NEW OIL AGREEMENT MAINTAINS WOODSIDE'S EXPLORATION

C O N F I D E N T I A L SECTION 01 OF 02 NOUAKCHOTT 000469 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: 04/20/2016 TAGS: BBSR ECON EFIN EINV EPET MR SUBJECT: NEW OIL AGREEMENT MAINTAINS WOODSIDE'S EXPLORATION RIGHTS; GIVES MAURITANIA LARGE UPFRONT PAYMENT AND A BIGGER SHARE IN OIL PRICED OVER USD $55 A BARREL REF: A. NOUAKCHOTT 00377 ¶B. NOUAKCHOTT 00365 NOUAKCHOTT 00000469 001.2 OF 002 Classified By: AMBASSADOR JOSEPH LEBARON, REASON 1.4 (B),(D) -------------- (U) Key Points -------------- -- According to Woodside's Country Manager John Ozturgut, both the Australian oil company and the transitional government won in coming to a compromise: Woodside was able to maintain its exploration rights laid out in the disputed amendments, while the transitional government was able to get more money in its coffers. -- Woodside and its joint partners will give to the Mauritanians an up-front payment of USD 100 million. The Mauritanian government will also receive a bigger cut of the profit from production when oil prices are at least 55 USD a barrel. -- The original PSCs and amendments remain in force until a new PSC is signed. Ozturgut did not give a specific timeline on when the new PSC will be completed but believed it will take at least two weeks, with the USD 100 million to come fourteen days after signing. -- Woodside brought in an influential Qatari shaykh, Muhammad Abdullahi Al Thani, as a mediator during their discussions in Doha and Dubai with Colonel Fal and other Mauritanian government representatives. -- Ozturgut maintains that Woodside was fully prepared to go to arbitration, but Woodside would have won there only to lose everything on the ground, Ozturgut said. -------------- (C) Comments -------------- -- We think the big winner in the settlement is the Mauritanian government. With oil now above 70 USD a barrel for light crude, they will get a larger share of profits. But, equally important, they scored a major public opinion victory. -- If Woodside won anything, it was in protecting their interests in future oil and gas production in Mauritania. Woodside also has established close ties with Al Thani, an important player in the regional oil game. Expect Woodside �A;to collaborate with Al Thani in future Woodside energy plays in the broader Middle East. End Key Points and Comments. ¶1. (C) Woodside's Country Manager John Ozturgut told Ambassador April 12 that the terms of agreement that Prime Minister Boubacar described in his March 30 speech (Ref A) were essentially accurate, but that Woodside as well gained significant concessions. Most significantly, Woodside retained its rights under the signed amendments for continued exploration, and clarified the cost-recovery generally in Woodside's favor. Ozturgut indicated that the $100 million "bonus" is an up-front payment the transitional government will receive and will be recovered through the life of the project under the new structure. ¶2. (C) Ozturgut explained that many aspects of the old Production Sharing Contracts (PSCs) were ambiguous which would have resulted in "white-space negotiations." For example, the area of the bloc that would be qualified for cost-recovery was never negotiated. Therefore, Woodside negotiated in the new PSC cost recovery for the entire bloc versus the exclusive exploitation area (EEA) of the NOUAKCHOTT 00000469 002.2 OF 002 Chinguitty field. ¶3. (C) Woodside is also satisfied with the agreement for the company to set a side USD 1 million per year for an environmental fund, as Woodside will be a member of the committee that will govern this trust. This environmental fund will "allow for a structure of cash flows that will enable one to see where the money goes," according to Ozturgut. Mauritanian government officials fear that Mauritanian fishing waters are polluted and they need help with better management and education. ¶4. (C) Ozturgut gave his version of events that led to the compromise. He said that Col. Fal had signaled that he would be available for discussion during his February 21 trip to Doha. Woodside called on influential Qatari shaykh, Mohamed Abdullahi Al Thani, to mediate because of his previous interest in acquiring Mauritanian blocs and his prior dealings with Woodside. Woodside's CEO Don Voelte had a face-to-face meeting with Fal during the negotiations which Ozturgut described as "a one-shot opportunity". ¶5. (C) According to Ozturgut, the motivation for the transitional government's desire to resolve the dispute was the lack of the country's cash flow and budget deficits. However, the government got some poor advice, and other interests pushed the government into a more extreme and public position, to a point where discussions could no longer continue inside Mauritania. The issue "created a life of its own and everyone was trying to get a cut," he said. ¶6. (C) Ozturgut denied press reports that the four contested amendments were declared null and void by the agreement. He said the original PSCs and amendments remain in force until a new PSC is signed. He did not give a specific timeline on when the new PSC will be completed but believed it will take at least two weeks. The USD 100 million will be paid-out fourteen days after the new PSC has been signed. ¶7. (C) Ozturgut maintains that Woodside was "fully prepared to go to arbitration and would win there, but would have lost everything on the ground." He added, "the Mauritanians never would find a middle ground, and in the end would have exercised their sovereign right by putting this into Mauritanian courts." Woodside therefore concluded "we knew our problems would escalate and selling a distressed asset wouldn't be good even if it was to the Chinese." ¶8. (C) Ozturgut believes "Woodside has changed their perspective" as a result of this dispute. They are restructuring their organization by opening a regional office in Dubai which will allow them "to better understand the complexities of the region." They will be working with the partners of the Woodside consortium in the upcoming weeks to finalize the new PSC. Ozturgut acknowledges "there are still a couple hurdles to go through." LeBaron LeBaron