POLISARIO SELLING OIL EXPLORATION PERMITS IN

C O N F I D E N T I A L RABAT 001177

SIPDIS

DEPT FOR NEA/MAG AND EB/ESC

E.O. 12958: DECL: 06/06/2015
TAGS: EPET PBTS MO WS
SUBJECT: POLISARIO SELLING OIL EXPLORATION PERMITS IN
WESTERN SAHARA

REF: A. RABAT 0658

B. RABAT 1095

Classified By: Economic Counselor Michael Koplovsky, for reasons 1.4 b
and d.


1. (C) Summary: The Polisario "government" of the putative
Saharawi Arab Democratic Republic (SADR) has issued a call
for bids on oil exploration licenses over the length of the
Western Sahara territory, including offshore zones where U.S.
firm Kerr McGee has been operating under Moroccan licenses
for several years. The SADR has advertised the sale on a
highly sophisticated website complete with state-of-the-art
geological data and contract licensing documents. The bids
are due on October 31, 2005. The 12 offshore blocks being
auctioned off by the Polisario cover entirely the block
granted by the Government of Morocco to Kerr McGee in 2001
(Ref A). Kerr McGee Morocco general manager John O'Brien
(protect) told Econoff on June 7 that his company extended
its existing offshore reconnaissance permit with the GOM in
April, and is in "wait and see" mode. Deputy Foreign
Minister Taieb Fassi-Fihri flagged the call for bids as an
example of Polisario provocation in a May 23 meeting with P-5
ambassadors (Ref B). End Summary.


2. (C) Kerr McGee's John O'Brien, an oil executive with
decades of experience, wistfully noted the site
(www.sadroilandgas.com) was "substantially more
sophisticated" than the Moroccan Government's Hydrocarbons
Office (ONHYM) webpage. He said the geological data and
mapping contained on the page are accurate and up-to-date,
and contains sophisticated petroleum contracting language.
O'Brien said it is clear the SADR has hired professional
western consultants to design the site, who he suspects came
from an Australian company which was a former competitor to
Kerr McGee (KM) in Western Sahara. The address listed on the
site for the "SADR Petroleum Authority" is a post office box
in New South Wales, Australia.


3. (C) The SADR website refers to an "intervening period"
before contracts will come into effect, saying "certain
conditions relating to sovereignty must be satisfied before
the first exploration period can commence." This means any
SADR contract will immediately enter into abeyance upon
signing until the political situation is resolved. O'Brien
believes oil companies may seek to purchase lots from the
SADR at a substantial discount, given the political
uncertainty involved. He said many smaller companies are
risk-taking ventures, and surmised that the SADR would accept
highly discounted sums of money given its tenuous hold on the
territory.


4. (C) Kerr McGee has been operating on a reconnaissance
permit for its Western Sahara (WS) block for over three
years. Its permit was set to expire on April 29, and O'Brien
expected to convert immediately to an exploration permit that
would allow the company to drill exploratory wel ls. Just
days before the contract end date, U.S.-based Kerr McGee
management instructed O'Brien to extend the recon permit for
another six months, to give the company more time to see how
the political situation evolves.


5. (C) The SADR website declares KM's activities in the WS
"illegal," saying "The SADR government will consider all
options to deter any such illegal and provocative action."
Meanwhile, Kerr McGee believes a legal opinion written by UN
Under Secretary General for Legal Affairs Hans Corell in
January 2002 declares KM's reconnaissance permit legal, since
resource extraction is not involved. O'Brien said the
company was eager to convert its recon permit into an
exploration permit (the next step before seeking a
commercialization license),but decided to extend the
reconnaissance permit for an additional six months while they
await legal clarification over the territory's status. The
Kerr McGee GM wondered aloud to Econoff whether his company
had made the right decision in buying its permits from the
GOM: "Certainly we have taken a side here with the party we
think will win out in the end," he said. "But were we
correct? Did we go with Goliath when David may eventually
win?"
RILEY