ANP will review price for calculating oil royalties in the country

The ANP (Agência Nacional do Petróleo, Gás e Biocombustíveis) wants to anticipate the revision of the reference price for the calculation of oil royalties in the country to benefit small and medium-sized companies operating in the sector.

The big oil companies, however, see risks that the process could lead to a review of prices in the large pre-salt oil fields, transferring part of the sector’s profit margin to the coffers of states and municipalities.

The proposed revision was approved in a decree issued this Wednesday (17) by the federal government, which justifies changes in the global oil scenario after the pandemic and the War in Ukraine. He also cites recent tightening of marine fuel specifications, which increased the value of pre-salt oil.

Royalties are financial compensation for the extraction of natural resources, paid to the Union and to the producing municipalities and states. Oil companies also pay a kind of income tax on highly productive fields, called special participation.

In 2020, the two offsets generated R$ 74 billion, divided between the Union, states and municipalities. Located in front of the largest pre-salt fields, the cities of Niterói and Maricá in Rio de Janeiro are the largest collectors among the municipalities.

The calculation of this compensation considers the volume extracted and the price of oil from each field – which varies according to its quality, that is, the types of fuel it produces, compared to Brent oil, a global reference.

Heavier oils, such as those from fields above the salt layer, produce less gasoline and diesel and tend to have a greater discount to Brent. Pre-salt oil, on the other hand, is lighter and produces more valued derivatives.

It also has a low sulfur content, which makes it suitable for producing shipping fuel within the new IMO (International Maritime Organization) anti-pollution specifications.

Industry executives say the decree’s main objective is to correct distortions in the calculation of royalties for small producing fields. Without outflow infrastructure, these fields are forced to sell the oil to Petrobras, which imposes discounts on the market value.

Thus, these companies would be paying royalty rates on reference prices higher than the actual sales value of the production. The review would initially apply to small and medium-sized companies.

The sector also calls for a review of the definition of small and medium-sized oil companies, currently limited to companies that produce up to 10,000 barrels per day. The ANP is already discussing the redefinition of the ceiling and Abpip (Brazilian Association of Independent Oil and Gas Producers) asks for greater agility in the process.

There are still doubts whether pre-salt oil, which was already traded at higher values ​​than the Brent price at the end of 2019, before the implementation of the new restrictions, will also undergo reassessment, as the decree does not restrict the scope of performance of the ANP.

The last revaluation of reference prices, in 2017, resulted in higher expenses for pre-salt producers, benefiting states and municipalities in front of these fields.

The troubled process, which had lawsuits by the oil companies and the federal government itself resorting to justice, ended up being concluded by virtue of a judicial injunction requested by the government of Rio de Janeiro, the main beneficiary.

The previous rule provided for a review of the formula for calculating reference prices at least every eight years. Thus, the next reassessment should take place in 2026, but this Wednesday’s decree allows the deadline to be brought forward.