HONDURAS: CONOCO PAUSING TO AWAIT CLARITY ON OIL

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000151

SIPDIS

SIPDIS
NOFORN

STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, EB/CBA, AND WHA/CEN
STATE FOR D, E, P, AND WHA
STATE FOR S/ES-O MMILLER AND MSANDELANDS
TREASURY FOR AFAIBISHENKO
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK
COMMERCE FOR MSELIGMAN AND WBASTIAN
STATE PASS USTR FOR AMALITO

E.O. 12958: DECL: 01/22/2017
TAGS: EPET ENRG PREL BBSR NI VE HO
SUBJECT: HONDURAS: CONOCO PAUSING TO AWAIT CLARITY ON OIL
STORAGE, BUT OTHERWISE STILL BULLISH

REF: A. A) TEGU 0134 AND PREVIOUS


B. B) TEGU 0135

C. C) TEGU 0149

Classified By: AMB Charles Ford for reasons 1.4 (b,d)


1. (C/NF) On January 22, a representative of U.S. firm
ConocoPhillips told EconChief by phone that the company
remains optimistic about signing a contract with Honduras for
the delivery of all gasoline and diesel imports for the
coming year. Conoco said that its position remains the same
as it was prior to the January 13 announcement that the GOH
it intend to take control of privately-owned oil storage
facilities. Negotiations with the GOH continue, and
"everything is moving forward as (the GOH) had specified."


2. (C/NF) Conoco's contract will cover only delivery of the
fuel to the offload flange at a receiving terminal in
Honduras. Conoco is therefore not concerned about "internal
issues" in the Honduran fuels market, and says that any
changes to the "onshore" fees (described ref A) would not
affect Conoco at all. Conoco is requiring, however, that the
GOH demonstrate that it has assumed control of the receiving
terminals, and that an ISO-certified tank operator be in
place to administer the installation. The GOH has threatened
to replace all existing storage terminal workers with outside
contractors from Peru. Conoco expressed no concern with such
a change, noting that those kinds of changes of ownership and
staffing happen all the time in the oil sector.


3. (C/NF) GOH sources had been expecting a visit from Conoco
this week to continue and perhaps conclude negotiations.
Conoco, however, denied having a plan to visit Honduras so
soon, noting that it would be premature to send a technical
inspection team to look at the receiving facilities until the
above conditions have been met. Only once the terminal
passes this inspection will Conoco proceed to signing the
contract. In addition, Conoco is seeking to add language to
the contract that would indemnify it from any lawsuits by the
owner of the terminal, DIPPSA/Trafigura. Despite this pause
in talks while the matter of storage is clarified by the GOH,
Conoco remains committed to the deal.


4. (C/NF) Conoco's representative told EconChief that the
company was surprised by the interest shown by the Department
of State in this case. EconChief said this was a
high-profile issue in Honduran politics with a long history,
and that Conoco had "walked into a play in its third act."
Precisely because of the highly politicized nature of the
matter, Post had given an extensive briefing to Conoco in
December, to help ensure Conoco would not be blindsided by
events. Conoco's representative thanked EconChief for that
context, saying that because Conoco has no presence in
Honduras, the input of Post was vital to better understanding
the situation. EconChief stressed that, as always, the
decision of how to weigh this information as part of the
overall choice of whether to invest in Honduras was the
responsibility of the company.


5. (C/NF) Given allegations in the press that the USG was
"twisting Conoco's arm" to not sign any contract, EconChief
asked Conoco directly if at any time anyone from the USG had
told Conoco they could not or should not sign the contract.
Conoco confirmed that no one had ever said anything like that
to them, and that in fact Conoco maintains its intention to
sign a contract as soon as the storage issues are
satisfactorily resolved. EconChief also asked if such
pressures were being exerted by other international oil
companies (IOCs). Conoco's representative said that Conoco
routinely talks with other IOCs (except about price),and
that the pending deal in Honduras was not a source of
friction in those relationships. Conoco said that it has
500,000 and 600,000 barrels per day relationships with the
other IOCs, and that in comparison a 12,000 barrel per day

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deal in Honduras is "peanuts."


6. (C/NF) Comment: Post will continue to defend the
interests of all three U.S. oil companies (Conoco, Esso, and
Texaco) involved in this matter, but will continue to insist
to the GOH that any new delivery arrangements not infringe
the existing rights of current investors. Post will remain
in contact with Conoco as this negotiation progresses, and
Conoco has offered to brief Post during their next visit to
Honduras. End Comment.

FORD
FORD