ESSO'S CONCERNS ON CHAD SECURITY, CONVENTION

UNCLAS NDJAMENA 001348

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF, EB, INR/A, ENERGY FOR CAROLYN GAY AND GEORGE
PEARSON, TREASURY FOR OTA, LONDON AND PARIS FOR AFRICA
WATCHERS, DAKAR FOR FCS

E.O. 12958: N/A
TAGS: ASEC EFIN ENRG PGOV EPET CD
SUBJECT: ESSO'S CONCERNS ON CHAD SECURITY, CONVENTION
NEGOTIATIONS



1. (SBU) SUMMARY: The Esso-led oil consortium has formally
notified the GOC that it will not re-negotiate its existing
convention with the Government, but will consider new
agreements that would allow the GOC to have a role in the
country's oil production at new sites. While the government
has not formally responded. Esso believes that the issue may
be put off until 2007. Esso and other members of the oil
consortium recognize that the oil fields in southern Chad are
of strategic interest to any group seeking to overthrow the
regime. Surveillance has been increased at the fields. END
SUMMARY.

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ESSO'S SECURITY CONCERNS FOR THE OIL FIELDS
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2. (SBU) During a meeting with the Ambassador on November
17, Esso country manager Ron Royal raised the company's
concerns that the Doba oil fields may be a target for Chadian
rebels wanting to destabilize the regime. He noted that the
consortium partners had expressed concern about the security
of the pipeline following clashes between the GOC and Chadian
rebel groups in late October, and the GOC's decision to
declare a state of emergency for several areas of the
country. The well-known fact that the consortium would be
making a large income tax payment in March 2007 was
presumably a factor in rebel strategy.


3. (SBU) Currently, according to Royal, the security level
of the Doba oil fields had been raised from a baseline level
to an elevated level of "blue," which meant that Esso
security officials would enhance surveillance of the oil
fields. He added that the rest of the country, which
included N'Djamena, was at an "orange" level, which meant
that travel was restricted and personnel numbers were reduced
to essential staff. Royal recognized that if a group wished
to disrupt Chadian oil production, an attack on the block
valves of the pipeline, located at pumping stations in
Cameroon, would be the most effective way immediately impact
the flow of oil coming out of Chad. While disruptive, the
damage would be temporary, and could be fixed in a matter of
weeks.

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CONSORTIUM SAYS NO TO CONVENTION NEGOTIATIONS
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4. (SBU) Royal also said that the consortium had formally
informed the GOC that it would not renegotiate its existing
convention with the Government. Royal called the letter
short of "hell no", but still "very strong." In a letter sent
to the Minister of Petroleum earlier in the week, Royal said
that the consortium asserted that the existing convention was
Chadian law and had been the basis for the consortium's
investment decision. Furthermore, amendments had already
been made to the convention to maximize the GOC's economic
benefits in a high-price oil environment. The consortium
also told the GOC that they would work with the National
Commission (established to examine renegotiation) to explain
the merits of the current agreement. Royal had already
approached Encana, the other major international oil company
in Chad, to ensure that the oil industry in Chad was aligned
on its commitment to existing agreements with the GOC.
According to Royal, Encana's views were very similar to
Esso's.


5. (SBU) Royal pointed out that the GOC had yet to
officially respond to the consortium's letter. However,
during discussions with the country's national petroleum
coordinator, Haroun Kabadi, Royal received the impression
that the GOC would not tackle the issue until the beginning
of next year, and that the Government might be willing to
negotiate a face-saving measure with the consortium. Royal
said that other consortium members had agreed to the
possibility of negotiating new agreements with the GOC in
areas with oil production potential that would allow the GOC
to have a share in the production process.

WALL