InnCorPower
← Perspectives
Sharing or concession: who shapes the asset
The contractual regime chosen at auction decides who owns the oil and who carries the risk, before the first well is drilled.
The Union holds ownership of all mineral resources
In Brazil, subsoil ownership is an attribute of the State. According to Law 9,478/1997, all deposits of oil, natural gas, and other fluid hydrocarbons found in national territory are assets of the Union. This includes the land portion, the territorial sea, the continental shelf, and the exclusive economic zone.
Imagine the subsoil functioning as a public vault where mineral resources are stored. The government, represented by the Union, holds the key to this safe. Private companies do not become owners of the oil when exploring it, but rather permittees who obtain the right to extract and commercialize these assets under strict contractual rules and state oversight.
The definition of this ownership is the pillar that supports the choice between exploration regimes. Whether via concession or production sharing, the contract only establishes how the risk of the activity will be carried and how the extracted wealth will be divided. Without this prior sovereignty, there would be no profit oil or royalties that make up federal revenue.
Concession transfers risk and ownership to the investor
In the concession regime, the contractual dynamic is clear: the investor assumes operational and financial leadership. As defined in Law 9,478/1997, the company explores the block at its own account and risk. The investor is like a farmer who rents the land, finances the planting, and bears the weather risks, but keeps the final harvest.
By making the investment, the explorer becomes the owner of the extracted oil or gas. This ownership, however, is conditioned on the fulfillment of prior financial obligations. The investor must settle all applicable taxes and make payments for legal participations, such as royalties and signature bonuses, ensuring the compensation due to the Union.
This structure eliminates state exposure to operational losses. If the well does not show commercial viability, the loss falls entirely on the concessionaire. Conversely, success in extraction allows the company to appropriate the asset, operating it as a private business under the supervision of the State, which maintains ownership of the natural resources according to the legal system.
This division replicates, in general terms, the classification that the World Bank consolidated in 2007 for oil fiscal regimes: on one side, concessionary systems, where the investor owns the hydrocarbon at the wellhead and pays royalties and taxes; on the other, contractual systems such as production sharing, where the State preserves ownership and the contractor receives only the fraction of production defined in the contract.
The production sharing regime requires surplus for the State
Unlike the concession, where the risk and the asset belong to the private party, the production sharing regime is a division game. According to Law 12,351/2010, the winning company assumes all financial and technical risks of exploration, but the contract is designed to guarantee a share of production to the Union.
The criterion that decides the bidding winner is precisely who offers the largest share of profit oil (surplus oil). Imagine this surplus as the gross profit of production after subtracting the cost oil, which is the reimbursement the company receives to cover its initial expenses with wells and infrastructure.
The Union assumes no risks. If exploration is successful, the company recovers its investments through cost oil and then divides what remains according to the percentage fixed in the contract. This model ensures the State maintains a central role in the appropriation of resources, transforming the dispute into an efficiency auction over the division of wealth.
The Pré-Sal Petróleo S.A. (PPSA) itself, a federal state-owned company linked to the Ministry of Mines and Energy that represents the Union in these contracts, describes the mechanics in two steps: first, the operator is reimbursed in hydrocarbons equivalent to its expenses — the cost oil —, and only then what remains, the profit oil, is divided between the consortium and the Union according to the percentage of surplus offered in the auction. Since the signature bonus is already fixed in this regime, the competition shifts entirely to who promises to deliver the largest surplus to the State.
Investments and bonuses guide market entry
Entering exploration assets requires robust capital injections at the very beginning of the operation. The signature bonus works as a fixed "toll" paid by companies to secure the right to explore the block. Without this initial disbursement, the contract does not even come to life, establishing an immediate financial commitment between the bidder and the State.
In addition to the bonus, the contract imposes mandatory investments. Think of it as a required renovation on a recently acquired property: the owner is obliged to invest a minimum amount in improvements, in this case, aimed at exploration and technological innovation (R&D). These values ensure that the acquired area receives the necessary technical attention from day one.
Recent figures from ANP cycles reveal the magnitude of these disbursements. While in the 3rd Production Sharing Cycle the focus was on expanding the exploration area, the 5th Concession Cycle mobilized significant volumes of capital to ensure the development of dozens of new blocks, reinforcing the market's appetite for new frontiers.
| Bidding Cycle | Offered Bonus (R$) | Minimum Investment (R$) |
|---|---|---|
| 3rd Production Sharing Cycle | 103,728,181.09 | 451,498,600.00 |
| 5th Concession Cycle | 989,261,000.96 | 1,456,963,000.00 |
To check the legal bases governing these participations, consult Law 9,478/1997 and Law 12,351/2010.
Government participations protect public revenue
The Brazilian State maintains ownership of mineral resources. To explore these riches, companies assume operational risks but must compensate the Union through specific financial charges provided for in the contract. The signature bonus functions as an entry fee paid by the investor right at the bidding stage, guaranteeing the right to start activities in the awarded block.
Royalties act as monthly financial compensation for the exploration of the resource, calculated on gross production. Think of them as a mandatory rent that the landowner receives for the depletion of the reserve. Additionally, the special participation applies to fields with large volumes or high profitability, capturing a larger share of the profit in favor of the public treasury.
Law 9,478/1997 regulates these payments, ensuring that the return to the country is proportional to the success of the venture. Rates vary according to the exploration regime and the type of contract, as detailed in the table below:
| Charge | Concession Regime | Production Sharing Regime |
|---|---|---|
| Royalties | 5% to 10% | 15% |
In onshore projects, landowners also receive a share of production, fixed between 0.5% and 1%, according to the ANP. This contractual arrangement ensures that the financial risk is private, while public revenue remains preserved from the first drop extracted.
Landowners receive compensation for production
Brazilian law guarantees that the owner of the land where oil and gas exploration takes place receives a financial consideration. This payment, known as the surface owners' participation — a direct analogy to "rent" for the use of their surface for extraction activities —, is a right secured in both concession and production sharing contracts.
In onshore blocks, contracts must mandatory include this compensation clause. The value is calculated monthly on the gross revenue of commercial production. The determination follows strict criteria from Law 9,478/1997 and Law 12,351/2010, ensuring legal certainty for the owner.
The amount to be paid varies according to the rules established by the ANP. The table below summarizes the legal parameters that define this participation:
| Exploration Regime | Percentage of Production |
|---|---|
| Concession | 0.5% to 1% |
| Production Sharing | Up to 1% |
Access rules ensure shared use of pipelines
Flow infrastructure works like a privatized highway. To prevent the market from being held hostage by a single company, Law 9,478/1997 establishes that third parties can use existing pipelines and terminals. Access is guaranteed, provided the user pays a fair remuneration for the use of the installed capacity.
This measure avoids logistical monopolies that could stifle new production projects. When the pipeline owner and the interested party do not reach an agreement on the value of this fee, the ANP intervenes. The agency defines the price and payment method, ensuring the cost is compatible with market practice.
The contractual design, therefore, decouples pipeline ownership from the right of flow. By allowing various producers to use the same transport system, the State balances market power. This encourages investment in new exploration fields, as flow ceases to be an insurmountable barrier for those wishing to operate in the sector.
National agencies regulate the contract's lifespan
Oil contracts function as a gear monitored by government bodies. Entities like the ANP and the Angolan ANPG determine rules of conduct. They act as strict traffic wardens, watching every step of the project.
These agencies define management mandates and exploration deadlines. Law 12,351/2010 establishes a thirty-five-year term for production sharing contracts. The total operation time obeys strict limits fixed by law.
Technical teams frequently audit financial and operational risks. Presidential Decree No. 49/19 grants the ANPG the function of auditing the operators' activities. This check protects public assets against route deviations.
In Brazil, the one who audits the auditor is the Federal Court of Accounts (TCU), which in a 2025 ruling pointed out staffing shortages and the absence of clear technical criteria for choosing PPSA directors — risks to the continuity of production sharing contract management. The same principle of independent checking exists on the private side: Valida Auditoria validates volumes and processes declared by operators before these numbers enter an investor's balance sheet, a role equivalent to what the TCU exercises over the public management of the pre-salt.
Tax incentives stimulate the development of mature areas
Governments adjust contractual rules to prevent old wells from turning into scrap before their time. Recent decrees like Presidential Decree 8/24 alter the landscape by slicing taxes with surgical precision. It works like a discount on HOA fees for someone who decides to renovate an old apartment that is difficult to rent.
The regulation reduces the tax burden on income and on barrels produced in hard-to-access regions or with an advanced history of extraction. In production sharing agreements, the income tax drops from 50% to 25%. The measure serves to attract private capital to locations where oil requires more technical effort than in recent discoveries.
| Tax Regime | Regular Income Tax | Incentivized Income Tax |
|---|---|---|
| Association Agreements | 65.75% | 55.75% |
| Production Sharing | 50% | 25% |
When it does not pay to sign the oil and gas contract
- In onshore blocks under the concession regime, the contract requires the payment of participation to landowners with a percentage ranging between five-tenths of one percent and one percent of production. When the extracted volume falls short of commercial expectations, this fixed surface expense crushes the operational margin and makes the operation financially unviable.
- In production sharing contracts for the pre-salt and strategic areas, the Union does not assume the risks of exploration, appraisal, development, and production activities. Since costs and investments fall entirely on the contractor, the absence of commercial oil transforms the contributed capital into a loss without any public safeguard.
- The exercise of liquid fuel production activity requires a minimum capital stock of two hundred million reais to be mandatory paid-in in national currency. For smaller companies, this regulatory requirement works as an insurmountable barrier, making entry into the sector unfeasible even before the first well is drilled.
The oil and gas contract defines the asset owner and the risk size
Contracts in the energy sector function like a deed to a plot of land where construction has not yet started on paper. They determine who pays the bill for the first hole in the ground and who keeps the profit if the well gushes oil. In Brazil, according to Law No. 9,478/1997, the so-called Oil Law, deposits of oil, natural gas, and other fluid hydrocarbons in the land portion, the territorial sea, the continental shelf, and the exclusive economic zone belong to the Union. The legal document merely delegates the right to explore this wealth.
Signing such an agreement requires understanding the exact difference between the available models. In a concession, regulated by article 26 of Law 9,478/1997, the operator explores at its own account and risk and gains ownership of the oil after extraction, bearing taxes and legal participations. In production sharing, provided for in Law No. 12,351/2010, the Union does not assume risks and the operator recovers investments with part of the production, while the remainder goes to the government. Decision-makers in the real estate and energy markets deal with strict rules that shape the asset before any machine even arrives at the field.
The concession transfers ownership of the extracted oil to the operator
The concession model works like a rental where the tenant renovates the property and keeps the appliances they buy from then on. According to Law No. 9,478/1997, the activity takes place at the concessionaire's account and risk. If the well comes up dry, the loss belongs entirely to whoever invested. If the well gushes, the extracted oil becomes the property of that same company, which assumes the payment of taxes and government fees.
This format requires the payment of financial compensations provided for in the bidding notice. These include the signature bonus, royalties, special participation, and payment for area occupation or retention, according to article 45 of the Oil Law. Royalties correspond to ten percent of monthly production, an amount that the National Agency of Petroleum, Natural Gas and Biofuels (ANP) can reduce to as low as five percent in the notice. When the block is onshore, the contract also guarantees payment of a share to landowners, ranging between half a percent and one percent of production.
Production sharing keeps the oil with the Union and requires a surplus
Production sharing operates like a partnership where the minority partner builds the entire factory and delivers part of the operational profit to the patent owner. Applied in pre-salt areas and strategic regions according to Law No. 12,351/2010, this modality establishes that the Union does not assume any exploration or development risk. Costs and investments lie entirely on the shoulders of the contractor, who recovers the invested money through what is known as cost oil.
The criterion for winning the bid in this regime is offering the largest profit oil surplus to the Union. Petrobras mandatory participates in the consortia with at least a thirty percent share, according to the same law. Production sharing contracts stipulate a royalty rate of fifteen percent of the production value, without the possibility of reimbursement to the contractor. In recent ANP auctions, such as the third cycle of the permanent production sharing offer, five blocks were awarded with planned minimum investments of R$ 451,498,600.00 in the initial exploration phase.
Government participations weigh on the energy project's cash flow
Keeping an energy asset active requires paying recurring fees that function like property taxes for a large commercial estate. Article 45 of Law 9,478/1997 defines the list of these charges, which include the signature bonus, royalties, special participation, and area retention. Special participation, in turn, is distributed quarterly in a proportion of fifty percent to the Union, forty percent to producing states, and ten percent to producing municipalities, according to ANP guidelines.
Landowners where there is production also receive a share of gross revenue. This payment varies from half a percent to one percent, calculated monthly. In the production sharing regime, the commercialization of oil destined for the Union follows private law norms without the need for bidding, generating billions of reais for public coffers through the actions of entities like Pré-Sal Petróleo (PPSA).
Shared infrastructure and pipeline access prevent monopolies
No production survives in isolation if the owner of the neighboring pipeline decides to turn off the tap. Brazilian legislation avoids this strangulation by ensuring open access to transport pipelines and maritime terminals. Article 58 of Law No. 9,478/1997 determines that any interested party can use these facilities upon remuneration to the owner, under the terms of the applicable regulation.
If companies do not reach an agreement on the value of gas or oil freight, the ANP steps in to set the remuneration based on market criteria. This dynamic ensures that the real estate or energy asset maintains liquidity. Efficient transport ensures that gas and oil reach consumption centers or liquefaction plants, such as the unit located in Soyo, without depending on the goodwill of the competitor who owns the piping.
International rules and transition require legal caution
Investing in energy abroad or in the domestic market requires looking at foreign regulatory frameworks that mirror Brazilian dilemmas. In the Angolan jurisdiction, for example, Presidential Decree No. 49/19 created the National Agency for Petroleum, Gas and Biofuels (ANPG) to regulate and supervise the sector, functioning similarly to the Brazilian ANP. Presidential Decree No. 8/24 introduced incentives for incremental production in mature blocks, reducing income taxes and royalties in association agreements to attract capital.
These international contractual adjustments show that governments change the rules of the game to unlock billions of dollars in investment when natural production declines. Long-term strategic planning requires the decision-maker to understand every asset reversal clause, expiration terms, and internal rate of return limits before signing the documentation for a well.
Checklist: seven essential reviews before signing the contract
- Verify the block's ownership and compliance with ANP rules. Consult the ANP.
- Confirm whether the applicable regime is concession or production sharing. Consult the bidding notice.
- Validate the company's minimum capital stock according to the type of regulated activity. Consult the notary or commercial registry.
- Check the obligations for paying royalties and government participations. Consult the ANP.
- Ensure the inclusion of protection and payment clauses for landowners. Consult the real estate registry.
- Analyze the rules for pipeline access and production flow. Consult the ANP.
- Make sure that mandatory minimum investments in research and development are provided for. Consult a legal auditor or technical professional.
Frequently Asked Questions
What differentiates the concession regime from the production sharing regime?
In a concession, the risk and investment belong to the company, which holds ownership of the extracted oil. It's like renting land to farm: you pay for the use and keep the harvest. In production sharing, used in the pre-salt, the Union divides the surplus. Think of a partnership where one party provides the field and the other the operation, sharing the gross profit after cost recovery.
How do royalties work in each model?
Royalties are financial compensations for the use of an asset belonging to the Union. In the concession regime, the rate is 10%, which can be reduced to 5%. In the production sharing regime, the rate is fixed at 15%. It is a portion of production, paid monthly, serving as a mandatory rent for the depletion of a finite mineral resource.
What is the role of the ANP in the oil and gas sector?
The National Agency of Petroleum, Natural Gas and Biofuels (ANP) is the regulator that defines rules, supervises contracts, and promotes bidding rounds. Imagine the ANP as the manager of a condominium who ensures compliance with internal regulations, ensuring that whoever explores the subsoil meets deadlines, pays government participations, and follows technical standards for operational safety.
What is cost oil in production sharing?
Cost oil is the company's right to be reimbursed for expenses incurred during exploration and production. It is like a reimbursement for operational expenses: before dividing the operation's profit with the Union, the oil company takes from the total produced the value necessary to cover the investments made. Only after this deduction is the profit oil surplus to be divided calculated.
Do the owners of the land where the wells are located receive any payment?
Yes. When production occurs onshore, the contract provides for a share to the owners of the area where the block is located. The value is calculated monthly and corresponds to a percentage between 0.5% and 1% of the gross production revenue. It is a right guaranteed by law for the surface owner, functioning as consideration for the inconvenience and use of the property.
References (9)
- Law 9,478/1997 (Oil Law). Accessed on 10/02/2026. https://www.planalto.gov.br/ccivil_03/leis/l9478.htm
- Law 12,351/2010 (production sharing). Accessed on 10/02/2026. https://www.planalto.gov.br/ccivil_03/_ato2007-2010/2010/lei/l12351.htm
- ANP. Government participations. Accessed on 10/02/2026. https://www.gov.br/anp/pt-br/canais_atendimento/imprensa/kits-de-imprensa-1/participacoes-governamentais
- ANP. 3rd Cycle of the Permanent Production Sharing Offer. Accessed on 10/02/2026. https://www.gov.br/anp/pt-br/canais_atendimento/imprensa/noticias-comunicados/3o-ciclo-da-oferta-permanente-de-partilha-da-anp-tem-cinco-blocos-no-pre-sal-arrematados
- Lex.ao. Presidential Decree No. 49/19. Accessed on 10/02/2026. https://lex.ao/docs/presidente-da-republica/2019/decreto-presidencial-n-o-49-19-de-06-de-fevereiro/
- Tauil & Chequer. Angola Incremental Production Decree. Accessed on 10/02/2026. https://www.tauilchequer.com.br/pt/insights/publications/2024/11/angola-incremental-production-decree-and-other-ongoing-developments
- World Oil. Angola advances E&P investment strategy. Accessed on 10/02/2026. https://www.worldoil.com/news/2025/7/25/angola-advances-e-p-investment-strategy-new-licensing-round/
- ANP. Results of the 5th Cycle of the Permanent Concession Offer. Accessed on 10/02/2026. https://www.gov.br/anp/pt-br/rodadas-anp/oferta-permanente/opc/5o-ciclo-da-oferta-permanente-de-concessao/resultados-5-opc
- EIA. Country Analysis Brief: Angola. Accessed on 10/02/2026. https://www.eia.gov/international/content/analysis/countries_long/Angola/index.htm