VENEZUELA: ENSCO BRIEFS AMBASSADOR ON STATUS OF

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001338 SIPDIS ENERGY FOR ALOCKWOOD AND LEINSTEIN, DOE/EIA FOR MCLINE HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK COMMERCE FOR 4332/MAC/WH/JLAO NSC FOR DRESTREPO AND LROSSELLO E.O. 12958: DECL: 10/16/2019 TAGS: EPET EINV ENRG ECON VE SUBJECT: VENEZUELA: ENSCO BRIEFS AMBASSADOR ON STATUS OF SEIZED OFFSHORE OIL PLATFORM REF: A. CARACAS 1208 ¶B. CARACAS 1116 ¶C. CARACAS 707 ¶D. CARACAS 644 ¶E. CARACAS 541 ¶F. CARACAS 136 CARACAS 00001338 001.2 OF 002 Classified By: Economic Counselor Darnall Steuart, for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. Ensco executives remain optimistic that the U.S. drilling company will recover the offshore platform seized by PDVSA in January 2009 and hopes amicably to resolve the situation leaving open the possibility of future cooperation. The company does not want the USG to raise its specific situation with GBRV representatives. It is pursuing a negotiated resolution to the seizure of its asset, but is prepared to file an international arbitration claim. END SUMMARY. BACKGROUND ¶2. (SBU) Ensco has two offshore oil rigs operating in Venezuela. The first, Ensco 68, is operating under a contract with Chevron, Repsol, and Teikoku in the Gulf of Venezuela. The second, Ensco 69, is operating in very shallow water in the Gulf of Paria. In January 2009, Ensco stopped operating the Ensco 69 rig because of PDVSA's failure to pay. The rig was subsequently taken over by PDVSA; under PDVSA operation the rig has suffered an electrical fire. In June, Ensco requested a re-export permit for the rig. ¶3. (C) The Ambassador met with executives from U.S. drilling company Ensco on October 9, including Executive Vice President and Chief Operating Officer William Chadwick, General Manager John Knowlton, and Operations Manager Darrel Roach (protect all throughout). Chadwick stated that the Ensco 69 offshore rig, mismanaged by PDVSA, has not finished the well it was drilling in June when PDVSA refused Ensco's request to re-export the platform. By contrast, Chadwick, who visited Ensco 68 on October 8, said he was embarrassed by the expressions of gratitude he received from Repsol personnel for Ensco's efficiency in drilling its exploratory well. He confirmed that Ensco's current strategy is to work through local legal counsel to reach an amicable solution with PDVSA, but that it has an international arbitration action "on the shelf." ¶3. (C) According to Chadwick, PDVSA plans to return Ensco 69 by December 6, but that this date is dependent on successful well completion. He thought it more likely that Ensco would be lucky to get the platform out of Venezuela before May 4, 2010, the day its temporary import permit expires. (Note: Per Chadwick, the Venezuelan tax authority, Seniat, extended the temporary import license once, but stipulated the extension is not renewable.) Even though PDVSA repaired the drill systems on the rig following the fire in the electrical distribution system, Ensco does not know the state of the maritime platform's seagoing capabilities following the electrical fire onboard in June. Any repairs to the maritime systems would delay Ensco's ability to move the rig out of Venezuela. ¶4. (C) Chadwick stated that PDVSA paid Ensco $11 million approximately six weeks ago. Estimating PDVSA's pending arrears, he shared that at the contracted day rate, the total remained around $100 million. He added however, that at an "agreeable level of concession" the total would drop to $50 million. He explained that, at present market conditions, the rig would cost $158,000 per day if Ensco provided a crew and only $75,000 per day without a crew. ¶5. (C) Responding to a question from the Ambassador about the optimal resolution to the Ensco 69 affair, Chadwick noted that the company (1) wants to be paid, (2) wants to recover its asset, and (3) wants to accomplish both without any CARACAS 00001338 002.2 OF 002 residual enmity that could affect its ability to operate in Venezuela in the future. In response to the Ambassador's question about whether Ensco would like the Embassy to intervene with the GBRV if presented an opportunity, Chadwick stated Ensco did not want the USG to raise directly Ensco's situation with the GBRV. After the meeting, Chadwick told Petroleum Attache that the Government of Liberia told Ensco there was little it could do to assist, even though the Ensco 69 offshore platform is Liberian-flagged. ¶6. (C) Chadwick noted to PetAtt that a U.S. firm had recently sold over thirty older-technology offshore drilling rigs to China. He was very curious about Chinese activities in Venezuela and if there was any indication that the Chinese might export some of these offshore rigs to Venezuela. ¶7. (C) COMMENT: Ensco's strategy resembles that of other service companies which hope to extricate themselves amicably from difficult situations (involving the seizure/expropriation of assets) while leaving the door open to future activity in Venezuela. The potential work that could be generated by Venezuela's vast petroleum reserves necessitates that these companies keep their options open here. Ensco is unlikely to take a more confrontational approach with PDVSA concerning the seizure of Ensco 69 until Ensco 68 completes its contract with Teikoku, Repsol, and Chevron and it successfully removes the rig from Venezuela. END COMMENT. DUDDY