BG and other majors shrug off gas grab by Bolivian president

Bolivia's decision to nationalise its gas fields has weighed on shares in companies active in the country, but analysts said yesterday the long-term impact on foreign firms would be small.

The Bolivian president, Evo Morales, ordered the military to occupy Bolivia's natural gas fields on Monday and threatened to expel foreign firms that do not recognise state control.

Spain's Repsol, the most exposed of the Western oil majors, fell 0.6 per cent, while Brazil's Petrobras, which is the biggest buyer of Bolivian gas and controls Bolivia's two refineries, was down 1.5 per cent in early trade.

The British gas group BG, which has large reserves in Bolivia, also opened lower but later recovered to end up 3.6 per cent. Bolivia accounts for only 3 per cent of BG's current production and 4 per cent of its reserves, Citigroup said, although it has significant unbooked reserves that would be valuable if located in a more business-friendly environment. But 18 per cent of Repsol's reserves and 9 per cent of its production are in Bolivia. Other oil majors with Bolivian operations include France's Total and Exxon Mobil of the US.

The details of how nationalisation will work in practice are unclear. It appears that foreign oil firms will be relegated to simply operating the fields, with all oil and gas production going to the state energy company.

Investors are concerned that the arrangements will leave operations in the country economically unviable. Tax rises last year had already significantly eroded the profitability of Bolivian production, and uncertainty over the future of the industry has curtailed investment, raising concerns about Bolivia's ability to sustain production levels.

Bolivia has the second-largest natural gas reserves in South America after Venezuela. Struggling to replace the hydrocarbons they pump with new finds, the oil majors can ill afford to lose access to such sizeable resources. Repsol and BG in particular had high hopes for the country, but over the past year companies have scaled back their growth plans for Bolivia.

The European Commission warned that the decree by President Morales could hurt world energy markets. While EU nations import little natural gas from Bolivia, an EU energy spokesman, Ferran Tarradellas Espuny, said the move "may have a negative impact on markets, because the markets are now subject to considerable pressure as far as prices are concerned".