STATOIL: A GOOD DEAL

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001822



SIPDIS



SENSITIVE

SIPDIS



ENERGY FOR CDAY AND ALOCKWOOD

NSC FOR JCARDENAS AND JSHRIER



E.O. 12958: DECL: 01/12/2017

TAGS: EPET, ENRG, EINV, ECON, VE

SUBJECT: STATOIL: A GOOD DEAL



REF: A. CARACAS 1281



B. CARACAS 1655

C. CARACAS 472

D. CARACAS 1314

E. CARACAS 1675

F. CARACAS 1157

G. CARACAS 1808



Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)



1. (C) SUMMARY: Contrary to repeated BRV statements,

Norway's Statoil will receive cash compensation for its lost

equity in the Sincor strategic association. Under the terms

of the migration agreement, major investment decisions will

be made by qualified majority. PDVSA has been instructed not

to fire employees on political grounds. This suggests that

PDVSA offered widely varying terms to at least some of the

six companies that invested in the Faja strategic

associations. END SUMMARY



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A PRETTY GOOD DEAL

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2. (C) Petroleum Attache (Petatt) met with Statoil Venezuela

President Thore Kristiansen (strictly protect throughout) on

September 12 to discuss the terms of the Sincor migration to

a PDVSA-controlled joint venture (Reftel A). Kristiansen

began the meeting by noting that Statoil received a good deal

under the circumstances. Contrary to Energy Minister Rafael

Ramirez' public statement on August 29 that neither Statoil

or Total received compensation for their lost equity in the

Sincor strategic association. Kristiansen stated that PDVSA

has agreed to compensate Statoil. (Note: Under the terms of

the migration, Statoil's stake in Sincor was reduced from 15

to 10%. End Note.)



3. (C) According to Kristiansen, Statoil will receive its

compensation in the form of cash but has the option of

receiving it in crude oil. He stated he was more than 90%

sure that Statoil would take the cash. Although he would not

state the amount of the compensation, he implied that it was

well above book value, which was PDVSA's opening offer. He

stated Statoil would have refused to migrate its interest if

it had only received book value.



4. (C) As reported in Reftel A, Energy Minister Ramirez also

stated that each of the strategic associations' blocks would

be reduced during the migration process. When Petatt raised

the issue, Kristiansen stated Sincor's block had actually

been increased from roughly 312 square kilometers to 399

square kilometers. He explained that Sincor's original block

assignment had contained several areas that were reserved to

Sincor but that could not be added to its block without BRV

approval. As part of the migration process, the reserved

areas will be added to Petrocedino, the PDVSA controlled

joint venture that will be formed from Sincor.



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GOVERNANCE

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5. (C) Kristiansen also stated that Statoil was pleased with

the governance terms of Petrocedino. Various types of

decisions require board approval by qualified majorities of

51, 71, or 91%. The joint venture's business plan and all

major investment decisions require a qualified majority.

Kristiansen stated the governance terms looked good on paper

but added it remained to be seen if the BRV and PDVSA would

honor them in practice. He later stated, however, that

having the terms in "black and white" would allow Statoil to

"hold it up to PDVSA's face" if PDVSA breached the terms.



CARACAS 00001822 002 OF 002







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LABOR ISSUES

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6. (C) Kristiansen noted that the opposition paper Tal Cual

had run several stories reporting that Sincor employees had

been fired on political grounds (Reftel B). Following the

publication of the stories, Kristiansen stated Minister

Ramirez sent a three page memo to senior PDVSA officials

stating that it was a violation of Venezuelan law to

discriminate against employees or fire them for their

political beliefs. He added that it was clear from

conversations with PDVSA managers in Sincor that they had

clearly received the message. Kristiansen noted that it

remained to be seen if PDVSA would stick to its new labor

policy once the migration was completed.



7. (C) Kristiansen stated Sincor employees have still not

received their new Petrocedino employment package. He added

that there was no timeline for the delivery of the package to

the employees.



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COMMENT

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8. (C) Kristiansen told Petatt in March that the three most

important issues for Statoil during the migration

negotiations were compensation, governance, and taxes (Reftel

C). Although he did not mention taxes in the meeting, it was

clear that Statoil was pleased with the terms of the

migration. Statoil's comments regarding governance issues

closely mirror Chevron's (Reftel D).



9. (C) It is apparent based on our conversations with five

of the six companies that invested in the Faja strategic

associations that the BRV offered widely differing terms to

the companies. For example, the BRV reduced Cerro Negro's

block size and BP paid half a million dollars in notes in

order to minimize the block's reduction (Reftel E). Both

ExxonMobil and ConocoPhillips stated the BRV has consistently

stated it would only compensate them based on the book value

of their investments and refused to show flexibility on

governance terms (Reftels F and G).



DUDDY