PDVSA PUSHES FOR MORE CONTACT WITH USG

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 001363 SIPDIS SIPDIS ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD E.O. 12958: DECL: 11/25/2015 TAGS: EPET ENRG EINV VE SUBJECT: PDVSA PUSHES FOR MORE CONTACT WITH USG REF: A. SECSTATE 46183 ¶B. MCMANUS-FLATT E-MAIL 3/17/06 ¶C. 2005 CARACAS 03260 ¶D. CARACAS 01238 Classified By: Acting Economic Counselor Shawn E. Flatt for Reason 1.4 (D) ¶1. (U) Action requested. Please see paragraph 11. ¶2. (C) SUMMARY: PDVSA Vice President Luis Vierma suggested that senior USG and PDVSA officials meet on a regular basis to discuss a wide variety of energy issues. He also offered to host a week long visit for Departments of State and Energy officials as well as Congressional staffers to key Venezuelan production sites so that they can see improvements in the Venezuelan hydrocarbon sector. Vierma also requested assistance in training PDVSA staff. Finally, he gave an overview of PDVSA's ambitious plans to produce drilling rigs in Venezuela in conjunction with China National Petroleum Corporation (CNPC). END SUMMARY -------------- LETS GET TOGETHER FOR A CHAT -------------- ¶3. (C) Petroleum Attache (Petatt) met with PDVSA Vice President for Exploration and Production Luis Vierma on May 15 to discuss in part Vierma's mid-March visit to Washington (Reftels A & B). Vierma began the meeting by briefly reviewing his meetings with Energy and State officials and Senate staffer Carl Meacham. He described each of the meetings in positive terms. Vierma then requested Petatt's assistance in communicating a series of follow-up requests to Washington. ¶4. (C) Vierma stated he would like PDVSA and Energy to enter into technical discussions on four areas: technology for heavy and extra heavy crudes (particularly technology that increased recovery rates),training programs for PDVSA employees, refining technology, and international energy policy including gas issues. He stated he would like to see a regular series of meetings every six weeks. Vierma acknowledged that Energy DAS Pumphrey told him that USG research has shifted to transformative technologies. However, he stated there is still value in meeting on the four subjects listed above. In order to back up his point, he showed Petatt a series of statistics from energy consultants Purvin and Gertz that showed coming deficits in crude production and refining capacity. Vierma stated it was in both the USG's and BRV's interests to discuss these issues. ¶5. (C) In terms of training, Vierma candidly admitted that PDVSA was suffering from a human capital deficit. He stated PDVSA's biggest problem in the next three to four years was human capital, particularly in the areas of petroleum engineering, geology, and geophysics. He said PDVSA would like to send 200 employees overseas for training. PDVSA currently has 28 employees studying at the University of Houston and plans on signing an agreement with the University of Texas for training for 40 employees. Vierma stated Energy told him that it had divested the Elk Hills Naval Petroleum Reserve training facility but requested that Energy assist PDVSA in contacting the private sector owners of the facility so that PDVSA could enter into training contracts with them (Reftel A). -------------- LIFE ACCORDING TO PDVSA -------------- ¶6. (C) Vierma also repeated his request for an opportunity to give the USG PDVSA's information on production levels in Venezuela (Reftel B). He said he had a good meeting at the Department and wanted to make a formal presentation on CARACAS 00001363 002 OF 003 Venezuelan production levels. He said U.S. companies were more than welcome to attend. He later noted PDVSA had posted its first quarter results and that he would like to give a formal presentation in Washington. However, he was ready to meet with "whomever" Washington wanted "whenever" and "wherever" they would like. He went on to note that he would be addressing the Energy Council, an organization of U.S. and Canadian state and provincial legislators sitting on energy committees, in Washington in June. He said he would be more than happy to meet with Energy and State officials at that time. He ended the meeting by offering to arrange meetings for Petatt with technical personnel who could answer detailed questions on exploration and production. -------------- - YOU'RE ALL INVITED BACK AGAIN TO THIS LOCALITY -------------- - ¶7. (C) Vierma then surprised Petatt by issuing an invitation to Energy and State officials as well as Congressional staffers such as Carl Meacham (Senate Foreign Relations Committee) to visit Venezuela and tour production facilities. The visit would include visits to Zulia, the upgraders in the Faja, and visits to the new joint ventures. He stated the soon to be released GAO report on Venezuela could serve as a basis for the trip. Vierma envisioned the group arriving on a Sunday evening and departing the following Saturday. He said PDVSA was willing to host the visit whenever the USG wished. As soon as the USG agreed to the visit, Vierma stated he and one of his staffers would meet with Petatt to put together an agenda for the visit. (COMMENT: Given the reception that PDVSA gave the GAO team in October, we have no doubt that the visitors would be given a heaping helping of PDVSA hospitality (Reftel C). In addition, the group would be told that PDVSA production is far higher than the private sector and the USG believe, that Venezuela is a reliable supplier to the U.S. market, and that there should be more dialogue on energy issues between the BRV and USG. END COMMENT) -------------- BUILDING RIGS WITH THE CHINESE -------------- ¶8. (C) Although Vierma used most of the meeting to promote increased contacts between the BRV and USG on energy issues, Petatt managed to slip in a question about recent press reports that PDVSA would produce oil rigs with CNPC (Reftel D). Vierma admitted that the press reports did not accurately lay out the proposed deal. According to Vierma, PDVSA and CNPC have signed a memorandum of understanding for a three phase deal. PDVSA has approximately a two month window of opportunity to purchase rigs from CNPC. After that date, CNPC will be fully booked. ¶9. (C) The first phase of the deal (2006 to 2008),calls for PDVSA to purchase 28 rigs from the Chinese in 2007 and 2008. In addition, PDVSA and a private sector partner or partners will form a joint venture that will construct operating and maintenance infrastructure. Vierma believes the private sector will hold a majority stake in the joint venture. The Chinese will not be partners in the joint venture. ¶10. (C) During the second phase (2008 to 2010),the joint venture will assemble drills in Venezuela. The Chinese will provide technology and training. The BRV will also seek to strengthen Venezuelan parts suppliers and service companies during this phase. In the final phase (2010 to 2012),the joint venture will construct drills in Venezuela. Vierma also envisions the creation of numerous companies that will provide services and parts to the new industry. The final goal is to export onshore and offshore rigs and technology. Vierma stated the Chinese did not have offshore rigs or technology. He stated PDVSA is in negotiations with North American companies for offshore technology and training. CARACAS 00001363 003 OF 003 -------------- ACTION REQUEST AND RECOMMENDATION -------------- ¶11. (C) ACTION REQUEST: Post requests Washington guidance on the proposals for regular discussions and a visit by USG officials. We also request a response to Vierma's request for meetings in Washington in June. ¶12. (C) Post believes the meeting and visit proposals are a tactical move by the BRV that puts the ball in our court. We are skeptical, but if we do not respond, we give the BRV a tactical issue to play. We also note that Vierma is associated with technocrats in PDVSA and the move may be the result of the internecine war between various PDVSA cliques. We do not recommend that Washington respond positively to each proposal but we believe at least some of the proposals should receive an answer. A positive response to the requests for training might produce short and long term dividends for the USG. Better trained engineers and technicians should have a positive effect on production. In addition, a cadre of U.S. trained employees should have a positive impact on our bilateral energy relations as they wind their way up the management ladder. Finally, given the refusal of PDVSA to meet with Ambassador for two years, Post requests instructions that any response be transmitted to the policy levels of PDVSA and the Energy Ministry by the Ambassador. BROWNFIELD