efficiency and the benefits of the license for the E&P activities, unless to the MEPs.
utilization of this tool in the oil and gas sector, and it The adoption of measures like that, with the implemen-
can be easily suited to the Brazilian specificities. tation of the other suggestions presented in this paper,
In 2000 January, the ELPN’s Chief, Mrs. Telma would represent a significant advance to the bidding
Malheiros, defended publicly the emission of previous rounds process currently held by ANP, aligning it with
environmental permits, for the sedimentary Brazilian the most modern international tendencies, and contribut-
basins, so as to simplify the environmental licensing ing to the reduction of the inherent uncertainties of the oil
process and to improve the federal control over the and gas industry, specially strong in Brazil.
upstream activities. She was also strongly favorable to
the carrying out of SEAs, during the planning phase, by
ANP (Malheiros and La Rovere, 2000 and Malheiros, Acknowledgments
2002).
Even in case the issue of an environmental previous The authors would like to thank ANP for the grant
license for an area (a sedimentary Basin, or a set of blocks, provided by the Agency’s Human Resources Program, and
for example) shows to be unpractical (for unless, the also the Energy Planning Program of COPPE/UFRJ,
carrying out of the MEPs), the SEA adoption could under the PRH-21.
simplify the requirements of the studies necessary to the
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