MAURITANIA'S PRESIDENT AND PRIME MINISTER RELEASE

C O N F I D E N T I A L SECTION 01 OF 04 NOUAKCHOTT 000377

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 04/04/2016
TAGS: BBSR ECON EFIN EINV EPET MR
SUBJECT: MAURITANIA'S PRESIDENT AND PRIME MINISTER RELEASE
STATEMENTS ON WOODSIDE DISPUTE

REF: A. NOUAKCHOTT 00365


B. NOUAKCHOTT 00330

Classified By: AMBASSADOR JOSEPH LEBARON, REASON 1.4 (B),(D)

--------------
(U) Key Points
--------------

-- On March 30 Colonel Fal and Prime Minister Sidi Mohamed
Ould Boubacar released separate statements regarding the
resolution of the Woodside dispute. (informal translation of
statements follow.)

-- Woodside and its joint partners have given to the
Mauritanians an up-front payment of 100 Million USD to settle
its dispute.

-- Under the new arrangements, Woodside and its partners will
reduce the maximum cost of recovery rate of Chinguetti
production wells from 60 percent to 50 percent when the oil
price is 55 USD a barrel or higher.

-- Woodside will no longer be exonerated from certain tax
breaks that were arranged with the previous Mauritanian
government.

-- The Mauritanian government will receive a bigger cut of
the profit from production when oil prices are at least 55
USD a barrel.

-- The new deal also states that Woodside and its partners
will establish an operational center in the country's
capital, Nouakchott

-- Media reports state that Qatari Cheikh Mohamed Abdallahi
Al Thani acted as a mediator between Woodside and the
Mauritanian government during negotiations in Dubai.

--------------
(C) Comments
--------------

-- On the face of things it appears that the Mauritanians
have come out on top but the concessions that Woodside have
received are unknown. This is a large win for the Mauritanian
people and government and is viewed as victory for
safeguarding their oil legacy. The perception of
international investors towards Mauritania is still unknown.

-- The Mauritanians are extremely happy with the resolution
of the dispute, in particular with the 100 million USD
payment. This payment with bring an influx of money into the
coffers of the Mauritanian government and will double their
annual budget.

-- Many in Mauritania are not happy with the release of the
former Minister of Oil and Energy, Zeidane Ould H'meyda and
view it as an undermining of the judicial system.
End Key Points and Comments.

-------------- --------------
(U) Informal Translation of Speech by Colonel Ely Ould
Mohamed Fal
-------------- --------------

My dear citizens,

It is within the framework of the commitments of the Military
Council for Justice and Democracy and the Transitional
Government regarding total transparency in the management of
issues of public interest that I address you today to talk
about developments concerning a problem of major national
interest.

It concerns the dispute with the company Woodside over the
so-called amendments to the Petroleum Production Sharing

NOUAKCHOTT 00000377 002 OF 004


Contracts, an issue which I have previously spoken about with
you.

I am pleased on this occasion to announce the favorable
resolution of this crisis which has been settled through
negotiations.

Indeed, the parties have decided, through an agreement, to
only take into consideration the initial contracts to which
improvements serving the national interest had been
introduced.

It is a return to terms representing a fair and equitable
partnership with Woodside.

Beyond this important achievement which preserves the
interests of the country, it also marks the reestablishment
of Mauritanian law as well as the respect and the credibility
of the State and its institutions, in conformity with the
various legislation that regulate investment in the petroleum
sector.

I take this opportunity to congratulate the Mauritanian
people for these important results.

My dear citizens,

It is also the place for me to voice my appreciation of the
position of Woodside which has finally chosen to agree to
respond to the legitimate expectations of our people.

This allows us to inaugurate a new era of an equal and long
term partnership with the company.

I would also like, finally, to reiterate the commitment of
Mauritania to its policy of encouraging investment and to
assure investors of the best conditions and all the
guarantees and legal protection possible.

-------------- --------------
(U) Informal Translation of Prime Minister's Statement
-------------- --------------

Two months ago, exactly the 5th of February, I informed you
in this same place of the dispute that we had with Woodside
concerning the four amendments of the PSCs of which we
contested the legality and not being in line with the
national interest. Today I have the pleasure to announce to
you that this dispute has been resolved through negotiations.
The government and Woodside have concluded an MOU which
inaugurates a privileged, durable and equal partnership.

According to the terms of the MOU, the disputed amendments
are suspended and will be canceled and replaced by revised
PSCs in order to take into account the several points
contained in the MOU. The revisions will obviously be made
according to the procedures set out under Mauritanian law.

The cancellation of the amendments means, of course, that the
clauses that I spoke about in front of all of you on February
5, and which we described as contrary to the law and contrary
to the national interest will be canceled. I remind you that
the essential parts of these clauses concerned the drop in
the production share of the state in the profit/ton in
certain zones, the lightening of restrictions in terms of
environmental protection, which implied the risk to the
marine fauna and flora and the long term effect on our
fishing resources. Also canceled are the reduction of tax of
15 percent in certain zones as well as the monopoly of
exploration and production for a number of years in certain
areas because these areas will be sold.

Canceled is also the exoneration from the imposition of
capital gains tax on the sale of shares as well as the clause
concerning the immediate recovery of the costs of appraisal
wells. For abandonment costs, provisions will made and banked
into a trust account for a period of three years before the

NOUAKCHOTT 00000377 003 OF 004


expected end of the life of the field.

Canceled as well is the clause that gives the contractor the
possibility to sole-source for the acquisition of goods and
services in the context of petroleum operations which are
recoverable costs and as such chargeable, in part, to
Mauritania.

Other canceled terms include the reduction of the obligation
to carry out two exploration wells to one single well in
certain zones as well the clause that centralizes the
accounting in Australia and only makes allowance for
non-electronic accounting in Nouakchott because the company
will set up henceforth in Nouakchott an operations center to
undertake all petroleum operations from the territory and,
obviously, with an accounting system on the national
territory.

Also canceled is cost recovery on PSC B of the costs of
Chinguetti 1 which was initially considered as a Zone A
obligation.

Also canceled was the clause that cancelled the ban on
petroleum and gas sales to countries declared as hostile to
Mauritania as well as the easing of the procedures of sale of
shares from one affiliated company to another of a contractor.

Also canceled are the clauses that allowed the contractor and
its sub-contractors to use insurance coverage from foreign
companies to the detriment of local insurance companies as
well as the article which cancelled the requirement for the
payment of the minimum obligations guarantee.

These were the clauses about which I talked to you and which
we said were unacceptable for Mauritania and which would be
canceled.

In order to respond to the concerns of Woodside regarding the
stability of its on-going investments in the country, the
extensions to the exploration periods for the joint venture
of which it is the operator will be guaranteed. However,
Woodside must fulfill its obligations relating to surface
fees payments, in conformity to the law and the PSCs.

In addition, Woodside will pay the State of Mauritania a
bonus of 100 million dollars 14 days after the approval of
the revised PSC. This bonus is neither recoverable nor
fiscally deductible.

The Mauritanian Hydrocarbons Company (SMH) which is part of
the consortium is exempted from participating in this bonus.

The MOU provides new arrangements for the cost-oil ceiling
for Chinguetti. Instead of 60 percent initially agreed, the
ceiling will now be 50 per cent as long as the price of
petrol is more or equal to 55 dollars per barrel. In the same
spirit, the MOU provides that, on the Chinguetti production,
when the market price is superior to that of 55 dollars a
barrel, the Government will receive an additional profit of 5
percent for the tranche of profit oil which corresponds to
the part of the price more than this ceiling of 55 dollars
per barrel.

Concerning the protection of the environment, the Government
and Woodside have agreed to collaborate together to insure
the management of environmental risks according to the
precaution principle and to put in place an annual fund of
one million dollars for the environmental funded by Woodside,
and during the period in which the operator is in production.

Concerning the tax rate, in terms of corporation tax
applicable to Woodside, the MOU returns to the initial PSCs
and excludes the innovations that the amendments expected to
introduce.

The MOU provides as well that the present exclusive zone
(EEA) for Chinguetti be redefined between the Government and

NOUAKCHOTT 00000377 004 OF 004


Woodside, in such a way that 50 per cent of this zone will be
returned to the PSC.

The MOU provides, in terms of abandonment and decommissioning
of the site, which, as a general rule, deductible and
recoverable, that these amounts be providing for and
deposited into a trust account three years before the end of
the life of the field. This allows the reconciliation of the
concerns of the Government and of Woodside.

Finally, the MOU provides that Woodside put in place an
operations center in Nouakchott, that is to say a center that
will be equipped with all the necessary means for the conduct
and management of petroleum operations from the territory of
Mauritania, including accounting, which could facilitate the
collaboration between the two parties in a spirit of
technology transfer. For the Government it is a way to ensure
that the PSCs fulfill its basic objectives, which is the
transfer of technology in the petroleum sector.

When the Government raised the issue of the four amendments
to the PSCs, its objectives were two-fold. On the one hand,
it was necessary to avoid ratifying obvious infringements of
Mauritanian laws regulating the oil and gas exploration and
production activities, and on the other hand to refuse to put
into effect to these clauses made in the interest of one
single party.

At the same time, we have always shown our full and total
availability to find a solution with our partner through a
friendly process, compatible with Mauritanian law and in
conformity with the imperative of balance which must be the
foundation of all durable and equal partnerships.

Our concerns were met with goodwill on the part of Woodside
who is our principal partner today in the petroleum industry.
A page has thus been turned, and another opens. It will be
one based in the respect of the law, of good intentions and
transparency, which can only be the source of security of
investments and the public interest.

I must therefore before you thank Woodside for its
availability it has expressed to work, in cooperation with
the Mauritanian Government, toward a sustainable, transparent
and mutually beneficial partnership.

These are the essential elements of the MOU that the
Government of Mauritania has just signed with Woodside.

The Government has kept its promise to keep you informed
immediately, as it has been its practice to keep you informed
of the developments of the major large issues of the day.

I remain available to take questions and provide
clarifications.

Thank you.

End Informal translations.

LeBaron
LeBaron