Petrobras Exec: Partnership with YPFB Will Be Advantageous

Brazil's federal energy company Petrobras (NYSE: PBR) wants to partner with Bolivia's state oil company YPFB to position itself better in the growing Brazilian and Bolivian natural gas markets, Petrobras gas and power director Ildo Sauer said in an interview with local radio CBN.

A memorandum of understanding (MOU) between the two companies will be signed in early March, Sauer said.

The MOU would include partnership in seven projects and two cooperation agreements, Sauer said. New investments by Petrobras and its partners in Bolivia, including YPFB, could reach US$5bn in the next 5-6 years, Petrobras said in a statement.

"Petrobras will invest if the projects make business sense," said Sauer. "YPFB wants to increase exploration and production of gas and oil in the country and being a preferential partner in such a promising region is advantageous."

Gas transport, distribution, oil refining and biodiesel projects will be included in the MOU, the company said in the statement. Workgroups have been set up to study each of these projects.

"Bolivia's new government is interested in increasing investments in the country but also wants to increase the benefits for the country," Sauer said referring to last year's approval by Bolivia's congress of a new law that increases royalties and taxes.

Bolivia's new President Evo Morales has said his government could take over oil companies' assets in the country, which was understood to include Petrobras' two refineries there.

According to Sauer, however, negotiations between the Brazilian and Bolivian governments have led to a decision to form an association between the two in the operation of refineries.

Petrobras controls the 40,000 barrels a day (b/d) Gualberto Villarrolel and the 20,000b/d Guilhermo Elder Bell refineries.

The MOU will also include a US$1bn petrochemicals complex on the Brazilian-Bolivian border and gas-fired power generation projects, the statement said, without giving details.

Petrobras will also sign cooperation agreements for the development of the natural gas retail market in Bolivia and the training of personnel at YPFB's gas transport company Transbolivia.

"The cooperation agreement includes the training of Transbolivia workers in Petrobras' training center," Sauer said. "Having trained personnel is good for business."


Sauer also defended Petrobras' decision to hike wholesale gas prices in Brazil by 18% since the fourth quarter of 2005. He said the increase aims to account for increases in international oil prices and is based on an import agreement signed with Bolivia in 1999.

Brazil imports some 27 million cubic meters a day (Mm3/d) of natural gas from Bolivia through the Petrobras controlled 3,000km Brazil-Bolivia gas pipeline. Gas consumption in Brazil tops 40Mm3/d.

According to Sauer, Petrobras currently pays some US$5 per million British Thermal Units for the gas.

"This is about US$28 a barrel of oil equivalent, well below international prices around US$60 a barrel [of oil equivalent]," he said.

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