FOREIGN COMPANIES WARILY EYE NEW OIL AND GAS

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