FLORIDA STATE GOVERNMENT OFFICIAL TO PETROBRAS: GET OUT OF

C O N F I D E N T I A L SECTION 01 OF 02 RIO DE JANEIRO 000622

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/BSC

C O R R E C T E D C O P Y

E.O. 12958: 11/23/2017
TAGS: EPEC ECON PREL PGOV BR IR
SUBJECT: FLORIDA STATE GOVERNMENT OFFICIAL TO PETROBRAS: GET OUT OF
IRAN

REF(S): A) RIO DE JANERIO 381, (B) RIO DE JANEIRO 247,

(C) RIO DE JANEIRO 196

Classified By: Charge de Affairs Phil Chicola for reasons 1.4 B AND D.



1. (C) Summary: During Florida Governor Charlie Crist's visit to Rio
on November 7-8, the Governor's Chief of Staff George LeMieux met with
Samir Awad, Executive Manager for Petrobras' International Assets, on
November 7. They discussed Florida's legislation requiring divestiture
of the state's US$137 billion pension fund from any companies doing
business in Iran and concerns about Petrobras investing in Iran. Awad
reviewed Petrobras' activities there, emphasizing the challenges the
oil giant faces in carrying out its business commitments there. Awad
confirmed, contrary to public assertions by the GOB, that the GOB is
involved in Petrobras decision-making regarding investment. End Summar


2. (SBU) LeMieux met with Awad on November 7. He stated that the
State of Florida was very concerned about Iran as a source of funding
for terrorist attacks against the United States and its allies.
LeMieux explained that Governor Crist fully supported recent
legislation to divest the state's US$137 billion pension fund from any
companies doing business in Iran and that, while Florida has no
investments in Petrobras, he wished that the company would reconsider
doing business in Iran.


3. (SBU) Awad responded that Petrobras must go where the Brazilian
Government directs it. However, from an asset manager's perspective,
he too would like Petrobras to pull out of Iran. According to Awad,
the difficulties of operating in Iran, including obtaining parts and
negotiating contracts, makes operating there next to impossible, and is
a disincentive to many companies. Petrobras began drilling for oil in
Iran in 2002, but has had no major oil discoveries over the last five
years. In fact, its first well is eight months behind schedule and
300% over budget (US$80 million has been spent already),but it should
be completed in December 2007. Petrobras has the option to negotiate a
new contract, but he sees no incentive to do so at this time. Awad
admitted that he had already recommended to the Petrobras Board that
the company exit Iran as soon as possible, and that Petrobras' legal
department had poured over the contracts looking for any loophole to
pull out before completing the second well that it had already
committed to. Unfortunately, the company is legally bound to finish
the second well, which Awad believes should be complete by July 2008.


4. (C) LeMieux inquired about media reports about Iranian delegations
traveling to Brasilia for diplomatic and business meetings. Awad
explained the Iranians were using the press to make it appear that
other governments had confidence in their regime. He emphasized that,
politics aside, it made no business sense to stay in Iran, and that
Petrobras had no directive to remain there. Regarding Bolivia, Awad
stated that due to drought, Brazil did not have the hydroelectric power
for gas generation, and that worldwide all LNG contracts for the next
four years have already been sold, so Brazil badly needed BoliviaQs gas
despite increased prices.


5. (C) Awad also admitted to being surprised by the information the
Ambassador Sobel provided in April 2007 about the Iran Sanctions Act
(ILSA) (Ref A). He noted that companies such as Shell, Repsol and
Statoil have much larger investments in Iran, with hundreds of millions
of dollars invested in gas plants, (implying that our focus on
Petrobras was overstated). He also speculated that like Libya, Iran
might one day turn a corner and the U.S. might change its policies
toward Iran as it did towards Libya Awad went on to emphasize that
outside Brazil (where the company reaps 90% of its profits) Petrobras'
decisions on where to drill are solely based on economics rather than
politics. Inside Brazil is a different matter.


6. (U) Awad went on to highlight Petrobras as a global model for a
state-run oil company. The firm has heavily invested in Nigeria,
Angola and the United States. In the U.S. alone, it plans to invest an
additional US$5 billion over the next five years in exploration and
production in the Gulf of Mexico and improvements to the Pasadena
refinery in Houston, TX in which it has a 50%t stake. Awad highlighted
Petrobras' commitment to its investments in the United States despite
considerable challenges presented by hurricanes, difficult geology and
little return. Petrobras is also exploring opportunities in Pakistan,
India and China.


7. (SBU) LeMieux concluded by expressing hope that he could one day
recommend Petrobras to the Florida legislature and to Florida investors
as a terrific company and a sound investment for Floridians.


8. (C) Comment: The GOB consistently states in public, for example
regarding investments in the Caspian Sea region, that Petrobras is a

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private sector entity that does not take guidance from the GOB. AwadQs
statement that Petrobras goes where the Brazilian government directs
gives the lie to public GOB statements and confirms that the GOB is
involved in such decision-making at Petrobras. This is significant
both because of where Petrobras is investing and because the GOB feels
it is necessary not to be up- front about its role in directing these
investment decisions. End Comment.
MARTINEZ