HOW WILL CHEVRONTEXACO HANDLE BURMA?

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 000457

SIPDIS

STATE FOR EAP/BCLTV, EB
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA
USPACOM FOR FPA

E.O. 12958: DECL: 04/18/2015
TAGS: ENRG ECON PGOV BM
SUBJECT: HOW WILL CHEVRONTEXACO HANDLE BURMA?

REF: A. RANGOON 327

B. 03 RANGOON 574

Classified By: COM CARMEN MARTINEZ FOR REASONS 1.4 (B,D)


1. (C) Summary: The announcement of ChevronTexaco's pending
purchase of Unocal has sparked speculation that the energy
giant will sell its Burma acquisitions. Though there are
strong incentives to do so, especially the possibility of a
consumer boycott and other exile-led pressures, there are
many financial reasons not to divest. The Unocal investment
in Burma is a stable cash cow and a sale would cost millions
in capital gains taxes. If ChevronTexaco does sell, it will
be the end of U.S. investment in Burma. Though this would be
consistent with our sanctions policy, there could be costs on
the humanitarian and diplomatic fronts. End summary.

What Will Chevron Do?


2. (C) Unocal's Burma representative, based in Bangkok,
discussed with the Chief of Mission (COM) on April 7
ChevronTexaco's planned $16 billion buyout of the smaller
energy firm. The acquisition will include Unocal's nearly 30
percent stake in the lucrative Yadana gas field, offshore in
the Andaman Sea. The field, operated by France's Total,
pipes more than 525 million cubic feet per day to Thailand
under a "take or pay" agreement that expires in 2028. Yadana
is a major money earner for the operators: cost-recovery is
complete; the operating partners earn about $500 million per
year in total gross revenues; and low capital investment is
required. The field is quite valuable to the GOB, which
receives upwards of $200 million per year in free cash flow.


3. (C) According to the Unocal rep, ChevronTexaco sent a
letter to his office making it clear that the company had no
intention of selling its Burma stake. However, the
representative acknowledged, this attitude could easily
change should ChevronTexaco begin to take heat from various
Burma lobby groups. Unlike Unocal, ChevronTexaco could be
particularly sensitive to divestment pressure because it has
a large retail arm vulnerable to consumer boycotts. Indeed
the company has already been down this road in Burma. In
1997, after the imposition of a U.S. investment ban, Texaco
(before its merger with Chevron) decided to sell its
controlling stake in the nearby Yetagun gas field -- now
operated quite profitably by Malaysia's Petronas.


4. (C) Another factor that may lead ChevronTexaco to sell is
the outstanding Alien Tort Claims Act (ATCA) case it faces
for previous investments in Nigeria. The rep opined that
ChevronTexaco may not have the stomach to take on another
controversial investment, even though Unocal has already
settled out of court its Burma-related ATCA case.


5. (C) Despite the downsides, though, the financial benefits
of the Yadana field are undeniable. ChevronTexaco would be
taking over a large stake in a $1.1 billion project,
exploiting a field with reserves of roughly 5.5 trillion
cubic feet that is a cash cow -- generating strong revenue
streams for the foreseeable future with only limited ongoing
capital investment needed to maintain production as the field
is gradually depleted. On top of this, the Unocal
representative pointed out, divestment from Yadana would cost
the investor "millions of dollars" in capital gains taxes to
the GOB.


6. (C) If ChevronTexaco decides to divest, the question
remains who would take over the stake. Chinese firms, such
as CNOOC, have been very active in Burma's limited onshore
oil exploration (ref A) and might be very interested in
buying out ChevronTexaco. However, the Yadana gas would not
be available for China's use as it is contracted to Thailand.
More likely, according to the rep, the existing Yadana
partners (Total, Thailand's PTT EP, and Burma's MOGE) would
mop up the available shares in the field. This occurred in
2002, when UK's Premier Oil sold its majority stake in
Yetagun to the field's other existing partners.

Comment: The U.S. Exits, for Better or Worse


7. (C) Comment: If ChevronTexaco decides to divest from Burma
it would remove the last U.S. corporate investor from Burma
and basically eliminate U.S.-facilitated funds going to the
country's military regime. However, the GOB's revenue from
gas would not decline at all, and the windfall of capital
gains tax would give a significant short-term boost to the
foreign-exchange starved SPDC. The departure of a U.S.
investor would also essentially put an end to corporate
responsibility programs in Burma (ref B). Of the few
multinationals in Burma, only Unocal has a major program
outside its area of operation (with HIV/AIDS and community
development programs in the central dry zone). Total does
little humanitarian work outside the pipeline zone, and the
other major energy investors (all Asian) do nothing at all.
Finally, if the last U.S. multinational leaves Burma the
embassy will lose an influential interlocutor with the GOB,
one which in the past has often had better access to some
decisionmakers than have we. End comment.
Martinez