CHAD OIL: GOVERNMENT WAVES THE CARROTS

UNCLAS NDJAMENA 000546

SIPDIS

SENSITIVE
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E.O. 12958: N/A
TAGS: ECON EFIN ENRG EPET PGOV CD
SUBJECT: CHAD OIL: GOVERNMENT WAVES THE CARROTS

REF: NDJAMENA 419


1. (SBU) Summary: Working relations between the Government of Chad
and the Esso-led oil consortium continue to improve. It appears
that the President has been persuaded that taking too aggressive an
approach at a time when the Consortium is weighing future investment
decisions could jeopardize future revenues. End Summary.

WE WILL TREAT YOU NICELY
--------------

2. (SBU) Esso Director Stephane de Mahieu met the Ambassador June
21 to discuss developments following the adoption of Chad's new
Petroleum Code (reftel). Mahieu reported two positive events:
First, the President had issued a decree "re-empowering" the
National Petroleum Coordinator to serve as a "one-stop shopping"
trouble-shooter for the Consortium, reporting to the Presidency.
Secondly, the President had convoked Esso representatives on June 18
and stated (in the presence of the Minister of Petroleum and the
National Coordinator) that the first mission of the National
Coordinator would be to bring the rest of the government's actions
in line with existing agreements with the Consortium and to make
sure that the harassment of the Consortium stopped. Differences
between the GOC and the Consortium were to be resolved amicably by
the National Coordinator - without resort to courts or penalties.
As a result, Mahieu stated - with some amazement - the low-level
harassment reported reftel had ceased: work permits were now being
issued, and taxes and customs issues were being resolved.

...BUT THE CONVENTION WILL BE RENEGOTIATED
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3. (SBU) In the same meeting, President Deby declared the existing
conventions obsolete and stated that the Government would be ready
soon to renegotiate. He indicated that those present at the meeting
would be the government's negotiating team: the National
Coordinator (Ahamat Acyl),the Minister of Petroleum (Nadingar),the
Director of the President's Civil Cabinet (Mahamat Hissein) and the
former Minister of Petroleum (Nasseer) who is now a Presidential
Adviser. (Comment: This means that the National Assembly Commission
which had heretofore been charged with this task - but which did not
have any petroleum sector expertise - is now de facto out of the
picture. End Comment).


4. (SBU) President Deby also asked the Consortium to do a better
job of supporting and growing local businesses, increasing local
content and putting in place the long-delayed topping plant in order
to provide Chad with a reliable supply of refined oil. He
reiterated that he wanted monitoring of the pipeline (for the
purpose of calculating royalties) to take place at the pipeline in
Kome rather than on shipboard in Kribi, Cameroon.

GOOD COP ON THE SMALL STUFF
--------------


5. (SBU) Mahieu attributed the turnaround in approach to the fact
that the President's advisors on petroleum (including the new
National Coordinator Acyl) realize that taking too aggressive an
approach could have a huge impact (and possibly jeopardize) future
operations at a time when the Consortium is weighing whether to
continue exploration. At the end of 2008 Esso will have to make a
decision on whether to keep on exploring or to turn over their
blocks to the government. Consortium production was currently at
130,000 - 140,000 barrels a day. Some 20,000 - 30,000 should be
added in the next couple of weeks, and production should be back up
to 150,000 by next year. But production rates after that depended
on investments being put in place now to take care of excessive
water in the oil and in how aggressively Esso would decide to invest
to increase the recovery rate (currently at 30% of oil in place.)
Mahieu speculated that President Deby was "playing Good Cop on the
small stuff" so that Esso would not be able to stall renegotiation
by arguing that the GOC was in violation of existing conventions.


CHEVRON PRESENCE
--------------


6. (SBU) The Ambassador also met with new Chevron representatives
on June 25. Still bruised from last year's tax dispute with the
government, Chevron has decided to second a Chevron representative
to Esso to work in the Public Relations Office. Chevron also
intends to make its own social and educational investments in Chad
order to increase visibility as a consortium partner.

CHINESE DEVELOPMENTS
--------------


7. (SBU) Updating on Chinese developments, Mahieu believed that
the Chinese were "stuck between what they'd like to do and what the
Government wants them to do." The Chinese would prefer to work in
the Bongor area (in the South) where they say they have made a
discovery, but the GOC wanted them to work on the Lake Chad area and
build a mini-refinery there to supply the Chadian market. This was
of no interest to the Chinese (and Mahieu stated that Esso -
"sitting on the best Lake Chad acreage already" - did not believe
that there was enough oil to sustain a mini-refinery). If China
went ahead with a mini-refinery on Lake Chad, it would be as a
"give-away" with a view to getting something better from the
Government. In any event, Mathieu stated that no production could
be up and running before 2009.

COMMENT
--------------


8. (SBU) The new realism on the part of the Government of Chad is
welcome. President Deby appears to be getting sound counsel on how
to keep the oil consortium happy (and investing) and is approaching
the upcoming renegotiation intelligently. Wall