US embassy cable - 05SANAA1282

C O N F I D E N T I A L SANAA 001282 
 
SIPDIS 
 
E.O. 12958: DECL: 05/09/2015 
TAGS: EPET, ECON, EINV, YM, ECON/COM, ENERGY 
SUBJECT: YEMEN HUNT LOOKING FOR DEAL ON BLOCK 18 EXTENSION, 
BUT ROYG DOOR REMAINS CLOSED 
 
REF: SANAA 966 
 
Classified By: Ambassador Thomas C. Krajeski for reasons 1.5 b and d. 
 
1. (C) Summary.  On May 7, Ambassador met with 
representatives of Yemen Hunt to discuss developments in the 
ongoing drama of the Block 18 extension (reftel).  The ROYG 
officially confirmed the cancellation of its agreement with 
Hunt, endorsing Parliament's decision to explore a more 
profitable arrangement for Block 18.  Hunt continues to 
prepare its case for litigation, suggesting that a high 
profile lawsuit may affect severely Yemen's plans for natural 
gas export.  Although Hunt would still prefer to reach a deal 
with the ROYG, at this time it seems unlikely.  End Summary. 
 
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ROYG Makes Rejection Official 
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2. (C) Ambassador met Wyndell Caviness, Vice President and 
General Manager of Yemen Hunt Oil, on May 7 to discuss recent 
developments in the Block 18 extension.  Since the 
Ambassador's April 13 meeting with Hunt, Caviness conferred 
with presidential advisor Abdulkarim al-Iryani several times. 
 For a brief period, said Caviness, President Saleh appeared 
ready to negotiate the extension anew, but discussions with 
the ROYG have broken down again.  Caviness said that Yemen 
Hunt received an official letter from the Ministry of Oil 
(MOO) May 2, confirming that the Cabinet officially endorsed 
Parliament's decision not to grant the extension, canceling 
the 2003 decree in which it was originally endorsed by 
Cabinet. 
 
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Springtime in Paris, Hunt Looks to Sue 
-------------------------------------- 
 
3. (C) Hunt is continuing forward with legal options against 
the ROYG, and has contracted the services of Baker Botts LLP, 
based in London, to handle their case.  Jim McVail, Yemen 
Hunt's staff attorney, explained that any litigation would 
take place at the ICC in Paris, where it would be decided by 
international judges according to the laws of Yemen. 
Caviness believes that a high profile case is likely to harm 
prospects for the pending liquid natural gas (LNG) agreement 
(reftel).  The perception that the ROYG violates agreements 
with foreign companies, said Caviness, may be enough to scare 
off necessary international financing for the project.  There 
are additional rumors, continued Caviness, that Parliament 
may review the LNG deal as well, which is scheduled to be 
finalized in early July.  As with the Hunt extension, some 
MPs believe the ROYG negotiated a bad deal at 3 million USD 
per metric ton, considering the world average at 7 million 
USD, and want to renegotiate. 
 
4. (C) With its rejection of the extension, Parliament 
ordered MOO to contract a consultant to study from scratch 
the most profitable strategy to manage Block 18.  According 
to Caviness, MOO has given the responsible committee between 
two and three weeks to accomplish this task.  In his 
estimation, a study of this type should take as long as a 
year.  With Hunt's agreement scheduled to terminate November 
15, the ROYG is pressed for time.  Caviness speculated that 
MOO, which has repeatedly supported the Hunt extension, may 
be offering Parliament an olive branch while leading them 
back to Hunt as the best possible choice given the 
constraints. 
 
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"We're trying to leave a door open" 
----------------------------------- 
 
5. (C) Summary.  Despite Hunt's preparations for litigation, 
it is clear that the company would still prefer to strike a 
deal.  "We're trying to leave a door open for Saleh," said 
Caviness, but for the time their overtures remain unrequited. 
 McVail's ROYG contacts believe that the government is 
playing a game with Hunt, but it is not clear what the rules 
are or what they hope to win.  It is possible that MOO's 
consultant will indicate that Hunt remains the best option 
for Block 18, while trying to squeeze a more advantageous 
deal from the company to placate Parliament.  Nevertheless, 
the threat of litigation remains real and threatens to poison 
the investment climate as a whole.  End summary. 
Krajeski