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Energy Companies Cautious After Bolivia Nationalizes Oil, Gas Industry

International energy companies with projects in Bolivia are taking a cautious approach to the move made by Bolivian President Evo Morales Monday to nationalize his nation's oil and gas industry. The nationalization is especially troublesome for neighboring Brazil.

The Bolivia situation has been a hot topic of discussion at the Offshore Technology Conference here in Houston, especially among representatives of the 20 foreign companies that have been working in Bolivia. The nationalization is seen as a particular blow to Brazilian President Luiz Inacio Lula da Silva. He had tried to dissuade President Morales from taking such a drastic step in hopes of forming a moderate leftist alliance in Latin America. Brazil's state-owned oil company, Petrobras, was one of the companies working in Bolivia.

Petrobras President Jose Sergio Gabrielli flew back to Brazil from Houston Monday after learning of the Bolivia nationalization. In an interview with Brazil's Globo TV he said the new conditions set by the Morales government make gas operations practically impossible in Bolivia. But the company's Director of Exploration and Production, Guilherme Estrella, told reporters here in Houston Tuesday that Petrobras would discuss the new arrangement with the Bolivians in the months ahead.

"Bolivia and Brazil, we have common interests. They have to produce gas and they need that we buy the gas, their gas. So there is common interest between Bolivia and Brazil," said Estrella. "There is no panic. We are not afraid to initiate a conversation with the Bolivian government."

Off the record, however, Brazilian officials here were less nonchalant about the Bolivian move, expressing irritation and frustration with the Morales government, echoing Brazilian Energy Minister Silas Rondeau's characterization of Bolivia's move as an unfriendly action.

Analysts familiar with Brazil's energy sector say the Bolivian action is a blow to Brazil's energy strategy as well as its moves towards regional integration. Brazil imports more than half its natural gas from Bolivia and prices are expected to rise as a result of the nationalization.

Under the previous arrangement, Petrobras and other foreign companies shared in the profits from gas field production, but under the new arrangement they could be left operating the fields under contracts, with all oil and gas being claimed by Bolivia's state-owned company.