OIL INDUSTRY CONTACTS TALK INVESTMENTS, PROJECT

UNCLAS SECTION 01 OF 03 KUWAIT 005081

SIPDIS

SENSITIVE
SIPDIS

LONDON FOR TSOU
DEPARTMENT OF ENERGY FOR IE, MOLLY WILLIAMSON
EB/ESC/IEC FOR GALLOGLY, DOWDY

E.O. 12958: N/A
TAGS: ENRG EPET ECON BEXP PINR KU
SUBJECT: OIL INDUSTRY CONTACTS TALK INVESTMENTS, PROJECT
KUWAIT, AND MANAGEMENT CHANGES

REF: KUWAIT 4770

This cable is sensitive but unclassified; please protect
accordingly. Not for Internet distribution.


1. (SBU) Summary and Comment: In the first two weeks of
December, Econ Officer heard from a number of oil industry
contacts that, while the GOK and the Kuwait oil industry are
serious about investment in increasing upstream and
downstream capacity, a bottleneck remains in bringing
concepts to fruition. While many contacts said that Kuwait's
recent public announcement of $44 billion in new investment
by 2020 was a bit ambitious, other contacts were of the
opinion that Kuwait could absorb at least that amount and
more, if contracting could just move faster. Most oil
industry contacts said that the Kuwait Project law would
likely pass the National Assembly, if it comes up for a vote
on January 16th as the GOK has requested. Whether the IOCs
will be satisfied with the terms presented to them after that
remains to be seen. One oil industry analyst with a long
history and good contacts with the KPC hierarchy offered his
candid assessment of expected management changes at KPC,
specifically noting the lack of "visionaries" in the field of
managers and executives among those expected to ascend to the
top leadership posts in the next few years.


2. (SBU) Comment: Kuwait's recent announcements of
investments and certain statements by Minister of Energy and
current OPEC President Shaykh Ahmad Fahd Al-Ahmad Al-Sabah
come on the heels of the visit by the U.S. Secretary of
Energy to Kuwait, and the Secretary's requests for such
statements from the leading oil producers (reftel). We hope
to see further statements after the OPEC meeting this week in
Kuwait. End Summary and Comment.

$44 Billion In New Investments?
--------------


3. (U) The GOK, through the Ministry of Energy (MoE) or
Kuwait Petroleum Corporation (KPC),has made various
statements over the past year regarding plans to increase
upstream and downstream capacity. The latest came from MoE
Undersecretary Issa Al-Own, who told reporters on December 8
that Kuwait has earmarked more than $44 billion over the next
15 years (or about $3 billion per year) to upgrade its oil
facilities. This is part of KPC's "2020" plan, which aims to
boost production from the current 2.5 million bpd to 4 mbpd
by 2020.


4. (SBU) Econ Officer spoke with a number of well-placed oil
industry contacts to gauge the reality behind this ambitious
investment program. Some contacts said that the number
appeared high, but that the focus should not be on the amount
pledged for new investments but whether KPC could eliminate
some of the bureaucracy needed to move forward on these
projects. Most contacts agreed with this sentiment, and many
questioned whether KPC and the MoE had the capacity to
actually see all of these projects through to completion.


5. (SBU) Kamel Harami, an oil analyst who used to work for a
KPC subsidiary and is still well-connected with the KPC
leadership, said that he thought that the $44 billion figure
was actually a conservative estimate and that the Kuwait oil
industry could actually absorb more than the $3 billion a
year in new upstream and downstream investments that KPC
envisions in its 15 year plan. He also cited the contracting
approval process as the bottleneck, noting that in some cases
"it takes 35 signatures just to get a small contract
awarded."

Kuwait Project Up For January 16 Vote
--------------


6. (SBU) According to December 7 news reports, the GOK has
requested that the National Assembly hold a January 16 vote
on the enabling law for the participation of foreign
international oil companies (IOCs) in the development of
Kuwait's northern oilfields (Kuwait Project). This follows a
December 3 decision by the Assembly's new Financial and
Economic Affairs Committee to refer the law to the full
Assembly, and not review it again as some MPs had requested.
Most oil industry contacts believe that the votes exist for
the passage of the law, but they question whether the IOCs
will be satisfied with the terms. Harami, the former KPC
employee and current oil analyst, said that he had just heard

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that Kuwait's State Audit Bureau, acting on the request of
National Assembly Speaker MP Jassem Al-Khorafi, had submitted
a briefing on the project which includes some questions about
the constitutionality of the enabling law. He said that he
did not think that this would hold up the parliamentary
debate, but that it would likely be included in any debate.


7. (U) On December 10, on the opening day of the second
annual Kuwait International Petroleum Conference &
Exhibition, organized around the theme "Meeting Future
Demands Through Wise Decision," ExxonMobil Exploration
Company Vice President Rick Vierbuchen made a direct case for
the Kuwait Project in his keynote address. He noted that the
purpose of bringing in IOCs was not to share what Kuwait was
currently producing with foreign companies, but to expand the
total value of resources that Kuwait could produce, and then
give those companies a fair rate of return for doing so.
Vierbuchen also pointed out to the audience that ExxonMobil
and its partners in its Kuwait Project consortium (Shell,
ConocoPhillips and Maersk) together spend about $1 billion a
year on research and development (R&D). If this spending
continued, which Vierbuchen projected it would, then
throughout the twenty-year life of the project, this
particular consortium would also be contributing its $20
billion in R&D to the project.


8. (SBU) Vierbuchen's address was followed by a presentation
by oil analyst Kamel Harami, who also supported the Kuwait
Project and offered a number of justifications for its
passage. In a private conversation with Econ Officer, Harami
said that he believed the law would pass, and he said that he
did not think it would have a chance of passing through the
National Assembly under any other Energy Minister except for
the current one. He also said that the Kuwait Project
division within KPC was "losing people" and having a hard
time retaining some of the employees that had come there from
other KPC divisions.

Changes At The Top
--------------


9. (SBU) Harami also privately shared with Econ Officer his
assessment of the top leadership at KPC and the Ministry of
Energy and of potential changes in the next year or two. He
said that Ministry of Energy Undersecretary Issa Al-Own's
term has expired but that he is "being kept by the Minister
until a suitable replacement could be found." He was not
sure why Al-Own is still around, "because certainly there are
suitable replacements available," but he did not want to
speculate on how long Al-Own would remain in his position.
Harami, formerly President of the KPC subsidiary Kuwait
Petroleum International (KPI) is much more familiar with the
KPC structure than with the Ministry. He said that KPC CEO
Hani Hussain "might stay on until his term expires in
September" but wanted out by the end of this year. He said
that Hussain, like his predecessor Nader Al-Sultan and like
Kuwait's OPEC Governor Siham Al-Razzouqi, is a "visionary"
but that the next level of leadership within KPC is "light"
and does not have similar people as qualified.


10. (SBU) Harami said that Petrochemical Industries Company
(PIC) Chairman Saad Al-Shuwaib is the most likely successor
to replace Hussain in the CEO position at KPC, but that he is
"not as well-rounded" as Hussain, given that Al-Shuwaib's
entire career has been with PIC. (Note: Hussain worked his
way up the chain through a number of different KPC
subsidiaries, including PIC, Kuwait National Petroleum
Company, and the KPC Marketing division.) He said that KOC
Chairman Farouk Al-Zanqi could also be in the running for the
KPC CEO job, but that he might move to lead the Kuwait
Project division if current Kuwait Project Managing Director
(and former KOC Chairman) Ahmed Al-Arbeed leaves.


11. (SBU Harami explained that while Al-Arbeed might have
also been a contender for the KPC CEO job, he is "currently
on the outs with the Minister," because of his involvement in
the Dana Gas company, based in the U.A.E. He said that
Al-Arbeed had gotten involved in the U.A.E.-based publicly
traded company without the Minister's permission, and that he
might leave the Kuwait oil industry completely and go into
the private sector. (Note: Al-Arbeed is on the Board of
Directors of Dana Gas. The company was established in
Sharjah in September 2005 and was initially listed on the Abu
Dhabi Stock Market.)


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