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Statoil recieves more $ than reported in media

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  1. SENSITIVE
  2. SIPDIS
  3.  
  4. ENERGY FOR CDAY AND ALOCKWOOD
  5. NSC FOR JSHRIER
  6.  
  7. E.O. 12958: DECL: 01/28/2018
  8. TAGS: EPET, ENRG, EINV, ECON, VE
  9. SUBJECT: STATOIL: MIXED VIEWS ON INVESTMENT CLIMATE
  10.  
  11. REF: A. 2007 CARACAS 1822
  12.      B. CARACAS 108
  13.  
  14. Classified By:  Acting Economic Counselor Shawn E. Flatt for Reason 1.4
  15.  (D)
  16.  
  17. 1. (C) SUMMARY:  Norway\'s StatoilHydro received a far more
  18. lucrative compensation package for its lost equity in the
  19. former Sincor strategic association than reported in the
  20. press.  The BRV and PDVSA have taken a number of steps to
  21. increase oil companies\' confidence in Venezuela\'s investment
  22. climate.  However, President Chavez\' recent comments
  23. regarding a windfall profits tax has erased many of the
  24. positive gains.  Statoil is expecting a relative smooth
  25. maintenance shutdown for Petrocedeno\'s upgrader (the former
  26. Sincor).  It appears that the BRV will look for an outsider
  27. to replace Vice Minister Bernard Mommer.  END SUMMARY
  28.  
  29. --------------------------------------------- --------
  30. MEDIA REPORTS ARE INCORRECT ON STATOIL\'s COMPENSATION
  31. --------------------------------------------- --------
  32. 2.  (C) Petroleum Attache (Petatt) met with Statoil Venezuela
  33. President Thore Kristiansen (strictly protect throughout) on
  34. February 26 to discuss Statoil\'s views on the current
  35. investment climate.  Petatt began the meeting by
  36. congratulating Kristiansen on the recent signing of two
  37. agreements to quantify the reserves of the block Junin 10 in
  38. the Faja as well as carry out a development study for the
  39. block and PDVSA\'s payment of compensation to Statoil for its
  40. lost equity in the former Sincor strategic association.  Dow
  41. Jones Newswires reported on February 14 that Statoil received
  42. USD 130 million in compensation for the 5.3% equity stake
  43. that it lost when the Sincor strategic association was
  44. forcibly converted into the Petrocedeno joint venture.
  45.  
  46. 3.  (C) Kristiansen stated Statoil was very pleased with the
  47. compensation that it received for its lost equity and added
  48. that it was significantly higher than \"what the Wall Street
  49. Journal reported\".  He reminded Petatt that he has repeatedly
  50. stated that Statoil had received a good deal (Reftel A).
  51. Although Kristiansen declined to provide details on the
  52. compensation package, he noted that PDVSA had five months to
  53. pay Statoil.  Kristiansen has previously mentioned that the
  54. compensation package involved a cash payment with an option
  55. to be paid in crude oil (Reftel A).  Kristiansen also added
  56. the deal has caused some problems for Statoil\'s board.
  57. Statoil has a policy of trying to be as transparent as
  58. possible with its shareholders.  Although the board is
  59. convinced the deal is an excellent one for the company, it
  60. did not believe that it could release details of it to the
  61. shareholders due to BRV sensitivities.
  62.  
  63. --------------------------------------------- ------------
  64. BRV AND PDVSA SEND POSITIVE SIGNALS TO THE PRIVATE SECTOR
  65. --------------------------------------------- ------------
  66. 4.  (C) When asked about Statoil\'s views on the investment
  67. climate in Venezuela, Kristiansen stated they were generally
  68. positive.  He pointed to three pieces of evidence to justify
  69. Statoil\'s optimism.  First, Kristiansen stated PDVSA is quite
  70. serious about raising production and understands that the
  71. private sector will play a key role in raising overall
  72. production (Reftel B).  Kristiansen said he was actually
  73. worried that PDVSA was too keen to raise crude production.
  74. He expressed concern that PDVSA would try to raise production
  75. levels so quickly that it ended up damaging reservoirs.
  76. Kristiansen told the Ambassador during a courtesy call on
  77. November 30 that PDVSA had approached both Total and Statoil
  78. to increase production at Petrocedeno by 200,000 barrels per
  79. day to 400,000 barrels.
  80.  
  81. CARACAS 00000264  002 OF 003
  82.  
  83.  
  84.  
  85. 5.  (C) Kristiansen added that PDVSA has stated that it will
  86. begin assigning blocks in the Faja for development in the
  87. next few weeks.  He then noted that \"a few weeks\" in
  88. Venezuela could actually end up being \"a few months\".  During
  89. his courtesy call on the Ambassador in November, Kristiansen
  90. described the BRV as being \"strongly\" interested in expansion
  91. in the Faja.  At the time, he stated his belief that the
  92. necessary resources and technology were available for
  93. expansion.  He repeated the statement to Petatt but noted the
  94. number of private sector companies that could partner with
  95. PDVSA was limited.  (NOTE: During the November meeting,
  96. Kristiansen said Sincor originally cost USD 4.2 billion to
  97. construct and that to duplicate it in today\'s market would
  98. cost USD 7 to 8 billion.  The cost would climb to USD 10-11
  99. billion if PDVSA insisted on a 20% recovery rate.  He
  100. estimated that it would take 6 to 10 years from the date the
  101. partners received a license for the upgrader to enter into
  102. production.  END NOTE)
  103.  
  104. 6.  (C) Kristiansen stated Statoil is also optimistic due to
  105. PDVSA\'s general approach to the Petrocedeno maintenance
  106. shutdown.  Petrocedeno\'s upgrader shut down at midnight on
  107. February 25 for maintenance.  The shutdown is scheduled to
  108. last 45 days.  Petrocedeno\'s fields will continue producing
  109. extra heavy crude oil that will then be mixed with lighter
  110. crudes for marketing.  PDVSA will provide the lighter crudes.
  111.  Kristiansen stated PDVSA officials initially ignored
  112. requests for information regarding the supply of light
  113. crudes.  However, this quickly changed and they are now
  114. promising significantly more crude than Statoil originally
  115. anticipated.  Kristiansen did not provide details but said
  116. Statoil believes Petrocedeno\'s field production will stay
  117. above 100,000 barrels per day during the maintenance shutdown.
  118.  
  119. 7.  (C) The final piece of evidence that justifies Statoil\'s
  120. optimism is the recent performance of senior PDVSA executives
  121. at an extra heavy oil conference held in Maturin the week of
  122. February 11.  Unlike other conferences, all of the scheduled
  123. PDVSA speakers showed up and gave presentations that actually
  124. contained details.  Kristiansen stated it was clear that
  125. PDVSA\'s senior management is clearly wrestling with the best
  126. way to develop the Faja.  In addition, PDVSA speakers
  127. consistently stressed the need for private sector
  128. participation.
  129.  
  130. ---------------------------
  131. NOT ALL SWEETNESS AND LIGHT
  132. ---------------------------
  133. 8.  (C) When Petatt opined that the BRV was sending mixed
  134. signals and pointed to President Chavez\' recent suggestion
  135. for a windfall profits tax, Kristiansen agreed.  (NOTE:
  136. Chavez announced on February 17 that his administration was
  137. considering the imposition of a windfall profits tax on the
  138. oil industry.  He did not provide details on the proposal.
  139. END NOTE).
  140.  
  141. 9.  (C) Kristiansen described the proposal as ridiculous and
  142. claimed the BRV\'s current take, based on PDVSA\'s equity stake
  143. in the joint ventures and the current tax and royalty rates,
  144. was 86.7%.  As a result, Chavez had little justification for
  145. his claim that the oil companies were earning excessive
  146. profits.   He said Chavez\' comments were useful due to the
  147. fact that he \"let the cat out of the closet\".  Since Chavez
  148. did not provide any specifics on his proposed tax, his
  149. comments raised the level of risk for companies operating in
  150. Venezuela.  According to Kristiansen, Statoil will merely
  151. require a higher rate of return on Venezuela projects due to
  152. the increased risk of ambiguous fiscal terms.
  153.  
  154. CARACAS 00000264  003 OF 003
  155.  
  156.  
  157.  
  158. --------------------
  159. MOMMER\'S REPLACEMENT
  160. --------------------
  161. 10. (C) Rumors have been swirling for months that Energy Vice
  162. Minister Bernard Mommer will be retiring shortly.  Several
  163. Embassy contacts have speculated that Mommer\'s replacement
  164. will be Dr. Ivan Orellana, the Energy Ministry\'s
  165. International Affairs Director and Venezuela\'s OPEC governor.
  166.  Orellana has a reputation for being a radical Chavez
  167. supporter.
  168.  
  169. 11.  (C) Kristiansen, who has an excellent working
  170. relationship with Mommer due in part to the fact they are
  171. both German speakers, told Petatt that he has raised the
  172. rumors directly with Mommer.  According to Kristiansen,
  173. Mommer stated the BRV is looking for an outside candidate to
  174. replace him rather than a current Energy Ministry or PDVSA
  175. official.  Mommer stated the ideal candidate would have
  176. strong administrative skills and would solve problems for
  177. Energy Minister Ramirez rather than create them.  Kristiansen
  178. said he firmly believes Mommer will continue to have a strong
  179. policy role after his retirement.
  180. DUDDY
  181. "
  182. "143552","2/28/2008 18:25","08BRIDGETOWN124","Embassy Bridgetown","CONFIDENTIAL","","VZCZCXYZ0002
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