HUNT OIL READY TO SUE ROYG IN INTERNATIONAL PUBLIC

C O N F I D E N T I A L SANAA 001597

SIPDIS

E.O. 12958: DECL: 06/15/2015
TAGS: PREL PGOV ECON EAID EPET KMCA KMPI YM ECON COM ENERGY
SUBJECT: HUNT OIL READY TO SUE ROYG IN INTERNATIONAL PUBLIC
COURT

REF: A. SANAA 1571

B. SANAA 1511

Classified By: DCM Nabeel Khoury for reasons 1.4 b and d.


1. (C) Summary. Neither side is backing down in the dispute
between headline American company Hunt Oil and the ROYG over
the cancellation of Hunt's five-year extension to operate
lucrative block 18 in Maarib. Ambassador briefed Yemen Hunt
head Wyndell Caveness following his meeting with President
Saleh to encourage the ROYG to settle its dispute with Hunt
before it reaches litigation (refs A and B). Ambassador told
Caveness that Saleh held firm to the ROYG's stance that Hunt
must recompete for the concession when the PSA expires in
November. Caveness replied that Hunt's position is clear --
it will sue the ROYG rather than enter into new negotiations
over block 18. End Summary.

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ROYG Remains Firm...
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2. (C) Ambassador briefed Caveness on his June 9 meeting with
Saleh, saying he warned the President that litigation with
the only major U.S. company in Yemen was not serve Yemen's
interests (ref A). Saleh's recounted the ROYG's position,
Ambassador told Caveness, that the "old deal is dead," and
insisted that Hunt must bid on a new PSA with new conditions.
He also passed along to Caveness Saleh's message to Hunt
that if it recompetes for block 18 "Hunt will have the
priority."

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...Hunt Will Not Back Down
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3. (C) Caveness reiterated Hunt's position: The company would
prefer to avoid litigation; is willing to revisit the
economic details of its 2004 extension agreement with the
ROYG; but, it will not negotiate anew. If the ROYG opens
block 18 to other operators in November, said Caveness, Hunt
will take the ROYG to court for violating a legally binding
contract.

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Another U.S. Company Steps In
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4. (C) Caveness told Ambassador that he believes ROYG's moves
to cancel the PSA extension date back to Saleh's 2004 visit
to the U.S. to attend the BMENA Sea Island meeting. He said
that during that visit Saleh met with representatives of
Occidental Oil has ever since wanted Occidental in and Hunt
out. (Note: this is in line with Saleh's statement to
Ambassador on June 9 that "no matter what, it will be an
American company" in block 18. End Note).

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Oil Will Still Flow, But Not Gas
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5. (C) Ambassador asked what might be the production loss for
Hunt and Yemen if the case goes to the International Public
Court in Paris for arbitration. Block 18 revenues would be
held in escrow, said Caveness, but Hunt is willing to
continue to operate for as long as the ROYG requests. As for
the future of the LNG project, Caveness believes a court case
over block 18 would kill the deal, not because Hunt would
back out in retribution, it would not, but because the
financing would dry up.
Krajeski