Energy

The Petrobras Bolivia story of this week is being told as a homecoming, and the detail that makes it interesting is that the Brazilian company never actually went away.

Petrobras Never Left Bolivia. Now La Paz Wants It Back Anyway. (Photo Internet reproduction)

On Wednesday a Bolivian delegation flew to Brazil to meet Magda Chambriard, the chief executive of Petrobras. It included the hydrocarbons minister, the economy minister and the head of YPFB, the Bolivian state oil company.

The minister, Marcelo Blanco, announced the outcome on social media with a single exclamation: Petrobras returns to Bolivia. On Thursday he told reporters that technical working groups would open the following week to examine a wider Petrobras role across exploration, production, transport, refining and marketing.

What the Petrobras Bolivia announcement leaves out

Petrobras has never stopped operating in Bolivia. It currently runs the San Alberto and San Antonio gas fields, and takes part in the Itaú field and the San Telmo Norte exploration area in Tarija, all under service contracts signed with YPFB.

It also works two areas in Santa Cruz, Colpa and Caranda. Those two, according to the Bolivian newspaper Correo del Sur, are in the process of being handed back to the state company.

So in the same week that a minister announces the Brazilian company’s return, the Brazilian company is giving up two Bolivian fields. Both things are true, and only one of them was tweeted.

What Petrobras did stop, twenty years ago, was investing. The distinction matters more than it sounds, because a company that operates a field on someone else’s behalf is a contractor, and a company that invests in one is a partner.

The decree that ended the last partnership

In May 2006 the government of Evo Morales issued Supreme Decree 28,701 and nationalised the country’s hydrocarbon resources. Foreign producers were required to transfer ownership of everything they pumped to YPFB.

The terms were harshest for the biggest fields, and Petrobras operated two of them. In its annual accounts filed with the American securities regulator, Petrobras recorded that San Alberto and San Antonio, each producing above the decree’s threshold, would carry an extra payment to YPFB lifting the Bolivian state’s interest to a total of eighty-two percent.

Under the contracts that followed, YPFB absorbed the revenues, royalties and taxes, and reimbursed the companies their production costs and investments. Petrobras stayed, ran the fields, and stopped putting fresh money into the ground.

It never left the Bolivian gas business entirely, though, because it kept buying. The company remained authorised to import Bolivian natural gas into Brazil across the border crossing points, which is a customer relationship rather than an investor’s one.

Why Bolivia needs this and Brazil does not

The asymmetry is the whole negotiation. Bolivia was once an energy exporter, and years of falling gas production have drained its hard currency and left drivers queuing for fuel.

President Rodrigo Paz, who took office late last year, is trying to reopen the country to foreign energy capital and revive trade with Brazil. His spokesman said Petrobras had shown immense interest in rebuilding deep ties in the sector.

Petrobras, for its part, is spending its exploration budget elsewhere, having just completed the purchase of an offshore block in São Tomé and Príncipe. Bolivia is an option for it, and an emergency for Bolivia.

Blanco was refreshingly blunt about how little has been agreed. He said he would not give numbers, that he would not be irresponsible, and that he never provides exact values or dates.

The report that arrives next week

There is a second document due in the same seven days, and it may matter more than the working groups. YPFB’s president, Sebastián Daroca, said a firm will deliver its final report on Bolivia’s oil and gas reserves as they stood at the end of last year.

Bolivia has been criticised for years over delays in publishing updated reserves data, which has left outsiders guessing at how much gas is actually left. Analysts and industry groups are watching for it closely.

The government intends to use those numbers to discuss how production might be raised in coming years. No oil company commits capital to a country whose reserves it cannot size, which is why the sequence here runs backwards.

The tables open first and the geology arrives afterwards. Investors reading the announcement should treat next week’s reserves report, not the working groups, as the thing that decides whether any of this becomes money.

Is Petrobras Bolivia a genuinely new investment?

Not yet, because nothing has been committed. The two governments have agreed to open technical working groups, and the Bolivian minister declined to name any investment figure or timeline.

Why did Petrobras stop investing in Bolivia?

Because the 2006 nationalisation transferred ownership of production to the state and raised its take on the largest gas fields to eighty-two percent. Petrobras kept operating its fields as a contractor under service contracts, but committed no new capital.

What should an investor watch next?

The reserves report due next week, above all. It sets the ceiling on what any partnership can be worth, and Bolivia’s long delay in publishing such data is the reason foreign capital has stayed away.