This document provides an overview of Brazil's constitutional history related to oil and gas exploration and regulation. It discusses how the Brazilian constitution has evolved over time, from initially granting land owners rights over mineral exploration, to establishing Petrobras as the state oil monopoly, to opening the market to competition in 1995. It then focuses on the pre-salt layer and Brazil's efforts to regulate the development of the massive pre-salt oil reserves, estimated at over 20 billion barrels. This includes creating PPSA as the government company involved in production sharing agreements for pre-salt exploration and potential legal issues regarding the constitutionality of restricting competition in this area.

1. 11
The New Frontier of Oil &
Gas Exploration in Brazil
Professor Claudio A. Pinho

2. 2
Brazilian Constitutional History
t
Brazil Independence
1822 1824
Imperial Constitution
1889
Brazil became Republic
1891
First Republican Constitution (D)
1934
1934’s Constitution (D)
1937
1930 and 1932 Revolutions
1937’s Constitution
1964’s Revolution
19691946 19881967
1946’s Constitution (D)
Vargas’ Terms
1964
1967’s Constitution
Citizen
Constitution
(D)

3. 3
Brazilian Constitutional History (Democracy vs. Autocracy)
t1822 1824
Imperial Constitution
1889 1891
First Republican Constitution (D)
1934
1934’s Constitution (D)
1937
1937’s Constitution
19691946 19881967
1946’s Constitution (D)
1964
1967’s Constitution
Citizen
Constitution
(D)
1930
Autocracy
Democracy
67 years
41 years
Autocracy
15 years
Democracy
19 years
Autocracy
21 years
Democracy
25 years

4. 4
Brazilian Constitutional History (Minerals Regulation)
t1822 1824
Imperial Constitution
1889 1891
First Republican Constitution (D)
1934
1934’s Constitution (D)
1937
1937’s Constitution
19691946 19881967
1946’s Constitution (D)
1967’s Constitution
Citizen
Constitution
(D)
Land owner has all rights over mineral’s exploration
Subsoil belongs to the federal government and the mining company
pays royalties to the land owner (Minerals Agency was created - DNPM)
Constitutional system permits legal monopoly creations

5. 5
Brazilian Constitutional History (Oil & Gas Regulation)
t1822 1824
Imperial Constitution
1889 1891
First Republican Constitution (D)
1934
1934’s Constitution (D)
1937
1937’s Constitution
19691946 19881967
1946’s Constitution (D)
1967’s Constitution
Citizen
Constitution
(D)
Petrobras was created in 1953 to be the monopoly state company to
explore oil in Brazil
1995 - 5th Amendment to the 1988’s Constitution open the market to
Oil & Gas exploration breaking Petrobras’ monopoly
1997 - Federal Law 9478 created the Oil & Gas Agency (ANP)
The market will operate in concessions contracts (by bid)

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DEFINING PRE-SALT LAYER
 Huge oil & gas fields
 Located under 16,400 - 22,900 feet of sea level (approximately 5.000 - 7.000 meters)
 Ultradeep water drilling (under 6,500 feet or approximately 2,000 meters)
 Under a pre-salt layer of 6,000 feet thick (average)
Pre-Salt
Corcovado
Mountain
10,000 ft
6,500 ft.
Salt

7. 7
Pre-salt
area
Tupi
Block
WHERE IS LOCATED
 The pre-salt poligon area cover 4 states
 Tupi block is a pilot program drilling area with few testing wells
 The estimated field has 5 to 8 billion barrels

8. 8
Pre-salt
area
Tupi
Block
WHERE IS LOCATED
 The pre-salt poligon area cover 4 states
 Tupi block is far 180 miles (aprox. 290 Km) from Rio de Janeiro (almost in
international waters)

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Facts
 Brazilian Oil Reservs are estimated in 14 billions of barrels
 Pre-Salt poligon reservs are estimated in more than 20 billions of barrels
 Brazilian government introduced e bill to change the regulation: under pre-salt
regulation the legal system will be no longer concession
 Production Sharing Agreement (PSA) is the new legal path
 The Federal Law 12304 (2010) created PPSA Company (Pré-Sal Petróleo S.A.) as the
government company in PSA contracts
 In Brazilian’s PSA bill PPSA will sign a contract with a consortium which Petrobras
will participate with minumum of 30%
 The bid will occure on the 70% of the consortium

10. 10
Legal Issues (1988’s Constitution)
 Article 170 [Economic Order, Market Sistem, Social and Democratic
Basis]
The economic order, founded on the appreciation of human work and on
free enterprise, is intended to ensure everyone a life with dignity, according
to the dictates of social justice, with due regard for the following principles:
……
IV. free competition;
 Article 173 [Public Companies]
With the exception of the cases set forth in this Constitution, the direct
exploitation of an economic activity by the State is only allowed whenever it
is necessary to national security or to a relevant collective interest, as
defined in the law.
(1) Public companies, mixed capital companies, and other entities
engaged in economic activities are subject to the specific legal
regimes governing private companies, including with respect to labor
and tax liabilities.

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 Article 177 [Monopoly of Some Activities]
(0) The following are the monopoly of the Union:
I. prospecting and exploitation of deposits of oil and natural gas or other
fluid hydrocarbons;
II. refining of national or foreign oil;
III. imports and exports of the products and basic by-products resulting from
the activities set forth in the preceding items;
IV. ocean transportation of crude oil of national origin or of basic oil by
products produced in Brazil, as well as pipeline transportation of crude oil,
its by products and natural gas of any origin;
……
Paragraph 1 - The Union may contract with state-owned or with private
enterprises for the execution of the activities provided for in items I through
IV of this article, with due regard for the conditions set forth by law.
Legal Issues (1988’s Constitution)

12. 12
Long-Term Test in Tupi
FPSO Cidade de São Vicente
(Floating Production, Storage and Offloading)
Can the law create a
market share for Petrobras
and PPSA without
Constitutional protection?
Can the Constitution be
amended to restrain the
competition against general
principle written in article
170 (IV)?
Questions Presented

13. 13
Claudio A. Pinho
cap@aulasdedireito.com.br
Thank You