Bolivian President Evo Morales (C) with the President of Repsol (R), on May 1, 2015. AIZAR RALDES NUNEZ/AFP/Getty Images
Spanish oil and gas company Repsol posted its first-quarter results on Thursday, showing a 5.7% decline in profit from a year ago. Like other big energy firms, it has been hit hard by lower oil prices and high drilling costs, which were only slightly offset by increased income from its refineries. Repsol’s oil pumping and drilling division reported a €190 million ($214 million) loss for the quarter, compared with a €255 million profit a year earlier.
Still, its oil and gas output was up 3.7% on the year, to 354,600 barrels of oil equivalent (BOE), although that was a fall from the previous quarter. Civil unrest and attacks on oil fields in Libya led to shutdowns there in recent months, offsetting its production growth in Brazil, Bolivia, and Peru, according to the Wall Street Journal.
Though, Bolivia is a notable bright spot for Repsol. On May 1, Bolivian President Evo Morales announced that Repsol had discovered a new deposit of natural gas in the country. The new well, named Margarita 7, is predicted to produce 3 million cubic meters of natural gas per day, raising the company’s daily total to 18 million million cubic meters.
Repsol’s reserves and production are doing better than expected in Bolivia, as the company has already met its January 2016 output goals for the country. The company has mining rights to 26 blocks in Bolivia, four of which are exploratory licenses and 22 of which are under development. Its total net production in 2014 was 14.6 million BOE, mainly from the Margarita block, where the new discovery is. The Margarita field is one of four natural gas mega-deposits in Bolivia and contains a third of the country’s total reserves.
With such promise, Margarita is one of Repsol’s ten upstream growth projects detailed in the company’s 2012-2016 Strategic Plan. Repsol invested $100 million in Margarita 7, part of its larger plan starting in 2010 to invest an eventual total of $1.2 billion in the entire gas basin. It is in phase II, and so far the results have been very encouraging. On February 25, the company announced its Margarita 8 well (costing $101 million) contains 300 billion cubic feet of gas (almost 8.5 billion cubic meters) in reserves, and will produce 2 million cubic meters per day. Investment in phase III of the Margarita project is expected to reach $293 million by 2018.
Bolivia nationalized its gas sector in 2006, but the state gas company YPFB conducts much of its operations by contracting private firms like Repsol. Overall Bolivia has been much more receptive to Repsol than Argentina was.The company’s formerly close relationship with the Argentine government deteriorated in a dispute over price-caps and investment levels, culminating in Argentina expropriating Repsol’s majority share of the oil company YPF in 2012. Repsol later received $5 billion in compensation, but definitively ended all of its operations in Argentina and does not intend to return.
Morales supports Repsol’s efforts to expand gas production, because he needs to ensure Bolivia’s gas exports to neighboring Argentina and Brazil, which generate the largest amount of foreign revenue for the country. For the most part the interests of Repsol and Bolivia coincide, but not always. Morales revealed that the government obliged Repsol to drill much further than the company preferred in the Margarita 8 well—instead of pulling out unsuccessfully at 2,000 meters, it had to continue to 5,000 meters, where it did indeed find a new gas deposit. Problems between these two partners might arise if Bolivia makes such maneuvers a habit.
