US embassy cable - 05SANAA1597

C O N F I D E N T I A L SANAA 001597 
 
SIPDIS 
 
E.O. 12958: DECL: 06/15/2015 
TAGS: PREL, PGOV, ECON, EAID, EPET, KMCA, KMPI, YM, ECON/COM, ENERGY 
SUBJECT: HUNT OIL READY TO SUE ROYG IN INTERNATIONAL PUBLIC 
COURT 
 
REF: A. SANAA 1571 
     B. SANAA 1511 
 
Classified By: DCM Nabeel Khoury for reasons 1.4 b and d. 
 
1. (C) Summary.  Neither side is backing down in the dispute 
between headline American company Hunt Oil and the ROYG over 
the cancellation of Hunt's five-year extension to operate 
lucrative block 18 in Maarib.  Ambassador briefed Yemen Hunt 
head Wyndell Caveness following his meeting with President 
Saleh to encourage the ROYG to settle its dispute with Hunt 
before it reaches litigation (refs A and B).  Ambassador told 
Caveness that Saleh held firm to the ROYG's stance that Hunt 
must recompete for the concession when the PSA expires in 
November.  Caveness replied that Hunt's position is clear -- 
it will sue the ROYG rather than enter into new negotiations 
over block 18.  End Summary. 
 
-------------------- 
ROYG Remains Firm... 
-------------------- 
 
2. (C) Ambassador briefed Caveness on his June 9 meeting with 
Saleh, saying he warned the President that litigation with 
the only major U.S. company in Yemen was not serve Yemen's 
interests (ref A).  Saleh's recounted the ROYG's position, 
Ambassador told Caveness, that the "old deal is dead," and 
insisted that Hunt must bid on a new PSA with new conditions. 
 He also passed along to Caveness Saleh's message to Hunt 
that if it recompetes for block 18 "Hunt will have the 
priority." 
 
-------------------------- 
...Hunt Will Not Back Down 
-------------------------- 
 
3. (C) Caveness reiterated Hunt's position: The company would 
prefer to avoid litigation; is willing to revisit the 
economic details of its 2004 extension agreement with the 
ROYG; but, it will not negotiate anew.  If the ROYG opens 
block 18 to other operators in November, said Caveness, Hunt 
will take the ROYG to court for violating a legally binding 
contract. 
 
----------------------------- 
Another U.S. Company Steps In 
----------------------------- 
 
4. (C) Caveness told Ambassador that he believes ROYG's moves 
to cancel the PSA extension date back to Saleh's 2004 visit 
to the U.S. to attend the BMENA Sea Island meeting.  He said 
that during that visit Saleh met with representatives of 
Occidental Oil has ever since wanted Occidental in and Hunt 
out. (Note: this is in line with Saleh's statement to 
Ambassador on June 9 that "no matter what, it will be an 
American company" in block 18.  End Note). 
 
-------------------------------- 
Oil Will Still Flow, But Not Gas 
-------------------------------- 
 
5. (C) Ambassador asked what might be the production loss for 
Hunt and Yemen if the case goes to the International Public 
Court in Paris for arbitration.  Block 18 revenues would be 
held in escrow, said Caveness, but Hunt is willing to 
continue to operate for as long as the ROYG requests.  As for 
the future of the LNG project, Caveness believes a court case 
over block 18 would kill the deal, not because Hunt would 
back out in retribution, it would not, but because the 
financing would dry up. 
Krajeski