CANADIAN COMPANY CONFIDENT OIL OFF GUYANA

C O N F I D E N T I A L SECTION 01 OF 02 GEORGETOWN 000547

SIPDIS
NOFORN
EEB/ESC/IEC/ENR - J. BRIAN DUGGAN/DAVID HENRY/PETER SECOR
WHA/CAR - SEAN WHALEN/WILLARD SMITH
AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA

E.O. 12958: DECL: 2019/12/22
TAGS: PGOV PREL ECON EPET XL GY
SUBJECT: CANADIAN COMPANY CONFIDENT OIL OFF GUYANA

CLASSIFIED BY: Karen L. Williams, Charge d'affaires, DOS, Exec;
REASON: 1.4(B),(D)


1. (C) SUMMARY: Based on promising seismic indicators, CGX
Resources Inc., a wholly-owned subsidiary of Canadian oil firm CGX
Energy Inc. created in 1998 to develop deposits in Guyana's coastal
waters, plans to begin exploratory drilling in September 2010 and
projects peak production of up to 300,000 barrels per day by 2015.
CGX expects to invest up to USD350 million in infrastructure by
peak production. CGX faces several challenges to smooth operations
in Guyana, including obtaining favorable customs and immigration
treatment, adequately protecting its facilities and employees, and
avoiding the influences of neighboring countries' foreign policies
vis-C -vis Guyana. END SUMMARY.

EXPLORATION AND PRODUCTION TIMELINE


2. (SBU) On December 7, CGX Director Edris K. Dookie briefed
PolChief and EconOff on the company's progress in developing a
potentially major oil field in Guyana waters. Rig construction
will begin at the "Eagle Deep" site (located near the Surinamese
border, about 100 miles off coast, in water 230-250 feet deep)
early in 2010 and continue for six months, he said. Dookie said
the most realistic start date for exploratory drilling is
September/October 2010. He said it will take three to four months
to drill into three geologic zones thought to contain oil: first,
at 11-12,000 feet; second, at 15-16,000 feet; and third, at 19,000
feet and deeper. CGX anticipates ramping up production over the
course of five years, producing by 2015 up to 300,000 barrels per
day. (Note: ExxonMobil contacts considering operations in Guyana
previously commented that up to 10 years may be necessary to
develop a major field from initial discovery to full production.
End note.)

INVESTMENT AND PROJECTED REVENUE


3. (SBU) Expected cost of the rig is USD75 million, plus 20 percent
to account for delays and cost overruns, according to Dookie. CGX
is negotiating with the GoG to lease 55 acres for its operations
facility on the east bank of Berbice River north of New Amsterdam.
Cadastral surveys have begun in anticipation of signing the lease.
Phase I of facility includes 350'x500' storage area and 150'
concrete pier. Phase II includes expanding the facility as
necessary as exploratory drilling segues into production. The pier
would require a draft of at least 30 feet to accommodate large
ships. CGX estimates spending up to USD350 million on
infrastructure, including the rig, by the time full production is
reached in 2015 or beyond.

OBSTACLES OVERCOME AND REMAINING


4. (SBU) Dookie enumerated the obstacles his company had already
surmounted and the many future challenges. Securing the
Environmental Protection Agency (EPA) permit authorizing
exploratory drilling did not occur until Dookie, President and CEO
Kerry Sully, and other CGX officials met with President Jagdeo on
November 21. Dookie indicated that before the meeting CGX could
neither elicit response from the EPA nor make progress in acquiring
a 55 acre parcel of land on the Berbice River north of New
Amsterdam. But the day after meeting Jagdeo, Dookie recounts, the
EPA Administrator informed him the permit had been granted and
permission was granted separately to begin cadastral surveys.


5. (C) Dookie cited several remaining challenges. Securing
favorable duty concessions and expedited customs clearance on
imported capital equipment is a top priority, he said. Obtaining
visas and work permits for skilled labor is also a concern.
Protecting those workers and company property from pirate attacks
is another. Dookie observed that the Guyana Defense Force (GDF)
lacks an effective, properly equipped coast guard and intimated
that the U.S. should strengthen the GDF Coast Guard. On land,
Dookie said CGX will employ Guyana Police Force (GPF) "tactical
service units" for site and personnel protection. Dookie also
pointed to concerns about neighboring Suriname and Venezuela.
According to Dookie, there is pressure from within the GoG to
prevent Venezuelan participation of any kind at Eagle Deep.

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6. (C) COMMENT: Large-scale oil production poses several challenges
for both CGX and the Government of Guyana. Establishing the
necessary capacity to responsibly manage oil funds is key to
successful project implementation. Economically, large scale oil
production is not envisioned in President Jagdeo's Low Carbon
Development Strategy and is in direct conflict with pursuing the
low-carbon economy outline. Politically, however, the large influx
of foreign direct investment expected from CGX is too tempting to
pass up for a poor nation and it may be a carrot for Jagdeo to
remain in office longer than 2011. Rumors already abound that,
instead of a third term, President Jagdeo will find a way to delay
elections by one to two years. END COMMENT.
WILLIAMS