US embassy cable - 04CARACAS2594

C O N F I D E N T I A L  CARACAS 002594 
 
SIPDIS 
 
 
NSC FOR TSHANNON AND CBARTON 
ENERGY FOR DPUMPHREY AND ALOCKWOOD 
 
E.O. 12958: DECL: 08/08/2014 
TAGS: EPET, VE 
SUBJECT: CHEVRONTEXACO:  SEIZING THE DAY 
 
REF: CARACAS 2564 
 
Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b) 
and (d) 
 
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SUMMARY 
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1. (C) ChevronTexaco is pushing to expand its business 
opportunities in Venezuela.  The company received the formal 
license for Block 3 of the off-shore Deltana Platform project 
at an August 6 ceremony marking the opening of exploratory 
drilling in Block 2 (see reftel).  At that time, 
ChevronTexaco Vice President for Latin America Upstream Ali 
Moshiri confirmed rumors that the company has proposed a new 
$6 billion heavy oil project to the GOV.  Moshiri 
subsequently told econoff he hopes to sign an MOU on this 
project in October.  The heavy crude upgrader of the Hamaca 
project, in which CTX has a 30 percent stake, is expected to 
come on-line in September while Moshiri told econoff that the 
project has also proposed to the GOV that it increase field 
production in order to provide the GOV with an additional 
100,000 b/d of extra heavy crude.  This crude would be sold 
directly to PDVSA and would not go through the upgrader. 
Finally, the company is expected to consider bidding on 10 
new off-shore exploratory blocks now expected to be opened 
the week of August 16.  End Summary. 
 
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CHEVRONTEXACO LEADING THE WAY 
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2. (U) ChevronTexaco (CTX) is aggressively developing its 
business in Venezuela.  The company currently operates the 
Boscan and LL-652 oil fields in western Venezuela.  It has a 
30 percent share in the Hamaca project, the fourth and last 
of the so-called Strategic Association joint ventures that 
upgrade the crude of the Orinoco heavy oil belt.  It is 
working to advance the proposal recently inked by Chavez and 
Colombian President Uribe to construct a gas pipeline between 
Venezuela and Colombia and is pushing ahead with other 
projects related to off-shore natural gas development and 
extra heavy crude. 
 
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OLD GAS PROJECTS... 
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3. (C) As reported in reftel, ChevronTexaco Vice President 
for Latin American Upstream Ali Moshiri participated in an 
August 6 ceremony to mark the opening of drilling in Block 2 
of the off-shore Deltana Platform natural gas project. 
Moshiri was also particularly pleased to receive the formal 
license for Block 3 in the same ceremony - in advance of the 
August 15 referendum on Chavez's tenure in office.  Although 
Block 3 had supposedly been awarded to CTX on March 8 in a 
similar public ceremony, the company had not yet received the 
actual license.   Moshiri informed econoff that the license 
had been held up by a GOV attempt to change its terms and 
conditions.  According to Moshiri, Bernard Mommer, a leftist 
economist now working out of PDVSA's London office who is 
credited with being the intellectual author of the 2001 
Hydrocarbons Law and more recently with having killed off 
Venezuela's orimulsion business (a branded mix of water and 
extra heavy crude used for boiler fuel), had been behind an 
attempt to change the license format.  Moshiri said he had 
fought back and eventually received a license with the 
original terms.  (Note:  Blocks 1 and 5 of the Deltana 
Platform project are still unassigned.  Although the GOV has 
been in direct discussions on Block 1 with BP because it 
operates a contiguous block in Trinidad & Tobago waters, 
Minister of Energy and Mines Ramirez responded that the block 
would be reserved for PDVSA when questioned directly by 
President Chavez during the August 6 ceremony.  The Minister 
also said that the deep water Block 5 would be reserved for a 
later date.  An ExxonMobil manager, whose company was 
popularly believed to be a shoo-in for Block 5 in the first 
Deltana Platform bid round in which it declined to 
participate, recently described the block to econoff as "a 
dog."  End Note.) 
 
4. (U) Operating in 600 meters of water in the Atlantic, a 
GlobalSantaFe Corporation semisubmersible rig began drilling 
the Loran 2X well, the first of three exploratory wells now 
planned for Block 2, over the weekend of August 7-8.  CTX 
expects it will take 55 days to drill this first well; the 
company has said it will release the results in about 65 
days.  In his remarks at the August 6 ceremony, Moshiri 
pledged that the company will continue drilling until it 
completes its three-well minimum work program requirement in 
early 2005, a year in advance.  But Moshiri further expanded 
on this pledge, saying the Block 2 consortium "is committed 
to expediting Plataforma Deltana so it can be the first 
Venezuela LNG project."  According to Moshiri, an LNG project 
usually takes six years from gas discovery to first shipment. 
 He said he believed the project could beat this record 
(always assuming it has enough commercial gas) and bring the 
first Venezuelan LNG to market in 2009/10.  This statement 
was a direct challenge to Shell and Mitsubishi which are 
still negotiating the license for the Mariscal Sucre gas 
project.  This project had been expected to develop 
Venezuela's first LNG train. 
 
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AND NEW GAS PROJECTS 
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5. (C) Although we (and the industry) had expected the GOV to 
open the bidding on 10 new off-shore exploration blocks off 
Falcon state and in the Gulf of Venezuela before August 15 as 
part of the GOV's pre-referendum "spin," Vice Minister for 
Hydrocarbons Vierma told econoff August 10 that the blocks 
will be bid the week of August 16.  Vierma added that 23 
companies have expressed interest in participating in the bid 
process and five more may yet buy data packets.  However, 
said Vierma, in the end he expects that the companies most 
interested will be ChevronTexaco, ExxonMobil, and Total.  We 
can confirm CTX's interest, particularly given the location 
of these blocks near Maracaibo, the traditional center of the 
company's Venezuelan operations. 
 
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MOSHIRI CREATES A STIR WITH CONFIRMATION OF HEAVY OIL PROPOSAL 
--------------------------------------------- --------- 
 
6. (C) Moshiri also confirmed rumors on August 6 that CTX has 
tabled a new project proposal for Venezuela's Orinoco heavy 
oil belt.  According to his announcment, the project would 
include exploration and production, a new pipeline and an 
upgrader to produce 200,000-400,000 b/d of high-quality 
synthetic crude and products.  Moshiri underlined that the 
project would be signed under the terms of Venezuela's 2001 
Hydrocarbons Law.  In a subsequent August 6 conversation, 
Moshiri told econoff he had made a public announcement 
because French major Total (among others) is also in 
discussions with the GOV.  Moshiri said he believed a public 
announcement might inject some transparency into the process. 
 (In fact, Vice Minister for Hydrocarbons Luis Vierma told 
econoff August 10 that Shell, spurred by CTX's example, had 
submitted its own proposal over the weekend.)  Moshiri added 
that he hopes to sign an MOU with the GOV on the new project 
in October.  (Note:  On August 10, Vice Minister Vierma told 
econoff that a proposal suggesting that the extra heavy oil 
belt be divided into 12 blocks for a new licensing round has 
been given to PDVSA President Ali Rodriguez.) 
 
8. (C) With respect to the Hamaca project, CTX's current 
extra heavy crude investment, Moshiri confirmed that the 
upgrader is on track to come on line in September.  He 
concurred that recent press reports that the Hamaca project 
is paying a 30 percent royalty to the GOV on its production 
are inaccurate.  (Note:  The Hamaca project inked a deal with 
the GOV in April to increase its early oil production from 
80,000 to 120,000 b/d.  The 30 percent royalty has been 
levied on that increased early oil.  Once the 180,000 b/d 
upgrader comes on line, Hamaca project field production will 
increase to about 190,000 b/d under the existing contract and 
the company will pay a 1 percent royalty for nine years or 
until it has re-couped some multiple of its original 
investment, whichever comes first.)  Most significantly, 
Moshiri also confirmed to econoff that the Hamaca project has 
proposed to the GOV that it increase field production in 
order to provide the GOV with an additional 100,000 b/d of 
 
 
extra heavy crude.  This crude would not be upgraded but 
would instead be sold directly by PDVSA as a blend crude such 
as Merey. 
 
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COMMENT 
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9. (C)  ChevronTexaco's Moshiri may be raising the hackles of 
some of his colleagues (challenging Shell for instance) but 
there is no doubt of his success in dealing with the GOV. 
Part of this success lies in the company's heavy involvement 
in the Deltana Platform project that has been largely 
conceived and brought to fruition by the Chavez government. 
Moshiri's pledge to do an extra heavy crude project under the 
provisions of the Hydrocarbons Law would also be very well 
received by this government.  It is clear that ChevronTexaco 
has calculated that it may well be dealing with the Chavez 
government for some time to come and that, if it wants to 
pursue a long-term expansion strategy in Venezuela, it must 
come to an agreement with this government.  Other companies 
have done the same but ChevronTexaco has been more public 
about it. 
 
10. (C)  The flip side of this is that if the opposition wins 
the referendum on August 15 and a subsequent election, CTX 
could be a target.  There are those in the opposition, 
particularly from the ranks of the ex-PDVSA employees, who 
still feel rancor against foreign companies which they 
believe contributed in some way to the failure of the 
December 2002-February 2003 oil strike by helping PDVSA to 
get production going.  The bid processes for Deltana Platform 
project blocks were a particular target for allegations of 
sweetheart deals by the opposition.  Although Moshiri 
throughout has emphasized the transparent nature of the 
process in which the company participated (and we agree), it 
is possible that a new government might review agreements 
with a critical eye. 
Shapiro 
 
 
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      2004CARACA02594 - CONFIDENTIAL