US embassy cable - 05ABUDHABI1872

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001872 
 
SIPDIS 
 
STATE FOR EB/ESC/IEC/EPC 
 
E.O. 12958: DECL: 04/27/2015 
TAGS: EPET, ENRG, ECON, TC 
SUBJECT: OIL INDUSTRY REPS ON POTENTIAL PRODUCTION 
INCREASES, ILSA 
 
Classified By: Ambassador Michele J. Sison for reasons 1.4 (B and D) 
 
 1. (C) Summary: Western oil executives told Ambassador, at 
an energy roundtable, about Abu Dhabi plans to add 200,000 
barrels per-day capacity over the next two years in onshore 
production and 150,000 capacity in the near term offshore. 
They agreed that Saudi ARAMCO would be able to meet Saudi Oil 
Minister Naimi's April 22 pledge to increase production 
capacity.  The oil executives highlighted worldwide material 
and personnel capacity constraints that would affect the 
industry's ability to expand production rapidly.  They also 
complained about the impact of ILSA on their ability to work 
in Iran.  End Summary. 
 
2. (C) During an April 26 American Business Group energy 
roundtable with Ambassador, representatives from several 
international oil companies discussed Abu Dhabi's plans to 
expand oil production capacity over the next few years. 
According to Exxon Al-Khalij President Frank Kemnetz, Abu 
Dhabi plans to expand its onshore oil production by 200,000 
barrels per-day over the next two years, bringing the total 
onshore production capacity to 1.4 mb/d.  Abu Dhabi Marine 
Operating Company (the production company subsidiary of ADNOC 
responsible for offshore production) General Manager Bud 
Fackrell said that ADMA/OPCO had plans to expand production 
capacity by 150,000 barrels per day and was being asked to 
examine the feasibility of increasing capacity by an 
additional 200,000 barrels per day.  Fackrell noted that some 
of these plans had been "on the table" for a few years, but 
there was increasing pressure from the Supreme Petroleum 
Council (SPC) and Abu Dhabi Crown Prince Sheikh Mohammed bin 
Zayed to increase production capacity.  ADNOC, he said, was 
trying to be responsive to SPC desires. 
 
3. (C) The representatives also briefly discussed Saudi Oil 
Minister Ali Naimi's April 22 commitment to increase 
production capacity to 12.5 mb/d by 2009 and the "near term" 
potential of Iraq.  The general consensus was that the Saudis 
tended to estimate conservatively the amount of oil 
production that they could bring on line, and that they would 
be able to meet the pledge (although the timeline might be 
slightly optimistic).  Some oil executives noted that foreign 
participation would help ARAMCO add capacity more cheaply and 
more quickly, but acknowledged that ARAMCO was fully capable 
of acting on its own.  They were more skeptical about Iraq's 
ability to rapidly increase production.  David Muller of 
Safar Oilfield Services opined that there was no 
infrastructure in Iraq to drill new fields and that the 
current oil infrastructure was "literally held together with 
bailing wire." 
 
4. (C) The oil and oil services company executives 
highlighted physical and personnel constraints that could 
impede rapid increases in capacity in the Gulf and world 
wide.  They noted the limits in drilling rigs and in steel 
and tubing, which was a change from the situation a few years 
earlier.  They also highlighted the lack of trained petroleum 
engineers and geologists.  One company executive noted that 
the big gas projects in Qatar were driving up his cost of 
employment and all complained about the lack of qualified 
engineers to "backfill" for older engineers who were nearing 
retirement age.  Fackrell noted that many of the petroleum 
engineering programs in the United States (including the one 
from which he graduated) were closed.  Fackrell also said 
that there were practices specific to ADNOC that hindered its 
ability to rapidly increase capacity.  He explained that 
ADNOC's procurement people "distrusted" suppliers and 
consistently slowed down procurements to be sure that they 
got the best price, not coincidentally slowing down projects. 
Fackrell and Kemnetz also noted that, because ADNOC had had 
spare capacity for several years, the "technocrats" took a 
very conservative attitude about reservoir management and 
potential expansion plans. They would not present any 
projects to the SPC that might threaten future production 
capacity.  What the International Oil Companies shareholders 
in ADNOC were trying to do was to convince ADNOC to present 
the SPC with a complete set of options (i.e., we can expand 
production by 200,000 barrels per day quickly, but risk 
production declining after a few years or we can expand 
production by 100,000 barrels per day and it will be 
sustainable for 20 years.)  The IOC's think that ADNOC 
technocrats are being too conservative and want to present 
the SPC with all of the options.  Fackrell said that he 
thought ADNOC was moving in that direction, but hadn't gotten 
there yet. 
 
5. (C) Oil company representatives complained about the 
impact of ILSA on their ability to operate in Iran.  One 
executive opined that the only effect of ILSA on Iran was to 
benefit the French.  Ambassador stressed long-standing USG 
opposition to investment in Iran's energy sector and noted 
that ILSA, which provided for sanctions for certain such 
investments, remains U.S. law.  The U.S. continued to be 
deeply concerned about Iranian policies and actions, 
particularly Iran's nuclear activities and its ongoing 
support for terrorism.  On the FTA, most executives said that 
they would prefer to see the agency problem resolved, 
although a vocal minority, with agencies, noted that agency 
agreements were a two way street.  The group then briefly 
discussed Abu Dhabi Emirate's plans to turn Abu Dhabi into a 
regional oil services center and a regional "clean energy" 
center. 
SISON