US embassy cable - 04ABUDHABI735

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000735 
 
SIPDIS 
 
NOFORN 
 
DEPT FOR NEA/RA, NEA/ARP, INR/EC, EB/IEP, EB/CBA 
USDOE FOR INT'L AFFAIRS - COBURN, ALSO CALIENDO 
USDOE FOR OFFICE OF THE SECRETARY - RHONDA HUDOME 
USDOC FOR 1000/OC/ 
USDOC FOR 4520/ITA/IEP/ONE 
USDOC FOR 4530/ITA/MAC/ONE/DGUGLIELMI 
4500/ITA/MAC/DAS/WILLIAMSON 
3131/CS/OIO/ANESA 
 
E.O. 12958: DECL 03/16/2014 
TAGS: EPET, PGOV, BEXP, ENRG, ECON, EINV, TC 
SUBJECT:  UAE: SUPREME PETROLEUM COUNCIL DELAYS DECISION ON UPPER ZAKUM 
 
REFS: A) 04 ABU DHABI 195 
      B) 02 ABU DHABI 6976 AND PREVIOUS 
 
1.  (U) Classified by Ambassador Marcelle M. Wahba, for reasons 1.5 (B) 
and (D). 
 
2.  (C/NF) Summary and comment: Almost two years after international 
oil companies submitted bids, the Abu Dhabi National Oil Company 
(ADNOC) on January 27 presented its recommendation for the award of a 
28 percent stake of the Zakum Development Company (ZADCO) to Abu 
Dhabi's Supreme Petroleum Council (SPC).  The SPC did not make a final 
decision, and instead short-listed three companies (ExxonMobil, BP and 
Shell) and directed ADNOC to seek "further clarification" of these 
select bids.  Although this latest turn of events was unexpected, we 
still believe that U.S. oil giant ExxonMobil is a favorite among most 
SPC members.  The delay and period of renegotiation probably gives 
Shaykh Khalifa time to build consensus for ExxonMobil within the SPC, 
and -- contrary to the view of many oil execs here -- is not simply an 
effort by the SPC to seek additional financial concessions from the 
competitors.  End summary and comment. 
 
---------------------------- 
Three Companies Short-Listed 
---------------------------- 
 
3.  (C/NF) ExxonMobil confirmed to Econoff on February 05 that it was 
informed in writing of its selection to the final round of bidding for 
an equity stake in the Zakum Development Company (ZADCO).  ZADCO is one 
of Abu Dhabi's two offshore operating companies, and also manages the 
Upper Zakum oil concession -- one of the world's largest offshore 
reservoirs.  ADNOC also sent a letter to U.S. company ChevronTexaco 
confirming that Chevron is out of the race.  We since have learned that 
the SPC also short-listed Royal Dutch Shell and British Petroleum (BP). 
 It is particularly interesting that the SPC selected BP's individual 
bid over its joint bid with TotalFinaElf -- which was considered by 
industry insiders to be the stronger of the two bids. 
 
4.  (C/NF) ADNOC officials have suggested for many months that 
ExxonMobil's technical package is the most impressive -- combining 
first-class managerial expertise with proprietary technology and a 
commitment to train and employ UAE nationals (a priority for the UAE 
Government).  A senior shaykh privately told the Ambassador that 
Exxon's bid is "unbeatable" in this regard.  ExxonMobil's long history 
of working with ADNOC and collaborating with its other (foreign) 
partners no doubt also bolsters the company's package. 
 
------------------------------------- 
The SPC Process...As We Understand It 
------------------------------------- 
 
5.  (C/NF) The Ambassador learned that ADNOC CEO Yousef bin Omeir bin 
Yousef met with CP Khalifa and HbZ on January 26 to discuss the Zakum 
bid.  We believe that the purpose of this meeting was to both inform CP 
Khalifa of ADNOC's recommendation, and to prepare Khalifa for the 
counter-arguments he was likely to hear at the SPC meeting scheduled 
for the next day.  Although CP Khalifa will take the final decision on 
ZADCO, he must consult first with his most trusted advisers and ruling 
family.  We suspect that Khalifa currently is building consensus among 
SPC members for ExxonMobil. 
 
6.  (C) Post has observed the emergence of clear alliances within the 
SPC during the last several weeks ago in favor of ExxonMobil.  CP 
Khalifa's advisers probably have consulted with ADNOC CEO Yousef bin 
Omeir on next steps.  Khalifa trusts bin Omeir to provide impartial and 
thoughtful advice, based on the merits of each proposal.  In recent 
meetings with the Ambassador, both MbZ and Presidential Adviser 
Mohammed Harbroush Al-Suweidi intimated that they favored ExxonMobil's 
bid.  Chamberlain of the President's Court Shaykh Suroor bin Mohammed, 
however, is a known advocate for BP, and may have voiced his opposition 
regarding the ExxonMobil bid.  Also in a recent meeting, the Ruler's 
Representative in the Eastern Region Shaykh Tahnoon bin Mohammed seemed 
uninformed about Upper Zakum; this tracks with our impression that 
Shaykhs Tahnoon and Sultan bin Zayed play marginal roles in SPC 
decision-making. 
 
---------- 
Next Steps 
---------- 
 
7.  (C) Throughout the bidding process, the Ambassador has made the 
case to the UAE leadership that American companies manage a very low 
percentage of Abu Dhabi's lucrative upstream oil sector relative to 
European and Japanese companies.  European companies (namely BP, 
TotalFinaElf, and Shell) account for 69 percent of total international 
company participation in the oil sector, Japanese companies account for 
18 percent, and U.S. firms represent a mere 13 percent of foreign 
participation.  ExxonMobil's foreign competitors have sought to augment 
their presence in the UAE through intense lobbying of SPC and ADNOC 
officials in recent months.  During a visit to the UAE in February, 
French Foreign Minister Dominique de Villepin reportedly lobbied on 
behalf of French oil firm TotalFinaElf with Crown Prince Khalifa bin 
Zayid, UAE Armed Forces Chief of Staff and Abu Dhabi Deputy Crown 
Prince Mohammed bin Zayid (MbZ), and UAE Deputy Prime Minister Hamdan 
bin Zayid (HbZ). 
 
8.  (C) ExxonMobil has enlisted the Embassy's help to move this process 
forward, although ADNOC has not yet contacted ExxonMobil with 
requirements or requests for further information regarding its bid.  We 
will continue to advocate on Exxon's behalf with SPC members.  Visits 
to the UAE of U.S.-based senior ExxonMobil executives will compliment 
this effort. 
 
Wahba