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July 12, 2017

The Brazilian Oil and Gas Agency (“ANP“) has recently published the draft agreements for exploration and production of oil and gas in Brazil, which will apply to the next bid rounds (public bids for private parties to acquire exploration and production rights). The 14th general bid round for concession of blocks in Brazil is expected to take place in September 2017, while the 2nd and 3rd special bid rounds for the valuable areas in the “pre-salt” reserves, under a production sharing regime, are foreseen to occur in October 2017.

Although the bid rounds will be subject to different legal regimes (ordinary reserves under concession of rights and pre-salt reserves under a production sharing regime), the arbitration clauses are quite similar. Both provide for a previous attempt of reconciliation of the parties, so that any dissatisfied party shall request a meeting to negotiate a settlement before filing a claim. The meeting shall be held within 30 days from the request and the parties will have a “cooling off” period of 30 days after such meeting during which they cannot bring the arbitration.

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In principle the proceeding will be carried out on an ad hoc basis, under UNCITRAL arbitration rules, but the parties may agree on institutional arbitration under ICC Rules or the rules of other renowned institution. There will be three arbitrators appointed according to the rules, but on claims of lower value the parties may agree on a sole arbitrator.

Seat of arbitration will be Rio de Janeiro and Brazilian Law shall apply to the merits. The language will be Portuguese, but documents and testimonies in other language will be accepted without sworn translation.

The most controversial issue is that the E&P company shall advance all the costs of the arbitration, including not only institution’s and arbitrators’ fees, but also court-appointed experts’ fees. However, if the E&P Company wins the arbitration, the arbitral award may sentence ANP to reimburse the costs so advanced. The purpose of this provision is to address the concern of the Brazilian State that arbitration may be expensive compared to court litigation. There are complaints from the industry that such provision is not fair, especially if ANP commences the arbitration.

Nonetheless, the wording of such clauses are better than the ones of certain previous contracts, in which there were controversial issues such as attempts to restrict the scope of arbitration or worrying provisions such as the combination of ad hoc arbitration with the ICC Rules. This might be a sign that ANP is turning into a more arbitration-friendly attitude, which is important to attract more private investment to the oil and gas industry in Brazil.

Source: globalarbitration.com

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