YEMEN HUNT LOOKING FOR DEAL ON BLOCK 18 EXTENSION,

C O N F I D E N T I A L SANAA 001282

SIPDIS

E.O. 12958: DECL: 05/09/2015
TAGS: EPET ECON EINV YM ECON COM ENERGY
SUBJECT: YEMEN HUNT LOOKING FOR DEAL ON BLOCK 18 EXTENSION,
BUT ROYG DOOR REMAINS CLOSED

REF: SANAA 966

Classified By: Ambassador Thomas C. Krajeski for reasons 1.5 b and d.


1. (C) Summary. On May 7, Ambassador met with
representatives of Yemen Hunt to discuss developments in the
ongoing drama of the Block 18 extension (reftel). The ROYG
officially confirmed the cancellation of its agreement with
Hunt, endorsing Parliament's decision to explore a more
profitable arrangement for Block 18. Hunt continues to
prepare its case for litigation, suggesting that a high
profile lawsuit may affect severely Yemen's plans for natural
gas export. Although Hunt would still prefer to reach a deal
with the ROYG, at this time it seems unlikely. End Summary.

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ROYG Makes Rejection Official
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2. (C) Ambassador met Wyndell Caviness, Vice President and
General Manager of Yemen Hunt Oil, on May 7 to discuss recent
developments in the Block 18 extension. Since the
Ambassador's April 13 meeting with Hunt, Caviness conferred
with presidential advisor Abdulkarim al-Iryani several times.
For a brief period, said Caviness, President Saleh appeared
ready to negotiate the extension anew, but discussions with
the ROYG have broken down again. Caviness said that Yemen
Hunt received an official letter from the Ministry of Oil
(MOO) May 2, confirming that the Cabinet officially endorsed
Parliament's decision not to grant the extension, canceling
the 2003 decree in which it was originally endorsed by
Cabinet.

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Springtime in Paris, Hunt Looks to Sue
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3. (C) Hunt is continuing forward with legal options against
the ROYG, and has contracted the services of Baker Botts LLP,
based in London, to handle their case. Jim McVail, Yemen
Hunt's staff attorney, explained that any litigation would
take place at the ICC in Paris, where it would be decided by
international judges according to the laws of Yemen.
Caviness believes that a high profile case is likely to harm
prospects for the pending liquid natural gas (LNG) agreement
(reftel). The perception that the ROYG violates agreements
with foreign companies, said Caviness, may be enough to scare
off necessary international financing for the project. There
are additional rumors, continued Caviness, that Parliament
may review the LNG deal as well, which is scheduled to be
finalized in early July. As with the Hunt extension, some
MPs believe the ROYG negotiated a bad deal at 3 million USD
per metric ton, considering the world average at 7 million
USD, and want to renegotiate.


4. (C) With its rejection of the extension, Parliament
ordered MOO to contract a consultant to study from scratch
the most profitable strategy to manage Block 18. According
to Caviness, MOO has given the responsible committee between
two and three weeks to accomplish this task. In his
estimation, a study of this type should take as long as a
year. With Hunt's agreement scheduled to terminate November
15, the ROYG is pressed for time. Caviness speculated that
MOO, which has repeatedly supported the Hunt extension, may
be offering Parliament an olive branch while leading them
back to Hunt as the best possible choice given the
constraints.

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"We're trying to leave a door open"
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5. (C) Summary. Despite Hunt's preparations for litigation,
it is clear that the company would still prefer to strike a
deal. "We're trying to leave a door open for Saleh," said
Caviness, but for the time their overtures remain unrequited.
McVail's ROYG contacts believe that the government is
playing a game with Hunt, but it is not clear what the rules
are or what they hope to win. It is possible that MOO's
consultant will indicate that Hunt remains the best option
for Block 18, while trying to squeeze a more advantageous
deal from the company to placate Parliament. Nevertheless,
the threat of litigation remains real and threatens to poison
the investment climate as a whole. End summary.
Krajeski