AMBASSADOR MEETS WITH CHEVRON

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001977

SIPDIS

SIPDIS

ENERGY FOR CDAY AND ALOCKWOOD
NSC FOR JCARDENAS AND JSHRIER

E.O. 12958: DECL: 10/02/2017
TAGS: EPET ENRG EINV ECON VE
SUBJECT: AMBASSADOR MEETS WITH CHEVRON


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


1. (C) SUMMARY: Chevron remains optimistic on Venezuela and
believes that the Chavez administration has begun to realize
that it cannot divorce Venezuela from the United States.
Chinese oil company CNPC has approached Chevron about signing
a cooperation agreement for projects in Venezuela. Chevron
is also in talks with Citgo on possible areas of cooperation.
Chevron is currently focused on its LNG project in
Venezuela, which should come on-line in 2012 or 2013. The
Colombia-Venezuela gas pipeline will be inaugurated on
October 12. Chevron's margins in Venezuela, while reduced,
remain highly profitable. END SUMMARY

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CHEVRON'S TAKE ON VENEZUELA
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2. (C) Chevron Latin America Upstream President Ali Moshiri
paid a courtesy call on the Ambassador on October 4 to
discuss Chevron's current activities and outlook for
Venezuela.
Moshiri told the Ambassador that Chevron is very optimistic
about the Faja region. He added that he believes President
Chavez cannot divorce Venezuela from the United States.


3. (C) Later in the conversation, Moshiri opined that Chavez
has begun to realize that Venezuela's economy is intertwined
with that of the United States and that he cannot separate
them. Moshiri stated, however, that Chavez has changed a
great deal over the last six years and that he is far less
patient now. Moshiri believes the key question now is
whether Chavez recognizes that the poor are not better off
under his administration. He added the fundamentals of the
Venezuelan economy are poor and that Venezuela needs
productive capital. He illustrated his point by stating he
told senior PDVSA officials that it was easy to sharply
increase the operating budget for the former Ameriven
strategic association but difficult to increase its
productive capacity.


4. (C) Moshiri stated he has told President Chavez that
Venezuela's biggest challenge is a lack of human capital,
both internally and externally. He said the BRV's main
problem in the coming years will be maintaining Venezuela's
production capacity at 2.4 million barrels per day. The BRV
has the money and access to the right types of technology but
Venezuela lacks human capital. According to Moshiri, another
major challenge will be to convince U.S. service companies to
return to Venezuela and begin investing in the oil sector.
He stated it will take the BRV another two years "before it
sees the light". (NOTE: We believe that Moshiri was
referring to smaller service companies, particularly drilling
rig companies. Major U.S. service companies continue to
operate in Venezuela. END NOTE)

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THE CHINESE
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5. (C) Moshiri told the Ambassador that he does not believe
the Chinese pose a significant threat in the Venezuelan oil
sector. He stated cultural differences make it very
difficult for the Chinese and Venezuelans to work together.
In addition, he said the BRV has begun to realize that
Chinese investment does not produce much in the way of
Venezuelan jobs. He joked that the Chinese import all of
their workers and even the workers' noodles.


6. (C) According to Moshiri, the Chinese oil company CNPC
has approached Chevron about signing a cooperation agreement
for projects in Venezuela. CNPC is eager to work with
Chevron on human resources issues, social responsibility

CARACAS 00001977 002 OF 002


projects, and technology. The Chinese have even hinted that
they may be willing to give Chevron a stake in some of their
Venezuelan projects. Moshiri believes PDVSA may have
encouraged CNPC to reach out to Chevron.

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CITGO
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7. (C) Moshiri also told the Ambassador that Chevron has
been approached by Citgo to discuss ways in which Chevron can
help Citgo run more efficiently and expand its operations.
He stated Citgo has been very profitable for the BRV, and
added he believes the BRV is no longer interested in selling
Citgo. Moshiri stated Citgo management wants to expand their
business but the BRV is not willing to invest additional
funds in the company. Moshiri added that Chevron is just
talking to Citgo at the moment and it is not clear that
anything will result from the discussions.

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CHEVRON'S PRIORITIES IN VENEZUELA
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8. (C) Moshiri stated Chevron's top priority in Venezuela is
the development of its LNG project in Plataforma Deltana.
Chevron will declare commerciality on the project at the end
of the year. Chevron hopes to have its first LNG from the
project by 2012 or 2013. Moshiri stated PDVSA has offered to
provide some gas from the Mariscal Sucre project for
Chevron's LNG facility.


9. (C) President Chavez will inaugurate the
Colombia-Venezuela gas pipeline on October 12. The 253
kilometer pipeline will transport gas from Chevron's fields
in Colombia to the Maracaibo area, which is suffering from a
gas deficit. Chevron constructed the pipeline but PDVSA
provided all of its funding. Moshiri stated President Chavez
is planning a major ceremony for the inauguration and plans
on inviting several Latin American presidents.


10. (C) When asked about the Faja, Moshiri stated that the
companies that are currently carrying out certification
studies in the Faja will all require partners in order to
develop extra heavy crude blocks. He stated Chevron and
Total are the only companies currently operating in Venezuela
that have the necessary expertise to serve as partners.
Moshiri believes that the Russian oil company Lukoil will
eventually ask Chevron to partner with it. The Chinese,
Petrobras, and Repsol have also expressed interest in
partnering with Chevron. Moshiri closed the meeting by again
noting that Chevron is optimistic about its future in
Venezuela. He noted that Chevron's margin per barrel in
Venezuela before the recent changes in fiscal policies and
equity structures was USD 24. Even after the changes,
Chevron's margin was still USD 13 per barrel, over twice the
margin of its operations in Argentina. Moshiri explained
that the high margins in Venezuela stem from the fact that it
is not necessary to explore for crude in the Faja.

DUDDY