MALI FORECASTS A CHANCE OF OIL FOR 2009

C O N F I D E N T I A L SECTION 01 OF 03 BAMAKO 000151

SIPDIS

E.O. 12958: DECL: 03/05/2019
TAGS: ECON EIND ETRD EINT EAGR ML
SUBJECT: MALI FORECASTS A CHANCE OF OIL FOR 2009

REF: A. 06 BAMAKO 520

B. 07 BAMAKO 167

Classified By: Econ Officer Manoela Borges, Embassy Bamako, for
reasons 1.4. (b) and (d).


1. (C) SUMMARY: Five years into its renewed push for oil
exploration (Ref. A),Mali has yet to strike black gold.
During a January 4 speech to the nation, however, President
Amadou Toumani Toure served up a rather optimistic New Year's
resolution: Malian oil would flow by the end of June 2009.
Two months later, oil optimism within the Malian government
is still going strong. Indeed, an oil prospecting consortium
run by the Italian oil company Eni and the Algerian
government company Sonatrach is poised to drill five wells in
northern Mali's Taoudenni basin within the next few months.
One of Eni and Sonatrach's competitors, still operating out
of its offices in Bamako, suggested that the likelihood of an
immediate oil strike was slight. Nevertheless, the mere act
of drilling carries its own significance as northern Mali has
seen a total of only four or five oil wells drilled since

1960. At a cost of USD 5 million to USD 15 million per well,
the venture is a sizable investment in Mali. While Malian
authorities appear optimistic about the probability of
finding oil in Mali, there appears to be no discussion within
the Malian government over how eventual oil revenues might be
distributed. Given the well known sensitivities of northern
Mali and the fact that drilling will likely occur on land
regarded as belonging to Mali's historically marginalized
Arab and Tuareg minorities, this oversight gives some cause
for concern. End Summary.

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GOM Predicts Oil for 2009
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2. (U) In a January 4 speech outlining the GOM's
infrastructure projects for 2009, President Amadou Toumani
Toure predicted Malian oil would begin flowing by the end of
June 2009, following the drilling of five wells in the
Taoudenni Basin. This assertion was reiterated by Harouna
Cisse, Economic Advisor to the Presidency's Secretary
General, during a March 3 meeting with the Embassy. While
Cisse was confident about Mali's immediate oil prospects, he
said solutions for transporting oil, via the construction of
a pipeline through either Mauritania or Algeria, had yet to
be articulated. On March 6 the Malian Minister of Mines and
Energy, Mamadou "Igor" Diarra, told a local newspaper that
"2009 could be a year of great hope" for the Malian oil
sector. Specifically, Minister Diarra reiterated President
Toure's statement from January, confirming that the joint
Italian/Algerian prospecting venture known as Eni/Sipex would
drill five wells in the Taoudenni basin in June. Minister
Diarra added that the Algerian national oil company,
Sonatrach, which owns Sipex and has exclusive rights to
Mali's northernmost prospecting block along the Mali-Algerian
border, would begin seismic studies in 2009 as well.

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Algerian and Italian Oil Optimism
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3. (C) An Italian-Algerian prospecting consortium, known in
Mali as Eni/Sipex, will drill the wells referenced by Malian
officials. The Italian oil company Eni also owns Agip, which
serves as Eni's better known Refining and Marketing division.
The Algerian portion of this consortium, known by the
acronym Sipex, is the Sonatrach International Petroleum
Exploration and Production Company, wholly owned by Algeria's
national oil company, Sonatrach. In February 2007 the Malian
government awarded oil prospecting rights for a large swath
of territory, known as Bloc 20, along Mali's northern border
with Algeria, to Sonatrach under somewhat unusual
circumstances. Indeed, at the time Malian officials said
Bloc 20 had been specifically created for Sonatrach in order
to permit the Algerian company to expand already on going oil
prospecting operations in Algeria across the frontier to the
Malian side of the border (Ref. B).

4.(U) Sonatrach appears to hold 100 percent of the
exploration and drilling rights for Bloc 20. The Eni/Sipex
consortium holds rights for five other blocs, numbers 1, 2,
3, 4, and 9. These blocs were originally secured by the
Australian company, Baraka Petroleum. All are in the
Taoudenni basin, just south of Bloc 20 along the
Mali-Mauritania border, and comprise a total 193,000 sq. km.
Baraka had previously made sizable investments in oil

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exploration in Mali, undertaking geological surveys in all
five blocs. Those surveys were published just prior to a
2006 agreement to farm-out Baraka's prospecting rights to
Eni and Sipex. Under the terms of the agreement, Eni would
earn a 50 percent participating interest and assume
operations in all five of Baraka's blocs, while Sipex would
earn a 25 percent participating interest in the same five
blocs. This allowed Baraka, which was facing financial
difficulty, to recover its USD 17 million investment and
retain a 25 percent participating interest in the venture.

5.(C) In a January 28 meeting with the Embassy, Eni/Sipex
representatives in Bamako confirmed the group was poised to
begin drilling in the Taoudenni basin. Sipex Mali Project
Manager Belaid Khatir and Sipex Mali Director General Maache
Boualem said their plans were advancing as announced and that
they faced no significant delays. Boualem said Sonatrach had
significant experience working with the communities in the
region, and did not face the same security concerns as other
companies. Boualem claimed Sonatrach employed 100
expatriates and 400 local workers in Mali, and was attentive
to the need to garner local support for its presence in the
area. Asked about plans for transporting the oil, Khatir
dismissed the notion this might pose any challenge and said
"the market would work it out." Boualem added that any oil
found in Sonatrach's block along the Mali-Algerian border
could simply be connected to an existing pipeline network on
the Algerian side of the border.

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Other Competitors
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6.(SBU) Eni/Sipex is well ahead of other oil prospecting
companies active in Mali. One competitor, the Canadian
Heritage Oil, said it was only now putting out a tender for
seismic studies of its blocs. Mali currently offers 29 oil
concessions, 22 of which are assigned to an array of domestic
international companies. Among those is U.S. based
Terralliance Petroleum, which has yet to start activities on
its two blocs, numbers 14 and 21.

7.(U) The costs of oil exploration in Mali are significant.
Mali's 2004 Petroleum Law requires that companies invest USD
6-12 million over the course of four years after being
granted prospective oil rights. Companies must also
contribute to a government "oil promotion fund" at a cost of
USD 250,000 per bloc, and must pay a "land fee" of USD 1 per
acre. The representative for Heritage Oil in Mali, Dr.
Madani Diallo, estimated that Sonatrach had spent USD 30
million on seismic studies alone. While those costs were
high, Diallo stated the higher price of oil made the
cost-benefit analysis of exploration and transportation via
the building of a pipeline more favorable to investment.
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Comment: Can Oil and Northern Mali Mix?
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8.(C) While Mali's oil forecast may be overly optimistic,
Eni/Sipex and Sonatrach are in the best position to know.
Eni/Sipex's main oil prospecting camp, located in the desert
several hundred kilometers north of Timbuktu at the well of
Foum el'Alba (also known as Assadrine) serves as a case study
to other companies interested in prospecting for oil in one
of the most inhospitable climes on earth. The Eni/Sipex
complex at Assadrine is part business venture, part military
camp complete with an airstrip (through which all food and
supplies are delivered),a detachment of Malian troops with
one armored vehicle, and a several foot tall berm of sand
surrounding the camp as though to repel any potential
invaders. During a May 2008 visit by Embassy officers to
Assadrine the one Italian and several Algerians then
stationed there for Eni/Sipex downplayed the evident security
concerns, stating that they had no problems circulating
through the northern Malian desert. Eni/Sipex is not just
technically ahead of other oil prospecting competitors in
Mali; through Sonatrach, it has the ability and knowledge
crucial for operating in the middle of the Sahara, a key
component other competitors still seem to be trying to
acquire.

9.(C) One worrying aspect of Mali's 2009 oil predictions is
the apparent lack of planning over what to do next should the
Eni/Sipex drilling prove successful. Given northern Mali's
history and the evident sensitivities of drilling for oil in
territory traditionally belonging to Mali's historically
marginalized Arab and Tuareg communities, one would hope that

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preparations to discover oil were accompanied by discussions
over how to manage the eventual profits such a discovery
would presumably bring. In February 2008 Mohamed Youssouf
ould el Bachir, the Mayor of the District of Salam, which
covers Taoudenni, kicked up some dust in Bamako during a site
visit to Eni/Sipex's desert encampment by then Minister of
Mines and Energy, Ahmed Sow, stressing that the Malian
government needed to involve local communities in discussions
over how eventual oil resources will be distributed and used.
One year later, Mali is clearly much closer to finding oil
in Taoudenni. There appears to be no parallel movement,
however, toward communicating to local communities how such a
find will benefit those living atop Mali's potential oil
reserves.

10.(C) One of the aspects of recent Tuareg unrest that has
made Mali's Tuareg rebellion somewhat less complicated,
comparatively speaking, than the neighboring rebellion in
Niger is northern Mali's evident lack of natural resources.
Malian Tuaregs and Arabs, however, are closely following
attempts to locate oil and uranium in northern Mali. Peace
and security in northern Mali will get considerably more
complicated when one of these resources is found.
MILOVANOVIC