US embassy cable - 05RABAT1177

C O N F I D E N T I A L RABAT 001177 
 
SIPDIS 
 
DEPT FOR NEA/MAG AND EB/ESC 
 
E.O. 12958: DECL: 06/06/2015 
TAGS: EPET, PBTS, MO, WS 
SUBJECT: POLISARIO SELLING OIL EXPLORATION PERMITS IN 
WESTERN SAHARA 
 
REF: A. RABAT 0658 
     B. RABAT 1095 
 
Classified By: Economic Counselor Michael Koplovsky, for reasons 1.4 b 
and d. 
 
1. (C) Summary: The Polisario "government" of the putative 
Saharawi Arab Democratic Republic (SADR) has issued a call 
for bids on oil exploration licenses over the length of the 
Western Sahara territory, including offshore zones where U.S. 
firm Kerr McGee has been operating under Moroccan licenses 
for several years.  The SADR has advertised the sale on a 
highly sophisticated website complete with state-of-the-art 
geological data and contract licensing documents.  The bids 
are due on October 31, 2005.  The 12 offshore blocks being 
auctioned off by the Polisario cover entirely the block 
granted by the Government of Morocco to Kerr McGee in 2001 
(Ref A).  Kerr McGee Morocco general manager John O'Brien 
(protect) told Econoff on June 7 that his company extended 
its existing offshore reconnaissance permit with the GOM in 
April, and is in "wait and see" mode.  Deputy Foreign 
Minister Taieb Fassi-Fihri flagged the call for bids as an 
example of Polisario provocation in a May 23 meeting with P-5 
ambassadors (Ref B).  End Summary. 
 
2. (C) Kerr McGee's John O'Brien, an oil executive with 
decades of experience, wistfully noted the site 
(www.sadroilandgas.com) was "substantially more 
sophisticated" than the Moroccan Government's Hydrocarbons 
Office (ONHYM) webpage.  He said the geological data and 
mapping contained on the page are accurate and up-to-date, 
and contains sophisticated petroleum contracting language. 
O'Brien said it is clear the SADR has hired professional 
western consultants to design the site, who he suspects came 
from an Australian company which was a former competitor to 
Kerr McGee (KM) in Western Sahara.  The address listed on the 
site for the "SADR Petroleum Authority" is a post office box 
in New South Wales, Australia. 
 
3. (C) The SADR website refers to an "intervening period" 
before contracts will come into effect, saying "certain 
conditions relating to sovereignty must be satisfied before 
the first exploration period can commence."  This means any 
SADR contract will immediately enter into abeyance upon 
signing until the political situation is resolved.  O'Brien 
believes oil companies may seek to purchase lots from the 
SADR at a substantial discount, given the political 
uncertainty involved.  He said many smaller companies are 
risk-taking ventures, and surmised that the SADR would accept 
highly discounted sums of money given its tenuous hold on the 
territory. 
 
4. (C) Kerr McGee has been operating on a reconnaissance 
permit for its Western Sahara (WS) block for over three 
years.  Its permit was set to expire on April 29, and O'Brien 
expected to convert immediately to an exploration permit that 
would allow the company to drill exploratory wel  ls.  Just 
days before the contract end date, U.S.-based Kerr McGee 
management instructed O'Brien to extend the recon permit for 
another six months, to give the company more time to see how 
the political situation evolves. 
 
5. (C) The SADR website declares KM's activities in the WS 
"illegal," saying "The SADR government will consider all 
options to deter any such illegal and provocative action." 
Meanwhile, Kerr McGee believes a legal opinion written by UN 
Under Secretary General for Legal Affairs Hans Corell in 
January 2002 declares KM's reconnaissance permit legal, since 
resource extraction is not involved.  O'Brien said the 
company was eager to convert its recon permit into an 
exploration permit (the next step before seeking a 
commercialization license), but decided to extend the 
reconnaissance permit for an additional six months while they 
await legal clarification over the territory's status.  The 
Kerr McGee GM wondered aloud to Econoff whether his company 
had made the right decision in buying its permits from the 
GOM: "Certainly we have taken a side here with the party we 
think will win out in the end," he said.  "But were we 
correct?  Did we go with Goliath when David may eventually 
win?" 
RILEY