(U) PROJECT KUWAIT: CHEVRONTEXACO BRIEFS SPECIAL

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000295

SIPDIS

STATE FOR NEA/ARP, EB/ESC
EB/CBA J. FRANK MERMOUD
USDOC FOR 4520/ITA/MAC/OME

E.O. 12958: DECL: 01/25/2014
TAGS: EPET ETRD EINV KU IZ
SUBJECT: (U) PROJECT KUWAIT: CHEVRONTEXACO BRIEFS SPECIAL
REP. MERMOUD

Classified By: CDA Frank C. Urbancic for reason 1.4 (d)


1. (C) Summary: Special Representative for Commercial and
Business Affairs J. Frank Mermoud met with ChevronTexaco
Kuwait Manager Hani Iskander on January 13. During the
course of their conversation, the two discussed the status of
Kuwait's long-delayed northern oilfields project (Project
Kuwait) and ChevronTexaco's involvement in reconstruction
efforts in Iraq. End Summary.


2. (C) In a frank discussion on January 13, ChevronTexaco
Kuwait Manager Hani Iskander shared the history of his
company,s current presence in Kuwait and details of GOK's
announced plans to further develop Kuwait's northern
oilfields. (Note: The 5 northern oilfields, 2 of which
straddle the Iraqi border, have estimated reserves of 7
billion barrels. End Note.) Since 1994, ChevronTexaco has
held a contract for the management of Kuwait's Burgan oil
field - the second largest in the world - and maintains a
total presence of 40 employees in Kuwait. Iskander described
the contract as a "stepping stone" the company was hoping
would pay off if and when Kuwait finally decides to implement
plans to upgrade its northern oil fields.


3. (C) Iskander said ChevronTexaco wrote the first proposal
for Project Kuwait in 1998. He said its structure was well
received and has since been largely adopted by the GOK. The
proposal called for an operating services agreement whereby
the winning company would invest heavily in upgrading the
technology of the northern fields and receive a fixed fee for
each barrel pumped. ChevronTexaco estimates this arrangement
could double production on the three northern oilfields
within four years.


4. (C) Iskander said the delay in the project, which has yet
to be officially tendered, is due to a dearth of vision
amongst Kuwait's leadership, opposition in the National
Assembly to subjecting national petroleum assets to any real
or perceived foreign influence and a blase attitude toward
reserves. Iskander estimates that despite official
statistics asserting Kuwait has pumped half of its oil
reserves, that in fact less than 1/3 remains. (Note: At
current production levels, it is officially estimated by the
GOK that Kuwait has up to 100 years of reserves remaining;
Iskander believes this is a very inflated estimate. End
Note.) Adding to this is the tribal nature of Kuwaiti
society, which can lead to great inefficiency. Iskander said
a high-ranking Kuwait Petroleum Company (KPC) executive
recently confided to him that he spends 40% of his time on
personnel issues (i.e. job requests) driven by tribal
interests.


5. (C) Chevron leads a bidding consortium of companies to bid
on the project that includes Total, Petro-Canada, Sibneft,
Sinopec and itself. Its main competitor on the project is
BP, which he said now claims to be a US company, on account
of its US holdings, in an effort to obtain official USG
advocacy (or neutralize advocacy on behalf of ChevronTexaco).
Asked who was the ultimate arbiter in deciding if and how
Project Kuwait would move forward, Iskander unequivocally
named Prime Minister Shaykh Sabah Al-Ahmed Al-Sabah. He
noted that both Secretary of Commerce Evans and Secretary of
Energy Abraham had delivered letters to Shaykh Sabah in the
summer of 2003 asking for action on the project. According
to Iskander, "the response was 'yes, we're moving." However,
there has been no further action.

Iraq


6. (C) On ChevronTexaco's plans for possible involvement in
Iraq, Iskander said the company had already rented a house in
Baghdad and hired an Arabic-speaking British counter
terrorism analyst to monitor the security situation inside
the country. Iskander said he had met with Iraqi Oil
Minister Bahr al-Oloum and agreed to assist the Ministry in
technical matters, but will not move any substantial number
of employees there until the security situation improves and
a legal infrastructure is established (i.e. not until after a
sovereign Iraqi government takes over).


7. (C) Despite these prerequisites, Iskander said
ChevronTexaco does plan to have a long-term presence in Iraq.
The company has sent 12 Iraqis to Houston for extensive
training and plans to send 3 to California annually for
training at ChevronTexaco facilities there. Responding to a
request from Mr. Mermoud to publicize these training
programs, Iskander promised to contact his headquarters and
provide an answer soon.


8. (U) Mr. Mermoud was not able to clear on this cable before
departing.
URBANCIC