WOODSIDE DISPUTE CONTINUES AS CEO SET TO ARRIVE

C O N F I D E N T I A L SECTION 01 OF 02 NOUAKCHOTT 000170

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 02/17/2015
TAGS: BBSR EINV EPET ECON EFIN ASEC MR
SUBJECT: WOODSIDE DISPUTE CONTINUES AS CEO SET TO ARRIVE

REF: A. NOUAKCHOTT 111

B. NOUAKCHOTT 67

Classified By: Ambassador Joseph LeBaron, Reasons 1.4 (b),(d)

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(C) KEY POINTS
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-- The Mauritania/Woodside dispute continues to be played
out in the press, as Woodside CEO Don Voelte is expected to
arrive in Mauritania on February 18. Meanwhile, the Embassy
has learned that Woodside Country Manager (and Amcit) Jon
Ozturgut has been served a subpoena to testify in former oil
minister Zeidan's corruption case.

-- The Mauritanian government has announced that Zeidan will
be judged by a criminal court and could receive a maximum
sentence of life in prison.

-- In a meeting with Ambassador, Woodside executive Gary
Gray strongly indicated that Woodside may not be keen on
future operations in Mauritania.

-- Mauritania has announced it will set up a state bank
account to manage all oil revenues as part of EITI and its
own transparency measures.

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(C) COMMENT
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-- Gray's visit seemed more for him to get a feel of the
situation on the ground and to discuss with other observers
(including Ambassador) rather than to advance discussions.

-- We suspect he was warned by several of the parties not to
discount too readily the transitional government's motives of
trying to root out corruption and create a more transparent
process.

-- However, Gray indicated that Woodside intended to hold
its line and take the case to arbitration.

End Key Points and Comment.


1. (C) Woodside Director of Corporate Affairs Gary Gray
called on Ambassador twice during his February 7-10 visit to
Mauritania. Gray said his role is to "create a space for
dialogue" but maintained that Woodside did nothing wrong in
negotiating the amendments and that they are consistent with
common industry practice. Gray did not meet with any member
of the Mauritanian government during his visit.


2. (C) Gray informed the Ambassador that Woodside's overall
exploration budget for next year will be $500 million, the
largest ever for an Australian company. However, most will
be spent in the Gulf of Mexico, suggesting that far less than
previously planned would go to Mauritania. The political
risk in Mauritania and "all things being equal" Woodside has
shifted its focus towards the Gulf of Mexico. In another
indication of Woodside's intent, Gray noted that the IMF was
estimating future earnings on "on a commercial decision not
yet made."


3. (C) Investor confidence is low and Woodside wants
Mauritania to "embrace the arbitration process" allowing the
Mauritanians a chance to "respect and follow the contract."
According to Gray, it is a "matter of pride and saving face"
for Woodside in the industry. Arbitration could be a "happy
medium" and although the arbitration process will continue
long past the transitional period, the government's decision
to declare a dispute will change the complexion of doing
business in Mauritania forever. Woodside is planning on
reaching out to the African Union on this issue.


4. (C) During the arbitration process the contents of the
contract will remain confidential. Woodside is currently
seeking political risk insurance through the World Bank and

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will have to submit a copy of the contract but it will remain
private. However, the terms of the contract may surface
during the trial of the former oil minister.


5. (C) Woodside plans for CEO Don Voelte to come to
Mauritania to discuss the issue of the amendments. The
Mauritanian government is being advised by attorneys from
Freshfields, whom Gray characterized as "guns for hire," are
giving "good advice if the end game is to get more money."
Gray insists "if the end game is to participate in giving
evidence against the former minister then Woodside cannot
participate." Woodside notes that the Mauritanians have
shown "randomness because of their focus on the former oil
minister rather than the add-ons to the contract."


6. (C) According to Gray, the amendments were not created to
take advantage of the Mauritanians but to clarify the
ambiguity of the PSC. Gray maintains that this dispute is
"poisoning this relationship and there is no antidote."


7. (C) Rumors of possible demonstrations against Woodside
have begun to surface but no demonstrations have transpired
as a result of this dispute. The Mauritanian government held
a press conference on February 13 in response to the criminal
investigation of the former oil minister. It stated that he
will be judged by a criminal court and could receive a
maximum sentence of life in prison.


8. (C) Embassy understands that oil production at Chinguetti
field, which was supposed to begin on February 17, has been
delayed for technical reasons.
LeBaron