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. -------------- GOM Predicts Oil for 2009 -------------- ¶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. -------------- Algerian and Italian Oil Optimism -------------- ¶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 BAMAKO 00000151 002 OF 003 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. -------------- Other Competitors -------------- 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. -------------- Comment: Can Oil and Northern Mali Mix? -------------- 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 BAMAKO 00000151 003 OF 003 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