BG says new Bolivia contracts as profitable as old http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-10-29T192523Z_01_L29856039_RTRIDST_0_ENERGY-BOLIVIA-BG.XML&rpc=66&type=qcna
Sun Oct 29, 2006
By Tom Bergin
LONDON, Oct 29 (Reuters) - British gas producer BG Group Plc (BG.L: Quote, Profile, Research) said it had agreed to new operating contracts with Bolivia's leftist government and that these should broadly be as profitable as old contracts.
BG spokeswoman Trina Fahey said on Sunday that BG was confident its investment to date in Bolivia would be recovered, but added that BG had yet to decide whether additional investments would be economically viable under the new terms.
"We have signed new contracts covering all our existing interests in Bolivian exploration, and retention (undeveloped) blocks ... Production is going to continue on substantially the same economic basis as before," Fahey said.
Populist Bolivian President Evo Morales announced the nationalization of Bolivia's hydrocarbons industry in May.
The decision followed a move a year earlier to more than double taxes on gas production. Foreign companies said production from existing fields remained profitable even after the higher taxes, but analysts said it was only just. BG has producing gas fields in Bolivia but most of its reserves there are undeveloped.
Analysts said that while it may make sense for BG to continue operations at producing fields, where investment in infrastructure and equipment had already been made, the company was unlikely to be able to justify investing the billions of dollars needed to exploit its large undeveloped reserves. Fahey hinted at this and that the deal may force BG to downgrade its Bolivian reserves.
"BG's entitlement to reserves as defined by SEC rules is being reviewed," she said.
A downgrade would mean commercialization of the undeveloped reserves now looked less likely. Almost 4 percent of BG's total reserves are in Bolivia. In the future, BG will sell all of its gas to Bolivia's state oil and gas company YPFB, rather than negotiate directly with customers. It will receive a fee from YPFB.
"We are basically producing on behalf of the state," Fahey said.
This fee will reflect broadly similar economic terms to those BG reaped in the past year, although the actual profits may be impacted by production levels and changes in international gas prices.
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