ANPwhatis the

THE OBJECTIVES OF THE ANP ARE THE FOLLOWING:

TO REGULATETo establish the regulations (resolutions, normative instructions) for the operation of the industries and the trade of oil, natural gas and biofuels.

TO CONTRACTTo grant permits for activities performed by the regulated industries; to promote bidding rounds and to execute contracts on behalf of the Federal Government with concessionaires for the exploration, development and production activities.

TO INSPECTTo enforce the standards on the activities performed by regulated industries, directly or by means of agreements with other public entities.

The Brazilian National Agency

of Petroleum, Natural Gas

and Biofuels is the regulating

organization for the activities within

the oil, natural gas and biofuels industry

in Brazil. The federal agency, which

reports to the Ministry of Mines and Energy,

runs the national policy for the sector,

focusing on the assurance of fuel supply

and the interests of consumers.

A COMMITMENT TO THE ENVIRONMENT

The ANP constantly focus on the protection of the environment. The Agency works in partnership with the Ministry of the Environment, with the Brazilian Navy Command, with the academia and state agencies, in order to ensure that environmental issues are taken into account in the regulated agents’ decisions. In order to select the areas to be included in the bidding rounds, the ANP observes the environmental restrictions recommended by the IBAMA (Brazilian Institute of Environment and Renewable Natural Resources) and the states’ environmental agencies.

The Agency participates in the Brazilian Motor Vehicles Air Pollution Control Program (Proconve), by issuing local standards and terms for the adoption of less polluting diesel types by the Brazilian fleet of buses and trucks. It is also a member of the governmental working group established by the Ministry of the Environment that prepared two editions of the Brazilian inventory of emissions for trucks, light and heavy vehicles and motorcycles.

A REFERENCE CENTER FOR INFORMATION ON THE SECTOR

The ANP is a reference center for data and information on the oil & gas industry: it keeps the Exploration and Production´s Database (BDEP); it promotes studies on petroleum potential and the development of the sector; it receives and discloses reports on findings; it discloses the official statistics on reserves, refining and production of oil, gas and biofuels in Brazil. It also constantly carries out and discloses surveys on the quality of fuels and lubricants and the pricing behavior of these products. It consolidates and discloses information on the regulated markets and regarding the investments in research, innovation and training oriented to the regulated industries.

The ANP is run by a board of directors consisting of a director general and four directors, to serve four non-matching years of office. All decisions of the board are published on the ANP website. The Agency also carries out public hearings before taking any decision on rules that may affect any right. ANP’s staff comprises about 800 civil servants - most of them were approved in three competitive examinations held in 2004, 2008 and 2013. Nearly half of them are experts in geology, geophysics

HOW THE AGENCY WORKS

or oil & natural gas regulation. Almost all civil servants have a bachelor’s degree and over 50% have doctoral or master’s degree, or have attended specialization courses. With a view to directly running the regional operations, the Agency has offices in the cities of Brasília, Rio de Janeiro, São Paulo, Salvador, Manaus, Belo Horizonte and Porto Alegre, in addition to outstations in the cities of São Luís, Recife and Belém.

Para saber mais sobre as regras para exploração e produção de petróleo e gás acesse www.anp.gov.br/?pg=57842.

Oil & NaturalGas E&PThe role of ANP in the oil & natural gas sectorbegins by promoting geological and geophysical studies in order to outline areas with production potential. The Agency also stores and organizes geological, geochemical and geophysical dataon the Brazilian sedimentary basins, the analysisof which indicates the potential for petroleumin such areas.

The ANP supports the Brazilian National EnergyPolicy Council (CNPE) in decisions on the areasto be offered for concession or production sharingin the bidding rounds.

For the bidding of areas, the ANP prepares the tender protocols, promotes public sessions and prepares the drafts contracts - either for concession or for production sharing. In the case of concessions, the Agency executes the contracts on behalf of the Federal Government. It is also the Agency’s responsibility to measure the production in the oil and natural gas fields - an activity that substantiates the distribution of the governmental takes.

Governmental TakesBased on the results of the measurement of oil and natural gas, the ANP calculates the values of the governmental and third parties’ takes that, in addition to the Brazilian taxes in force, the oil companies have the contractual obligation to pay to the Federal Government.

The following are governmental takes: signature bonuses, royalties, special take (which levy on large production fields under concession contracts) and payment for area occupation or retention.

Municipalities, States of the Federation, the Federal Government and landowners who benefit from the governmental takes receive the amounts directly from the Brazilian National Treasury, as a financial compensation for the extraction of natural resources.

Information on the amounts of the royalties and special takes can be found at www.anp.gov.br/participacoesgovernamentais.

THE ANP from well to wheel

MIXED FRAMEWORK FOR THE REGULATION OF THE E&P SECTOR

A mixed regulatory framework has been in force for the oil & natural gas exploration and production (E&P) since 2010. For 98% of the total Brazilian sedimentary basins area the concession regime established by Law 9478 of 8.6.1997 is applicable.

In 2010, Law 12351 of December 22 established the production sharing regime for the areas not yet granted of the pre-salt polygon and other strategic areas. The law also established the Social Fund, which allocates portions of revenues derived from production sharing contracts for programs in the areas of education, culture, sports, public health, science and technology, and environment, as well as programs to mitigate the effects of climate changes.

Regardless of the contract type, the ANP is solely responsible for authorizing, monitoring and controlling, in addition to measuring the production in any area of the Brazilian territory where oil & natural gas prospecting or extraction activities are being performed. In any of the regimes, the hired companies pay royalties.

To learn more on the oil & natural gas E&P rules, visit www.anp.gov.br/regime.

Natural GasThe Brazilian Constitution establishes that the transportation of naturalgas via pipeline is a monopolyof the Federal Government; however,the states are entitled to the explorationof the piped gas distribution servicesin their territories.

Since its establishment and withinits legal scope, the ANP works topromote the expansion of the gas pipeline network. In 2009, the GasLaw (Law 11909 / 2009) assignedthe Agency with the duty to authorize

the commercialization of natural gas,to promote bidding rounds and toexecute concession contracts for pipelines; to establish (in case of concessions) or approve (in caseof permits) natural gas transportation rates and inspect the permits and their resulting contracts.

The Agency also regulates andinspects the warehousing of naturalgas, oversees the transportation ofthe product in the network and coordinates it in contingency situations.

Refining,Transportation and StorageThe ANP’s duties also include the authorization of companies to build, operate and expand refineries, natural gas processing plants, as well as storage and transportation plants for oil and its products. The Agency must also inspect all those activities.

The following also require authorization from the ANP - and are inspected by the Agency: the import and export of oil, diesel, biodiesel and ethanol, the production and warehousing of biodiesel and ethanol as well as the distribution of compressed natural gas and liquefied natural gas (LNG).

The ANP is responsible for ensuringthat the regulated companies put in placedemonstrably effective procedures andtechniques for operational safety, energyefficiency, and protection of the humanhealth and of the environment.

The ANP approves and oversees onshoreand offshore oil & gas explorationand production facilities (productionplatforms, rigs, collecting stations andonshore wells). Moreover, equipmentand procedures for handling, storage,gas processing and transportation of oil and natural gas require authorization andare subject to inspection by the Agency.

The regulatory framework for the Brazilian offshore operational safety(see ANP Resolution No. 43/2007),which is regarded as one of the mostmodern in the world, is based on acomprehensive study on the policiesadopted in countries such as theUnited States, Canada, Norway,the United Kingdom and Australia,and on lessons learned from previousincidents.

The rules for operational safety workas a guide to hazard identification andrisk assessment of each facility.

The Agency is a member of the International Regulators’ Forum (IRF),in which operational safety issuesare discussed and addressed.

Stimulusto the Domestic IndustryThe ANP stimulates the growth and consolidation of the domestic industry of materials, equipment, systems and services for the oil & natural gas sector. Since 2003, the ANP has required that the concessionaires of areas for oil & gas exploration undertook to purchase a given percentage of goods and services from domestic suppliers. That is the local content, which has become one of the assessment criteria for the bidders in the rounds for concession since 2005. The ANP also oversees the compliance with such commitments.

Inspection of Operational Safety

Research,Development & InnovationThe contracts for oil & gas exploration and production include the RD&I Clause, which requires from the signatory companies a commitment to invest in research, development and innovation projects and programs. In the case of concession contracts, the funds to be invested equal 1% of the gross revenue from the fields with major production (those which pay special takes). At least 50% of the funds out of this percentage must be invested in research institutions accredited by the ANP.

In turn, RD&I projects from the companies themselves or their affiliates in Brazil may receive up to 50% of the total planned. Those same rules apply to the production sharing contracts, except that the percentage of 1% is levied on total gross revenue. In the case of onerous assignment contracts - such as the one existing between Petrobras and the Pré-Sal Petróleo SA - the percentage is 0.5%, also levied on the total gross revenue; but, in that case, the funds must be applied exclusively in accredited research institutions. The ANP oversees the compliance with the RD&I Clause.

From 1998 to 2014, the funds intended for RD&I were generated by concession contracts and totalized over BRL 9 billion.

Professional TrainingSince 1999, the ANP has conducted its Human Resources Program - PRH-ANP - using funds from royalties, as well as from the RD&I Clause (since 2013). By 2014, the total funds allocated for the PRH-ANP exceeds BRL 356 million.

The funds enabled the granting of more than seven thousand scholarships at undergraduate, masters’ and doctorate levels, in addition to funds to support academic activities.

About 90% of fellows graduated between 2006 and 2012 were employed by the professional market of oil, natural gas and biofuels, or were absorbed by academic institutions.

Currently, the PRH-ANP covers 55 programs in 32 universities and higher education centers in 16 Brazilian states.

Participationof Small and MidsizeCompaniesThe ANP encourages the participation of small and midsize companies in the oil-related activities. Since 2005, the Agency promotes bidding rounds taking into account the inclusion of inactive areas with marginal accumulations of oil and gas.

Although these areas are no longer attractive to large companies due to smaller volumes of oil or gas produced, they may still be beneficial to smaller companies, as they require less investment and they already rely on good infrastructure. The reactivation of these areas has a positive impact on the economy of the country’s less developed regions and results in the generation of jobs and income for the population of the regions involved and revenues for public investment.

AWARD FOR THE INNOVATIVE ENTREPRENEURS

With a view to acknowledging and encouraging the efforts of research institutions and Brazilian companies that seek innovative solutions to the oil, natural gas and biofuels industry, the ANP has created the ANP Technological Innovation Award. The award focus on works carried out using the funds derived from the RD&I Clause and which contribute to the increase of local content in goods and services related to oil activities.

The ANP’s mission is to ensurethe domestic supply and to protectthe interests of fuel consumers.To do so, in the fuel and lubricantsdistribution and sale areas, the Agencyprepares and publishes technicalresolutions and authorizations thatregulate the activity of thousandsof companies in different segments:storage, distribution and retailof automotive fuels (oil products,ethanol, biodiesel), as well as solvents,lubricants and liquefied petroleum gas(LPG, bottled gas).

The Brazilian domestic supply scenariois composed of more than 100,000economic agents: the ANP regulatesthe activities of about 300 distributors,almost 40,000 service stations, morethan 55,000 LPG resellers of over 60biodiesel producers, around 130 lubricant producers, about 380 ethanol plantsand over 12,000 supply points.

The ANP also monitors the transportationof the products commercialized by theseeconomic agents.

MARKET PRICING SURVEY

Fuel prices in Brazil have been unregulated since January 2002. Therefore, there is no pricing schedule or control. In order to guide the consumer, the ANP follows, by means of a weekly survey, the pricing behavior of regular gasoline, hydrated ethanol fuel, non-additive diesel oil, compressed natural gas (CNG) and liquefied petroleum gas (LPG), charged by distributors and service stations. The results of the survey are published weekly at www.anp.gov.br/precos.

In case the ANP finds evidence of violation against the economic order, it informs the entities of the Administrative Council for Economic Defense (CADE).

Distribution and sale of fuels and lubricants

Fuel QualityOne of the ANP’s activities directly oriented towards protecting the consumers’ interest is the specification of the physical and chemical characteristics of oil products, natural gas, ethanol and the biodiesel-diesel blend. All fuel and lubricants commercialized in Brazil must comply with these specifications.

In order to check the compliance with such specifications, the ANP established the Fuel Quality Monitoring Program (PMQC) 16 years ago. Every month, more than 20,000 samples of gasoline, ethanol and diesel are collected in service stations. The material is analyzed at ANP’s Center for Research and Technological Analysis (CPT, located in Brasília), as well as 22 laboratories at universities and research institutions hired by the Agency. The analyses reveal possible sources of non-compliance with the technical specification.

The data are published on a monthly basis at www.anp.gov.br/boletinsqualidade.

Since 2013, the ANP has led task force operations in several service stations nationwide. In addition to the entities mentioned above, the task forces may bring together, in one single operation,the Inmetro (Brazilian National Instituteof Metrology, Standardization and Industrial Quality) and its State Instituteof Weights and Measures (IPEM),the regional Consumer Protection Agencies (Procons), Assigned Services Protection Offices and other citizen rights protection entities.

Supply inspection also covers production, import, export, refining, processing, treating, processing, transportation, transfer, storage, warehousing, distribution and sale of oil, natural gas and their products.

IntelligentInspection of the SupplyThe results of quality monitoring,as well as data from weekly fuelprices surveys and the reportsreceived from public entities, consumers and economic agentsare analyzed and taken into accountin the ANP inspection action plan.

With a view to enlarging the inspection scope, the Agency keeps cooperation agreements with Federal Police, Prosecutors’ Offices from states, the Federal District and Territories, Fire Departments, state departments of Finance and state capitals’ local governments.

The enactment of Law 11097 on January 13, 2005, expanded the roleof the ANP and introduced the biodieselto the Brazilian energy matrix.Since then, the Agency was renamedBrazilian National Agency of Petroleum, Natural Gas and Biofuels, undertaking the duties of specifying and inspecting the quality of biofuels and ensuring market supply, in the interest of consumers and the environment.

In 2011, Law 12490 of November 16 further expands the duties of the ANP regarding biofuels: the Agency, which already specified and inspected the

physical and chemical characteristicsof ethanol, began regulating alsothe production market.

In addition to the preparationof regulatory standards, the roleof the ANP regarding biofuelscomprises the authorizationand inspection of transportation,transfer, storage, warehousing,import, export, distribution, retailand commercialization, as wellas the activities of productionplants. The ANP is also responsiblefor compliance assessmentand certification of biofuels.

Biofuels

BIODIESEL BIDDING ROUNDS

Since 2005, the ANP has promoted the biodiesel bidding rounds, in which diesel oil producers and importers acquire biodiesel to compose the diesel / biodiesel blend on the current legal rate.

The bidding rounds, a system established by the Brazilian National Energy Policy Council, are fundamental to ensure the availability of biodiesel in quantity sufficient to compose the blend as set forth by the law. In the early years, the bidding rounds stimulated the then arising biodiesel producing sector and, at the same time, encouraged the introduction of new entrepreneurs in the activity.

The bidding round is mandatory for producers and importers with market share superior to 1%. The biodiesel acquired is sold to distributors that blend it to the fossil diesel.

Glossary In case of questions about terms used in this publication, refer to the ANP Glossary on the Agency’s website.

www.anp.gov.br/glossario

LegislationBelow are the main standards in the oil, natural gas and biofuels sector:

• Constitution of the Federative Republic of Brazil, article 177;

• Law 9478/1997, which regulates the Brazilian national energy policy, the activities regarding the state petroleum monopoly, and establishes the Brazilian National Energy Policy Council (CNPE) and the ANP;

• Decree 2455/1998, which implements the ANP;• Decree 2705/1998, which establishes criteria to

calculate and collect royalties and special takes;• Law 9847/1999, which regulates the inspection

of activities regarding the domestic fuel supply;• Law 11097/2005, which introduced the biodiesel

to the Brazilian energy matrix;• Law 11909/2009, which regulates the activities

regarding the transportation of natural gas, as well as the treating, processing, warehousing, liquefaction, regasification and commercialization of the product;

• Law 12276/2010, which authorizes the Federal Government to onerously assign to Petrobras the right to perform research activities and prospection of up to 5 billion barrels of oil equivalent in pre-salt areas;

• Law 12304/2010, which established and defined the duties of the state-owned company Pré-Sal Petróleo S/A (PPSA);

• Law 12351/2010, which establishes the production sharing regime for the areas not yet granted of the pre-salt and other strategic areas, establishes the Social Fund and amends provisions of Law 9478/1997;

• Law 12490/2011, which included ethanol among the products whose production, distribution and commercialization are regulated by the ANP, like the other fuels;

• CNPE Resolutions.

www.anp.gov.br/legislacao

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