Identifier
Created
Classification
Origin
05CARACAS3654
2005-12-05 17:18:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

STATOIL'S VIEWS ON HYDROCARBON SECTOR

Tags:  EPET ENRG EINV NO VE 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 003654 

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD

E.O. 12958: DECL: 11/25/2015
TAGS: EPET ENRG EINV NO VE
SUBJECT: STATOIL'S VIEWS ON HYDROCARBON SECTOR


Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 003654

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD

E.O. 12958: DECL: 11/25/2015
TAGS: EPET ENRG EINV NO VE
SUBJECT: STATOIL'S VIEWS ON HYDROCARBON SECTOR


Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (C) SUMMARY: Statoil Venezuela President Thore Kristiansen
(strictly protect) was upbeat on the migration of Operating
Service Agreements to joint venture companies. He believes
Energy Vice Minister Bernard Mommer has shown increased
flexibility in the negotiations and understands the current
weak operational state of PDVSA and the need for
international oil companies (IOCs) in Venezuela. Statoil is
currently in talks about strategic association Sincor's tax
and royalty liabilities as well as future expansion plans.
Statoil has a 15 percent share in Sincor. Kristiansen
admitted that the legal framework for gas could be
interpreted in a strict manner that limits IOCs in the future
but discounted the possibility. He also believes the Faja
region could contain reserves of up to 1.3 trillion barrels
of oil. Even assuming a 20 percent recovery rate, the amount
of oil is staggering. END SUMMARY

--------------
ALWAYS LOOK ON THE BRIGHT SIDE OF LIFE
--------------


2. (C) Petroleum Attach (Petatt) met with Statoil Venezuela
President Thore Kristiansen (strictly protect) on December 2
to discuss the migration of OSAs to joint ventures as well as
Statoil's general views of the Venezuelan hydrocarbon sector.
Statoil has a 27 percent share in the LL-652 OSA, a 15
percent share of the Sincor strategic association with a
production capacity of 200,000 barrels per day of extra heavy
oil and 180,000 barrels of syncrude, and Block 4 of the
Plataforma Deltana gas field. The license for Block 4 was
awarded to Statoil and PDVSA Gas. PDVSA Gas has the right to
participate up to 35 percent in the project after
commerciality is declared.


3. (C) Petatt began the conversation by asking Kristiansen
his thoughts on migration talks between the oil companies
with OSAs and the GOV. (NOTE: The GOV has given the oil
companies until December 31 to sign transition agreements to
migrate their OSAs to joint ventures in which state oil
company PDVSA has controlling interest. After the companies
have signed the transition agreements, they have until March

31 to convert the OSAs to the joint venture companies. END
NOTE) Kristiansen was upbeat in his response. He believes
the majority of the six companies that have not signed the
transition agreements will do so by year end.


4. (C) Kristiansen also claimed the GOV has recently shown
more flexibility in their negotiations with companies with
OSAs. For example, the GOV seems to have modified its
position somewhat on the issue of dividends. When
Kristiansen suggested that it may be better to pay dividends
frequently rather than on an annual basis as required by
Venezuelan law, GOV officials welcomed the idea and began to
look into whether it was possible to do so. Kristiansen
credits this change of attitude to a realization on the part
of the GOV that it would benefit from maximizing the payment
of dividends by joint ventures. He also stated the GOV has
shown increasing flexibility on the all-important issue of
the protection of minority shareholders' rights.


5. (C) Kristiansen appears to believe Energy Vice Minister
Bernard Mommer is far more pragmatic than he is generally
given credit for being. He said Mommer has told him that it
will be at least 15 years before PDVSA has the technical
expertise that it had before the strike. He also said Mommer
views the IOCs as an important check and balance on PDVSA.
As Mommer's writings clearly show, he views the pre-strike
PDVSA as a law unto itself. Mommer does not want a return to
the days when PDVSA told the GOV what to do rather than vice
versa.


6. (C) Kristiansen attributed problems in the migration
negotiations to a lack of planning and organization on the
part of the GOV. He complained about how difficult it was to
schedule meetings with GOV officials since they seem
incapable of keeping to a schedule. He also said it was
clear that no one within the GOV or PDVSA had thought about
the vast number of legal and operational issues that the
migration from OSAs to joint venture companies would entail.
Kristiansen said he views Mommer's direct participation in
the negotiations as a positive since Mommer is detail
oriented and is always punctual. He joked that Mommer
apologizes profusely when he is five minutes late for a
meeting.

-------------- --
SINCOR II -- TOO RICH A PRIZE TO WALK AWAY FROM
-------------- --


7. (C) Rumor has it that Statoil and its partner Total
finally gave up on attempts to expand their Sincor operation.
When asked about Sincor II, Kristiansen replied Statoil was
in parallel negotiations regarding the project. One set of
negotiations dealt with the GOV's imposition of a 30 percent
royalty rate for "overproduction" as well as tax issues. The
GOV has stated it is currently auditing Sincor. However,
Kristiansen said tax authorities have not visited Sincor or
Statoil's offices. He complained he kept a key employee from
attending a prestigious training course that is only offered
once a year in anticipation of the audit. In addition,
Statoil is in intense negotiations with the GOV to greatly
expand the Sincor operation. The Sincor partners want to
greatly expand their upgrading operations as well as secure
another block of the Faja. Kristiansen stated Statoil would
like the Junin 6 block since it is located near the current
Sincor block.


8. (C) When asked about linkages between the two
negotiations and the OSA negotiations, Kristiansen replied
that everything was linked. He explained that this was in
part due to the fact that Mommer was involved in all of the
negotiations. He stated Mommer negotiates in a "German"
manner. According to Kristiansen, Germans like to link all
of the issues together and are adept at finding weaknesses
that they can exploit. As a result, German contracts are far
more detailed and lengthy than common law contracts.
Kristiansen said Statoil did not mind linking all of the
issues since it gave them greater flexibility when it came
time to decide what they were willing to give up in order to
secure deals.


9. (C) Kristiansen ended the discussion on Sincor by
stressing its importance to Statoil. He believes the Faja
could contain reserves of as many as 1.3 trillion barrels of
oil. Even assuming a recovery rate of only 20 percent, the
amount of oil the Faja contains is staggering. Kristiansen
said he believes technology will significantly improve the
recovery rate for the Faja in the coming years.

--------------
IS GAS DIFFERENT?
--------------


10. (C) Although Venezuela's 2001 Hydrocarbon Law places
significant restrictions on IOC's activities in the oil
sector, the 1999 Gas Law permits private sector entities with
the proper license to carry out exploration and production
activities, take title of the non-associated gas at the well
head, own all the project assets, and directly receive the
proceeds of the sale of gas. GOV officials, however, have
made statements that indicate the provisions of the 2001
Hydrocarbon Law should be applied to gas. When asked if he
was concerned that the rules of the game would change for
gas, Kristiansen admitted that it was possible, particularly
given the GOV's policies toward the IOCs recently.


11. (C) He went on to state he did not think the GOV would
apply the Hydrocarbon Law to gas because, as noted above, it
realizes it needs the IOCs. In addition, he believes
Mommer's presence in the GOV will keep it from changing the
rules in the gas sector. Mommer was a key author of both the
Hydrocarbon Law and the Gas Law. Kristiansen said Mommer was
proud of both of his creations and he did not think he would
blithely toss the Gas Law out.

--------------
KRISTIANSEN BIO INFORMATION
--------------


12. (C) Kristiansen is a pleasant, urbane man who speaks
flawless English. He also speaks German and Spanish. He
appears to have a good working relationship with Mommer.
Part of this may stem from his ability to speak German.
Rumor has it that Mommer is most comfortable when he is
negotiating in German. Kristiansen has worked in London and
prior to coming to Venezuela in February, he was stationed in
the U.S. His executive assistant worked at Embassy Caracas
for 23 years. Kristiansen stated he saw a number of
Department of State and Department of Energy officials when
he visited Washington in November for an Institute of the
Americas energy forum. He said the meetings went well and
that he values contact with USG officials. He plans on
visiting the U.S. every six months if possible. He also
welcomed regular contact with Post.




BROWNFIELD