On April 26, 2018, the Presidency of the Republic published Decree No. 9.355/2018 (“Petrobras Decree”), which establishes the rules of governance, transparency and good practice for the assignment of exploration, development and production rights for oil and natural gas in Petrobras’s blocks. The Petrobras Decree was issued based on article 63 of the Petroleum Law (Law No. 9.478/97), which authorizes the company to form consortia with domestic or foreign companies to expand activities and increase investments in the oil industry.


In 2016, the New Public Companies Act was issued (Law No. 13,303, June 30, 2016), which established guidelines for the bidding procedure for the acquisition and sale of assets by mixed economy companies. It provides for a period of 24 months for these companies to make the necessary changes in their by-laws and internal decision-making processes. Thus, on January 15, 2018, Petrobras issued its new “Tender and Contract Regulations”, which became applicable to Petrobras’s bids and contracts as a whole.

The new farm-out process

The Petrobras Decree consolidates the process to be adopted by the company and its subsidiaries, specifically in farm-out procedures, respecting the principles of publicity and transparency. In fact, since last year, Petrobras has already started adopting the new system in its divestment program, due to the demands of the Federal Audit Court (Tribunal de Contas da União – “TCU”), aiming to increase the transparency of the competitive process.

The Petrobras Decree does not exclude the need for prior approval of the ANP for assignments under the concession regime nor of the Federal Government, through the Ministry of Mines and Energy (Ministério de Minas e Energia – “MME”), under the production sharing regime.

Phases for farm-outs

Under the new system, the assignment of exploration, development and production rights must be carried out “through a procedure which enables Petrobras to obtain the best economic and financial return”. The procedure shall be conducted by a committee specially designated to coordinate the proposals (“assignment commission”)

The Petrobras Decree details the phases with which the farm-out procedure must comply:

  1. Preparation

The aim of the preparation phase is to plan out the special procedure for an assignment.

  1. Interest consultation

At the interest consultation phase, which is to be held prior to the sending of the document requesting the proposals, Petrobras will review the level of interest in the market for the intended assignment through an “opportunity disclosure instrument”.

  1. Presentation of preliminary proposals

After the interest consultation phase, the assignment commission may request the submission of preliminary proposals to interested parties.

  1. Presentation of firm proposals:

The assignment commission will also issue a document requesting firm proposals, either (a) to all parties who have expressed interest in the interest consultation phase; or (b) to all parties who have been classified at the stage of the request of preliminary proposals.

  1. Negotiation:

After reviewing the proposals, the assignment commission may negotiate with the best ranked participant or other participants, according to the order of ranking, the best and most advantageous terms for Petrobras in respect of the assignment.

In reality, the New Public Companies Act had already established a similar rule. This norm has been criticized by some participants, since it allows, in the interest of Petrobras, a new round of negotiations even after the submission of the binding offer, which, in the opinion of some, makes the process legally fragile, since it generates uncertainty regarding the outcome of the bid.

  1. Result:

The assignment commission will prepare a final report of the special assignment procedure, after the negotiation phase.

  1. Signature of the agreements

Once the assignment of rights has been approved, the assignment commission shall invite the winning participant to sign the  agreements for the transfer.

If the winning participant drops out of the procedure, the penalties provided in the proposal request document will be applied.

In addition, Petrobras, as a publicly-held corporation, will inform the market regarding the phases of the special assignment of rights, as provided by the rules of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – “CVM”).

Situations where the Petrobras Decree will not apply

The competitive process provided for in the Petrobras Decree will not apply in the following situations: (i) the formation or modification of partnerships or consortia, when the partner’s choice is associated with particular characteristics and related to defined and specific business opportunities; (ii) when it can be shown that it is impossible to  carry out the procedure in free competition; and (iii) the exercise of the right of withdrawal under partnership agreements. In our view, the rule established in (i) above confirms that there is no need for a competitive process in the so-called “strategic alliances” within the framework of global agreements for asset disposition and investment promotion.

Priority of JOAs 

The Petrobras Decree seems to put an end to the legal debate regarding the priority of the bidding rules regarding preemptive rights established in joint operating agreements (“JOA”) of which the company is a party. The Petrobras Decree expressly provides that in an assignment of rights the “Petrobras partners’ preemptive rights” shall be observed, as well as the application of confidentiality rules to strategic information protected by confidentiality.

The regime of consortia operated by Petrobras 

The new Decree also establishes that the contracting of goods and services performed by consortia operated by Petrobras will be subject “to the regime proper to private companies”, in which case the bidding procedure established in the Decree will not be applied. In fact, this rule is not intended to give a “blank check” for the company to carry out any contracting within the consortia operated by it, since the contracting of goods and services will continue to be governed by the contractual rules established in the JOAs to which the company is a party, in addition to the rules of governance and decision making in relation to the non-operating parties.

Finally, it should be noted that for transfer procedures not completed on the date of publication of the Decree (or regarding which the definitive contracts have not been signed) the rules of the new Decree shall be applied in the later phases of the bid.