BG: Nationalization Resolved in Best Way Possible

The transition stage of the so-called nationalization of Bolivia's hydrocarbons has been resolved in the "best way possible" because it guarantees a return on investments and opens the way for new investments, British gas company BG Group (NYSE: BRG) Southern Cone corporate affairs director Jose Ponte told BNamericas.

BG Group is one of 10 companies that signed new exploration and production agreements with the Bolivian government on October 28 under what is seen as the transition phase.

"The companies signed because the agreements give the companies the chance to obtain a return on investments and open the possibility of companies monetizing their existing reserves [in the country]," said Ponte. "They would not have signed otherwise."

In Bolivia, BG's has 100% of two producing gas fields, La Vertiente and Margarita. The company also has interests in another three areas where hydrocarbons have been discovered - Palo Marcado, Ibibobo and Itau - as well as in two exploration blocks, Caipipendi and Charagua.

BG and Bolivia's state-controlled oil company YPFB had been negotiating an E&P contract since May 1, when President Evo Morales announced the nationalization of all hydrocarbons reserves in the country.

While the nationalization gives property rights over all hydrocarbons produced in the country to the Bolivian government through YPFB, other companies can continue to explore and produce oil in the country but not sell the product.

The agreement moves away from the idea of being just a service provider as it allows profit sharing, Ponte said.

"BG does not only get a fee for producing gas or oil," he said. "BG also shares the profits and has to agree at which price the gas or oil is sold because the agreement says operations have to be profitable."

But new investments depend upon further appraisal.

"New investments will only be made if they are profitable," Ponte said. The agreement does not force BG to commit to new investments in the country.

The agreement is also positive for BG's other operations in the region, especially for Brazilian natural gas distributor Comgas, in which it has a joint controlling stake with Anglo-Dutch oil company Shell (NYSE: ADS).

Comgas distributes a significant amount of the some 12Mm3/d sold in the state of Sao Paulo.

The agreement also means Comgas might be able to count on Bolivian gas for future supply," Ponte said.

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