June 2005
Bolivia caretaker president faces first major test
Bolivia's new President Eduardo Rodriguez with indigenous leader Abel Mamani in El Alto on the outskirts of La Paz, Bolivia, June 12, 2005.

Why Bolivia? Other contributing factors:

    * Recent gas finds include discoveries by Total, Petrobras and British Gas.
    * Discovered gas has risen from 7 tcf to 46 tcf.
    * High commercial hit rate at 1 in 6 exploration wells.
    * Low taxation and royalties. Freely convertible currency (informal dollar link).
    * Low inflation (<15% yearly).
    * No restrictions on foreign ownership.
    * Established, fair legal system.
    * Very low crime levels (lowest in the Americas).
    * 1996 Hydrocarbon Law provides low taxes and good title, as well as reasonable work commitments but includes an annual rent of $1 per hectare per concession.

Pan Andean BolivianOperations 2005
Development of El Dorado

Sept 2003  August 2004  March 2005
Bolivia at a Glance 
Population : 8.3 million
     Surface area : 1.1 million sq. km (3xs size of Montana)
Population per sq. km : 7.7
Population growth : 2.3 %
Life expectancy : 63 years
Income per capita : US$990 
Gross National Income : US$8.2 billion

Lower House Discusses Royalty's
Future Investments Jeopardized
Energy Reform Pressure Intensifies

Santa Cruz Spuds DRD X-1004

Bolivia natural gas referendum March 28 Bolivian Govt. Consider Region Markets After LNG Flop
Bolivian Gas Pipeline Construction
Bolivian gas potential
3,150 km Bolivia-Brazil natural gas pipeline
LNG studies 
 Energy Information Agency (2004)
Bolivia poor country in Latin America
 Bolivia Rail 
BG over 4 tcf of equity BG over 4 tcf of equity gas in Bolivia  gas in Bolivia
Bolivia refuse lower gas prices to Brazil 
World Bank to Disburse $19.5 Million to Bolivia Following Progress in Reform
10,000 b/d gas-to-liquids  Santa Cruz Study
Bolivia Orca Petroleum exp
Pipelines: crude oil 1,800 km; petroleum products 580 km;
natural gas 1,495 km 
Ports and harbors: Puerto Aguirre (on the Paraguay/Parana waterway, at the Bolivia/Brazil border); also, Bolivia has free port privileges in maritime ports in Argentina, Brazil, Chile,  Paraguay
Merchant marine: 
total: 53 ships (1,000 GRT or over) 347,535 GRT/591,113 DWT ships by type: bulk 2, cargo 25, chemical tanker 4, container 4, livestock carrier 1, petroleum tanker 12, roll on/roll off 1, short-sea passenger 3, specialized tanker 1
note: includes some foreign-owned ships registered here as a flag of Belize 2, China 2, Cuba 1, Cyprus 1, Egypt 1, Honduras 1, Latvia 2, Liberia 2, Panama 1, Saint Vincent   and the Grenadines 1, Saudi Arabia 1, Singapore 1, South Korea 3, Switzerland 1, Ukraine 1, UAE 5, US 1 (2002 est.) 

Bolivia caretaker president faces first major test
By Oscar Laski AFP EL ALTO, Bolivia Petroleumworld.com 06 13 05

New Bolivian President Eduardo Rodriguez faced the first test of his caretaker government Sunday as he met with leaders of protests that ousted two of his predecessors.     Rodriguez met for two hours behind closed doors with hardline protest leaders in El Alto, a La Paz suburb and hotbed of demonstrations demanding nationalization of Bolivia's vast natural gas industry.     He begged for "time."     "As soon as I get organized with a new cabinet," he said after the meeting, he would "begin as as soon as possible" to address the demands of South America's poorest country.     Rodriguez took office Thursday after Carlos Mesa stepped down following three weeks of sometimes violent protests, by miners, peasants and coca growers who paralyzed La Paz and most of the Andean country with marches, strikes and blocked highways.     Bolivia, a gas exporter, faces fuel shortages because of the protests, which has also triggered food shortages.     Rodriguez, 49, met with protest leaders in the auditorium of a radio station in El Alto, as demanded by the leaders. They rejected his invitation to meet at Quemado presidential palace in La Paz.     Afterward, Abel Mamani, leader of a powerful El Alto neighborhood association, indicated that there had been a "rapprochement" between the two sides.     | Starting Monday, representatives of Bolivian civil society will put the protesters' "demands on the congressional agenda," said Mamani. Protesters would not swerve in their demand to nationalize the gas industry, he said.     Sunday's meeting was a new sign of detente after three weeks of protests as poor Bolivians demanded a larger share of the country's huge natural gas wealth, second in South America only to Venezuela's.     Although protests have mostly stopped, one union leader told the new president mobilizations were planned for Monday and Tuesday.     "Mr. President, it is in your hands to respond and avoid that this continue," Edgar Patana, executive secretary of the Regional Workers Central of El Alto, said before Sunday's meeting.     Rodriguez was Supreme Court president when Mesa resigned and two others in the presidential line of succession rejected the presidency. He promised general elections by year's end.     Mesa was in power only 20 months, after his predesessor, Gonzalo Sanchez de Lozada, resigned in October 2003 following protests that resulted in 80 deaths, also over Bolivia's gas.     Rodriguez will also have to face demands of business leaders in the more prosperous eastern provinces who want greater autonomy.
located in the South of Bolivia has produced gas and condensate since 1964. Production levels are 450 barrels of oil a day and 1.5mmcfd of gas. Gas from Monteagudo is sold into the Bolivian/Brazil pipeline.
Production is split between 11 reservoirs

The important reservoirs for oil are the Chuquisaca and Saucemayo (the two deepest), and these are also the most important for gas together with the Yahua (the shallowest).

The Monteagudo Field (oil and gas) was discovered in 1967 by YPFB with exploration well Monteagudo X-1, which was drilled to a TD of 3609ft (1100m). YPFB drilled a total of five Monteagudo wells during 1967. The field went into production in 1968.
The Monteagudo Field is located in a 30km2 enclave, which is located in the southern Subandean zone, in Chuquisaca Department, in southern Bolivia. The Monteagudo Field has produced hydrocarbons from the Castellon Formation (Middle/Lower Jurassic), the Cangapi Formation (Lower Triassic), and the Taiguati Formation (Westphalian). Significant exploration potential exists in the Huampampa sands on the Monteagudo block. The sands located at 5000 metres are prolific producers in Bolivia. Market access will decide when these sands are drilled.    
David Horgan in Monteagudo

LOCATION     Southern Bolivia close to Argentina.
PARTNERS     Repsol 50%, Pan Andean 30%, Petrobras 20%
PRODUCTION     450 bbl a day of oil from 11 shallow wells and 1.5 mmcfd gas
EXPLORATION     Huamampampa, Target Depth: 5000 metres likely to contain gas. Timing dependent on market access.Recent gas discoveries in nearby blocks by Petrobras, Total, Repsol & British Gas.
Development of El Dorado
In November 2000 the DRDX 1002 well hit gas on the El Dorado block. The flow rate tested over 10 million cubic feet of gas a day.An earlier well 2.8 kms away flowed 20 million cubic feet of gas a day. Proven and probable reserves are over 200 bcf of gas with possible reserves of over 600bcf. Commitment wells will be drilled which will aim to prove up and extend reserves during the summer 2004.


The 995 km2 exploration area lies in the central zone of the Southern Sub-Andean foothills, 25 kilometres southwest of Andina's Rio Grande gas field. The primary source rock interval is the middle to upper Devonian shales, namely the Los Monos, Limoncito and Icla formations. The primary reservoir intervals are Carboniferous and deep Devonian sands, the Huamampampa and Santa Rosa formations.

Two wells were drilled in the El Dorado structure during the early 1960's. The first well, El Dorado-1, tested the Devonian at 4,049 metres. El Dorado-2 only reached 3,369 metres, and both wells were plugged and abandoned as dry holes.In 1965 Gulf opted to drill an alternative target in the northern part of the block. The Florida X-1 well however, was also plugged and abandoned as a dry hole.

There was no activity on the block until 1980, when YPFB elected to re-test the El Dorado structure. El Dorado-3 reached a depth of 4,400 metres, but was plugged and abandoned as a dry hole. Bridas were awarded the block in 1997 as part of the capitalisation process. Their first move was to acquire 600 km2 of 3D seismic data over the area at a cost of $4m. This was followed by the drilling of El Dorado X-1001, spudded in December 1998. The well was drilled to its PTD of 5,850 metres, and subsequently deepened to 6,720 metres. The well tested around 20 mmcfd of gas and 360 b/d of oil from the Iquiri formation. The primary objective, the Huamampampa, was not tested.

The initial discovery was followed up by the drilling of El Dorado X-1002. The well is located 2.8 km from X-1001, and targeted the same structure to a depth of 4,550 metres, approximately 50-60 metres up-dip. Test results from the well show a sustainable daily production rate of 10 mmcfd of gas and 250 b/d of oil condensate, confirming the presence of hydrocarbon bearing horizons in the Devonian (both Upper and Lower) and Carboniferous sands. The primary pay zone is the Upper Devonian Iquiri and Los Monos sands at 4,200 metres. The identical stratigraphy and similar test results confirm that the gas bearing zones stretch between the two wells. The two wells cost $22m. The partners are considering exploring a structure neighbouring the El Dorado find which, if it contains hydrocarbons may hold about 600bcf of gas.

It is thought that the reservoir interval constitutes a single body that stretches between the two exploration wells. Based on this assumption, technical reserves are estimated to be as high as 500 bcf, although this figure has not yet been certified by Degolyer & MacNaughton.

Development of El Dorado

Current production capacity is in the region of 30 mmcfd. Development plans for the field are at an early stage. It is likely that the field will be developed in two separate phases.

Gas fields to the north of Río Grande are currently suffering from capacity constraints. Phase I development of El Dorado aims to position the field to capitalise on its location, only 25 km from Río Grande. By tying back the field to the gathering facilities of the Brazil/Bolivia pipeline, it may act as a swing producer when such bottlenecks occur. A gas processing facility will be required on location along with the construction of a 25 km 10" pipeline to Río Grande. Investment and infrastructure will be required in order to complete the two wells as producers and tie them back. Phase II is likely to proceed once a market for El Dorado gas is established. To enable this, the participants are required to certify the reserves by an independent party. Further infill drilling is then likely in order to increase the production capacity of the field. The field is also located in the vicinity of Santa Cruz, Bolivia's main industrial centre. Other development include the construction of a small LPG plant to supply local industry. The partners are currently performing a feasibility study on the construction of such a plant, with throughput capacity in the region of 10 mmcfd.

Gas will initially be processed on-site, before being transported to Rio Grande via a 25km, 10" pipeline. Río Grande is the receipt point into the Gas Transboliviano (GTB) pipeline. From there the gas is piped to the Brazilian border and onwards to markets in São Paulo and beyond. Liquids will be processed on site and trucked to Santa Cruz.

Current development plans call for a production at 120 mmcfd of gas, worth $60 million a year at a price of $1.50 per thousand cubic feet, by 2002. The partners forsee a 95 mmcfd : 25 mmcfd split between exports to Brazil and domestic sales respectively.

The partners are currently looking at the feasibility of constructing an LNG plant, with a processing capacity of 10 mmcfd. It is envisaged that this will supply the local market of Santa Cruz.

Field operating costs are expected to be between US$0.07/mcf and US$0.20/mcf.

Gas exported to Brazil is subject to a tariff at US$0.23/mcf (2001 terms) for export gas, and US$0.35/mcf (2001 terms) for gas sold domestically.

The construction of a processing plant on location will cost in the region of US$3 million. In addition, the 25 kilometre, 10" pipeline connecting the field to Río Grande will cost a further US$2.5 million. El Dorado X-1002 will be tied back to the facilities at a cost of US$1.5 million.

The drilling of development wells is estimated to cost around US$4.5 million per well.

Also under consideration is a plan to construct an LPG plant at an estimated cost of US$5 million.

Block Size

The original block dimensions were 40 parcels by 25 sq kms for a total of 1000 sq kms. As of March 1st 2001 the consortium entered Phase 2 of the concession agreement. They handed back to the State 28 of 40 parcels of land. The 12 parcels held include the gas discovery area and surrounding ground and the oil prone area leading up to the border with the Rio Seco block, an area covering 125 sq kms. DRILLING     Summer 2004 - 14,000 foot well costing $7 m OWNERSHIP     10%. Pan American (BP) is the 90% holder. SIZE     200bcf Proven and Probable with drilling potential to rise to over 1tcf. LOCATION     25kms from the Brazilian pipeline provides significant transport savings. PROJECTS     - Long term contract to sell gas to Brazil. - Smaller scale supply contract to city of Santa Cruz. - GTL plant (Gas to Liquids).

Bolivia hopes sea access by offering gas to Chile
Source: MercoPress March 25, 2005

President Carlos Mesa said Bolivia is prepared to sell natural gas to Chile as long as its neighbour agrees to give this landlocked nation access to the Pacific Ocean, a Bolivian goal ever since it lost its coastline to Chile in a 19th century war. Mesa said Bolivia may use its mammoth natural gas reserves to become "the energy axis of South America" -- and is willing to share its wealth with Chile if the two can agree on a "solution to our maritime problem." "There will be no real regional integration unless Chile agrees to work with Bolivia to solve the matter of or maritime demand," Mesa said in a speech during a ceremony marking the "Day of Sea," a local celebration.

Bolivia lost its coastline in a 1879-83 war with Chile, and has since kept an international campaign to press for its demand to recover access to the Pacific Ocean -- possibly by getting control of a strip of Chilean territory that runs to the coast. Chile refuses to cede control of any part of its land, saying a 1904 bilateral treaty solved all territorial matters with Bolivia. The two countries do not have diplomatic relations due to the dispute. Mesa noted that Bolivia’s natural reserves, estimated at 1.5 tcm, are the largest non-oil related in South America.

Chile has experienced energy shortages the last couple of years as a result of steep cuts in the sales by Argentina. It currently does not import any natural gas from Bolivia. Mesa repeated his appeal to the Chilean government to re-start discussions over a possible outlet to the sea. Sporadic bilateral negotiations through the decades have failed. "We are prepared to make that discussion in the most reasonable terms," Mesa said. Both the export of natural gas and demand for sea access have become sensitive issues in Bolivia.

In October 2003, protesters took to the streets to demonstrate against a government plan to export gas through a Chilean port because they understood that Chile would profit from the venture. The violent demonstrations took the lives of 56 people and forced the resignation of President Gonzalo Sanchez de Lozada. The opposition to use a Chilean port forced Mesa to sign an agreement to use a port in Peru instead, although all technical studies indicated it would be much more expensive.

Bolivia proposes gas supply to Chile
in exchange for sea access Source: Xinhua 23-03-05

Bolivian President Carlos Mesa said that his country is willing to sell natural gas to Chile if Chile agrees to provide the land-locked country an access to the Pacific Ocean. At a ceremony marking the "Day of Sea," Mesa said it is necessary to restart negotiations with Chile on the sea access issue. Bolivia may share its natural gas reserves with Chile if the two countries can agree on a "solution to our maritime problem," said Mesa.

Bolivia's natural gas reserves are estimated at 1.5 tcm, the largest in South America. Bolivia lost its coastline after being defeated by Chile in the 1879-1883 war. The country is trying to restore the Atacama corridor, a key access to the Pacific Ocean. Chile, however, refuses to cede control of the strip, saying a 1904 bilateral treaty settled all territorial matters with Bolivia. Decades-long negotiations on the issue have failed.

Bolivia and Chile downgraded diplomatic relations in 1978 over the border issue. The two countries maintain commercial relations and have consulates in each other's capital.
 Hydrocarbons Bill Jeopardizes Future Investments
Business News Americas (BNamericas.com) 3/21/2005 URL: http://www.rigzone.com/news/article.asp?a_id=21234

Future investments by Brazil's federal energy company Petrobras in Bolivia's oil and gas industry could be in doubt if the Bolivian government's proposed hydrocarbons bill is approved by the senate, Brazil's mines and energy ministry said in a statement. "As it has been presented by local press, approval of the hydrocarbons law will, without a doubt, entail serious difficulties for Brazilian investments in Bolivia," Brazil's mines and energy minister Dilma Rousseff said.
On March 16, Bolivia's lower house re-approved the controversial article in the bill that sets royalty payments on hydrocarbons production at 18% and taxes at 32% for foreign companies operating in the country. The article was approved by a margin of 58 votes to 47 votes. It was the second time the article had been approved since opposition groups claimed the previous March 4 vote had "irregularities."

The opposition MAS party, led by Evo Morales, wanted the government to charge a 50% flat royalty on all hydrocarbons production.

The article dealing with the royalty-tax issue was the final article of the 142-article hydrocarbons bill to be passed by the lower house. The entire bill is now on its way to the senate for final approval.

For the moment, Petrobras (NYSE: PBR) has no plans to pull out of Bolivia, but is waiting for the bill's final approval to analyze the situation, local press reported. "Petrobras has every interest in continuing in Bolivia. We are awaiting the conclusion of this debate," newspaper El Diario quoted company president José Dutra as saying.

Meanwhile, the president of the Bolivian unit of Spain's Repsol YPF, Julio Gavito, has said that if the bill becomes a law, "it would oblige us to abandon many of our projects and everybody would lose, especially Bolivia," newspaper La Razón quoted him as saying. "It would also be necessary to reconsider new investments that we have earmarked for the next few years," he said. "It is evident that we are not in agreement [with the proposed bill] and we will present our point of view to the senate," he added.
 Pan Andean Spuds DRD X-1004 Well in Bolivia
Pan Andean Resources 8/5/2004 URL: http://www.rigzone.com/news/article.asp?a_id=15353

Pan Andean Resources has started drilling of DRD X-1004 on its gas and condensate field at El Dorado, near Santa Cruz, Bolivia. The interest is held through its subsidiary, Petrolex.

The well spuds this week and will be drilled to 4,290 meters (14,100 feet). The operator is our 90% partner, Chaco, which was formerly part of the Bolivian National Petroleum Company (YPFB) and is now part of the BP Group. The well is projected to take 90 days, including testing. Targets are the Petaca sands (approximately 1,600m), the Ichoa Formation (2,200m), Iquiri and Los Monos (4,000 to 4,500m).

In addition to anticipated exploratory upside, Pan Andean expects to convert approximately 60% of the currently classified probable reserves to proven, subject only to development of the Brazilian gas export market. This equates to 100 billion cubic feet of gas and 1.6 million barrels of oil-condensate.

Following recent remapping and regional work, technical staff believes that the DRD X-1004 well may increase the proportion of oil-condensate contained in future production from the reservoir. Pan Andean also hopes that significant new reserves may be added to the west of a geological fault running through the structure.

Pan Andean and Chaco have launched a Gaffney, Cline technical validation / due diligence review of the Energy Technology Gas-to-Liquids project. This technology offers a pioneering low capital cost method of generating diesel fuel from the gas available at El Dorado. This may offer accelerated access to market.

Managing Director, David Horgan, commented: "The El Dorado X-1004 well marks a return to vigorous development of our South American interests. After three years of regional retrenchment, energy demand is bouncing back. High oil prices make gas-to-liquids projects economic. Pan Andean hopes that these developments will position El Dorado for early development as a GTL project and/or to exploit the rapidly recovering gas demand in Brazil and Argentina".
Pan Andean Bolivian Operations 2005

PETROLEX SA a wholly owned subsidiary of Pan Andean was acquired in September 2000. A long established private Bolivian company it has non-operating interests in two Bolivian oil concessions Monteagudo 30% and El Dorado 10%. Both blocks are joint ventured with oil majors. In Monteagudo, Repsol is a 50% partner with Petrobras of Brazil holding the remaining 20%. The El Dorado block is operated by Pan American a consortium of BP/Amoco and Bridas of Argentina.

Pan Andean produces high quality crude oil and natural gas from our 30% stake in the Monteagudo Field, in southern Bolivia. The Monteagudo Field has produced over 37 million barrels of oil since its discovery in 1968. The field is operated by Maxus, with a 30% stake and is now owned by Repsol- YPF. Repsol owns an additional 20% stake via its ownership of the privatized Bolivian oil company Andina. The remaining 20 % is held by Petrobras, the Brazilian semi-state oil company. Oil output from relatively shallow reservoirs has remained strong. There is scope to enhance production through work-overs and new infield wells.

Pan Andean owns a 10% stake in the large, strategically situated gas discovery at El Dorado, some 40 km south of the city of Santa Cruz. We have been working hard to find a market for the gas to optimize cash flow from the associated liquids production, including condensate, natural gasoline, and GTL. Pan American Energy, part of the BP GROUP, owns the balance of the block. BP has large interests elsewhere in Bolivia, primarily via the privatized state company Chaco. Pan American's main current focus is on their Liquefied Natural Gas project aiming to sell gas form their stake in the mega - gas fields of southern Bolivia, via a pipeline to the Pacific Ocean and or by tanker to Mexico and the Californian market. We are working on a number of options to generate early value added for shareholders from the El Dorado discovery. The best option is to tap into the nearby gas export pipeline to Brazil. We are situated within 30 km of the gas gathering station and appear to have a considerable transport cost advantage. However, lower than expected volumes into the Brazil gas market has delayed securing a market in Brazil for the El Dorado Field. Accordingly our priority is to secure an early gas market and produce the associated liquids. For this purpose we are working on a gas to liquids facility, which would process 20 million cubic feet per day of natural gas. This is the sustainable production capacity today available from the two discovery wells at El Dorado.
Bolivia to hold natural gas referendum March 28
LA PAZ, Bolivia, Jan 5 (Reuters)
Bolivia will hold a national referendum on March 28 on how to develop one of Latin America's biggest gas reserves, an issue that last year sparked deadly riots and a massive strike that toppled the government. The political turbulence also caused Bolivia to lose out on an opportunity to export gas to Mexico and California. "Today finding markets for our gas is difficult and will mean double the effort," President Carlos Mesa said in a televised speech to the nation late Sunday. Plans to export the country's massive gas reserves were delayed after mainly indigenous opposition to exporting through Chile -- with which Bolivia has a centuries-old border dispute -- forced President Gonzalo Sanchez de Lozada to quit. Sanchez de Lozada's running mate, Mesa, then became president and he promised to hold a binding referendum on the $6 billion gas plan. But the project delay led Bolivia to lose out to a competing plan last month.

U..S. power company Sempra Energy signed a 20-year agreement in December to buy liquefied natural gas (LNG) from Indonesia. That gas will feed a planned LNG terminal in Mexico that will help supply the U.S. market with natural gas. "Finding a similar market in another part of the world will be no piece of cake," Mesa said. Mesa also announced a new energy law that will increase taxes in the energy sector. Bolivia's original project envisaged landlocked Bolivia choosing whether to pipe gas hundreds of miles either to a Chilean or a Peruvian port on the Pacific before being shipped to Mexico and moved by train to California.

Many Bolivians were up in arms at their gas being piped via neighboring Chile, an old enemy after Bolivia lost its access to the coast in an 1879 war. Indian groups also said foreign companies would be the only ones to benefit from the plans in one of Latin America's poorest countries. Bolivia has 55 trillion cubic feet of gas reserves, second only to Venezuela in Latin America. British Gas , which along with Spain's Repsol and BP Plc makes up Pacific LNG consortium, says Bolivia could supply nearly a fifth of the energy needs of California -- a market similar in size to Japan.

Repsol YPF, Petrobras Strike Gas Exporting Agreement
South American Business Information 1/2/2004 URL: http://www.rigzone.com/news/article.asp?a_id=10224

Repsol YPF and Petrobras reached an agreement to slash by 30% the price of the Bolivian natural gas exported to Brazil, without affecting the income of the Bolivian Treasury. In exchange for that Brazil would lift its natural gas taking up to 24 million cubic meters per day during 2004 from the current 18 million cubic meters.

Repsol and Petrobras are partners in the gas fields San Alberto and San Antonio which supply 70% of the natural gas sold to Brazil, while Petrobras is the importing company on the Brazilian end.

Following the agreement the gas price at Rio Grande do Sul would lower from US$1.92 per million BTU to US$1.25 and help the building of demand at the city gate to have prices dropping from US$3.36 to US$2.70 per million BTU.
Bolivian Govt. to Consider Regional Markets After LNG Flop
BNAmericas 1/2/2004 URL: http://www.rigzone.com/news/article.asp?a_id=10216

Faced with the failure of its project to export liquefied natural gas (LNG) to Mexico and the US, Bolivia should consider the Brazilian, Argentine, Paraguayan and Chilean markets, as well as North America, mining and hydrocarbons minister Alvaro Rios said.

"I think that these are markets we should look at, and not dismiss," government news service ABI quoted the official as saying. Rios acknowledged that the task would now be more difficult, although he has not given up hope of breaking into the North American market. "The market says that he who knocks first, knocks twice," he said. "Unfortunately we didn't knock first."

Bolivia's hesitation hit both its investment image and its pocket. Estimates are that the project would have brought in US$600mn annual income from liquid hydrocarbons and another US$232mn from gas. The government itself stood to have gained US$200mn a year in tax revenues, equivalent to 2.5% of GDP, economic development minister Xavier Nogales said.

The multi-billion dollar Pacific LNG project, led by Spain's Repsol YPF and two British companies, collapsed when the country's political opposition seized on the issue, staging protests against exporting the gas. The demonstrations led to the downfall of President Gonzalo Sanchez de Lozada in October.

However, the country has 56 trillion cubic feet of reserves, and Rios said there is still plenty for export even after the government encouraged local consumption by making residential connections and converting cars to vehicular natural gas (VNG). "Gas is super-abundant both for massive industrialization within the country and also for export," he said. Nogales added that Bolivia needs a rational and systematic hydrocarbons export policy, which would give the country cheap and efficient power to make its industrial production more competitive.

Losing out on the US-Mexican market was confirmed when the would-be offtaker, Sempra Energy, signed a supply deal from Indonesia in December, leaving Bolivia with only Brazil as a current market. Brazil now has monopoly power to try and reduce prices. Moreover, the country still has to clarify the growth of its electric power sector, upon which a large part of its demand for Bolivian gas rests. "We are a little at the mercy of what they want to do in Brazil with their power sector," Rios said. "They also have [regulatory] problems, which drastically affect Bolivia."

According to Nogales, the government proposes three immediate courses of action: speeding up efforts to find new gas markets, encouraging the domestic use of natural gas, and diversifying the range of exportable products along with opening more markets to Bolivian exports.

The government wants to involve state oil company YPFB more closely in the search for new markets. "We have to start negotiating directly with countries such as Mexico or the US and not let oil companies be the ones who decide if they want to buy Bolivian gas to export it," Nogales said. Meanwhile, President Carlos Mesa is due to announce changes to the country's hydrocarbons law this Sunday (Jan.4), local press reported.

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Bolivia refuses to lower gas export prices, quotas to Brazil 
OGJ Online, April 29, 2003 

BOLIVIA REFUSES to lower gas export prices unless Brazil increases its imports.  At an Apr. 28 meeting, Brazilian President Luiz Inácio Lula da Silva failed to convince Bolivia's President Gonzalo Sánchez de Lozada to revise the contract under which Brazil imports a fixed quota of gas from its neighbor. 

"It is very unlikely that Bolivia will distance itself from what was agreed (with Brazil) in good faith in the past. It is unlikely that we will change the take-or-pay clause of the contract," said de Lozada.  However, Brazilian Energy Minister Dilma Rousseff, who also took part in the talks, declared, "Brazil will only increase the volume of gas imported from Bolivia if the price of the fuel is reduced."  Brazil wanted to revise the take-or-pay clause in the import contract signed with Bolivia in 1996. Under that agreement, Brazil pays for a certain quota of imported Bolivian gas even if it does not need to import the fuel. Brazilian officials claim the take-or-pay provision will cost Brazil more than the present $150 million/year.

The minimum gas quota Brazil agreed to import from Bolivia is 14 million cu m/day. Under the proposal, the minimum quota would be boosted to 18 million cu m/day by 2004. 

However, Brazil currently takes only 11 million cu m/day. The Brazilian economy is experiencing a severe recession, and it is unlikely that Brazil's gas consumption will increase from current levels for at least the next 2 years, said local analysts. Moreover, Lula's administration shelved an ambitious gas-fired thermoelectric project devised by former President Fernando Henrique Cardoso.  Brazilian officials said the price of imported Bolivian gas has dampened Brazil's demand for the commodity. However, Lozada rejected the possibility of reducing gas prices unless Brazil increases imports. 

Bolivia's natural gas reserves are estimated at 52 tcf, second in Latin America behind Venezuela. Bolivia's economy depends heavily on its gas sales. In addition, Losada faces strong opposition from powerful left wing factions in Bolivia that oppose lowering exported gas prices. 

BG over 4 tcf of equity gas in Bolivia
BG is the second largest holder of gas reserves in the country. BG has eight exploration/exploitation and retention blocks (which hold discoveries that have not yet commenced production) and is a partner in Itau and Margarita, two of the largest discovered gas condensate fields in Bolivia. 
BG has secured long-term capacity rights in the Bolivia-Brazil pipeline and is strategically placed to supply gas into the Brazilian market. 
A LNG scheme to supply West Coast US and Mexican markets with BG Bolivia’s significant equity gas reserves is being actively pursued.

Following the acquisition in December 1999 of Tesoro Bolivia Petroleum Company, BG continues to own and operate (100%) several exploitation and retention licences containing six gas condensate fields – the La Vertiente, Los Suris, Escondido and Taiguati producing fields and the Palo Marcado and Ibibobo undeveloped discoveries (held in Retention – formerly contained in the Block XX Tarija East Exploration Licence). BG supplies gas to Brazilian markets through two sales contracts: 
1.4 mmcmd supply into the Yaciminetos Petroliferous Fiscales Bolivianos (YPFB) – Petrobras contract.  0.65 mmcmd supply to Comgas. 
Gas is treated in the La Vertiente processing plant where capacity was expanded to 160 mmscfd in 2001 to allow BG to meet increased sales to the Brazilian market. 
BG’s 100% operations are located in the Gran Chaco province of southern Bolivia, approximately 75 km north of the Bolivia-Argentina border.

La Vertiente 
The 375 sq km La Vertiente exploitation block contains the La Vertiente, Escondido and Taiguati gas condensate producing fields. Production from the La Vertiente gas condensate field began in August 1978 and has continued from two production wells. 
Production from the Escondido gas condensate field began in October 1989 and continues from four production wells. 
The Taiguati gas condensate field came on-stream in June 1989 and has two production wells. 

Los Suris 
The 50 sq km Los Suris exploitation block contains the Los Suris gas condensate field which has been in production since August 1999. The field contains four production wells including Los Suris 5, BG’s first operated well in Bolivia which has been in production since 2001. 

XX Tarija East 
Two discovered gas condensate and oil fields, Ibibobo and Palo Marcado, have been held as Retention Areas awaiting development. The remainder of Block XXTarija East was relinquished at the end of July 2003.   

Itau Retention Area 
BG has a 25% equity interest in the Itau Retention Area which contains the giant Itau gas condensate field. BG continues to evaluate options to monetise reserves from Itau. The remainder of Block XX Tarija West, including the Agua Salada sub-block (BG 100%), was relinquished at the end of July 2003. 
Partners (%) Itau Retention     25 BG 41 Total Bolivie (operator) 34 ExxonMobil        

Margarita Exploitation 
BG has a 37.5% equity share of the Margarita gas condensate field which lies in the 874 sq km Margarita exploitation block. Following discovery in November 1998, the Margarita X2 and X3 appraisal wells were drilled in 1999. Further field appraisal has included a long-term production test of the Margarita X3 well in the first quarter of 2001 and the acquisition of 1 096 sq km of 3D seismic in late 2001.

In November 2002, BG and partners approved the construction of the Margarita Early Production Facilities to deliver gas to the Brazilian market. The construction contract was awarded in May 2003 and in June a horizontal sidetrack of the Margarita X1 well was completed as a production well. First gas is scheduled for April 2004.
Partners (%) Margarita     37.5 BG 37.5 Maxus (Repsol YPF) (operator) 25 Pan American Energy        

The Caipipendi exploration block contains several large gas condensate exploration leads and prospects which are being evaluated.
Partners (%) Caipipendi     37.5 BG 37.5 Maxus (Repsol YPF) (operator) 25 Pan American Energy        

BG has a 20% equity interest in the 787 sq km Charagua block which contains the Itatiqui Retention Area. BG farmed out its 20% equity in the Itatiqui discovery in April 2001. 
Partners (%) Charagua     20 BG 50 Chaco (Pan American) 20 Maxus (Repsol YPF) (operator) 10 El Paso    

LNG studies
BG and its partners in the Margarita field formed the Pacific LNG (PLNG) consortium in 2001. PLNG is seeking to sell gas into the west coast of the USA and Central American markets. This project would involve the transportation of gas across the Andes to a liquefaction plant on the Pacific coast and onward shipping to regasification facilities in Mexico prior to onward transport to the USA and other markets. This is one of a range of options that BG is pursuing to monetise Bolivian reserves in North, South and Central America.
10,000 b/d gas-to-liquids plant near Santa Cruz Study
OGJ Online, April 04, 2003 
THE GTL BOLIVIA SA group and Rentech Inc., Denver, have completed the technical portion of a joint study to determine the feasibility of building a 10,000 b/d gas-to-liquids plant near Santa Cruz, Bolivia. 

The companies now are examining the project's marketing and economics and expect to complete the studies by May 31. Preliminary indications show favorable economics for the project, the companies said.

Under a licensing memorandum of understanding signed last year, the proposed plant primarily would use Rentech's patented GTL technology process to make sulfur-free fuels (OGJ, Oct. 7, 2002, p. 8).

3,150 km Bolivia-Brazil natural gas pipeline
OGJ Online, February 25, 2003 

In other recent company news: El Paso Corp.'s Brazilian subsidiary will sell its shares in the 3,150 km Bolivia-Brazil natural gas pipeline, according to Eduardo Karrer, president of El Paso do Brasil.El Paso is one of the few shareholders in the Bolivia-Brazil gas pipeline that doesn't own gas reserves in Bolivia. 

Oil&Gas Journal, February 17, 2003 
The second major question concerning gas reserves is whether, during the next 20-30 years, gas exploration programs are going to yield 50 or so new gas provinces equivalent to the one in southern Bolivia, or no more than a dozen. The second figure appears more likely.
Bolivian gas potential
The Pluspetrol chief noted that the Bolivia-Brazil gas pipeline sparked a flurry of exploration and development in Bolivia. That E&D flurry has yielded such vast gas reserves that the country is mulling an LNG export project to monetize gas discoveries that the export pipeline can't accommodate any time in the foreseeable future.

Rey pegged Bolivian gas reserves at 50-60 tcf, up from a mere 4 tcf discovered prior to the development of the Bolivia-Brazil export pipeline. 

Rey said that Peru's gas potential compares favorably with Bolivia's, with large underexplored basins such as the Ucayali (home to the Camisea gas fields) and Madre de Dios on trend with the world-class gas reservoirs found in neighboring Bolivia. 

In response to queries from the Ingepet audience about the potential for a Peruvian LNG export project incorporating Bolivian gas as well, Suellentrop said, "It is not in Peru's best interest to move the project south." Rather, "The Bolivians should follow our project. We have economies of scale and shipping advantages that the Bolivians must envy." 

Incorporating Bolivian gas would entail not only incurring additional costs of moving the project farther south along Peru's coast, moving it farther from market, but "the Bolivians would have to place twice as much gas to justify the added infrastructure." 

Suellentrop suggested that tacking on the 8 million tonnes/year that incorporating a Bolivian scheme would entail would overwhelm the available market. He likened Peru's LNG export initiative to the successful model established by Trinidad and Tobago, whose Atlantic LNG export project is being developed on a phased, single-train module basis. 
Bolivia Orca Petroleum exp
By OGJ editors  HOUSTON, Aug. 15 Orca Petroleum Inc., Calgary, acquired with YPFB approval a 12.5% working interest in the Villamontes Block in southern Bolivia for $287,500 and is seeking other oil investments in the country. Operated by Matpetrol SA, a Bolivian operator for 40 years, the block yields 40 b/d of oil and has made 703,000 bbl of oil from Upper Carboniferous San Telmo since the first discovery in 1987.
Block participants plan to sidetrack an existing well bore to penetrate San Telmo 30 m higher than existing wells. Outside engineers attributed 629,000 boe of proved and probable reserves to the San Telmo and Permian Cangapi reservoirs as of Jan. 1, 2001.
World Bank to Disburse $19.5 Million to Bolivia Following Progress in  Regulatory Reform
News Release No:2003/028/LAC
Contacts: Alejandra Viveros (202) 473-4306  Aviveros@worldbank.org  Lee Morrison (202) 458-8741  Lmorrison1@worldbank.org  For more information on the credit:  http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000178830_98111703531865

Washington, July 19, 2002- The World Bank today announced it will disburse all $19.5 million of remaining  funds from a Regulatory Reform Sector Adjustment Credit to the Government of Bolivia. The decision to  disburse the second and final tranche of the credit follows Bolivia’s progress in a series of reforms to  strengthen its banking system, promote competition in the telecommunication and energy sectors, and  support economic development.

" The Government of Bolivia has made significant gains aimed at improving its economic environment and  supporting the objectives of the Regulatory Reform Program," said John Newman, World Bank Resident  Representative in Bolivia. "Although Bolivia is still recovering from an economic crisis and there are  enormous social needs to address, we are confident that the reforms undertaken will help Bolivia meet  these challenges as well as promote  long-term economic development".

The Regulatory Reform Sector Adjustment Credit (SAC) was approved in November, 1998 for a total of  $41.8 million from the International Development Association (IDA), the World Bank's preferential lending  arm that provides interest-free credits to the poorest countries. The SAC is helping Bolivia strengthen the  stability and efficiency of the financial sector, improve coverage, quality and productivity of key infrastructure  services, and maintain an independent regulatory system that both facilitates and promotes economic  efficiency and competition. 

Under the SAC, the Government has implemented legislation to strengthen bank resolution mechanisms  and facilitate corrective actions for troubled financial intermediaries, enacted regulation to promote  competition in the telecommunication and energy sectors and has improved its macroeconomic  management despite being in a difficult economic climate. 
Bolivia one of the poorest countries in Latin America
With a GDP per capita of around US$1,000 and social indicators similar to Sub-Saharan Africa countries, Bolivia is one of the poorest countries in Latin America. About two-thirds of the Bolivian population is poor, with low levels of education, health and nutrition. The average schooling completed is less than seven years, infant mortality stands at 69 per thousand live births, and 10 percent of the children under five are malnourished. 

Bolivia is landlocked, and its poorly developed communications infrastructure limits its access to export markets. After significant macroeconomic stabilization and structural adjustment efforts started in 1985, supported by the International Development Association (IDA) and International Monetary Fund (IMF), twelve-month inflation fell from a peak of 23,500 percent in 1985 to less than 4.5 percent by end of 1998. International reserves and foreign direct investment have increased significantly. And the external debt burden-while still high-has eased, thanks to the HIPC initiative Bolivia was the second country to reach the completion point under this initiative in September 1998. See Report and Recommendation of the President of the International Development Association to the Executive Directors on Assistance Strategy to the Republic of Bolivia under the HIPC Debt Initiative (Report No. P7260-BO), Memorandum of the President, September 4, 1998. 

But Bolivia is a segmented society, with insufficient investment, weak institutional capacity, and entrenched vested interests hampering the private sector. It is a good example of a country that has achieved successful stabilization and implemented innovative market reforms, yet made only limited progress in the fight against poverty. 


The country's economic performance in 1998 was broadly in line with the IMF–Enhanced Structural Adjustment Facility (ESAF) program. GDP grew at an annual rate of 4.7 percent despite the adverse effects of El Niño. Inflation fell to 4.4 percent. The non-financial public sector deficit was 4.1 percent. And international reserves increased more than expected (by US$125 million). But, an important weakness in macroeconomic performance was the current account deficit, which reached nearly 7.9 percent of GDP, mainly due to large foreign direct investment (FDI). The surge in FDI will have to be monitored closely to prevent overheating the economy or eroding investor confidence. Authorities agreed in the ESAF program to a tighter fiscal stance for 1999 and beyond if the current account deficit is larger than envisaged in the program. 

Instability in international markets and lower growth prospect for its neighbors have hit economic activity in Bolivia, with growth appearing to have slowed down significantly in the first months of 1999. And although inflationary pressures continued to abate, exports and imports fell by 13 and 8 percent, compared to the first two months in 1998. Exports of natural gas to Brazil through the pipeline have been delayed pending the contract with the importing Brazilian company. Fortunately, FDI has remained robust, though it ended its upward climb. All IMF-ESAF financial benchmarks were met for the first quarter, but there are signs of credit tightening: commercial banks reduced their liquid deposits in the central bank, and international reserves declined by some US$70 million. In mid-May, the Banco Boliviano Americano (BBA) bank was intervened by the authorities. Weaker than programmed tax revenue (partly due to the economic slowdown) has been more than compensated by the containment of expenditures. The original overall public sector deficit target of 3.9 percent of GDP is still viable. 

Bolivia faces a tough fiscal challenge in the short and medium term due to the large reform agenda and fiscal costs from previous structural measures—notably pensions— which accounted for 4 percent of GDP in 1998. Bolivia will have to undergo a fiscal adjustment of the non-pension balance of the non-financial public sector from zero to a surplus of 1.5 percent of GDP by the year 2002. The resulting reduction of the overall deficit below 2 percent of GDP will help to: (i) reduce domestic deficit financing, thus capitalizing on the increased private savings resulting from the pension reform; (ii) prevent the FDI boom from overheating the economy; and (iii) lower the foreign debt burden to ease the transition from concessional financing. Continued fiscal discipline, as envisioned in the IMF–ESAF program, will allow Bolivia to maximize the benefits of a series of rescheduling with bilateral creditors and the debt relief under the HIPC Initiative. 


The Public Expenditure Review 

In April 1998, the donor community asked the Bank to prepare a PER for the 1999 CG meeting, as perspective on the role of external assistance in the public expenditure program. The PER was extended to also include tax issues, which were covered by IMF staff. The previous PER had been carried out in 1992, predating many of the structural reforms. The main thrust of the 1992 report was to recommend lower direct state involvement in productive activities through its public enterprises. 

Since the last PER, Bolivia staged comprehensive reforms—moving the government from direct involvement in production to a regulator of public services. The 1999 PER found that public enterprises shrank from 25 percent of GDP in 1995 to 8 percent in 1998, and they are expected to be at less than 2 percent by end of 1999. And great strides have also been made in increasing revenue collection from well below 10 percent of GDP in the mid-1980 to 15 percent in 1990 and to 19 percent in 1998. The PER also found that, contrary to donors' concerns, Popular Participation (started by the previous administration) is functioning well, and decentralization is enhancing efficiency and making mayors more accountable to their constituents. 

The main issues identified in the PER are: 

<>Two main fiscal challenges: increase the non-pension fiscal balance to prepare for the reduction of concessional aid in the coming years.
Insufficient operations and maintenance funds across the public sector.
Low health expenditures by international standards.
For decentralization to be sustainable, it is important to maintain strict limits on sub-national debt, a new role for prefectures, and a modified political process for mayors (too much rotation).
The cumbersome complementary regime to value added tax, which needs to be replaced with a simple-personal income tax with a wide base, as part of an integral package of tax reform.
The much needed expansion plans for the road network should be adjusted within fiscal constraints and increasing private participation.

CAS Implementation 
The implementation of the Bolivia CAS has proceeded as planned (see detail in Annex 2). Wherever possible, this section and the annex attempt to assess progress with regard to outcomes. Nevertheless, it is currently difficult to measure outcomes of each of the pillars, given that the CAS has been under implementation for less than a year and that many of the older projects in the portfolio need to be "retrofitted"—a task envisioned during the initial phase of the pilot—to incorporate clear pillar outcomes. Five projects were approved in FY98, and four are scheduled for FY99. These operations have been addressing the main constraints, identified in the 1998 CAR. They include support to the Government's efforts to:

Consolidate the implementation of the regulatory framework, with laws and the full staffing of 9 superintendencies in the financial and infrastructure sectors.
 Strengthen the financial sector through enhanced regulatory oversight and bank provisioning and a law to enable swift banking resolution mechanisms.
Establish a sustainable mechanism for maintenance of the national road network and hence, improve road conditions—in recent years all periodic maintenance has been supported by Bank interventions; between the end of 1997 and 1998, there was an increase of 50 percent (although from a small base) in the amount of the national network under good maintenance.
 Finance rural investments stemming from popular participation through the FDC—more than US$ 1.5 million in rural investments were realized through Bank support since the CAS was discussed last year.
 Adopt a strategy to deal with corruption and weak governance (Annex 3).
Support education reform through greater participation of parents' associations, greater efficiency in the sector and implementation of the transformation process—during 1998, Bank support resulted in improving the student/teacher ratio in primary education to 23, and consolidating the advances in the transformation process with 46 percent of all primary schools in the country currently participating.
Build judicial capacity and credibility of the judicial branch through the appointment of the Judicial Council, the Ombudswoman and seven Supreme Court Judges.

Improve coverage and quality of basic services
—Bank interventions helped to increase the safe rural water supply coverage from 37 percent at the end of 1997 to about 39 percent by March 1999.

As a result of the transition to the new administration and ongoing institutional changes, such as decentralization, IDA's portfolio in Bolivia deteriorated significantly last year. At the end of FY98, there were five problem projects in our portfolio. Following project restructuring and exemplary pro-activity from part of the Government of Bolivia, a notable improvement of IDA's portfolio has been achieved, reducing the number of problem projects currently to one. 

The three operations being presented to the Board in June 1999 include the Health Sector APL, the first project for Bolivia explicitly designed under a results-oriented framework, the Institutional Reform Project, and the Abapo-Camiri Road Project. These operations are also in line with the recommendations in the CAR to support the Government's efforts to:

Radically restructure the civil service.
Improve the transparency of customs and tax administration.
Improve the physical infrastructure through the construction and maintenance of roads.

Although there have been very few changes from the time of the CAS, we are currently preparing a Learning and Innovation Loan (LIL) for environmental management which was not originally envisaged in the program. While we were preparing the CAS in early 1998, the Bank was asked by the Government to limit our involvement in the critical area of environment to non-lending services, because of large undisbursed resources from the Inter-American Development Bank (IDB). Eighteen months since the initial discussions, however, there has not been enough progress in the monitoring and environmental planning associated with upstream explorations brought about by the Bolivia-Brazil pipeline which was inaugurated in February 1999. During the Environmental Dialogue that took place in April, this was also identified as a priority. Therefore, during the last quarter of FY99, preparation was initiated for a LIL to address this issue through capacity building at the Vice Ministry of Energy as well as through establishing participatory practices to involve civil society in monitoring. 

Another change has been a much stronger emphasis in including indigenous leaders in the design and the monitoring of our projects as well as in the articulation of a long-term development strategy for the rural communities, including the Altiplano. Many past development efforts by the Bank and the Government have relied on a top-down approach, thereby failing to address the self-defined needs of indigenous peoples. The Bank's new approach for rural areas is to promote the active participation of indigenous populations and directly strengthen the organizational structure of indigenous communities to design, implement, and manage projects. In doing this it has become clear that regional and ethnic sociocultural factors are an important factor in enabling indigenous communities to take an active role in attacking poverty. One input into this approach has been a rural productivity study, recently completed by the Bank, which provides recommendations for including Bolivia's rural poor in a process of more inclusive economic growth. The study recommends various measures for reducing poverty by revitalizing productivity and local economies, production diversification and income generating strategies as central pillars in a rural strategy. Applying this approach by involving the active participation of indigenous peoples as discussed above will help promote an effective strategy for reducing poverty and promoting inclusive economic growth at all levels of society.