EXXONMOBIL GUARDEDLY OPTIMISTIC ABOUT POTENTIAL

C O N F I D E N T I A L KUWAIT 001023 SIPDIS FOR NEA/ARP LONNIE KELLEY, EEB /ESC/IEC/EPC FOR MCMANUS E.O. 12958: DECL: 08/20/2018 TAGS: EPET ENRG EINV KU SUBJECT: EXXONMOBIL GUARDEDLY OPTIMISTIC ABOUT POTENTIAL PRODUCTION-REFINING DEAL IN KUWAIT Classified By: Ambassador Deborah K. Jones for reasons 1.4 (b) and (d). ¶1. (C) During a September 18 meeting with Econoff, ExxonMobil's President of Operations in Kuwait expressed optimism that the Kuwait Petroleum Corporation(KPC) would reach an integrated agreement with his company combining oil production from a northern field, a joint venture for refining part of the crude oil produced and a tanker deal for delivering the remainder of the crude. ¶2. (C) Hoholick said Exxon and KPC reached a Heads of Agreement in January, 2007 and that negotiations had been progressing steadily, if slowly, since then. He said that the oil production part of the deal would involve an enhanced technical services agreement(ETSA) for extraction of heavy crude from the Ratga field which straddles the Iraq-Kuwait border. He added KPC hoped the field would produce 400,000 barrels per day by 2015 and ultimately produce 600,000 bpd. ¶3. (C) Hoholick said Exxon did not expect much profit to be derived for ExxonMobil from the production agreement. The bulk of the financial return for his company would come from the joint venture part of the agreement, which would include refining of the crude oil. He said this integrated approach was attractive since it offered a better chance to avoid strong parliamentary opposition which is often provoked when complex oil production agreements with international oil companies are involved. ¶4. (C) Hoholick said that KPC gave ExxonMobil the choice between developing the gas field discovered in 2006 in Northern Kuwait and the Ratga heavy crude project. He said this was an easy choice for ExxonMobil, which viewed the upside of the Ratga project as substantially more promising than the new gas field. He pointed out that ExxonMobil had the benefit of having assisted the Kuwait Oil Company with the drilling of 8 exploratory wells in the new gas field. ¶5. (C) According to Hoholick the production of the heavy crude at the Ratga field would require high levels of steam injection, and that a co-generation system would produce the necessary steam and also generate 1 gigawatt per hour of excess electricity which could be delivered to the local electricity grid. ¶6. (C) While optimistic about ultimately reaching an agreement with KPC and its subsidiaries, Hoholick refused to offer a timeline for concluding the deal. He noted that ExxonMobil had been in Kuwait for 12 years to date without signing a major deal. ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/cables Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * JONES