VENEZUELA: Chevron Fears Default Expropriation of Natural

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000213 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, RCRANDALL, AND LROSSELLO OPIC FOR BSIMONEN-MORENO AMEMBASSY BRIDGETOWN PASS TO AMEMBASSY GRENADA AMEMBASSY OTTAWA PASS TO AMCONSUL QUEBEC AMEMBASSY BRASILIA PASS TO AMCONSUL RECIFE E.O. 12958: DECL: 2020/02/22 TAGS: EPET EINV ENRG ECON IR TD VE SUBJECT: VENEZUELA: Chevron Fears Default Expropriation of Natural Gas Project REF: 08 CARACAS 1341; 09 CARACAS 1525 CLASSIFIED BY: Darnall Steuart, Economic Counselor, DOS, Econ; REASON: 1.4(B),(D) ¶1. (C) SUMMARY: Chevron believes its 10% participation in the downstream development of Venezuela's first liquefied natural gas (LNG) train may be in jeopardy due to Iranian involvement in the project. The company has learned that the Bolivarian Republic of Venezuela (GBRV) has contracted with Iranian engineering firm(s) for the basic engineering and design work on the downstream facilities. Chevron is working to confirm Iranian involvement in the project. END SUMMARY. ¶2. (C) On February 20, Chevron Commercial Manager for Plataforma Deltana Bret Tarpley (protect throughout) told Petroleum AttachC) that Chevron had learned that PDVSA had contracted with Iranian engineering firm(s) for the basic engineering and design of the infrastructure of the CIGMA project, the greenfield petrochemical complex which is planned to take the stream of natural gas associated with development projects offshore of eastern Venezuela (see background below). He stated that Iranian involvement would necessitate that Chevron abandon its 10% participation in the project, an action he equated to "default expropriation" of its interests. Tarpley believed that Chevron's upstream involvement in natural gas production would not be affected by Iranian involvement downstream. He expressed concern that the use of Iranian engineering firms in the development of any Venezuelan petrochemical project could provide PDVSA and the GBRV with a "backdoor expropriation tool," i.e., that the GBRV could take a U.S. companies' ownership share in a project without outright expropriating it. Tarpley added that an interim agreement currently governs the downstream project partners' involvement, a project budget has not been agreed to by the partners, and Chevron has not yet invested any funds in the downstream activities. Thus, he said, its loss of its 10% share in the project would not be 
significant for the company. ¶3. (C) Tarpley confirmed that the unitization agreement between Trinidad & Tobago had been successfully negotiated between the GOTT and the GBRV, but has not been announced. He believed President Chavez planned to announce it in the immediate future. [NOTE: Chevron's block 2, which includes the Loran Field, is contiguous to T&T's Manatee Field which has also been developed by the company. END NOTE.] ¶4. (U) Background - DOWNSTREAM: In September 2008, Chevron signed a Framework Agreement with PDVSA to govern its participation in the development of the first of three LNG trains planned for Guiria on Venezuela's Paria Peninsula. [Note: The entire greenfield development of the petrochemical complex is styled as CIGMA, the Spanish acronym for the Gran Mariscal Ayachucho Industrial Complex. The offshore natural gas development component of the project is now called "Delta Caribe." END NOTE] The three trains are each slated to produce 4.7 million tons per year of LNG. Chevron would have a 10 percent share in the joint venture formed to develop the first train. Other project partners included PDVSA (60 percent), Portugal's Galp (15 percent),Qatar Petroleum (10 percent),and Japan's Mitsubishi/Mitsui (5 percent). Train One is slated to use gas from the offshore Block 2 of the Plataforma Deltana which was licensed to Chevron in 2003. ¶5. (U) UPSTREAM: Chevron owns 100% of the rights to explore for natural gas in Plataforma Deltana block 2. In 2004, it sold 40% of the project to ConocoPhillips, which left Venezuela in 2007. In CARACAS 00000213 002 OF 002 October 2009, PDVSA announced it had purchased the ConocoPhillips shares. Chevron has already declared commerciality in block 2. Once the GBRV recognizes Chevron's declaration, it has the right to back-in to the commercial development of the project for up to 35%. Chevron expects the GBRV will own 61% of a mixed company that will be formed to commercialize the natural gas reserves. ¶6. (C) COMMENT: If the GBRV has involved Iranian firms in the downstream engineering of this natural gas project, Chevron will walk away from its 10% stake. It is unclear whether the GBRV fully understands the impact of the commercial deals it has signed with Iran as part of its growing bilateral relationship. Even though President Chavez believes that the deals are in the political interests of Venezuela, the unintended consequences might prove that they are not in the economic interests of the country, especially if the deals result in the further delay or even failure to develop its petrochemical resources if other non-U.S. partner companies also were to decide to walk away from such projects. END COMMENT. DUDDY