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Repsol YPF downgrades reserves by 25%

SPAIN'S REPSOL YPF has cut its proved oil and gas reserves by 25%, following major downgrades to its South American assets. Europe's fifth-largest oil company said 52% of the downgrades were being made in Bolivia and 41% in Argentina, with the remainder in Venezuela and elsewhere. All told, the reduction amounts to 1.254bn barrels of oil equivalent (boe) – most of it gas.

Repsol YPF blamed the revisions on changes in Bolivian law and on "greater knowledge of certain fields" in Bolivia and in Argentina. As a result, its goal of replacing 100% of its reserves in 2009 could be under threat unless it increases capital spending at a time when commodity and asset prices are high.

Two years ago, Shell admitted to the first of a series of reserves downgrades that resulted in its 2002 proved reserves being cut by 29% and its 2003 reserves by 10%. Since then, the Anglo-Dutch major has struggled to replace its oil and gas production with new resources and has been forced to step up spending to push the rate back towards 100%.

Repsol YPF's Bolivia write-down is partly the result of a new hydrocarbons law, which increased royalties to 50% from 18% last May, which it says has made some projects uneconomic. But worse may be to come. Bolivian President Evo Morales, who took office on 22 January, has said he plans to nationalise energy deposits.

That would have further implications for the Spanish company and for foreign energy firms in general, including Brazil's Petrobras and the UK's BG Group, two of the largest reserves holders in Bolivia. Although a spokesman said BG had "no plans" to downgrade its reserves, he admitted that there are "important issues" to resolve, including private investors' continued right to own resources and the prospect that they may be forced to migrate to new contracts.

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