Identifier
Created
Classification
Origin
05KUWAIT5252
2005-12-26 13:09:00
CONFIDENTIAL
Embassy Kuwait
Cable title:
SAUDI ARABIAN TEXACO CONCESSION IN KUWAIT-SAUDI
how-toVZCZCXRO5870 PP RUEHDE DE RUEHKU #5252/01 3601309 ZNY CCCCC ZZH P 261309Z DEC 05 FM AMEMBASSY KUWAIT TO RUEHC/SECSTATE WASHDC PRIORITY 2307 INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY RUEHLO/AMEMBASSY LONDON PRIORITY 1125 RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 005252
SIPDIS
SIPDIS
LONDON FOR TSOU
RIYADH FOR RICHARD MILLS
DEPARTMENT OF ENERGY FOR IE, MOLLY WILLIAMSON
EB/ESC/IEC FOR GALLOGLY, DOWDY
E.O. 12958: DECL: 12/26/2015
TAGS: ENRG EPET ECON BEXP KU
SUBJECT: SAUDI ARABIAN TEXACO CONCESSION IN KUWAIT-SAUDI
DIVIDED ZONE ON SHAKY GROUND
Classified By: Ambassador Richard LeBaron for reason 1.4 (b)
C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 005252
SIPDIS
SIPDIS
LONDON FOR TSOU
RIYADH FOR RICHARD MILLS
DEPARTMENT OF ENERGY FOR IE, MOLLY WILLIAMSON
EB/ESC/IEC FOR GALLOGLY, DOWDY
E.O. 12958: DECL: 12/26/2015
TAGS: ENRG EPET ECON BEXP KU
SUBJECT: SAUDI ARABIAN TEXACO CONCESSION IN KUWAIT-SAUDI
DIVIDED ZONE ON SHAKY GROUND
Classified By: Ambassador Richard LeBaron for reason 1.4 (b)
1. (C) Summary and Comment: Officials from Saudi Arabian
Texaco (SAT),a subsidiary of U.S. oil company Chevron, told
the Ambassador on December 10 that SAT was concerned about
the Kuwait National Petroleum Company's (KNPC) plans to build
a new refinery in an area adjacent to SAT's compound in the
Mina Al-Zour area within the divided zone between Kuwait and
Saudi Arabia. According to the SAT officials, KNPC is moving
forward with its plans for the location of this refinery,
despite numerous objections by SAT and despite never
providing a response to SAT's requests for more information
on KNPC's plans. SAT claims that the location of this
refinery would impede SAT's future expansion plans, and
legally violates the original concession agreement which gave
SAT the right to veto any property development plans in the
divided zone. The officials told us that they believe that
the GOK's plan for the location of this refinery is designed
to force out SAT as part of a GOK strategy to renegotiate the
entire divided zone agreement with the Kingdom of Saudi
Arabia (KSA).
2. (C) Ministry of Energy Undersecretary Issa Al-Own told
the DCM during a December 24 meeting that the decision to
locate the refinery adjacent to the SAT compound was taken by
the Supreme Petroleum Council (SPC) and that there was "no
way" the refinery would be built elsewhere. He said that,
because it had not heard differently, the GOK was operating
under the assumption that the SAT concession with the KSA
would not be renewed once it expires in 2009. Al-Own said
that the best thing would be for SAT to tell the GOK exactly
what the plans were for the concession and that, if the
concession was going to be renewed, what SAT's plans are for
expansion of its facilities in the divided zone. Given this
information, he explained, they might be able to "find a
middle ground," in terms of minimizing the impact of this new
refinery on SAT. He did not provide any indication that the
refinery location was up for negotiation. (This impression
was confirmed in a brief December 23 conversation between
Ambassador and KNPC Chairman Sami Al-Reshaid.)
3. (SBU) Comment: The SAT concession from Saudi Aramco to
operate the KSA's portion of the divided zone is one of the
few remaining concessions to an IOC in the Gulf region.
While the location of the refinery may impact upon SAT's
expansion plans, the bigger issue is the renewal, or
expiration, of SAT's concession with Saudi Aramco. End
Summary and Comment.
Saudi Arabian Texaco: A Quick Primer
--------------
4. (U) In 1922 Kuwait and Saudi Arabia established a neutral
zone between their two countries and decided to jointly
operate and split the proceeds from any oil and gas fields in
this zone. In 1949 the KSA granted a 60 year concession to
Pacific Western Oil Corporation, which later became Getty,
which was later acquired by Texaco, which later merged with
Chevron. Saudi Arabian Texaco (SAT) is the current name of
the descendent of the original Pacific Western
concession-holder, and is a fully owned subsidiary of
Chevron. This company operates the Saudi portion of the
divided zone, while the Kuwaiti portion was operated by the
state-owned Kuwait Oil Company (KOC) and was recently turned
over to the Kuwait Gulf Oil Company (KGOC),both subsidiaries
of Kuwait Petroleum Corporation (KPC). A Joint Operations
Committee oversees all decisions regarding operations within
the divided zone. SAT has about 420 employees, most of whom
live on an enclosed compound in the Mina Saud area, which is
within Kuwait's administrative border. The divided zone
operations produce a total of about 500,000 bpd of crude.
Dispute Over New Refinery Location
--------------
5. (SBU) According to SAT, the original 1949 concession
agreement stated that the concession holder has the right to
use any property within the concession area if needed for
operations. The 1968 Partition Agreement between the GOK and
the KSA stated that both governments would honor the
obligations included in the original concession agreements.
The SAT executives said that, in the past, these terms have
always been honored by all parties and that any requests for
land use in the divided zone were always presented to SAT and
to KOC, and no land would be allocated for anything until
KUWAIT 00005252 002 OF 003
each party had approved.
6. (SBU) During a December 10 office call on the Ambassador
and DCM, SAT President Ahmed Al-Omer and Assistant to the
President Bryan Tucker raised concerns about the location of
a new refinery planned by the GOK and its impact on SAT.
(Note: The Kuwait National Petroleum Company (KNPC) has plans
to construct a new refinery in Kuwait with a capacity to
handle up to 615,000 bpd of crude. The project is still in
the design phase, with an Engineering, Procurement, and
Construction (EPC) contract expected to be awarded within the
next few months. Fluor is the Project Management Consultant
(PMC).)
7. (SBU) In early 2005, KNPC began looking for a specific
location for its new refinery and was considering a few
location options within the divided zone. In February 2005,
KNPC communicated these options to SAT through KOC, SAT's
partner in the divided zone. SAT objected to KNPC's favored
option, directly outside the SAT compound, because it was in
an area that SAT considered a "reserve area" kept for future
SAT expansion. SAT and KNPC met throughout the Spring of
2005, with SAT remaining firm on its objection to the planned
location of the refinery in SAT's "reserved area." The SAT
executives said that they did not receive any further
communications on the issue until the Fall of 2005, when a
number of articles were published describing KNPC's plans to
build the new refinery at Mina Al-Zour in a location that SAT
considers part of its "reserved area." SAT sent a letter to
the Ministry of Energy restating its objection to the
refinery location but has not yet received a response.
8. (SBU) SAT claims that the location of this refinery would
impede SAT's future expansion plans, and legally violates the
original concession agreement which gave SAT the right to
veto any property development plans in the divided zone. The
SAT executives told us that they believe that the GOK's plans
for the location of this refinery is designed to force out
SAT as part of a GOK strategy to renegotiate the entire
divided zone agreement with the Kingdom of Saudi Arabia
(KSA). (Comment: These executives, and other interlocutors,
have told us that they believe that the GOK would like to
restructure the divided zone agreement with the KSA so that
the GOK operates all of the onshore production and the KSA is
responsible for everything offshore. End Comment.) SAT
believes that its concession to operate KSA's portion of the
divided zone agreement will be renewed when it expires in
2009, and is making expansion plans based on this belief.
However, SAT expansion, including construction of additional
housing units, has been halted pending resolution of the
refinery location issue. They asked the Embassy to approach
the Ministry of Energy to find out the Ministry's views on
the location of the refinery and its impact on SAT.
Min Energy U/S: Renewal of SAT Concession in Doubt
-------------- --------------
9. (C) Ministry of Energy Undersecretary Issa Al-Own told
the DCM during a December 24 meeting that the decision to
locate the refinery adjacent to the SAT compound was taken by
the Supreme Petroleum Council (SPC) and that there was "no
way" the refinery would be built elsewhere. He said that the
best place for the new refinery would be in the Shuaiba port
area, not the Mina Al-Zour area, and that locating it in Mina
Al-Zour would cost the GOK KD 400 million ($1.63 billion)
more for the project. Al-Own said that it had to be in Mina
Al-Zour because of "environmental requirements and other
plans." He also added that "the U.S. military is using the
Shuaiba port area," and the GOK "does not want to kick them
out." Al-Own said that the refinery plans would not affect
the existing area used by SAT for its operations and that it
would only affect a small area at the tip of the SAT
property, "that SAT wants for a golf course."
10. (C) Al-Own linked the refinery location plans to the
expiration of SAT's concession agreement with the KSA in
2009, saying that the GOK was operating under the assumption
that the SAT concession with the KSA would not be renewed and
therefore SAT did not need to worry about any expansion
plans. He said that the GOK had made inquiries to SAT
regarding the plans for the concession but had not gotten any
response. He said that it would not be possible for SAT to
construct any new facilities in the three years remaining on
the concession agreement.
KUWAIT 00005252 003 OF 003
11. (C) Al-Own explained that the GOK could not afford to
wait to build the refinery and had to move forward with its
plans. Given Kuwait's increasing power needs, he said,
Kuwait "needs to have the power plants operating with the
refined product (from the new refinery) in four years." He
added that the refinery "is a non-profit operation" for
Kuwait, and that its sole purpose was to provide Kuwait with
fuel to generate much-needed electricity. He said that it
was "very painful" to have to locate the refinery in Mina
Al-Zour, but that it was Kuwait's "only choice."
The Way Forward: "Finding the Middle Ground"
--------------
12. (C) Al-Own said that the best thing would be for SAT to
tell the GOK exactly what its plans are for the concession
and, should the concession be renewed, what SAT's plans are
for expansion of its facilities in the divided zone. Given
this information, he explained, they might be able to "find a
middle ground," in terms of minimizing the impact of this new
refinery on SAT. "We need to hear about their plans, we've
been open about our plans," he said, adding, "we will
cooperate, but we need information." Al-Own concluded by
saying that the SPC has the final decision on the location of
the refinery and that it was not up to KNPC, KGOC or any
other entity. He did not provide any indication that the
refinery location was up for negotiation.
13. (SBU) The DCM explained to Al-Own that SAT had provided
excellent performance for the KSA and that, unless we hear
differently, our assumption is that the concession will be
renewed. DCM emphasized that SAT brought significant
technical expertise to the divided zone agreement. He
concluded by explaining to Al-Own that our major concern is
that a U.S. company is caught in the middle of this issue.
********************************************
Visit Embassy Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/
********************************************
LeBaron
SIPDIS
SIPDIS
LONDON FOR TSOU
RIYADH FOR RICHARD MILLS
DEPARTMENT OF ENERGY FOR IE, MOLLY WILLIAMSON
EB/ESC/IEC FOR GALLOGLY, DOWDY
E.O. 12958: DECL: 12/26/2015
TAGS: ENRG EPET ECON BEXP KU
SUBJECT: SAUDI ARABIAN TEXACO CONCESSION IN KUWAIT-SAUDI
DIVIDED ZONE ON SHAKY GROUND
Classified By: Ambassador Richard LeBaron for reason 1.4 (b)
1. (C) Summary and Comment: Officials from Saudi Arabian
Texaco (SAT),a subsidiary of U.S. oil company Chevron, told
the Ambassador on December 10 that SAT was concerned about
the Kuwait National Petroleum Company's (KNPC) plans to build
a new refinery in an area adjacent to SAT's compound in the
Mina Al-Zour area within the divided zone between Kuwait and
Saudi Arabia. According to the SAT officials, KNPC is moving
forward with its plans for the location of this refinery,
despite numerous objections by SAT and despite never
providing a response to SAT's requests for more information
on KNPC's plans. SAT claims that the location of this
refinery would impede SAT's future expansion plans, and
legally violates the original concession agreement which gave
SAT the right to veto any property development plans in the
divided zone. The officials told us that they believe that
the GOK's plan for the location of this refinery is designed
to force out SAT as part of a GOK strategy to renegotiate the
entire divided zone agreement with the Kingdom of Saudi
Arabia (KSA).
2. (C) Ministry of Energy Undersecretary Issa Al-Own told
the DCM during a December 24 meeting that the decision to
locate the refinery adjacent to the SAT compound was taken by
the Supreme Petroleum Council (SPC) and that there was "no
way" the refinery would be built elsewhere. He said that,
because it had not heard differently, the GOK was operating
under the assumption that the SAT concession with the KSA
would not be renewed once it expires in 2009. Al-Own said
that the best thing would be for SAT to tell the GOK exactly
what the plans were for the concession and that, if the
concession was going to be renewed, what SAT's plans are for
expansion of its facilities in the divided zone. Given this
information, he explained, they might be able to "find a
middle ground," in terms of minimizing the impact of this new
refinery on SAT. He did not provide any indication that the
refinery location was up for negotiation. (This impression
was confirmed in a brief December 23 conversation between
Ambassador and KNPC Chairman Sami Al-Reshaid.)
3. (SBU) Comment: The SAT concession from Saudi Aramco to
operate the KSA's portion of the divided zone is one of the
few remaining concessions to an IOC in the Gulf region.
While the location of the refinery may impact upon SAT's
expansion plans, the bigger issue is the renewal, or
expiration, of SAT's concession with Saudi Aramco. End
Summary and Comment.
Saudi Arabian Texaco: A Quick Primer
--------------
4. (U) In 1922 Kuwait and Saudi Arabia established a neutral
zone between their two countries and decided to jointly
operate and split the proceeds from any oil and gas fields in
this zone. In 1949 the KSA granted a 60 year concession to
Pacific Western Oil Corporation, which later became Getty,
which was later acquired by Texaco, which later merged with
Chevron. Saudi Arabian Texaco (SAT) is the current name of
the descendent of the original Pacific Western
concession-holder, and is a fully owned subsidiary of
Chevron. This company operates the Saudi portion of the
divided zone, while the Kuwaiti portion was operated by the
state-owned Kuwait Oil Company (KOC) and was recently turned
over to the Kuwait Gulf Oil Company (KGOC),both subsidiaries
of Kuwait Petroleum Corporation (KPC). A Joint Operations
Committee oversees all decisions regarding operations within
the divided zone. SAT has about 420 employees, most of whom
live on an enclosed compound in the Mina Saud area, which is
within Kuwait's administrative border. The divided zone
operations produce a total of about 500,000 bpd of crude.
Dispute Over New Refinery Location
--------------
5. (SBU) According to SAT, the original 1949 concession
agreement stated that the concession holder has the right to
use any property within the concession area if needed for
operations. The 1968 Partition Agreement between the GOK and
the KSA stated that both governments would honor the
obligations included in the original concession agreements.
The SAT executives said that, in the past, these terms have
always been honored by all parties and that any requests for
land use in the divided zone were always presented to SAT and
to KOC, and no land would be allocated for anything until
KUWAIT 00005252 002 OF 003
each party had approved.
6. (SBU) During a December 10 office call on the Ambassador
and DCM, SAT President Ahmed Al-Omer and Assistant to the
President Bryan Tucker raised concerns about the location of
a new refinery planned by the GOK and its impact on SAT.
(Note: The Kuwait National Petroleum Company (KNPC) has plans
to construct a new refinery in Kuwait with a capacity to
handle up to 615,000 bpd of crude. The project is still in
the design phase, with an Engineering, Procurement, and
Construction (EPC) contract expected to be awarded within the
next few months. Fluor is the Project Management Consultant
(PMC).)
7. (SBU) In early 2005, KNPC began looking for a specific
location for its new refinery and was considering a few
location options within the divided zone. In February 2005,
KNPC communicated these options to SAT through KOC, SAT's
partner in the divided zone. SAT objected to KNPC's favored
option, directly outside the SAT compound, because it was in
an area that SAT considered a "reserve area" kept for future
SAT expansion. SAT and KNPC met throughout the Spring of
2005, with SAT remaining firm on its objection to the planned
location of the refinery in SAT's "reserved area." The SAT
executives said that they did not receive any further
communications on the issue until the Fall of 2005, when a
number of articles were published describing KNPC's plans to
build the new refinery at Mina Al-Zour in a location that SAT
considers part of its "reserved area." SAT sent a letter to
the Ministry of Energy restating its objection to the
refinery location but has not yet received a response.
8. (SBU) SAT claims that the location of this refinery would
impede SAT's future expansion plans, and legally violates the
original concession agreement which gave SAT the right to
veto any property development plans in the divided zone. The
SAT executives told us that they believe that the GOK's plans
for the location of this refinery is designed to force out
SAT as part of a GOK strategy to renegotiate the entire
divided zone agreement with the Kingdom of Saudi Arabia
(KSA). (Comment: These executives, and other interlocutors,
have told us that they believe that the GOK would like to
restructure the divided zone agreement with the KSA so that
the GOK operates all of the onshore production and the KSA is
responsible for everything offshore. End Comment.) SAT
believes that its concession to operate KSA's portion of the
divided zone agreement will be renewed when it expires in
2009, and is making expansion plans based on this belief.
However, SAT expansion, including construction of additional
housing units, has been halted pending resolution of the
refinery location issue. They asked the Embassy to approach
the Ministry of Energy to find out the Ministry's views on
the location of the refinery and its impact on SAT.
Min Energy U/S: Renewal of SAT Concession in Doubt
-------------- --------------
9. (C) Ministry of Energy Undersecretary Issa Al-Own told
the DCM during a December 24 meeting that the decision to
locate the refinery adjacent to the SAT compound was taken by
the Supreme Petroleum Council (SPC) and that there was "no
way" the refinery would be built elsewhere. He said that the
best place for the new refinery would be in the Shuaiba port
area, not the Mina Al-Zour area, and that locating it in Mina
Al-Zour would cost the GOK KD 400 million ($1.63 billion)
more for the project. Al-Own said that it had to be in Mina
Al-Zour because of "environmental requirements and other
plans." He also added that "the U.S. military is using the
Shuaiba port area," and the GOK "does not want to kick them
out." Al-Own said that the refinery plans would not affect
the existing area used by SAT for its operations and that it
would only affect a small area at the tip of the SAT
property, "that SAT wants for a golf course."
10. (C) Al-Own linked the refinery location plans to the
expiration of SAT's concession agreement with the KSA in
2009, saying that the GOK was operating under the assumption
that the SAT concession with the KSA would not be renewed and
therefore SAT did not need to worry about any expansion
plans. He said that the GOK had made inquiries to SAT
regarding the plans for the concession but had not gotten any
response. He said that it would not be possible for SAT to
construct any new facilities in the three years remaining on
the concession agreement.
KUWAIT 00005252 003 OF 003
11. (C) Al-Own explained that the GOK could not afford to
wait to build the refinery and had to move forward with its
plans. Given Kuwait's increasing power needs, he said,
Kuwait "needs to have the power plants operating with the
refined product (from the new refinery) in four years." He
added that the refinery "is a non-profit operation" for
Kuwait, and that its sole purpose was to provide Kuwait with
fuel to generate much-needed electricity. He said that it
was "very painful" to have to locate the refinery in Mina
Al-Zour, but that it was Kuwait's "only choice."
The Way Forward: "Finding the Middle Ground"
--------------
12. (C) Al-Own said that the best thing would be for SAT to
tell the GOK exactly what its plans are for the concession
and, should the concession be renewed, what SAT's plans are
for expansion of its facilities in the divided zone. Given
this information, he explained, they might be able to "find a
middle ground," in terms of minimizing the impact of this new
refinery on SAT. "We need to hear about their plans, we've
been open about our plans," he said, adding, "we will
cooperate, but we need information." Al-Own concluded by
saying that the SPC has the final decision on the location of
the refinery and that it was not up to KNPC, KGOC or any
other entity. He did not provide any indication that the
refinery location was up for negotiation.
13. (SBU) The DCM explained to Al-Own that SAT had provided
excellent performance for the KSA and that, unless we hear
differently, our assumption is that the concession will be
renewed. DCM emphasized that SAT brought significant
technical expertise to the divided zone agreement. He
concluded by explaining to Al-Own that our major concern is
that a U.S. company is caught in the middle of this issue.
********************************************
Visit Embassy Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/
********************************************
LeBaron