CHEVRON'S TAKE ON VENEZUELA

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 003529

SIPDIS

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
NSC FOR DTOMLINSON

E.O. 12958: DECL: 10/27/2016
TAGS: ECON ENRG EPET EINV VE
SUBJECT: CHEVRON'S TAKE ON VENEZUELA

REF: CARACAS 3311

Classified By: Acting Economic Counselor Shawn E. Flatt for Reason 1.4
(D)


1. (C) SUMMARY: The BRV is serious about maintaining OPEC
production cuts. PDVSA owes Chevron USD 800 million in
operating expenses for the Boscan field and seems incapable
of paying operators of the joint ventures in a systematic
way. Chevron has met with Rosales advisors and given advice
on hydrocarbon policies to the Rosales team. The BRV has
been actively consulting Iran on advice regarding how to
evade USG sanctions. END SUMMARY

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OPEC CUTS
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2. (C) Chevron Latin America President Ali Moshiri (strictly
protect throughout) met with the DCM on November 30 for a
wide-ranging discussion on the December 3 elections and the
oil sector. Moshiri began the conversation by stating that
the BRV is quite serious about implementing production cuts
in order to comply with OPEC production cuts. Moshiri
characterized the policy as "ridiculous" given the fact that
Venezuela's actual production is nowhere near its OPEC quota.
Despite claiming that Chevron would not cut production at
the Hamaca strategic association (Reftel),Moshiri stated
that Hamaca has instituted a 17,000 barrel per day production
cut.

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JOINT VENTURES
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3. (C) Moshiri complained that PDVSA owes Chevron USD 800
million for its share of operating expenses in PetroBoscan,
the joint venture that runs the Boscan asphalt field. He
stated that Chevron would not continue loaning funds to
PetroBoscan starting this month. Chevron did not have any
problem advancing funds when it was operating Boscan under an
operating service agreement since it received interest on its
loans. However, now that Boscan is being run by a joint
venture that is a separate legal entity, Chevron, as a
shareholder, does not receive any benefit from loaning
PetroBoscan funds for operating expenses. Moshiri said he
was very concerned that although the BRV has tremendous
amounts of money, it was amassing large liabilities at a
rapid rate. He was not sure if the BRV was aware of how
quickly its liabilities were increasing.


4. (C) Moshiri stated that the BRV and PDVSA seem to be
incapable of making payments in a systematic manner. He said
smaller companies that are operating joint venture fields
have come to him for advice on how to get PDVSA to reimburse
them for operating expenses. He said he was not sure what
would happen to smaller companies, particularly local ones,
since they could not afford to carry the operating "loans"
for a significant period of time. Moshiri opined that the
BRV and PDVSA may try to merge all of the smaller Venezuelan
firms into one company to operate the various joint venture
fields. (NOTE: An energy attorney at a Venezuelan firm told
Petroleum Attache (Petatt) on November 30 that she did not
believe that any of the private sector firms in the joint
ventures had been paid since April. The attorney also stated
that none of the joint ventures have had their budgets
approved for this year. END NOTE)


5. (C) Chevron has decided that it will not move employees
to its PetroBoscan joint venture due to the poor salaries the
joint ventures are offering. According to Moshiri, Shell
employees were offered one half of their salaries if they
transferred to Shell's joint venture with PDVSA. As a

CARACAS 00003529 002 OF 003


result, Chevron has decided to second employees to
PetroBoscan and pay the salary difference. Moshiri stated
Chevron will gradually remove its seconded employees from the
joint venture. He opined that PDVSA was offering low
salaries to joint venture employees due to cash flow problems.


6. (C) When asked about the conversion of the strategic
associations to joint ventures, Moshiri stated he did not
believe any of the companies would sign a memorandum of
understanding by the end of the year. He also opined that
Total would be the first of the strategic association
partners to reach an agreement with the BRV.


7. (C) Moshiri was clearly frustrated with both the BRV and
PDVSA. In addition to his comments regarding PDVSA's
inability to pay joint venture partners, he complained that
it has been impossible to deal with PDVSA for the past four
to five weeks since PDVSA officials are focused election
campaigning. He also said PDVSA tried to force Chevron
employees to march in Chavez campaign rallies. Chevron
successfully blocked the attempts. (COMMENT: As PDVSA
management focused on election campaigning, operations
continue to suffer. For example, the energy attorney told
Petatt that her husband works for a telecom company that
supplies equipment to PDVSA. A number of young employees run
the El Palito refinery's telecommunications systems.
However, PDVSA has a back-up group composed of members of the
National Guard who are to take over if the PDVSA employees do
not show sufficient loyalty to the BRV. Recently, one of the
soldiers cut all of the cables to the refinery by accident.
As a result, the refinery's telephones and computer equipment
that monitored operations went down. It took three days to
repair the cables and restore telecommunications services.
END COMMENT)

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ELECTION
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8. (C) Moshiri said he has met with members of the Rosales
team and offered them advice on oil policy. He stated
Rosales should create a new agency that monitors PDVSA and
reports to the Energy Ministry. He stated Brazil has a
similar regulatory structure. PDVSA should be treated as a
national oil company. It should only focus producing oil and
not handle relations with the private sector companies. The
new agency would take over dealings with the private sector.
Chevron would be "very comfortable" with a Rosales
administration and views Rosales as being "hands-off" in
terms of hydrocarbon policy.


9. (C) Moshiri noted that he has warned the Rosales team not
to fire PDVSA employees since this would only create a
"second, old PDVSA". He warned the team not to mix the
private sector with PDVSA's problems. He also warned the
team that it would take at least two years to successfully
integrate returning "old" PDVSA employees with current
employees.


10. (C) When asked about a Chavez win, Moshiri replied
Chevron's first priority would be to protect its technology.
He said Chevron did not want to transfer technology. If
pushed, Chevron would insist on determining the technology's
fair market value. In addition, Chevron would request an
opinion from the U.S. Treasury on the legality of
transferring the technology.

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IRAN
--------------

11. (C) Moshiri claimed that the Chavez administration has
been asking Iranian officials how it has managed to live

CARACAS 00003529 003 OF 003


under U.S. sanctions. Chavez truly believes that U.S.
sanctions are inevitable. He also acts as if sanctions are a
badge of honor. Moshiri stated Chavez does not want to raise
the standard of living in Venezuela but rather level it.
Sanctions are an effective way to reach this goal. Moreover,
USG sanctions would give Chavez the opportunity to deepen his
efforts to unite Venezuela against an "external threat."
(COMMENT: Chavez is not the only member of his administration
that believes sanctions are inevitable. A Baker Hughes
executive recently told Petatt that he was told by a senior
PDVSA official that PDVSA was going to actively seek
additional suppliers of drill bits since Baker Hughes would
eventually be unable to sell to the BRV due to presumed
upcoming U.S. sanctions. The PDVSA official, who was a
retired military officer, repeatedly mentioned the ban on the
sale of F-16 replacement parts to Venezuela and stated it was
clear evidence that the U.S. planned on implementing
sanctions. END COMMENT)


12. (C) COMMENT: Moshiri has good relations with both the
BRV and the Iranian community in Venezuela. We have no
reason to doubt his comments regarding the BRV's discussions
with Iranian officials regarding sanctions. It is not clear,
however, if the BRV is actually acting on the Iranians'
advice. According to the energy attorney, a Petropars
executive recently told her that the Venezuelans do not
understand that they can completely control their hydrocarbon
sector by controlling marketing rather than actual
operations. In other words, by forcing private sector
companies to sell their production to PDVSA, the BRV can
control its oil sector just as effectively as it could by
controlling the operations of each field in Venezuela. The
Petropars executive stated it took Iran twenty years to learn
the lesson. The energy attorney indicated that the Petropars
executive did not think that the BRV was going to learn the
lesson anytime soon. END COMMENT

BROWNFIELD