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Boligia Nationaises its Oil and Gas Industries

SellyCat

TRIBE Member
(Sorry for the title typo; I just realised there is something wrong with my wireless keyboard transmission]

Just got this from StratFor; I know some of you will be interested.

Strategic Forecasting said:
Bolivia: Nationalized Oil and Gas

Summary
Bolivian President Evo Morales signed a decree May 1 by which Bolivia nationalizes its oil and gas resources. Nationalization was one of Morales' main campaign promises. While Morales had apparently flip-flopped on his policies to allow the unrestricted growing of coca, he was facing increasing pressure to act soon on some of his campaign promises. Now he is starting to deliver.

Analysis
On May 1, Bolivian President Evo Morales signed decree 28701, which nationalizes Bolivia's oil and gas resources. This was one of Morales' main campaign promises and sets Bolivia on a course similar to that of countries like Venezuela.

Even before winning the presidency, Morales said he intended to nationalize Bolivia's oil and gas resources. In that sense, this announcement is not a surprise, especially after reports emerging in the first days of April said a law to nationalize the resources was ready to be proposed. If anything, Morales just caught the local media by surprise, having announced it on a holiday. Using the figure of a decree instead of a change in the law, which can come later, also gives Morales an element of surprise to protect the announcement from potential legal challenges. At the same time of the announcement, Bolivian troops took control of several oil fields. The deployment of troops is intended both as a symbolic way to signal that Morales means business and to prevent any attempt to shut down production. Even if the nationalization was not unexpected, the way in which Morales' government has acted shows some heavy-handedness and not much willingness to compromise.

The decree's first details establish that the firms operating in the country will need to hand their production to the state-owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB), which will take over selling the private firms' production as well as its own. The decree further says that private companies have 180 days to sign the new contracts in order to keep operations in Bolivia. Morales had said from the time he was campaigning that he would not confiscate companies' actual facilities and investments.

The main foreign energy companies operating in Bolivia are the Spanish company Repsol YPF, the Brazilian company Petroleo Brasileiro and the French company Total. Morales' decree establishes that those companies that had produced more than 100 million cubic meters in 2005 would only benefit from 18 percent of the production, with the rest of it going directly to the Bolivian government. Companies like Repsol YPF, which had registered the largest amount of reserves, will be affected most by the nationalization. If those details turn out to be true, then it will not leave those companies with many incentives to keep operating in the country.

Morales was facing increased domestic pressure to act quickly to fulfill some of his campaign promises, after having initially flip-flopped on the promise to allow unrestricted coca growing. This seems to be a way for Morales to reconcile himself with the other Bolivian political actors, and it will likely be well received by Bolivia's new partners on the just-signed Peoples' Trade Agreement: Cuba and Venezuela.
 

2canplay

TRIBE Member
I sold some of my Oil Sands to buy some Repsol a few months ago because Repsol was trading down due to the noise coming out of Bolivia. Meh. We'll see what happens.
 

Ditto Much

TRIBE Member
2canplay said:
I sold some of my Oil Sands to buy some Repsol a few months ago because Repsol was trading down due to the noise coming out of Bolivia. Meh. We'll see what happens.
well thats what you get for being an evil multinational exploitation lover now isn't it.

How heavily vested is Repsol in Bolivia?
 

2canplay

TRIBE Member
Ditto Much said:
well thats what you get for being an evil multinational exploitation lover now isn't it.

How heavily vested is Repsol in Bolivia?
It's true. Win some, lose some. But in the long-run, I think they will be fine...it's not that big a deal for Repsol.

Almost at the bottom of the story, a reference to Bolivia's once enormous wealth - they were the richest country in the world until the Spanish plundered...

I read that the Spanish took so much silver out that it nearly bankrupt the country as rampant inflation took hold. Everyone in Madrid was walking around with sacks of silver and no one would work for almost any price.

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Bolivia Seizes Natural-Gas Fields
In a Show of Energy Nationalism

By DAVID LUHNOW and JOSÉ DE CÓRDOBA
May 2, 2006; Page A1

Emboldened by Venezuelan President Hugo Chávez's moves against private oil companies, Bolivia nationalized its natural-gas industry, ordering foreign companies to give up control of fields and accept much tougher operating terms within six months or leave the country.

In a dramatic sign of how high energy prices have sparked a resurgence of nationalism from Caracas to Moscow, Bolivian President Evo Morales yesterday announced the nationalization at the country's biggest natural-gas field, San Alberto, and then ordered army troops to take control of it and the country's other fields, operated mainly by Brazil's state-run Petróleo Brasileiro SA, or Petrobras, and Spain's Repsol YPF SA. To date, foreign investment in Bolivia's energy sector totals about $3.5 billion.


"The time has come, the awaited day, a historic day on which Bolivia retakes absolute control of our natural resources," said Mr. Morales. The former coca grower won a landslide victory in December elections partly on a promise to nationalize the gas industry, seen by many poor here as the country's ticket to prosperity.

Mr. Morales's move mimics recent measures against Big Oil by Mr. Chávez, a close ally of the Bolivian politician who has seized on high energy prices in recent years to rewrite the rules of Venezuela's oil industry. Mr. Chávez has forced major oil companies to accept a minority stake in fields they previously owned and put more money in Venezuelan coffers through higher taxes and royalties.

"Chávez and Morales are both playing a game of chicken with foreign oil companies," said David Mares, a professor of political science at the University of California at San Diego who studies the regional oil industry. "In a period with high profits of oil companies, this is giving both of them a sense that the companies will really bend over backward to keep access to these places, and that this is the time to renegotiate the contracts."

It remains to be seen whether the moves by Messrs. Chávez and Morales, who signed a free-trade accord over the weekend with Cuba's Fidel Castro, will lead to a broader regional backlash against foreign oil companies and further complicate the global energy market. "Obviously there are concerns" about a ripple effect, "but we don't know what the future impact is going to be," said Bob Davis, an Exxon Mobil Corp. spokesman.

In Peru, presidential candidate Ollanta Humala has called for nationalizing the country's mining and natural-gas industries, spooking foreign investors. Mr. Humala won a first round of voting last month and faces a tough run-off against former President Alan Garcia, who vows to continue to welcome private investment. Ecuador last month passed a law designed to cut into windfall profits of foreign crude producers, among them U.S.-based Occidental Petroleum Corp., by giving the government 50% of oil-company profits whenever the international oil market exceeds the prices established in existing contracts.

Venezuela is the world's fifth-biggest oil exporter. The stakes are much smaller in Bolivia, which boasts the second-largest natural-gas reserves in South America but isn't ranked in the top 20 of the world's biggest gas deposits. Since natural gas isn't as easily transported as oil, it tends to be a more regional market than oil, too, meaning events in Bolivia don't affect the price of natural gas in other parts of the world. Bolivia exports nearly all its 1.3 million cubic feet a day of output to Brazil.

On energy markets, Bolivia's announcement was overshadowed by unrest in Nigeria and the West's standoff with Iran over its nuclear program, both of which contributed to a rally in crude-oil prices, which gained $1.82, or 2.5%, to $73.70 a barrel, near a record.

Still, the move dramatically raises the stakes for companies that operate in Bolivia. The two biggest operators by far are Petrobras and Repsol. Britain's BP PLC and France's Total SA have smaller positions there. In a brief statement, Petrobras said Bolivia had taken "unilateral action that substantially alters" operating and business conditions in the country. The company said it would review the situation and take appropriate action to guarantee gas supplies to Brazil and safeguard the company's rights in Bolivia.


Mr. Davis, the Exxon Mobil spokesman, said the company isn't sure whether the move will affect the Itau natural-gas field, in which it holds a 34% interest. The field, for which Total serves as operator, is not currently producing natural gas, he said. "We don't know if this affects all assets or just producing ones," he said.

The U.S. State Department said details were too sketchy for it to comment on the Bolivia nationalization. Many other national capitals were closed for May Day. When officials return to work, they will be weighing whether Mr. Morales's action marked a sharp leftward shift -- or was the minimum he could do to satisfy the constituency that catapulted him into the presidency.

Bolivia's move is not equal to oil nationalizations of the past, such as Mexico's in 1938. In those cases, the countries kicked out private companies altogether and did not allow them to claim any production from fields. Bolivia wants private companies to stay and help operate the sector, but under strict conditions.

Bolivian law has always claimed that the state has ownership of the resources in the ground. But it allowed private companies in effect to own the resources by allowing them to operate fields and take the lion's share of production to sell as they saw fit.

Last year, Bolivia raised the state's take to an effective 50% of production by raising taxes and royalties. Yesterday's announcement goes further, declaring that the state owns the gas after it has been extracted. It also indicated that companies at the country's two largest fields would get just 18% of the production.

While it will play well at home, this could be a risky move for Mr. Morales if foreign operators decide to pull up stakes. "Companies can't really ignore Venezuela because there's too much oil there. But Bolivia is in a different situation...and companies can walk away," said Matthew Shaw, an industry analyst at Wood Mackenzie in Scotland.

Indeed, Bolivia admits it needs foreign oil companies to stay. Last month, Energy Minister Andres Soliz Rada said state energy company YPFB was in no shape to take over from foreign energy companies. "It's easy to say we will expel them, but then 45 or 60 days without fuel [and] we would generate anarchy in the country," he said. Among YPFB's problems, said Mr. Soliz Rada, is a shortage of qualified personnel and the money to hire such workers.

Investment in the energy sector has plummeted in the past three years due to political turmoil and uncertainty about the future of the industry. Earlier this year, Repsol slashed estimates of its gas reserves in Bolivia -- partly because higher taxes made developing some fields unprofitable. The company also froze about $476 million in planned investment.

Landlocked Bolivia is South America's poorest country. Many believe the country, which in the 16th century was the site of the world's most profitable silver mines, has been systematically looted, first by Spanish colonial masters and then by foreign multinationals.

In 2003, a consortium of foreign companies led by Repsol planned to spend about $6 billion to pipe natural gas to Chile, where a plant would liquefy it and tankers would ship it to Mexico and the U.S. But the project was killed after Mr. Morales and other radical leaders rallied thousands of poor Bolivians to protest against the plan as the latest foreign attempt to exploit Bolivian workers.

The protesters argued that the gas should stay in Bolivia. They opposed any project that included Chile, a country widely hated in Bolivia for having stripped it of its access to the sea as a result of a 19th-century war. Army troops killed dozens of protesters and the spiraling violence pressured President Gonzalo Sanchez de Lozada to resign.
 
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judge wopner

TRIBE Member
OH MY GOD, THEY ARE NATIONALIZING OIL IN BOLONGA!!!!

as long as noting happens in those other latin american states like Parma, Basil and Venezia we should be okay.
 

Gizmo

TRIBE Member
2canplay said:
I sold some of my Oil Sands to buy some Repsol a few months ago because Repsol was trading down due to the noise coming out of Bolivia. Meh. We'll see what happens.
OT question please, in your Power holdings, do you hold PWF or the overall holding company? I'm thinking it's time I get back on the Desmarais bandwagon after 4 years off, but am stuck between the two.They trade basically in tandem as PWF represents about 93% of the NAV for POW.SV, but PWF is not subject to the holding company discount and trades at a higher multiple. But I figure the Hong Kong exposure might be a good growth one for POW. Even though I'm a bit leery of their excursions into media as of late.

Thanks.
 

blahblah

TRIBE Member
2canplay said:
I sold some of my Oil Sands to buy some Repsol a few months ago because Repsol was trading down due to the noise coming out of Bolivia. Meh. We'll see what happens.

Start a pool on date Morales will have an unexpected 'accident'
 

SellyCat

TRIBE Member
judge wopner said:
OH MY GOD, THEY ARE NATIONALIZING OIL IN BOLONGA!!!!

as long as noting happens in those other latin american states like Parma, Basil and Venezia we should be okay.
HAHAHA! Don't forget Chipotle, Combustia and Parasol.

wikkid
 
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2canplay

TRIBE Member
Gizmo said:
OT question please, in your Power holdings, do you hold PWF or the overall holding company? I'm thinking it's time I get back on the Desmarais bandwagon after 4 years off, but am stuck between the two.They trade basically in tandem as PWF represents about 93% of the NAV for POW.SV, but PWF is not subject to the holding company discount and trades at a higher multiple. But I figure the Hong Kong exposure might be a good growth one for POW. Even though I'm a bit leery of their excursions into media as of late.

Thanks.
POW.SV. I got into POW a while ago during a period when the normal holdco discount was greater than the normal 25%-30%. The spread has since gotten back to the normal 25%. Once and a while the spread widens but I haven't looked at it recently - its one of those holdings I'll never sell so no point in looking:) As for CITIC and Gesca, I agree on both points. CITIC is a great investment and it resembles their early investment in Pargesa in the late 80's which has risen 20 fold. Gesca's a little worrying but they are a French-based media group so the competition is a little less significant than what they would face in the English market. Gesca is pretty insignicant in any regard, but the Desmarais know what they are doing and who am I to question???

Honestly, be it PWF or POW, I don't think you can lose. It's no bargain at present but IGM, GWL and Pargesa have nothing but clear skies ahead of them, so the Power Group will do fine, long-term.

Since late 2005, I've been telling anyone who will listen to buy Dundee in lieu of Power (until Power drops for some stupid, temporary reason). It trades at 60% of breakup and Ned Goodman has that group running fantasticly. You get Dynamic Mutual Funds (with heavy holdings in Canadian Financials and Metals), Dundee Precious Metals (run by Goodman Jr. who was brought up to know what a profitable mine looks like), Dundee REIT (solid exposure to Calgary and Toronto office properties), Dundee Realty (the Distillery District, Condo development in Toronto and some property development in the West), Dundee Wealth Bank and Securities (a prudently growing wealth bank) and various investments which Ned picks up on the cheap, such as Laurentian Bank and Dorel. And Ned NEVER over pays for anything. He waits patiently and when the opportunity presents itself he writes a prudent $50 - $100 million cheque - and presto, the comany expands. Solid company...up 50% this year with more to come. Just buy it and forget about it...the ones I like;)

I know you didn't ask for all that, but WTF???
 
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Gizmo

TRIBE Member
Thanks man! I do like the Dundee as well, unfortunately, we have all sorts of restrictions on owning it here.
 
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