UAE: SUPREME PETROLEUM COUNCIL DELAYS DECISION ON UPPER ZAKUM

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000735

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E.O. 12958: DECL 03/16/2014
TAGS: EPET PGOV BEXP ENRG ECON EINV TC
SUBJECT: UAE: SUPREME PETROLEUM COUNCIL DELAYS DECISION ON UPPER ZAKUM

REFS: A) 04 ABU DHABI 195
B) 02 ABU DHABI 6976 AND PREVIOUS


1. (U) Classified by Ambassador Marcelle M. Wahba, for reasons 1.5 (B)
and (D).


2. (C/NF) Summary and comment: Almost two years after international
oil companies submitted bids, the Abu Dhabi National Oil Company
(ADNOC) on January 27 presented its recommendation for the award of a
28 percent stake of the Zakum Development Company (ZADCO) to Abu
Dhabi's Supreme Petroleum Council (SPC). The SPC did not make a final
decision, and instead short-listed three companies (ExxonMobil, BP and
Shell) and directed ADNOC to seek "further clarification" of these
select bids. Although this latest turn of events was unexpected, we
still believe that U.S. oil giant ExxonMobil is a favorite among most
SPC members. The delay and period of renegotiation probably gives
Shaykh Khalifa time to build consensus for ExxonMobil within the SPC,
and -- contrary to the view of many oil execs here -- is not simply an
effort by the SPC to seek additional financial concessions from the
competitors. End summary and comment.

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Three Companies Short-Listed
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3. (C/NF) ExxonMobil confirmed to Econoff on February 05 that it was
informed in writing of its selection to the final round of bidding for
an equity stake in the Zakum Development Company (ZADCO). ZADCO is one
of Abu Dhabi's two offshore operating companies, and also manages the
Upper Zakum oil concession -- one of the world's largest offshore
reservoirs. ADNOC also sent a letter to U.S. company ChevronTexaco
confirming that Chevron is out of the race. We since have learned that
the SPC also short-listed Royal Dutch Shell and British Petroleum (BP).
It is particularly interesting that the SPC selected BP's individual
bid over its joint bid with TotalFinaElf -- which was considered by
industry insiders to be the stronger of the two bids.


4. (C/NF) ADNOC officials have suggested for many months that
ExxonMobil's technical package is the most impressive -- combining
first-class managerial expertise with proprietary technology and a
commitment to train and employ UAE nationals (a priority for the UAE
Government). A senior shaykh privately told the Ambassador that
Exxon's bid is "unbeatable" in this regard. ExxonMobil's long history
of working with ADNOC and collaborating with its other (foreign)
partners no doubt also bolsters the company's package.

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The SPC Process...As We Understand It
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5. (C/NF) The Ambassador learned that ADNOC CEO Yousef bin Omeir bin
Yousef met with CP Khalifa and HbZ on January 26 to discuss the Zakum
bid. We believe that the purpose of this meeting was to both inform CP
Khalifa of ADNOC's recommendation, and to prepare Khalifa for the
counter-arguments he was likely to hear at the SPC meeting scheduled
for the next day. Although CP Khalifa will take the final decision on
ZADCO, he must consult first with his most trusted advisers and ruling
family. We suspect that Khalifa currently is building consensus among
SPC members for ExxonMobil.


6. (C) Post has observed the emergence of clear alliances within the
SPC during the last several weeks ago in favor of ExxonMobil. CP
Khalifa's advisers probably have consulted with ADNOC CEO Yousef bin
Omeir on next steps. Khalifa trusts bin Omeir to provide impartial and
thoughtful advice, based on the merits of each proposal. In recent
meetings with the Ambassador, both MbZ and Presidential Adviser
Mohammed Harbroush Al-Suweidi intimated that they favored ExxonMobil's
bid. Chamberlain of the President's Court Shaykh Suroor bin Mohammed,
however, is a known advocate for BP, and may have voiced his opposition
regarding the ExxonMobil bid. Also in a recent meeting, the Ruler's
Representative in the Eastern Region Shaykh Tahnoon bin Mohammed seemed
uninformed about Upper Zakum; this tracks with our impression that
Shaykhs Tahnoon and Sultan bin Zayed play marginal roles in SPC
decision-making.

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Next Steps
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7. (C) Throughout the bidding process, the Ambassador has made the
case to the UAE leadership that American companies manage a very low
percentage of Abu Dhabi's lucrative upstream oil sector relative to
European and Japanese companies. European companies (namely BP,
TotalFinaElf, and Shell) account for 69 percent of total international
company participation in the oil sector, Japanese companies account for
18 percent, and U.S. firms represent a mere 13 percent of foreign
participation. ExxonMobil's foreign competitors have sought to augment
their presence in the UAE through intense lobbying of SPC and ADNOC
officials in recent months. During a visit to the UAE in February,
French Foreign Minister Dominique de Villepin reportedly lobbied on
behalf of French oil firm TotalFinaElf with Crown Prince Khalifa bin
Zayid, UAE Armed Forces Chief of Staff and Abu Dhabi Deputy Crown
Prince Mohammed bin Zayid (MbZ),and UAE Deputy Prime Minister Hamdan
bin Zayid (HbZ).


8. (C) ExxonMobil has enlisted the Embassy's help to move this process
forward, although ADNOC has not yet contacted ExxonMobil with
requirements or requests for further information regarding its bid. We
will continue to advocate on Exxon's behalf with SPC members. Visits
to the UAE of U.S.-based senior ExxonMobil executives will compliment
this effort.

Wahba