Mauricio Medinaceli Monrroy
Private Consultant
Oil - Natural Gas - Energy

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Notes on recovery costs in Bolivian hydrocarbons sector

Ah! How difficult is to be a dad! There are many opportunities when I hear that to be a parent, one should take previous courses and approve some type of test. The argument goes like this: "We need drive license, vote permission... even work permission, but to have a child, nothing." In response to this argument, many angry parents respond that it would be an attempt to individual rights to create such thing as a "parents’ permission". The truth is that, personally, I think that some previous guidance would be healthy, because on many occasions I questioned about my parenthood performance.

One of the most serious questions that I usually have (as a father) is I should give my child everything he wants, in other words, should I cover all his costs (even the most eccentric ones) or not? An alternative to this would be give him an "allowance" (an amount of money per month) so he can solve all his problems. If I cover all his costs he (my son) will be very happy, but if I give him an allowance, perhaps when the price of movie tickets or PS4 increased (and not the allowance) my poor son will be in trouble... and naturally, I will be, with high probability, an evil father.

The above example will help me to contextualize the recovery costs in the oil sector that emerged some days ago in Bolivia. After several news about it, I decided to review the legal regulations ( # 3278) to see the magnitude of changes. Do we really want to control every penny? Was my initial question.

Looking article 1 of the regulation # 3278 I saw the following sentence: "according to the established in the Constitution". I raised my eyebrows. Reviewing the previous cost regulation (because let me tell you that there was a previous regulation) approved by regulation # 29504, there was no allusion to Constitution.

I took off my glasses and began to see (without seeing) that white wall in front of me. The noise of a helicopter made me react (as you will read, I am still living in Afghanistan) and then I continued reading the new regulation. When I came to Article 3 I saw another novelty, the regulation now introduces Oil Services Contracts. Ok! Now, everything starts to fit, with the current constitution and previous regulation. Let's see.

The following figure attempts to show the evolution of legal laws, regulations and events since 2005. The Hydrocarbons Law # 3058 of 2005 approved three types of contracts: 1) production sharing; 2) association and; 3) operation. In 2006, because the so-called "nationalization" the Bolivian Government signed Operation Contracts. In year 2007 the new Constitution determines that exploration and exploitation activities must be carried out with Service Contracts, the new Constitution was aprove in 2009. In 2008, the regulation #29504 regulatory didn’t take in consideration the new Constitution text and continued with the regulation of Operation Contracts from the so-called "nationalization". Finally, the new regulation # 3278 of 2017 established the creation of Petroleum Services Contracts.

vlog.17.09.13.en1

Is this a simple wordplay? The answer, from my point of view, is no. What is the substantive difference between these contracts? It turns out that Operation Contracts of so-called "nationalization" are (in relation with cost recovery) a typical Production Sharing ones, this situation I discussed in several documents: link01link02link03. In a standard worldwide production sharing contract, the state allows the recovery of operating and capital cost. Returning to the fatherhood analogy, in the world, parents usually cover reasonably the costs of their children.

The new Bolivian Constitution, for its part, insinuates that parents shouldn’t cover their children’s  costs, what they should do is give them an allowance, for this reason the Constitution has the following text: "YPFB [Bolivian oil company] is authorized to sign contracts under the service regime, with public, mixed or private companies, Bolivian or foreign, so these companies, in their name and on their behalf, perform certain activities in the production chain in exchange of a fee or service payment. This "Remuneration or service payment" doesn’t necessarily imply cover costs. I must add that at the international level in a standard service contracts, the State gives a compensation to the company and this company should manage operations in order to cover (or not) operation and capital costs.

The first regulation of costs (year 2008) refers to Operating Contracts (where parents cover the children costs), but the new regulatory regulation of costs creates the figure of Oil Services Contract, where it’s not clear State's obligation to cover these costs. That is to say, under the Oil Services Contract figure there is apparently no obligation to recognize the costs, because it refers the new Constitution.

The new regulation also has other topics that are of great interest: 1) the existence of price limits for costs; 2) the ANH (regulatory body of hydrocarbons in Bolivia) is responsible for determining and approving such limits; 3) non-recognition... you read well "no recognition" of environmental liabilities prior to the signing of contracts (Article 16), by the way, this was already established in previous regulation; 4) tax issues for investments transfers (Article 13); 5) it seems to me that regulation #24051 was amended (article 15); 6) What is meant by "amount" in Article 20? Each of them is important and may be the subject of another post.

I wanted to discuss contractual issues because this new rule raised new doubts (once again) with State-Operators relationship. We are not only talking about setting limits to costs, now we introduce disturbances in the type of contractual relationship between Bolivian State and Operators. All this, once again, convinces me the need to provide a comprehensive solution to all the problems of the sector through a unique, clear, simple and consistent legal framework. Using a simple analogy, it’s time to buy a new tire... the one we have is already "very old".

Well my friends, as always was a pleasure share these ideas with you, for those interested in see this discussion you can visit my Youtube channel, see the following link. Only 10 days remain to return to my beloved Bolivia and seek new for new horizons and adventures.

Mauricio Medinaceli Monrroy

Kabul, September 13th 2017

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 The results of the so-called "nationalization" of hydrocarbons in Bolivia with official data 

Today, I feel happy. I imagine that this is the kind of happiness of the detective who solves a case, of the student who receives a good grade, of the theoretician who proves a theory. Today I’m happy because YPFB (oil state company) finally published information that I’ve been looking for a long time... since 2007. This information refers to the fiscal results of the so-called "nationalization" of hydrocarbons in Bolivia.

In many times that I tried to approximate this number collecting information from many different sources. I tried to give consistency to the data, crossing fingers to minimize the error. Some examples you will find in the following linkslink01link02link03link04 and link05.

The issue is that YPFB published, officially, the data in question and now with complete security I can confirm my suspicions of past years. The so-called "nationalization" of hydrocarbons increased the government take (over wellhead revenues) from 50% (already existing with the Hydrocarbons Law 3058) to 64%. For my friends from other countries, let me explain you that in Bolivian the Government Take is measured on the gross revenues at wellhead, “we don’t like” the right and common approach of GT measured over the net benefit of the operation.

As you can see in the following table, the so-called "nationalization" process ranged from 11% (excluding 2007) to 17%; on average (the last column in gray) was 14%. If you add this number to the royalties and the current production tax (IDH) the total GT is 66% (don’t forget the measure is over gross revenues at wellhead) leaving 34% as gross retribution for the operator (that includes recoverable costs), see the following figure. Now, I hope, the reason of my happiness is more clear, my previous suspicions were not far from the reality, see link01link02link03link04 and link05.

blog.17.09.07.01hq1

blog.17.09.07.02.en

However, the information provided by YPFB doesn’t end here, according to YPFB, from the green part (in the "cake" I present) it’s necessary to deduct the patents and upstream taxes, that’s why I used the words "gross retribution". The payment of patents is minor, so we can put it aside. What strikes me are the amounts paid by "Upstream Taxes", in many cases are greater than the resources obtained from the so-called "nationalization" process. I have my doubts about the items considered here. Do they include taxes paid by YPFB? Do they include taxes paid by service companies? Do they include taxes paid by companies that only carried out exploratory work? Therefore, and until the National Tax Service don’t officially publish this information the doubt will still be around my head.

Now, as my mother would say, "nobility obliges", I must congratulate the technical people of YPFB for the publication. If you allow me a couple of suggestions for the future: 1) publish this information by field and; 2) perform this exercise, at least, on annual basis. On the other hand, it’s the turn of the National Tax Service, it’s in their hands to publish the taxes not only paid by the upstream, but also, by the other segments of the chain, thus, on solid bases we can talk about the future of the sector.

As you maybe already know, I opened my channel in Youtube channel, so I invite you to take a tour and watch video1video2 and video3. In these videos I discuss the recent increase in the natural gas prices applied to the industrial sector in Bolivia.

A pleasure to have shared with you these data and ideas, there are only 17 days remaining to go back to my beloved country. I finished this contract and now I’ll try to look for opportunities at home next to my family and especially my dear Santi, who doesn’t stop to amaze me with this types of conversations:

After leave some food  on the street for some street dogs, Santi told me: "Dad, it's also time for us to think about people."

A hug my dear friends

Mauricio Medinaceli Monrroy

Kabul, September 7th  2017

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March 8th 

Thanks to my dear friend Cecilia Ayala, I had the fortune to share my economic ideas across many countries of South America. I was in charge of Microeconomics and all the training was called "Economic Tools for Environment Conservation" with the always important support of CSF. Thanks to this experience I met excellent people whom work with the environment, from that time I have very good friends. Now this experience it's been reproduced with UNAM and another group of good friends, Lalo, Eglé and Angela. 

In Ecuador, one of the participants told me a very interesting story related to the Huaorani people. In short, due to the oil activity in the region where these people live, the Huaorani suddenly began receiving large amounts of money from the operating companies (I will not enter into the discussion of how and why) in the region. 

Apparently the men whom initially handled these resources didn't do it in the best way... surronding quickly to new vices. In such a situation, were the Huaorani women whom took control of these funds (because they didn't want to expose their children to that vices) and began a textile enterprise internationally recognized today and with vey good expectations. I tried to find bibliographical references that confirm or not this story, I found 2, please have a look: click1, click2. 

At this time when the word "Congratulations" appears politically incorrect, I wanted to share with you a story that points (or highlights) a virtue (of the many) that I find in women. People who never cease to build a better world. 

Thank you for everything you do for us all.

Mauricio

 Kabul, March 8, 2017

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 Who is who in the Gas Exporting Countries Forum?

17.01.20.eng

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Exports of natural gas from Bolivia to Argentina: This is how a cycle looks like

After four months since I wrote something about the hydrocarbons sector (and by they way it was vetoed) I don’t want to miss these holidays to share something with you.

The two major export markets for Bolivian natural gas are Brazil and Argentina, the first one agreed during the last thirty years and the second one activated in 2004 and consolidated later. The fact is that the people (like me) whom dedicate our time to study this sector, from time to time, try to elucidate a reality that many times is out of our hands.

Well, this time I want to present some realities Bolivian natural gas exports to Argentine. For that I used ... Oh, how ironic! Data published by the Ministry of Mining and Energy of our brother country where information is published until November 2016... something that deserves my most sincere congratulations. There is no doubt that the agile and transparent information reflects that there is nothing to hide.

Below there’s a graph with the monthly value of natural gas exports from Bolivia to Argentina… now, maybe, the reference to the title is a bit more clear: This is how a cycle looks like. In 2010, the monthly value was around US$ 50 million, by 2016 was slightly higher.

blog.16.12.30.01

In this sense, the following question then arise: What factors explain this cycle? Let's go by parts then. The following graph shows the export volume (expressed in millions of cubic meters per day) during the same period of analysis. It’s clear that the cycle’s "ascending" part is because, among other things, an increase in the volume; after this climbing part this variable stabilized at 15 million cmd.

blog.16.12.30.02

On the other hand, the "descending" part of the cycle is seen in the following figure. In it, I present the unit value of natural gas imports from the Argentine perspective, under normal conditions (which certainly exist), this behavior should also be observed in the unit value of exports from the Bolivian perspective. Note, dear reader, how the prices of the years 2015 and 2016 were well below the "lived" in the past.

blog.16.12.30.03

When international oil prices started their declining phase (and so did the Bolivian gas export prices), there were few voices (in Bolivia’s Government) explaining to the population that such decrease would be offset by an increase in the natural gas production. The data... these stubborn data, tell us that this offset didn’t happen.

Last week we were talking with Santi (my 8 years old son) about the life problems and how to get out of them, while he was trying to tied his shoe’s laces he told me those captivating phrases that children say, without even realizing them: "Dad, everything is a question of will".

An excellent 2017 for all of us, that those pains that sometimes bitter our hearts can be offset with a clear positive attitude towards life, so the cycles... that we live from time to time be more bearable.

Mauricio Medinaceli Monrroy

La Paz, December 30th. 2016.

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Natural Gas Sales from Bolivia to Argentina

(August 5th. 2016)

According the Ministry of Energy and Mining of Argentina (see link) the average monthly natural gas import volumes from Bolivia to Argentina are below contractual agreements, see the black and blue lines of the figure. This situation necessarily involves the activation of contractual clauses between the two countries.

16.08.05

LPG exports from Bolivia

(August 3th. 2016)

According the Natitonal Institute of Statistics in Bolivia (and La Razon newspaper) during 2016 LPG export volumes "nearly tripled" (see link), but the unit export value (say the price) declined by just over 37%. For a national equivalent, in 2015 LPG "export price" was (approximate) Bs 30.4 the balloon of 10 kg and in 2016 this "price" dropped to Bs 19.1. Naturally this decrease occurs because international oil prices fell in recent months.

How can we compare LPG exports value with natural gas exports? Have a look of the data: natural gas exports until June 2016 = 3,036 million US$, LPG exports = 8 million US$.

16.08.03 

Medinaceli Mauricio Monroy

     
     
        
     

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