Statoil Cash Payout

SIPDIS

SENSITIVE
SIPDIS

ENERGY FOR CDAY AND ALOCKWOOD
NSC FOR JCARDENAS AND JSHRIER

E.O. 12958: DECL: 01/12/2017
TAGS: EPET, ENRG, EINV, ECON, VE
SUBJECT: STATOIL: A GOOD DEAL

REF: A. CARACAS 1281

     B. CARACAS 1655
     C. CARACAS 472
     D. CARACAS 1314
     E. CARACAS 1675
     F. CARACAS 1157
     G. CARACAS 1808

Classified By:  Economic Counselor Andrew N. Bowen for Reason 1.4 (D)

1. (C) SUMMARY:  Contrary to repeated BRV statements,
Norway\'s Statoil will receive cash compensation for its lost
equity in the Sincor strategic association.  Under the terms
of the migration agreement, major investment decisions will
be made by qualified majority.  PDVSA has been instructed not
to fire employees on political grounds.  This suggests that
PDVSA offered widely varying terms to at least some of the
six companies that invested in the Faja strategic
associations.  END SUMMARY

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A PRETTY GOOD DEAL
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2.  (C) Petroleum Attache (Petatt) met with Statoil Venezuela
President Thore Kristiansen (strictly protect throughout) on
September 12 to discuss the terms of the Sincor migration to
a PDVSA-controlled joint venture (Reftel A).  Kristiansen
began the meeting by noting that Statoil received a good deal
under the circumstances.  Contrary to Energy Minister Rafael
Ramirez\' public statement on August 29 that neither Statoil
or Total received compensation for their lost equity in the
Sincor strategic association.  Kristiansen stated that PDVSA
has agreed to compensate Statoil.  (Note: Under the terms of
the migration, Statoil\'s stake in Sincor was reduced from 15
to 10%.  End Note.)

3.  (C) According to Kristiansen, Statoil will receive its
compensation in the form of cash but has the option of
receiving it in crude oil.  He stated he was more than 90%
sure that Statoil would take the cash.  Although he would not
state the amount of the compensation, he implied that it was
well above book value, which was PDVSA\'s opening offer.  He
stated Statoil would have refused to migrate its interest if
it had only received book value.

4.  (C) As reported in Reftel A, Energy Minister Ramirez also
stated that each of the strategic associations\' blocks would
be reduced during the migration process.  When Petatt raised
the issue, Kristiansen stated Sincor\'s block had actually
been increased from roughly 312 square kilometers to 399
square kilometers.  He explained that Sincor\'s original block
assignment had contained several areas that were reserved to
Sincor but that could not be added to its block without BRV
approval.  As part of the migration process, the reserved
areas will be added to Petrocedino, the PDVSA controlled
joint venture that will be formed from Sincor.

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GOVERNANCE
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5.  (C) Kristiansen also stated that Statoil was pleased with
the governance terms of Petrocedino.  Various types of
decisions require board approval by qualified majorities of
51, 71, or 91%.  The joint venture\'s business plan and all
major investment decisions require a qualified majority.
Kristiansen stated the governance terms looked good on paper
but added it remained to be seen if the BRV and PDVSA would
honor them in practice.  He later stated, however, that
having the terms in \"black and white\" would allow Statoil to
\"hold it up to PDVSA\'s face\" if PDVSA breached the terms.

CARACAS 00001822  002 OF 002



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LABOR ISSUES
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6.  (C) Kristiansen noted that the opposition paper Tal Cual
had run several stories reporting that Sincor employees had
been fired on political grounds (Reftel B).  Following the
publication of the stories, Kristiansen stated Minister
Ramirez sent a three page memo to senior PDVSA officials
stating that it was a violation of Venezuelan law to
discriminate against employees or fire them for their
political beliefs.  He added that it was clear from
conversations with PDVSA managers in Sincor that they had
clearly received the message.  Kristiansen noted that it
remained to be seen if PDVSA would stick to its new labor
policy once the migration was completed.

7.  (C) Kristiansen stated Sincor employees have still not
received their new Petrocedino employment package.  He added
that there was no timeline for the delivery of the package to
the employees.

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COMMENT
-------
8.  (C) Kristiansen told Petatt in March that the three most
important issues for Statoil during the migration
negotiations were compensation, governance, and taxes (Reftel
C).  Although he did not mention taxes in the meeting, it was
clear that Statoil was pleased with the terms of the
migration.  Statoil\'s comments regarding governance issues
closely mirror Chevron\'s (Reftel D).

9.  (C) It is apparent based on our conversations with five
of the six companies that invested in the Faja strategic
associations that the BRV offered widely differing terms to
the companies.  For example, the BRV reduced Cerro Negro\'s
block size and BP paid half a million dollars in notes in
order to minimize the block\'s reduction (Reftel E).  Both
ExxonMobil and ConocoPhillips stated the BRV has consistently
stated it would only compensate them based on the book value
of their investments and refused to show flexibility on
governance terms (Reftels F and G).