OIL INDUSTRY REPS ON POTENTIAL PRODUCTION

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001872

SIPDIS

STATE FOR EB/ESC/IEC/EPC

E.O. 12958: DECL: 04/27/2015
TAGS: EPET ENRG ECON TC
SUBJECT: OIL INDUSTRY REPS ON POTENTIAL PRODUCTION
INCREASES, ILSA

Classified By: Ambassador Michele J. Sison for reasons 1.4 (B and D)


1. (C) Summary: Western oil executives told Ambassador, at
an energy roundtable, about Abu Dhabi plans to add 200,000
barrels per-day capacity over the next two years in onshore
production and 150,000 capacity in the near term offshore.
They agreed that Saudi ARAMCO would be able to meet Saudi Oil
Minister Naimi's April 22 pledge to increase production
capacity. The oil executives highlighted worldwide material
and personnel capacity constraints that would affect the
industry's ability to expand production rapidly. They also
complained about the impact of ILSA on their ability to work
in Iran. End Summary.


2. (C) During an April 26 American Business Group energy
roundtable with Ambassador, representatives from several
international oil companies discussed Abu Dhabi's plans to
expand oil production capacity over the next few years.
According to Exxon Al-Khalij President Frank Kemnetz, Abu
Dhabi plans to expand its onshore oil production by 200,000
barrels per-day over the next two years, bringing the total
onshore production capacity to 1.4 mb/d. Abu Dhabi Marine
Operating Company (the production company subsidiary of ADNOC
responsible for offshore production) General Manager Bud
Fackrell said that ADMA/OPCO had plans to expand production
capacity by 150,000 barrels per day and was being asked to
examine the feasibility of increasing capacity by an
additional 200,000 barrels per day. Fackrell noted that some
of these plans had been "on the table" for a few years, but
there was increasing pressure from the Supreme Petroleum
Council (SPC) and Abu Dhabi Crown Prince Sheikh Mohammed bin
Zayed to increase production capacity. ADNOC, he said, was
trying to be responsive to SPC desires.


3. (C) The representatives also briefly discussed Saudi Oil
Minister Ali Naimi's April 22 commitment to increase
production capacity to 12.5 mb/d by 2009 and the "near term"
potential of Iraq. The general consensus was that the Saudis
tended to estimate conservatively the amount of oil
production that they could bring on line, and that they would
be able to meet the pledge (although the timeline might be
slightly optimistic). Some oil executives noted that foreign
participation would help ARAMCO add capacity more cheaply and
more quickly, but acknowledged that ARAMCO was fully capable
of acting on its own. They were more skeptical about Iraq's
ability to rapidly increase production. David Muller of
Safar Oilfield Services opined that there was no
infrastructure in Iraq to drill new fields and that the
current oil infrastructure was "literally held together with
bailing wire."


4. (C) The oil and oil services company executives
highlighted physical and personnel constraints that could
impede rapid increases in capacity in the Gulf and world
wide. They noted the limits in drilling rigs and in steel
and tubing, which was a change from the situation a few years
earlier. They also highlighted the lack of trained petroleum
engineers and geologists. One company executive noted that
the big gas projects in Qatar were driving up his cost of
employment and all complained about the lack of qualified
engineers to "backfill" for older engineers who were nearing
retirement age. Fackrell noted that many of the petroleum
engineering programs in the United States (including the one
from which he graduated) were closed. Fackrell also said
that there were practices specific to ADNOC that hindered its
ability to rapidly increase capacity. He explained that
ADNOC's procurement people "distrusted" suppliers and
consistently slowed down procurements to be sure that they
got the best price, not coincidentally slowing down projects.
Fackrell and Kemnetz also noted that, because ADNOC had had
spare capacity for several years, the "technocrats" took a
very conservative attitude about reservoir management and
potential expansion plans. They would not present any
projects to the SPC that might threaten future production
capacity. What the International Oil Companies shareholders
in ADNOC were trying to do was to convince ADNOC to present
the SPC with a complete set of options (i.e., we can expand
production by 200,000 barrels per day quickly, but risk
production declining after a few years or we can expand
production by 100,000 barrels per day and it will be
sustainable for 20 years.) The IOC's think that ADNOC
technocrats are being too conservative and want to present
the SPC with all of the options. Fackrell said that he
thought ADNOC was moving in that direction, but hadn't gotten
there yet.


5. (C) Oil company representatives complained about the
impact of ILSA on their ability to operate in Iran. One
executive opined that the only effect of ILSA on Iran was to
benefit the French. Ambassador stressed long-standing USG
opposition to investment in Iran's energy sector and noted
that ILSA, which provided for sanctions for certain such
investments, remains U.S. law. The U.S. continued to be
deeply concerned about Iranian policies and actions,
particularly Iran's nuclear activities and its ongoing
support for terrorism. On the FTA, most executives said that
they would prefer to see the agency problem resolved,
although a vocal minority, with agencies, noted that agency
agreements were a two way street. The group then briefly
discussed Abu Dhabi Emirate's plans to turn Abu Dhabi into a
regional oil services center and a regional "clean energy"
center.
SISON