OIL DISPUTE PROCESS BEGINS; FIRST OIL STARTS FEB.

C O N F I D E N T I A L SECTION 01 OF 02 NOUAKCHOTT 000111

SIPDIS

SIPDIS

STATE FOR AF/W; AF/EPS (A. ADLER, J. HAENI)
EB/ESC/IEC (K. RIOS)
EB/CBA (D. WINSTEAD)
4510/IEP/ANESA/OA/PMICHELINI
6930/ITA/MAS/MFG/OEEI/ABRICKMAN
DAKAR FOR RSCO CGRIFFIN

E.O. 12958: DECL: 02/05/2016
TAGS: BBSR EINV EPET ECON EFIN MR
SUBJECT: OIL DISPUTE PROCESS BEGINS; FIRST OIL STARTS FEB.
17

REF: A. NOUAKCHOTT 0067

B. FBIS GMP20060205710051

Classified By: Classified by Amb. Joseph LeBaron, Reason 1.4 (b),(d)

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(C) KEY POINTS
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-- Australian Woodside Energy Ltd. announced February 3 that
Mauritania has opened a formal dispute resolution process
over four amendments to the production sharing contracts
associated with the offshore Chinquetti field.

-- Junta leader Fal told Mauritanians in a national address
last night that the amendments cut the state's oil revenue
share, lowered taxes, and scrapped bank guarantees that were
in the initial contract. Mauritanians appear to be rallying
behind Fal, approving strongly of his position.

-- Meanwhile, the former minister of oil remains in prison on
corruption and fraud charges. At the same time, Woodside
says it is on schedule for the production of first oil on
February 17.

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(C) COMMENTS
--------------

-- Both sides are keeping the exact details of this dispute
close to their vests, even as both sides appear to see the
Embassy as an influential player in the intensifying dispute.

-- While not judging the merits of the Mauritanian complaint,
it appears to us that the Mauritanians have started down a
path that could lead to a delay in the production of first
oil.

-- The steep rise in oil prices unquestionably is a major
factor in the dispute. The Prime Minister told Ambassador
that the Production Sharing Contract and amendments, as
written, do not equitably share the increased profits brought
on by the steep rise in oil prices. Because they don't, the
Mauritanian government could never justify to the Mauritanian
people the current agreements with Woodside.

End Key Points and Comments.


1. (U) On February 3, Woodside published a "Notification of
Dispute" to the Australian stock market stating that Woodside
is continuing discussions to resolve the dispute. Post
understands that the PSCs allow for a 90-day "cooling off"
period before the dispute goes to arbitration.


2. (U) In a public address on the dispute on February 5,
Colonel Fal said that the amendments were illegal and favored
Woodside, stating they were "detrimental to the Mauritanian
state" as they "harmed national interests. (Ref B)"


3. (C) Prime Minister Sidi Mohamed Ould Boubacar called in
Ambassador February 3 to explain the Mauritanian position:

-- The basis of the Mauritanian dispute is that the
Production Sharing Contract and amendments, as written, do
not equitably share the increased profits brought on by the
steep rise in oil prices.

-- The Mauritanians are concerned that Woodside's
notification suggested that the dispute will likely go to
arbitration. The Mauritanians want to settle before the
dispute goes to arbitration in Paris.

-- The Mauritanian government wants to assure Woodside and
other investors that the government intends to abide by law
and ethical practices in its dealings, so investors should
have nothing to fear.


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-- Mauritania wants to work with Woodside on a compromise
without further agitating the public or the markets.


4. (C) The Prime Minister also lamented that Woodside sent
only a technical level mission to negotiate. He suspected
that the level was not sufficiently high enough to make
decisions. (Note: The Embassy has since learned that
Woodside Senior Corporate Affairs Director Gary Gray will be
visiting Mauritania on February 7. End Note)


5. (C) Woodside's Mauritania General Manager John Ozturgut
told Ambassador on January 30 that the Mauritanian
government's position continues to be for Woodside to declare
the four amendments "null and void" before negotiations,
something Woodside refuses to agree to.


6. (C) The Woodside team met with the Prime Minister,
Minister of Energy and Petrol, Minister of Finance and the
Central Bank Governor. According to Ozturgut, also present
on the Mauritanian side was the powerful businessman Mohamed
Hmayen Bouamatou and his guest, and a French anti-corruption
activist "Anton Guidon". Ozturgut reported that during the
meeting the Minister of Energy and Petrol appeared to be
"anxious and agitated." The Mauritanians told Woodside they
wanted to resolve the dispute rapidly. "We have a man in
jail because of these amendments," to which Woodside
responded "this is a criminal investigation and has nothing
to do with us."


7. (C) Ozturgut remains suspicious that the Mauritanian's
demand to declare the amendments "null and void" is a ruse to
later cancel the entire PSC. He stated that the amendments
were passed as a law by Parliament and the government does
not have the authority to cancel any law without the consent
of a court and Parliament. Ozturgut was confident that
arbitration court would side with Woodside on the legality of
the documents.


8. Ozturgut postulates that Bouamatou and Chief of the
Presidential Guard Force and junta member Col. Mohamed Abdel
Aziz are behind the effort to have the amendments cancelled.
He is unable to determine what role Fal has in all of this.


9. (C) Prior to the arrival of the team, the Prime Minister
spoke with Woodside's CEO Don Voelte. Ozturgut said Fal
refused to talk to Voelte over this matter, whereas the Prime
Minister said that Fal was receiving a delegation at the time
and was unavailable. Boubacar asked Voelte to come himself,
but instead sent a lower level mission. Ozturgut suggested
that the team in fact did not have the power to close a deal,
only to discuss details of the contract, something the
Mauritanians were not interested in doing.


10. (C) Post recently received a letter from the London
office of the New York based law firm LeBoeuf, Lamb, Greene
and MacRae seeking Embassy assistance in recovering
$192,187.12 they claim is owed to them by the Mauritanian
government. The London-based firm (with offices in New York)
had assisted in the financing agreement between Sterling
Energy and Mauritania's state oil company Groupe Projet
Chinguetti (GPC). This letter states that Sterling gave the
Mauritanian government a 15.5 million USD signing bonus and a
letter of credit in the amount of $130 million USD.


11. (C) Ozturgut confirmed that Woodside plans to go ahead
with first oil on schedule, even though they have not
received all the proper approvals from the ministry.
Woodside is documenting every unanswered request so as "to
leave a legal paper trail." Dana Petroleum, a member of the
consortium, has encountered the same problems. Ozturgut is
not sure if these delays are willful as the arrest of the
former oil minister has had a chilling effect throughout the
ministry. "No one wants to take any action and find
themselves arrested by the next government."
LeBaron