Morales imposes dreaded new terms on oil majors in Bolivia

Rio de Janeiro (Platts)--1May2006

Bolivian President Evo Morales, who signed a decree nationalizing the
country's oil and gas reserves Monday, told oil majors operating in the
country that their proceeds from the country's largest gas fields will soon
plummet.

Morales said Monday that his government will gain 82% of all proceeds
from every Bolivian gas property that produced more than 100,000 Mcf/d of
natural gas during 2005, leaving just 18% of the proceeds from Bolivia's
largest fields to the majors that have been operating them.

Petrobras, Repsol YPF, BG, BP, and Total, in charge of Bolivia's biggest
gas fields, are likely to strongly object to the new terms. Petrobras, the
largest investor in Bolivia, was not immediately available for comment. Majors
have invested about $4 billion in Bolivia, mostly to develop the kind of large
fields that produce more than the 100,000 Mcf/d quota.

Morales, in a midday speech at the giant field of San Alberto in southern
Bolivia, said Bolivia's government would take a minimum 50% plus one share
interest in every company venture to tap gas from the Andean country's
estimated 48 Tcf of reserves, state news agency ABI reported.

Companies must "migrate" to the new contract terms within 180 days,
Morales warned, or they will be booted out of the country. The Bolivian
government previously had pledged to renegotiate contracts with oil companies
on a one-by-one basis.

In fields where gas output has been less than 100,000 Mcf/d, the current
royalty/tax structure can remain in place, whereby companies must pay 50% of
the proceeds to the state. However, under new terms, Bolivia's state-run YPFB
is allowed operational control over all fields.

YPFB will control domestic natural gas prices and set prices for the gas
sold abroad. The state company will get 32% of all proceeds from the country's
larger fields, to help fund its operations, ABI reported, citing Morales.

Petrobras has stated that it has no interest in its role in Bolivia being
reduced to that of a service provider.

YPFB will operate the oil and gas fields, Morales pledged. He ordered
army engineers to take control of the 56 oil and gas properties controlled in
Bolivia by Andina and Chaco, two companies spun off from YPFB in 1997 into
private firms, and led by Repsol YPF and BP, respectively. He also ordered
federal troops to seize Transredes, the Shell-led operator of most of
Bolivia's pipeline infrastructure.

Morales had pledged earlier that the hydrocarbons nationalization, one of
the popular campaign pledges that led to his election in December, would not
involve the seizing of property held by private interests.

In a speech Monday in the capital La Paz, Bolivian Vice President Alvaro
Garcia Linares said the nationalization would mean Bolivia's government will
begin to receive $780 million in proceeds from the country's gas production
each year, several times what it has received in recent years. Bolivian
officials did not detail how they plan to attract the major investments in
natural gas needed to keep the country's 40 million cu meters/d of production
pumping, or tap more of Bolivia's estimated reserves.

--Josh Schneyer, newsdesk@platts.com

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