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) -------------- (C) KEY POINTS -------------- -- 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. -------------- (C) COMMENT -------------- -- 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 NOUAKCHOTT 00000170 002 OF 002 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