ISA: REPORTED REPSOL (SPAIN) VENTURES IN IRANIAN

C O N F I D E N T I A L SECTION 01 OF 02 MADRID 001155 SIPDIS STATE FOR EEB/ESC:HAMANG, EEB/TFS:BACKEMEYER, NEA/IR:WADHWANI E.O. 12958: DECL: 12/02/2019 TAGS: ECON EINV ENRG EPET ETTC IR SP SUBJECT: ISA: REPORTED REPSOL (SPAIN) VENTURES IN IRANIAN OIL/GAS SECTOR REF: STATE 121808 Classified By: Charge Arnold A. Chacon for reasons 1.4(b) and (d) 1.(U) As requested in reftel, econoffs informed Foreign Ministry and Ministry of Industry, Tourism, and Commerce officials of the Congressional letter and the Department's initiation of its review. Econoffs made reftel points about the ISA, pending legislation, and the importance of not giving business-as-usual signals by investing in Iran's oil and gas sector at this time. Charge discussed the review with Secretary of State (deputy minister) for Trade Silvia Iranzo on November 27. 2.(SBU) Econcouns discussed Repsol's past and potential Iran activities on December 1 with Repsol institutional relations director Arturo Gonzalo, upstream legal services director Pablo Blanco, and deputy director of international institutional relations Maribel de Luis. They provided the following information on the named projects. 3.(C) Forooz Exploration Block (18 on the emailed spreadsheet): This was an exploration contract for two offshore blocks, one Mehr block of 5,092 square km and one Forooz block of 8,385 square km. Repsol signed a buyback contract on October 14, 2004. There were no other partners in the venture. No commercial production resulted from this contract, which expired in 2008. There was no follow-on contract, and Repsol considers the venture abandoned. 4.(C) Iranmehr Exploration Block (19 on the spreadsheet, but from what Repsol officials said, it may be the same project as 8 on the spreadsheet): Repsol describes this as an exploration contract for a Mehr onshore block of 2,500 square km. It was originally signed by the Austrian firm OMV on April 23, 2001. Repsol entered in 2002, taking a 33% stake. Another firm, Sipetrol, which Gonzalo thought was Chilean, also took a 33% stake at that time. OMV was the operator. The contract expired in 2008. There was no follow-on contract, and Repsol considers the venture abandoned. 5.(C) Persian LNG South Pars phase 13/14 project (45 on the spreadsheet): This is an integrated upstream and midstream project with a possible gas liquefication plant at Tombak. In 2004, Shell and Repsol signed an agreement with the NIOC to develop the project. Stakes were 50% NIOC, 25% Shell, and 25% Repsol. Separately, Shell and Repsol each had a 50% interest in an upstream service contract that was signed in January 2007 that established conditions for exploration and development of the project. This contract foresaw the supply conditions of the possible Tombak liquefication plant, which would have two trains of 8 million tons each. Shell and Repsol each would have rights to 50% of the first train (4 million tons),while the second train would be for NIOC. 6.(C) Gonzalo confirmed that there has been no final investment decision on this project, which is very much on hold. He said that Iranian legislation that had taken effect in January limited NIOC's participation in midstream projects to 20%, so the project would have to be restructured. In parallel, NIOC was asking for early development of the upstream project to supply domestic demand. He again emphasized that no decision had been taken. 7.(C) Citing EEB DAS Hengel's October phone conversation with Repsol Director General for Upstream Nemesio Fernandez-Cuesta, Gonzalo said that Repsol was seeking to reduce its participation in the project. He said Repsol and Shell were in negotiations to bring in a new partner. (Gonzalo did not identify the partner, citing a nondisclosure commitment, and he neither confirmed nor denied that it was the company cited in the spreadsheet.) Their aim was not to increase the investment in the project, but to reduce the existing partners' stake in it. Repsol wanted to keep a maximum of 20% of the upstream project and 10% of the midstream project. 8.(C) Gonzalo said Repsol had no other Iran-related projects either operating or under consideration. 9.(SBU) In this discussion and previous conversations December 1, Econcouns confirmed Repsol's understanding of the ISA, pending legislation, and the strongly held USG view that this was not the time to do anything that would suggest business as usual with Iran. Gonzalo acknowledged Repsol's understanding of these issues. He also noted that the USG MADRID 00001155 002 OF 002 was aware based on previous discussions that Repsol was subject to EU regulations related to extraterritorial legislation. Gonzalo emphasized that Repsol valued its fluid communication with the USG, and he offered to provide additional information if necessary. CHACON