Decomissioning of facilities is a big challenge for the Brazilian oil and natural gas industry. The beginning of the production occurred in 1940 in onshore fields and in the late 1960`s for the maritime, and the fields that start its exploitation in 1998 (bid “o”) has rigs operating for over than 25 years, in its final stage of life.
Besides the challenge of measuring the liability throughout the project, a number of factors has to be considered, mainly the suitability of the regulation and the technical capacity for presenting proper solutions for the decommissioning.
The regulator body – ANP (National Agency of Petroleum, Natural Gas and Biofuels) has the complex task of drafting rules which can guide the decommissioning activities, mitigating risks to people and environment. The operators shall be accountable for recovering the affected areas, with environmental liabilities.
Petrobras has been prioritizing the pre-salt production, which has soared in the late years (729% between 2012 and 2018), meanwhile pos-salt has faced a decrease (41% between 2012 and 2018). In this scenario, some decommissioning programs have been approved, such as Roncador and Marlim Sul, and several others are been analyzed.
Decommissioning opportunities will drive the market and create demand for various services and equipment for many years in Brazil. There are several related services: engineering projects, subsea inspection, waste management, environmental monitoring, among others. As for equipment, probes, HLSVs, PSVs, tugs, rafts and other specialized items are required. Investments in 2020-2040 in offshore are estimated at R $ 50 billion, considering 100 platforms and 1,000 offshore wells (source: ANP).
ANP Resolution No. 27/2006, currently under review by the ANP, with the participation of IBAMA, the Brazilian Navy and the Brazilian Petroleum Institute (IBP), will define the procedures to be adopted for the facilities decommissioning, return of areas, disposal and reversal of assets and the content of the program and the final decommissioning report. The purpose of the new resolution is to maximize reservoir recovery and avoid premature decommissioning, foster business between future and current operators, develop new markets and provide predictability and regulatory simplification.
Petrobras has initiated bids for decommissioning, and currently has eight projects (10 platforms) to be executed in the coming years. The Cação project is underway and has contributed to many lessons learned for future projects. Since 2015 the 13 wells have been decommissioned (probe P-59), the permanent deactivation of the transfer ducts and the dismantling of the decks of PCA-1, PCA-2 and PCA-3. Its remaining scope will be realized by an EPRD (Engineering, Preparation, Removal and Disposal) contract in 2020 (source: Petrobras).
Repetro has undergone significant changes with the implementation of Provisional Measure No. 795 of August 17, 2017. These changes required the issuance of a new Normative Instruction and the new Repetro is now called Repetro-Sped. With the new legislation, Repetro (previous regime) will remain in effect until 12/31/2020.
The main changes are: the inclusion of a new mode of application of the regime, which is the importation of goods for permanent permanence in the country with suspension of the payment of federal taxes on importation; The adoption of Sped for accounting control to replace the current computerized system used to control Repetro and Repetro-Sped will include the control of temporary admissions for economical use with proportional payment.
Petrobras has already brought six new platforms (FPSOs) in Repetro-Sped (acquired) and has 34 of its own in operation admitted to Repetro, which will therefore be nationalized by Dec. 2020. It has over 300 new subseas and 2,800 in operation to be nationalized, as well as 1,200 ancillary goods (source: Petrobras).
One of the advantages of the new system is that when migrating to Repetro-Sped, the accessory goods can be migrated together with the platform, which facilitates the processes. Petrobras has 57 offshore fields with material in Repetro.
Petrobras has now eight offshore decommissioning projects underway. In fact, three platforms in Bacia de Campos have already been disconnected. As these systems are very old (from the 1980s), it faces enormous difficulty in finding documentation and information to support regime migration.
The challenge is even greater when the platform is operated by third parties. In this case, decommissioning is jointly conducted by the vessel operator, the service provider (such as SBM, Modec and others) and the (oil) operators. Both have to provide sufficient documentation and information to achieve the purpose of decommissioning. In general, subsea equipment is the responsibility of the operator, and platforms and accessory equipment are imported by the contractor.
The amount of goods and services used in decommissioning operations is enormous. The same decommissioning vessels also install, so the market is competitive and the values are high.
Another challenge is the issue of storing the material in the bases. Studies and analysis related to the disassembly, disposal and destruction process are required in light of environmental issues.
In the Repetro-Sped definitive import mode, the goods must remain destined to the exploration, development and production of oil and natural gas deposits for a period of 5 years. The Repetro-Sped regime will be automatically terminated, and in the event of regular disposal of the good, after the expiration of a 5-year period from the registration of DI. If the good becomes unusable before 5 years of age, the beneficiary may allocate the equipment in another field, dispose of it to another legal entity qualified in the scheme or remain installed or release it in its original place of employment.
Destination of subsea goods (“subsea”) is considered to be used when affixed to the subsoil; and vessels and platforms where they are still available at the locations indicated in the concession agreement, authorization, assignment or sharing agreements.
Since the new legislation was published, there has been a fruitful market dialogue with the IRS, which has been very receptive to operators’ claims to correct flaws and loopholes in the law.
The analysis of all applicable legislation to the regime is a daunting task: laws, decrees, regulations, ordinances, normative instructions, constantly repealed and modified, which does not facilitate its absorption. Good assistance is provided by the “Repetro-Sped Manual”, which systematically summarizes the legislation; and the “Questions and Answers”, which are a direct channel for IRS communication with taxpayers. Obviously, for greater legal certainty, it is necessary that the answers are transcribed in normative.
Note that there are still unresolved issues. For example, the five-year rule applies to all equipment, including old equipment, and not only to equipment imported from January 1, 2018 on Repetro-Sped. Among the permitted hypotheses for the destination of the good, before or after the 5-year period, there is no explicit exportation, disposal of the good for non-beneficiary of Repetro-Sped or destruction. Thus, these cases could be considered deviation of purpose, imposing the payment of suspended taxes plus interest and late payment, calculated based on the migration ID of Repetro to Repetro-Sped.
It should be noted that these assets were already applied to the E&P activity, under the Repetro regime, for a period sometimes much longer than the 5 years required by the new legislation.
There is an apparent difficulty in adapting the legislation to the activity due to its intrinsic characteristics.
In the migration of regimes from Repetro to Repetro-Sped, caution should be exercised, thus avoiding a series of legal penalties, such as the execution of the liability term (TR) with full payment of suspended taxes plus default charges, application of a 10% fine on the customs value of the goods for non-compliance with the terms and conditions of the special regime, and a 75% fine on the taxes due, in case of tax assessment.
In addition, little attention is paid to accounting entries, which, if incorrect, will have an impact on accounting and income taxes (IRPJ and CSLL).
Despite the difficulties in adapting to the new regime, it is clear that there has been a great evolution with the inclusion of the regime’s application modality in the importation of goods for permanent permanence in the country, and clearly a better understanding and dialogue between government, companies and the IRS, generating mutual benefits and the necessary stimulus for oil and gas exploration and production in the country. In their decommissioning activities, Petrobras and other operators should certainly seek to enjoy the benefits of the new regime, thereby reducing the high costs related to this activity.
Julia Mota is founder of Mota Advogados, law firm specialized in the oil and gas area.