Identifier
Created
Classification
Origin
08ALGIERS102
2008-01-28 17:40:00
CONFIDENTIAL
Embassy Algiers
Cable title:  

FOREIGN COMPANIES WARILY EYE NEW OIL AND GAS

Tags:  ENRG EPET PGOV ECON EINV AG 
pdf how-to read a cable
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RUEHFR/AMEMBASSY PARIS 2522
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RUEHFRM/AMCONSUL MARSEILLE 1688
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 000102 

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/28/2018
TAGS: ENRG EPET PGOV ECON EINV AG
SUBJECT: FOREIGN COMPANIES WARILY EYE NEW OIL AND GAS
CONCESSIONS

REF: 07 ALGIERS 1804

ALGIERS 00000102 001.2 OF 002


Classified By: Charge d'Affaires a.i. Thomas F. Daughton;
reasons 1.4 (d) and (e).

THIS CABLE CONTAINS COMPANY PROPRIETARY INFORMATION NOT TO BE
SHARED OUTSIDE USG.

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 000102

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/28/2018
TAGS: ENRG EPET PGOV ECON EINV AG
SUBJECT: FOREIGN COMPANIES WARILY EYE NEW OIL AND GAS
CONCESSIONS

REF: 07 ALGIERS 1804

ALGIERS 00000102 001.2 OF 002


Classified By: Charge d'Affaires a.i. Thomas F. Daughton;
reasons 1.4 (d) and (e).

THIS CABLE CONTAINS COMPANY PROPRIETARY INFORMATION NOT TO BE
SHARED OUTSIDE USG.


1. (C) SUMMARY: The Algerian oil parastatal Sonatrach
announced belatedly on January 12 that fifteen new
exploration blocks would be opened up to bidding by foreign
hydrocarbon companies in 2008. Reactions from several U.S.
and Italian firms indicate a wariness to pursue new
investments given the creeping resource nationalism and
arbitrary conditions imposed by Sonatrach (reftel). However,
one U.S. oil company is optimistic after having reached a
negotiated resolution to a dispute with the energy ministry,
and others tell us they are grudgingly taking the first steps
to pre-qualify for the new concessions, "as long as we're
here." End Summary.

ANADARKO: "SENDING THE RIGHT MESSAGE"
--------------


2. (C) Referring on January 20 to the bidding round, Energy
Minister Chekib Khelil told the press ominously that,
"litigious companies will not be invited to participate in
future contracts." It was a thinly-veiled reference to U.S.
oil firm Anadarko, which has begun to exercise its
conciliation and arbitration rights under its contract with
Sonatrach over an ongoing windfall profits tax dispute.
Anadarko Algeria President Dick Holmes dismissed Khelil's
remarks, telling us on January 21 that as far as he knew, all
oil and gas companies in Algeria had as part of their
contracts some sort of dispute resolution procedure, and
Anadarko was still within the terms of its contract. Holmes
said, "If Khelil is serious, then BP, Repsol, BHP and a
couple of other companies will be excluded, since all of them
are at various stages of contractual dispute with Sonatrach
as well." Holmes told us there were enough companies in
similar situations to make it inconceivable for Khelil to
make good on his promise, and said that Anadarko was not

worried. Meanwhile, Holmes said that Anadarko was taking the
first steps to pre-qualify for bidding on the new
concessions, "just to send the right messsage." This would
allow Anadarko to wait and see, he said, and decide whether
or not formally to bid pending a satisfactory resolution to
the windfall profits dispute.

CONOCO-PHILIPS UPBEAT, ITALIANS GRUMPY
--------------


3. (C) Italian Commercial Counselor Gloria Bellelli told us
on January 25 that Italian energy companies had little choice
but to stay in the game in Algeria, given Italy's heavy
reliance on Algerian gas. Bellelli said that Italian energy
giant ENI was attempting to diversify Italy's gas supplies
and draw from other countries in the Mediterranean basin, but
that this would take time. She said ENI and other Italian
firms were not at all pleased with their business
relationships with Sonatrach, as they have also complained
about the windfall profits tax, but since there is so much
equipment and investment already in place, the prevailing
attitude of ENI and others is grudging acceptance. Bellelli
summarized what she had heard from ENI as an attitude of "as
long as we are already here, we might as well" proceed, in
the absence of any short-term alternatives.


4. (C) Newly-arrived Conoco-Philips Country Manager Armando
Gallegos told the Ambassador on January 16 that his company,
at least, was upbeat and moving ahead with USD 180 million in
new investment in Algeria. (Note: Gallegos, while new to
Algeria, has some experience with the arbitrary nature of
resource nationalism: his previous assignment in Caracas was
cut short due to the phenomenon. End note.) Gallegos said
that Conoco-Philips had resolved "to our satisfaction" its

ALGIERS 00000102 002.2 OF 002


dispute with Sonatrach over the new-assets transfer fee the
parastatal imposed following Conoco-Philips' purchase of the
Algerian assets of the former Burlington Energy.
Conoco-Philips, Gallegos told us, saw no reason not to bid on
the new concessions, even though he was aware of the
difficulties faced by Anadarko, ENI, BP and other major
foreign oil companies (reftel).

COMMENT: BENT BUT UNBOWED
--------------


5. (C) Like boxers heading back into the ring for yet another
round, the major foreign oil companies we have spoken to have
not yet reached the breaking point in their frustration with
doing business in Algeria. With a grudging acknowledgement
of their entrenched presence and equipment, they are already
in the early stages of sizing up the new concessions
announced by Minister Khelil. Holmes and Gallegos both tell
us that they have no illusions that anything has changed in
the Algerian business climate or the behavior of Sonatrach.
They both agree that while the corporate headquarters of many
foreign oil and gas giants are wary of relying too heavily on
Algeria, they and their colleagues are already taking the
first steps towards competing for new concessions. These
steps are buoyed not by the prospect of systemic or legal
change, but by hope for the kind of individual, case-specific
dispute resolution Conoco-Philips has managed to reach.
DAUGHTON