UPDATE ON CONOCOPHILLIPS NEGOTIATIONS

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001100

SIPDIS

ENERGY FOR CDAY AND ALOCKWOOD
NSC FOR JSHRIER

E.O. 12958: DECL: 01/28/2018
TAGS: EPET ENRG EINV ECON VE
SUBJECT: UPDATE ON CONOCOPHILLIPS NEGOTIATIONS

REF: A. A. CARACAS 487

B. B. CARACAS 708

Classified By: Economic Counselor Darnall C. Steuart for Reason 1.4 (D)


1. (C) SUMMARY: After an August 4 meeting with members of the
BRV negotiating team, ConocoPhillips (CP) is less optimistic
about the outcome of the compensation negotiations for its
expropriated assets in Venezuela. Senior BRV officials
indicated that, after review of CP's proposed valuation of
three CITGO refineries that might be considered in an asset
swap, the BRV would prefer to use an "auction" approach to
establish the right asset value. CP thinks this essentially
forecloses the possibility of a swap. Such an approach
would, however, give the BRV political cover. CP executives
believe the company is farther along on the road towards
initiation of an arbitration case than ExxonMobil and that at
least the first significant step in such a case would be
likely before any swap could be negotiated. CP is concerned
about its exposure to Venezuela because it continues to be a
major importer of Venezuelan crude. The company is also
concerned about possible changes in the BRV negotiating team.
End summary.


2. (C) ConocoPhillips President for Strategy, Integration,
and Specialty Businesses Greg Goff, Latin America President
Roy Lyons, and John Barr, CP General Manager for Global
Strategy Integration and Business Development, briefed the
Ambassador August 4 on the current status of their
compensation negotiations with the BRV. While the CP
representatives had been guardedly optimistic in their April
and May meetings with the Ambassador (see reftels),they were
considerably less so following their August 4 meeting with
members of the BRV negotiating team, former Vice Minister of
Energy Bernard Mommer and CPV President Eulogio del Pino.


3. (C) According to Goff, the BRV representatives informed CP
that, following their review of CP's valuation of the three
CITGO refineries under consideration for an asset swap, the
BRV wishes to go "to the market" in an "auction type
approach" to prove it had received the right value for the
CITGO assets. The BRV officials signaled that they wish to
resolve the dispute without going to the National Assembly
for approval but, in such a case, it would be a challenge to
get the people to accept that the BRV had received the best
value for the CITGO assets in the absence of a public
auction. Goff said he could not be certain whether this BRV
attitude was real or merely a stalling tactic but suspects
that a straight up swap of CP assets here for CITGO assets in
the U.S. is now unlikely.


4. (C) Goff noted that CP's assessment of the value of the
three CITGO refineries was based on extensive work by a team
that was given full access to CITGO for ten weeks. He
underlined that the assessed value was fair and comparable to
what other such assets would trade for in the United States.
In fact, said Lyons, CP's assessment was at the lower end of
the range of what such assets might receive in the U.S. He
added that he was not sure that the BRV had actually run its
own numbers. The BRV's assessment of the value of CP's
expropriated assets continues to be substantially different
than that of CP and this is exacerbated by the fact that oil
prices have more than doubled since the nationalization.
Goff opined that the BRV would likely be willing to pay cash
if CP accepted the BRV valuation, but this would
significantly undervalue the asset.


5. (C) When the Ambassador pointed to widespread rumors that
the BRV would welcome the return of CP to Venezuela, Goff
smiled and said "it won't happen." He confirmed, however,
that CP knew it would be welcomed back if they were willing

CARACAS 00001100 002 OF 002


to accept the BRV's terms and conditions because CP had
proven itself as a good operator with which to partner.

--------------
ARBITRATION MOVES AHEAD
--------------


6. (C) Goff informed the Ambassador that ConocoPhillips now
appears to be further along the path towards arbitration than
ExxonMobil. He said it is unlikely that any asset swap
negotiations would be completed before some key step is taken
in the arbitration process and added that CP is concerned
that the BRV is not prepared for the arbitration.

--------------
CP CONCERNS
--------------


7. (C) Goff noted that CP's exposure to Venezuelan risk is
higher because the company is still a major purchaser of
crude for two refineries. He also noted CP's concerns about
potential changes in the BRV negotiating team. While CP
believes that Mommer is personally committed to resolving the
dispute, they are less sure of the commitment of other BRV
negotiators. Goff confirmed that newly named Vice Minister
of Energy Ivan Orellana was not present in the meeting with
CP and is not involved in the negotiations. When Goff asked
about rumors that Eulogio del Pino had been appointed as the
PDVSA Vice President, EconCouns noted that the Embassy
believes del Pino has been named to that position. No public
announcement has been made and it is still unknown whether
del Pino would continue to serve concurrently as CVP
President or be replaced. Goff also pointed to persistent
rumors that Ramirez may be tapped to be Chavez' next Vice
President. He thought a Ramirez departure from the energy
portfolio could also slow or impede negotiations because of
Ramirez' commitment to arriving at an agreement.



DUDDY