REGIONAL CONOCOPHILLIPS PRESIDENT CONCURS WITH

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 001999

SIPDIS

SIPDIS

EB/ESC FOR SGALLOGLY AND MMCMANUS
DEPT OF ENERGY PASS TO MWILLIAMSON, AHEGBURG, GPERSON, AND
JHART

E.O. 12958: DECL: 09/29/2017
TAGS: EPET ENRG ECON SA
SUBJECT: REGIONAL CONOCOPHILLIPS PRESIDENT CONCURS WITH
YANBU REFINERY UPDATE

REF: RIYADH 1920

Classified By: Economic Counselor Robert Murphy for
reasons 1.4 (b) (c) and (d).

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Summary
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1. (C) In a September 25 teleconference, ConocoPhillips
(COP) Abu Dhabi-based Regional President Nick Spencer
reiterated that press reports regarding the cancellation of
the planned 400,000 barrel a day joint-venture Saudi
Aramco/COP refinery were not true (ref A). Recent press
reports indicated the refinery may now cost $13-$14 billion
USD, leading to public speculation over the project's
cancellation. While noting final cost figures are still in
the works, Spencer pointed out all new refinery capacity
around the world is coming on line at a high cost. Spencer
stated COP "still sees Saudi Arabia as a good place to be,"
and described the firm as "very committed" to the Yanbu
project. For now, COP appears to see the strategic benefits
of entering the Saudi market as justifying a potentially
expensive entry ticket.

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"We're Very Committed to This"
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2. (C) In line with earlier comments from COP consultant
Brooks Buxton (ref A),Spencer told us that COP had not made
final determinations on moving ahead on either the joint
venture refinery with Saudi Aramco in Yanbu, or the UAE-based
Fujairah refinery. Speaking of the Yanbu refinery, he
stated, "The media got ahold of some snippets, probably from
a contractor, and extrapolated from that." He advised us
strongly to "discount" the gossip which was currently
circulating, and emphasized that both COP and Saudi Aramco
management continue to believe the project makes strategic
sense. He stated, "We're still enthusiastic about the
project. Our CEO (Jim Mulva) was just here in Abu Dhabi
yesterday (September 24) and is very, very committed to this.
Senior Aramco managers also want this to happen."

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Projects Costs and Structure Still in Play,
but "We See Saudi as a Good Place to Be"
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3. (C) Spencer went on to explain that COP did not yet have
a full and realistic accounting of the costs for the Yanbu
project. "We're still working on the front end engineering
(FEED) to establish the true cost of the project, and we're
still talking to Aramco about the structure of the project.
Emphasizing that high costs alone would not bar moving ahead,
Spencer noted, "All new incremental refining capacity (around
the world) is coming on line at a high cost." He noted that
projects, such as Yanbu, which leveraged existing
infrastructure, were more likely to move ahead. Remarking on
the explosion of proposed refining projects around the world,
Spencer mused, "Many of these won't go ahead, especially the
greenfield projects. However, Yanbu is plugging into
existing infrastructure (of the Yanbu Royal Commission and
the Yanbu Industrial City),so it's not really a greenfield
project. The Fujairah refinery is a greenfield, but it's
still being studied, and I can't comment on it." He wrapped
up by adding, "We still see Saudi as a good place to be."
(Note: COP as a company has not any significant presence in
Saudi Arabia since the 2003 collapse of the joint venture gas
negotiations. ChevronPhillips, COP's 50-50 petrochemical
sector joint venture with Chevron, is represented in the KSA,
but is globally operated as a separate entity. End note.)

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Saudi Demand for 30% Initial Public Offering
Still Under Negotiation
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4. (C) COP continues to have concerns with the SAG's demand

RIYADH 00001999 002 OF 002


that 30 percent of the project's shares be offered in
initial public offering (IPO) at the project's inception.
Spencer noted that he had a good discussion with Jadwa
Investments banker Brad Bourland on the issue, and he
continues to information gather and engage Saudi Aramco on
the topic. He believes COP is making "some progress on the
issue, but it's a continuing area of uncertainty. IPOs of
this magnitude are new to Saudi." With the volatility in the
Saudi TASI stock market of the last two years, Spencer
concurred with Emb Offs that the SAG is gaining an
increasingly sophisticated understanding of the potential
downside to an early IPO, rather than, as earlier,
reflexively viewing a compulsory IPO as an easy mechanism to
"spread the wealth" among the Saudi public.

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Philanthropic Outreach in Education
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5. (SBU) Spencer also noted that COP was working with the
Saudi Arabian General Investment Authority (SAGIA),the SAG's
investment promotion agency, to identify possible strategic
partners for education-oriented philanthropy. In partnering
with SAGIA, COP will be working at the cutting edge of
educational reform in the KSA. (Note: SAGIA, as the
regulator for the newly-established new economic cities, has
been granted wide authority in the KSA for opening up the
educational field. SAGIA will become the de facto education
regulator for all educational establishments in these newly
cities, for both universities, as well as dozens of new
primary and secondary schools. End note.) COP hopes to
establish both university chairs in the engineering field,
and partnerships between US and Saudi universities,
particularly in areas related to petroleum engineering.



FRAKER