Repsol YPF cuts oil and gas reserves estimate by 25%

By OGJ editors
HOUSTON, Jan. 27 -- Spain's Repsol YPF SA has cut its estimate for proved oil and gas reserves by 1.254 billion boe, a 25% reduction from the yearend 2004 estimate it reported last year.

Repsol YPF cited "changes in the legal and contractual framework" of governments of countries in which it operates, blaming Bolivia's new hydrocarbon law for more than half of the cuts and also noting the conversion of production contracts to joint ventures in Venezuela.

In a move representing 41% of its reserves cut, the company also lowered estimates for its fields in Argentina based on field evaluations and doubts about concession extensions assumed in earlier disclosures.

Repsol YPF's yearend 2004 reserves estimate of 4.926 billion boe included 1.683 billion bbl of liquids.

Natural gas accounts for 71% of the total revisions. That puts Repsol YPF's proved reserves at 65% natural gas and 35% hydrocarbon liquids at the end of 2005.

The revisions are expected to generate an asset impairment charge of less than �50 million. Repsol YPF expects 2005 earnings to be consistent with results for the first three quarters.

An independent review into the circumstances of the revisions is being conducted by the company's audit committee, which was assigned last April the oversight responsibility for reserves control.

The changes
Repsol YPF officials attributed 658.6 million boe of its reserves cut to contractual changes in Bolivia.

The hydrocarbon law adopted last year by Bolivia adds a 32% tax at the wellhead to the existing 18% royalty on production by foreign companies, creates uncertainty about implementing regulations, and tightens restrictions on the company's ability to sell oil and gas, Repsol YPF said.

The company also lowered its estimates of hydrocarbons in place for San Alberto and Sabalo fields and said, "There is inadequate legal certainty to support a commitment to new investment in these fields." It cut the fields' reserves by 526.7 million boe.

For Bolivia's Yapacani, Vibora, and Sirari fields, the company trimmed reserves by 75.1 million boe, saying the new law forced it to suspend planned investments in a gas treatment plant, a pipeline expansion, and other infrastructure. It lowered its estimate of reserves in Rio Grande and nearby fields by 61.1 million boe because of a disappointing production response to workovers.

In Venezuela last year, the government required private companies with independent production contracts to form JVs with Petroleos de Venezuela SA that will give the state oil company majority control of affected projects.

The 32 operating agreements were signed in 1990-97, when Venezuela's petroleum industry, nationalized in 1976, was reopened to private and foreign capital. The objective at the time—when the price of crude was below $10/bbl—was to increase production by low-priority oil fields that had been closed because of their location or states of depletion and which PDVSA had no plans to reactivate.

Although the final terms of the JVs are still being negotiated, Repsol YPF reduced the reserves estimate for its Venezuelan fields by 58.6 million boe. Of that, 52.4 million boe reflects the change in its working interests, mostly in Mene Grande and Quiamare la Ceiba fields.

Argentine cuts
Adjustments to Repsol YPF's reserves in Argentina totaled 509.3 million boe.

The company cut its reserves estimate for Argentina's Loma La Lata field by 251.8 million boe on the basis of pressure declines in 2004 and 2005 indicating that less of the estimated initial gas in place can be recovered. For the yearend 2004 disclosure, it had cut the estimate by 72.6 million boe.

Also in Argentina, Repsol YPF cut reserves estimated for Chihuido de la Sierra Negra oil field by 38.5 million boe because of disappointing production and by a further 35 million boe because of uncertainty about extension of the concession contract.

A material-balance analysis based on new static-pressure observations prompted Repsol YPF to lower its estimate of initial gas in place for Argentina's Ramos field and its reserves estimate by 36.5 million boe.

And the company cut its reserves estimate for Aguada Toledo and Sierra Barrosa fields by 22.7 million boe based on reevaluation of the gas cap. The area is used for underground gas storage during the Argentine summer.

In Algeria, Repsol YPF lowered reserves of Tin Fouye Tabankort field by 17.7 million boe because of high yearend prices lowered its volumetric entitlements under a production-sharing contract.

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