LIBERIA's OIL PROSPECTS INCREASE FOLLOWING DISCOVERY IN

UNCLAS MONROVIA 000698

SENSITIVE
SIPDIS

E.O.12958: N/A
TAGS: ECON ENGR LI
SUBJECT: LIBERIA's OIL PROSPECTS INCREASE FOLLOWING DISCOVERY IN
NEIGHBORING SIERRA LEONE


1. (SBU) SUMMARY: An oil discovery September 16 at a deepwater
exploration site in Sierra Leone along the Liberian border increases
the prospects of unearthing oil along Liberia's geologically similar
coast. The highly-publicized find coincides with the National Oil
Company of Liberia's (NOCAL) solicitation of bids for five separate
offshore licenses in Liberia. While the propitious find is likely
to spark greater interest and higher bids from international oil
companies, the prospect of vast oil revenues poses challenges as
well as opportunities for Liberia. The fact that prospective oil
funds remain years away provides fiscal watchdogs within the GOL the
opportunity to implement the ironclad transparency measures that
will ensure oil revenues translate into widespread social benefit.


2. (SBU) Anadarko Petroleum Company discovered 45 net feet of
hydrocarbon pay in the Venus B-1 well, which sits in two blocks
along the Sierra Leone-Liberia border. President of the National
Oil Company of Liberia (NOCAL) Fodee Kromah told Econoff September
21 that the Sierra Leone discovery reinforces the pervasive
conviction that oil lies in Liberia's deepwater, which is
geologically identical to the Sierra Leonean site.


3. (SBU) The timing of Anadarko's find could not be better for
Liberia. The Ministry of Lands, Mines, and Energy (MLME) and NOCAL
announced a third round of bidding for offshore petroleum licenses
on August 27. Bidders may submit proposals for exploration of the
five remaining blocks near the border of Cote d'Ivoire until
November 30. Kromah hopes rising regional oil prospects will
bolster enthusiasm for the five blocks, giving the GOL the upper
hand in negotiations. Many companies expressing interest already
have an ownership stake in Liberia's offshore blocks, among them
Nigeria's Oranto Petroleum, Australia's Woodside West Africa, and
Spain's Repsol Exploration.


4. (SBU) Anadarko is enjoying the fruits of its first-comer
advantage, with a stock price that has jumped 50% since March, but
the largest U.S. oil companies appear reluctant to bid on the
unexplored blocks. Chevron Deepwater Exploration and Development
Manager Mark Krolow downplayed the likelihood of economically viable
exploration along Liberia's eastern border, given the less favorable
nature of that basin's geological formations. Instead, Krolow told
Econff that Chevron may buy out one of the smaller "promoters" -
companies that do not explore or bring fields to production - which
currently own minority interests in many of the acquired western
blocks.


5. (SBU) Media hype may imply oil riches are imminent, but the path
from exploration to production is a labor, capital, and
time-intensive process. If Liberia discovered oil tomorrow, Chevron
estimates it would take seven years and approximately $6 billion in
investment before oil production could begin and Liberia would see
any revenue. Nevertheless, high and immediate expectations of oil
revenue are evident: the House of Representatives passed an act
September 3 to establish a new political capital, offering expected
future oil revenues as collateral against $10 billion in
construction costs.


6. (SBU) COMMENT: While prospective oil riches remain years away,
the GOL must act soon to implement necessary governance,
transparency, and social development plans. To date, the bidding
process for exploration rights has been surprisingly free of
corruption, perhaps because there have not yet been proven reserves.
As potential returns become more real, there may be pressures on
the government to provide incentives to legislators to agree to
concessions, as occurs in other sectors. The good news is that
Liberia already requires potential oil revenue to be reported under
the LEITI process. With consistent support from international
partners, and contracts that bind oil companies to socially
responsible practices, Liberia may be able to follow the example of
Ghana, escape the problems of Nigeria, and leverage oil revenues for
the benefit of all its citizens.

THOMAS-GREENFIELD