As the world’s eyes move to the abundant mineral and hydrocarbon resources available for extraction in Latin America, it is important for natural resources companies to have one eye on the future, from the outset of their projects, and to be mindful of what they have to do to comply with mine and oil well closure requirements. In many Latin American jurisdictions, the industry is not yet matured, which can make complying with the requirements and implementing the most beneficial tax strategies difficult.
This paper will address (i) the requirements for submitting, updating and having mine and oil well closure plans approved; (ii) the remediation requirements in the extraction zone; (iii) tax incentives and amortization of closing costs across the life of the resource; (iv) the implications for changing or terminating labor contracts; and (v) potential liabilities upon closure of the resource.
I. REQUIREMENTS FOR SUBMITTING, UPDATING AND HAVING MINE AND OIL WELL CLOSURE PLANS APPROVED
The requirements for and need for a mine closure plan vary within each jurisdiction. This is due to a range of factors, not least of which is whether it is handled at a national, provincial/state level or a combination of these two. Brazil provides the case in point. Although mine closure and oil well abandonment is principally regulated at the national level through its constitution, the Brazilian Mining Code and the Brazilian Petroleum Law. However, this is also supplemented by regulations at the state level concerning local taxes, environmental matters and soil usage. Moreover, the situation varies between mining on the one hand and hydrocarbons on the other.
A mine closure plan must be submitted as part of a series of studies in order to obtain an environmental installation license in Brazil. Specifically, it must cover the minimizing of environmental degradation and negative impacts on the environment generally. The Brazilian National Department of Mineral Production, (“DNPM”) evaluates the plan and issues a report on it. This report must form part of the application to the Ministry of Mines and Energy to close a mine. The application must contain:
Approval shall only be granted if the decommissioning plan has clear evidence of the compliance with the environmental conditions and the possibility of the area being used for other economic activities. The plan for closure may not be taken into action without the DNPM’s prior approval.
The plan for closure must be updated periodically, although the regularity of such update is not expressly provided. It has to contain all items mentioned in section 20.4.1 of Annex I from Ordinance No. 237/2001.
For oil well abandonment in Brazil during the exploration and development phases, oil companies must simply notify the Brazilian National Petroleum Agency (“ANP”), and during production phase, oil companies can abandon oil wells only after ANP’s formal authorization is sought. Oil wells cannot be abandoned if the necessary operations for such actions may impact neighboring oil wells, unless the well to be abandoned represents a safety or environmental threat to the environment. There is no requirement for an abandonment plan, since ANP Ordinance No. 25/2002 already sets out in detail the procedure to be followed by oil companies to carry out well abandonment. Nevertheless, ANP Resolution No. 13/2011 provides for a report for the handover of the concession areas, which may be submitted for only part of or the entire area of concession and must encompass all wells abandoned. The content of the report is detailed in the abovementioned Resolution.
In cases where there is non-compliance with mine closure and oil well abandonment, sanctions can be applied which range from a fine through to the termination of the license or concession agreements.
Generally, across the region, it could be said that some form of closure or abandonment plan must be submitted to the government at the start of the project. Most jurisdictions require that this plan be updated over the course of the project. In some jurisdictions there are proscribed times for doing this,1 However, in Colombia, it must be updated only when there are variations in the mining operation and in relation to oil and gas, there are no specific time frames.
Peru also provides an interesting case study on this point. In the case of the abandonment of hydrocarbon areas, license holders can submit a plan for temporary cessation, partial abandonment or abandonment (effectively, total abandonment). Each of the plans mentioned must comply with the following requirements: (i) include actions for remediation, reforestation, decontamination and removal of facilities, and other necessary measures to abandon the area, in compliance with the corresponding timetable, described in the Environmental Impact Assessment, (ii) the compliance of the Plan will be supervised by the Authority of Environmental Supervision (“OEFA”).
II. REMEDIATION REQUIREMENTS IN THE EXTRACTION ZONE
Argentina provides an interesting example of the remediation requirements following the closure of natural resources projects. Argentine mining legislation is silent regarding remediation requirements following the closure of mines. It simply provides that the Environmental Impact Assessment may contain post-closure supervision of the operations. The reality is that this is a relatively new concept in Argentina.
In the last two decades, there have actually only been two mine closures in Argentina. The closure of Mina Angela, in the province of Chubut, which was operated by Cerro Castillo S.A., began in 1998. Closure was carried out in accordance with the environmental impact statement. In the absence of formal requirements, the company adopted best practices which had been implemented in other jurisdictions, to that end, it hired British and Canadian companies to define, design and provide technical supervision of the closure. The closure was successfully completed in 2000.
The most recent closure was of Mina Martha in the province of Santa Cruz, which was operated by Ceour D’Alene Mines Corporation. The decision to close the mine was announced in 2012 and is expected to take years to be finalized. Again, in the absence of the formal requirement to obtain a closure certificate, as such, the company is expected to implement industry best practices in order to protect itself from potential liabilities in the future. The strict remediation requirements will depend on the environmental impact assessment of the project. As set out above, the Environmental Impact Assessment may include post closure supervision requirements – it doesn’t have to.
In terms of the abandonment of oil wells, the situation is not dissimilar to what was described about Peru in relation to closure plans, in that Argentine legislation foreshadows two types of abandonment – temporary and permanent. In cases of temporary abandonment, there are a series of specific technical requirements that must be observed. However, final abandonment must be treated in different ways, depending on the characteristics of the area where the well is located. If the well is located in a desert, forest or a mountainous area, the abandonment must be done through a legible and durable notice, which must show the position of the well. If the well is located in an urban area or in an area of crops, topographic references must be used from fixed, non-alterable points. Such references must be recorded and filed with the report of abandonment of the well. In all cases, the land must be left free of liquid waste, all constructions must be demolished and auxiliary wells and debris basins must be filled. Finally, oil concessionaires may agree with land owners different methods to perform the final abandonment, as long as the spirit of conservation and preservation of the environment is maintained.
In the remaining jurisdictions considered, for both mine closure and oil well abandonment the concession or license-holder is generally required to remediate the property in accordance with the relevant closure plan, howsoever termed, in relation to the natural resource. The position in Chile perhaps best encapsulates the general requirements across the region, which is that actions must be taken in accordance with the closure plan in order to ensure the physical and chemical integrity of the area, in compliance with applicable environmental regulations. The implementation of these measures and actions should provide appropriate regard to health, life, the security of people and the environment.
In Brazil, there is a particular focus on health and safety. For the closure of mines, in addition to following the closure or decommissioning plan, companies must submit a health condition report to the DNPM detailing the company’s employees health during the mining process. Specific health and safety regulation on the mining industry is provided for in the Mining Regulation No. 22, issued under DNPM Ordinance No. 237/2001, which establishes work health and safety rules that should be observed by mining companies. Such rules establish standards for work procedures and safety conditions, emergency operations and personnel training, among others. Mining companies must also comply with or implement certain work health and safety programs regulated by the Consolidation of the Labor Laws, including the occupational health control program, prevention program for environmental risks, in-house commission for prevention of accidents in mining activities, social security professional profile and risk-management program.
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