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IdentifierCreatedClassificationOrigin
07CARACAS218 2007-02-01 15:45:00 CONFIDENTIAL Embassy Caracas
Cable title:  

CONOCOPHILLIPS MEETS WITH ENERGY VICE MINISTER

Tags:   EPET ENRG EINV ECON VE 
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					  C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000218 

SIPDIS

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
NSC FOR DTOMLINSON

E.O. 12958: DECL: 01/12/2017
TAGS: EPET ENRG EINV ECON VE
SUBJECT: CONOCOPHILLIPS MEETS WITH ENERGY VICE MINISTER

REF: A. CARACAS 102


B. CARACAS 157

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



1. (C) SUMMARY: ConocoPhillips (CP) executives met with
Energy (MEP) Vice Minister Bernard Mommer on January 31 to
discuss the shipment of Cuban oil to the Petrozuata upgrader
and the migration of the Petrozuata and Hamaca strategic
associations to PDVSA controlled joint ventures. Mommer
stated Cuban oil will not/not be shipped to Petrozuata for
upgrading. CP stressed it must have fair compensation for
lost value, a prominent governance role in the new joint
ventures, and international arbitration in order to migrate.
Mommer said there was very little flexibility in MEP's
proposal and indicated he thought the migration process would
be completed in 90 days. CP executives stated media reports
about the signing of a migration agreement for the Sincor
association were false. END SUMMARY



--------------------------


CUBAN ISSUE APPEARS TO BE RESOLVED


--------------------------




2. (C) As reported in Reftel A, CP was concerned that PDVSA
would try to use Petrozuata to upgrade Cuban or Iranian
crude, and that that might place CP in violation of U.S. law.
In a January 30 meeting with the Ambassador and Econoffs, CP
executives stated they had evidence that a shipment from Cuba
would be sent to Petrozuata in the next few weeks. When
pressed for details, they stated they did not know if a
tanker had been loaded and stated a shipment did not appear
on Petrozuata's shipping register.



3. (C) In a follow-up meeting with Petroleum Attache
(Petatt) on January 31, a CP executive stated the shipment of
Cuban crude was the first item CP raised in a meeting with
Mommer earlier in the day. CP had sent Mommer and his
American attorney advisors copies of the relevant U.S.
legislation dealing with trade with Cuba prior to the
meeting. The CP executives stated Mommer and his attorneys
seemed to understand the gravity of the situation and stated
they would get back to CP shortly on the issue. During the
course of the meeting with Petatt, a second CP executive
interrupted the meeting and said he had just spoken with
Mommer. He stated Mommer said the issue was resolved and
that Cuban crude would not be shipped to Petrozuata for
processing.



4. (C) The CP executive said Mommer told him not to say
anything on the phone and referred to the Cuban issue as "the
first issue in our meeting." The executive surmised that
Mommer knew that CP's phones had been tapped. Both CP and
ExxonMobil executives have told us that they were informed by
reliable sources that their phones were recently tapped.



--------------------------


MIGRATION OF THE STRATEGIC ASSOCIATIONS


--------------------------




5. (C) In the January 30 meeting with the Ambassador, CP
executives stated their company has three vital needs that
must be addressed if they are to migrate their two
associations to PDVSA controlled joint ventures. First, CP
must receive fair compensation for the value that they will
lose in both associations as a result of the migration.
Second, CP must have a significant governance role in the two
joint ventures. Finally, CP must have rights to
international arbitration. CP executives told Petatt that
Mommer was noncommittal when they presented their three
points to him in the January 31 meeting. He told them the
MEP has very little negotiating flexibility regarding the two

CARACAS 00000218 002 OF 002


written proposals it provided to CP (Reftel B). The terms of
the written proposals are basically the same as the terms in
the migration of the former operating service agreement
fields to PDVSA controlled joint ventures. (NOTE: As
reported in Reftel B, the MEP originally supplied CP with a
proposal for the Hamaca strategic association. CP executives
could not explain the delay in providing them with a proposal
for Petrozuata. END NOTE.)



6. (C) When the Ambassador asked about CP's corporate
structure in Venezuela, the executives replied that CP
incorporated its subsidiaries last year as Dutch companies in
order to take advantage of the Dutch Bilateral Investment
Treaty. CP executives told Petatt that they had already
taken administrative steps to preserve their arbitration
rights. The executives told the Ambassador that arbitration
was the worst case scenario for CP.



7. (C) CP executives in the January 30 meeting also stated
their migration negotiations with the MEP would cover the
Corocoro profit sharing agreement as well as Petrozuata and
Hamaca. Industry contacts had told us that the MEP would
concentrate on migrating the strategic associations and then
turn their attention to the profit sharing agreements. Under
the terms of the Corocoro profit sharing agreement, PDVSA
would receive a 50 percent share of profits (PEG) in excess
of regular taxes. The migration of Corocoro to a joint
venture would eliminate the PEG and would actually produce a
better deal for CP. The CP executives noted Mommer said the
removal of the PEG should be considered as part of CP's
compensation for value lost during the migration.



8. (C) The executives also stated that Mommer has shortened
the time for implementation of the migrations. Mommer had
previously told various oil company representatives the
migration process would take three to six months. Mommer is
now stating the process should take 90 days.



9. (C) Rumors began circulating earlier this week that Total
and Statoil had signed a migration agreement with the MEP for
the Sincor strategic association. Petroleumworld picked up
the story and reported it as fact. When asked about the
rumors on January 31, CP executives said they had been in
touch with both Total and Statoil and both of them denied the
story. Both Total and Statoil stated they still had numerous
issues to resolve before they could sign a migration
agreement.



--------------------------


COMMENT


--------------------------




10. (C) With the passage of the Enabling Law on January 31
(Septel), we expect the migration process to speed up
dramatically. The six international oil companies (IOCs)
appear to be holding firm on their demands for fair
compensation and governance. It remains to be seen which
side will blink first. As noted in Reftel B, it is entirely
possible that some of the IOCs will not be operating in
Venezuela this time next year.

BROWNFIELD