Brazil oil lobby warns MP 1304 risks investment as XP sees R$7.5bn royalty impact

Bill changes oil price reference rules, potentially raising tax burden on E&P firms while boosting government revenue.

Oct 29, 2025 9:27 AM

By Brazil Stock Guide – The Brazilian Petroleum, Gas and Biofuels Institute (IBP) has voiced “deep concern” over Article 15 introduced by Senator Eduardo Braga in his report on Provisional Measure 1304/2025. The provision changes how oil reference prices are calculated for royalties and special participation payments and grants new powers to the National Energy Policy Council (CNPE), including setting limits on natural gas reinjection. The IBP said the proposal “harms the oil and gas sector and puts investments at risk.”

The institute argues that the measure would undo recent regulatory progress made by the National Petroleum Agency (ANP) under Resolution No. 986/2025, which modernized the oil price reference formula based on market-linked benchmarks and international best practices. Tying royalty calculations to tax transfer-pricing rules, the IBP warned, would introduce uncertainty and fiscal distortions, undermining investment in mature and marginal fields. The group also cautioned that restricting gas reinjection could reduce well productivity and discourage new upstream projects.

In a note to clients, XP said the proposed amendment — unexpectedly added to a bill originally focused on the power sector — could generate up to R$7.5 billion ($1.3 billion) in additional annual government revenue, but at the cost of higher taxes for oil producers. Assuming a worst-case scenario where all crude streams are priced at Brent, XP estimates Brava would be the most affected (-2.9 p.p. FCFE yield), followed by Petrobras and PRIO (-0.8 p.p.) and Repsol Sinopec (-0.4 p.p.).

XP stressed that such an outcome is unlikely but warned that the lack of clarity in the proposed methodology increases regulatory risk. The IBP calls for maintaining the current ANP-based model, which relies on technical criteria, while lawmakers push to strengthen fiscal revenues. The dispute revives a broader debate over how Brazil balances regulatory stability with fiscal needs amid an energy-transition agenda and growing sensitivity to upstream investment conditions.