US embassy cable - 04ABUDHABI2028

C O N F I D E N T I A L ABU DHABI 002028 
 
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 06/21/2009 
TAGS: EPET, PGOV, BEXP, ENRG, ECON, EINV, TC 
SUBJECT:  UAE: BOGUS REPORT CLAIMS EXXONMOBIL WINS BID TO 
DEVELOP UPPER ZAKUM 
 
REFS: 04 ABU DHABI 735 AND PREVIOUS 
 
1.  (U) Classified by Charge d'Affaires Richard A. 
Albright, a.i., for reasons 1.5 (B) and (D). 
 
2.  (U) A Middle East Economic Survey (MEES) article this 
week, citing "sources close to the Supreme Petroleum 
Council" (SPC), claimed that the SPC had selected U.S. firm 
ExxonMobil to develop the mammoth Upper Zakum oil field in 
Abu Dhabi.  The article, reported widely in the 
international press, said that the SPC had made its choice 
three months ago, but delayed announcing the decision 
because of "political sensitivities."  ExxonMobil, 
ChevronTexaco, BP, Shell, and TotalFinaElf submitted bids 
in 2002 for a 28 percent equity stake in the Zakum 
Development Company (ZADCO), which manages the Upper Zakum 
oil concession -- one of the world's largest offshore 
reservoirs.  The SPC short listed ExxonMobil, Shell and BP 
in January 2004 for a final round of negotiations (refs). 
 
3.  (C/NF) ExxonMobil President in the UAE Frank Kemnetz 
(please protect) told Econoff that the articles were a 
total surprise.  Exxon had just completed a due diligence 
study at ADNOC's request the week before and, from Exxon's 
perspective, the competition for Upper Zakum remained "wide 
open."  ADNOC executives confirmed to Kemnetz that the 
articles were incorrect, and that the company expected the 
final round of negotiations to take another four months to 
complete.  On June 21, the SPC released a statement denying 
the report carried by the international press, calling it 
"unfounded and baseless."  The SPC confirmed that the 
competition between the three firms is ongoing. 
 
4.  (C/NF) Comment: While premature in announcing a 
decision on Upper Zakum, the articles are consistent with 
what we have heard privately from ADNOC and SPC officials. 
ADNOC officials and senior shaykhs 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.  Kemnetz did not perceive that the 
press articles would hurt Exxon's chances of sealing the 
deal (ADNOC execs probably realize that the leak came from 
within their own organization), but the articles provide 
ammunition to critics who say the Upper Zakum bidding 
process has lacked transparency from the start.  We expect 
to see public declarations from ADNOC and SPC officials 
reassuring BP and Shell that they are still in the race, 
but we are confident that ExxonMobil's position remains 
strong.  End comment. 
 
Albright