US embassy cable - 05CARACAS3654

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 003654 
 
SIPDIS 
 
ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD 
 
E.O. 12958: DECL: 11/25/2015 
TAGS: EPET, ENRG, EINV, NO, VE 
SUBJECT: STATOIL'S VIEWS ON HYDROCARBON SECTOR 
 
 
Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D) 
 
1. (C) SUMMARY: Statoil Venezuela President Thore Kristiansen 
(strictly protect) was upbeat on the migration of Operating 
Service Agreements to joint venture companies.  He believes 
Energy Vice Minister Bernard Mommer has shown increased 
flexibility in the negotiations and understands the current 
weak operational state of PDVSA and the need for 
international oil companies (IOCs) in Venezuela.  Statoil is 
currently in talks about strategic association Sincor's tax 
and royalty liabilities as well as future expansion plans. 
Statoil has a 15 percent share in Sincor.  Kristiansen 
admitted that the legal framework for gas could be 
interpreted in a strict manner that limits IOCs in the future 
but discounted the possibility.  He also believes the Faja 
region could contain reserves of up to 1.3 trillion barrels 
of oil.  Even assuming a 20 percent recovery rate, the amount 
of oil is staggering.   END SUMMARY 
 
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ALWAYS LOOK ON THE BRIGHT SIDE OF LIFE 
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2. (C) Petroleum Attach (Petatt) met with Statoil Venezuela 
President Thore Kristiansen (strictly protect) on December 2 
to discuss the migration of OSAs to joint ventures as well as 
Statoil's general views of the Venezuelan hydrocarbon sector. 
 Statoil has a 27 percent share in the LL-652 OSA, a 15 
percent share of the Sincor strategic association with a 
production capacity of 200,000 barrels per day of extra heavy 
oil and 180,000 barrels of syncrude, and Block 4 of the 
Plataforma Deltana gas field.  The license for Block 4 was 
awarded to Statoil and PDVSA Gas.  PDVSA Gas has the right to 
participate up to 35 percent in the project after 
commerciality is declared. 
 
3. (C) Petatt began the conversation by asking Kristiansen 
his thoughts on migration talks between the oil companies 
with OSAs and the GOV.  (NOTE: The GOV has given the oil 
companies until December 31 to sign transition agreements to 
migrate their OSAs to joint ventures in which state oil 
company PDVSA has controlling interest.  After the companies 
have signed the transition agreements, they have until March 
31 to convert the OSAs to the joint venture companies.  END 
NOTE)  Kristiansen was upbeat in his response.  He believes 
the majority of the six companies that have not signed the 
transition agreements will do so by year end. 
 
4. (C) Kristiansen also claimed the GOV has recently shown 
more flexibility in their negotiations with companies with 
OSAs.  For example, the GOV seems to have modified its 
position somewhat on the issue of dividends.  When 
Kristiansen suggested that it may be better to pay dividends 
frequently rather than on an annual basis as required by 
Venezuelan law, GOV officials welcomed the idea and began to 
look into whether it was possible to do so.  Kristiansen 
credits this change of attitude to a realization on the part 
of the GOV that it would benefit from maximizing the payment 
of dividends by joint ventures.  He also stated the GOV has 
shown increasing flexibility on the all-important issue of 
the protection of minority shareholders' rights. 
 
5.  (C) Kristiansen appears to believe Energy Vice Minister 
Bernard Mommer is far more pragmatic than he is generally 
given credit for being.  He said Mommer has told him that it 
will be at least 15 years before PDVSA has the technical 
expertise that it had before the strike.  He also said Mommer 
views the IOCs as an important check and balance on PDVSA. 
As Mommer's writings clearly show, he views the pre-strike 
PDVSA as a law unto itself.  Mommer does not want a return to 
the days when PDVSA told the GOV what to do rather than vice 
versa. 
 
6.  (C) Kristiansen attributed problems in the migration 
negotiations to a lack of planning and organization on the 
part of the GOV.  He complained about how difficult it was to 
schedule meetings with GOV officials since they seem 
incapable of keeping to a schedule.  He also said it was 
clear that no one within the GOV or PDVSA had thought about 
the vast number of legal and operational issues that the 
migration from OSAs to joint venture companies would entail. 
Kristiansen said he views Mommer's direct participation in 
the negotiations as a positive since Mommer is detail 
oriented and is always punctual.  He joked that Mommer 
apologizes profusely when he is five minutes late for a 
meeting. 
 
--------------------------------------------- -- 
SINCOR II -- TOO RICH A PRIZE TO WALK AWAY FROM 
--------------------------------------------- -- 
 
7.  (C) Rumor has it that Statoil and its partner Total 
finally gave up on attempts to expand their Sincor operation. 
 When asked about Sincor II, Kristiansen replied Statoil was 
in parallel negotiations regarding the project.  One set of 
negotiations dealt with the GOV's imposition of a 30 percent 
royalty rate for "overproduction" as well as tax issues.  The 
GOV has stated it is currently auditing Sincor.  However, 
Kristiansen said tax authorities have not visited Sincor or 
Statoil's offices.  He complained he kept a key employee from 
attending a prestigious training course that is only offered 
once a year in anticipation of the audit.  In addition, 
Statoil is in intense negotiations with the GOV to greatly 
expand the Sincor operation.  The Sincor partners want to 
greatly expand their upgrading operations as well as secure 
another block of the Faja.  Kristiansen stated Statoil would 
like the Junin 6 block since it is located near the current 
Sincor block. 
 
8.  (C) When asked about linkages between the two 
negotiations and the OSA negotiations, Kristiansen replied 
that everything was linked.  He explained that this was in 
part due to the fact that Mommer was involved in all of the 
negotiations.  He stated Mommer negotiates in a "German" 
manner.  According to Kristiansen, Germans like to link all 
of the issues together and are adept at finding weaknesses 
that they can exploit.  As a result, German contracts are far 
more detailed and lengthy than common law contracts. 
Kristiansen said Statoil did not mind linking all of the 
issues since it gave them greater flexibility when it came 
time to decide what they were willing to give up in order to 
secure deals. 
 
9.  (C) Kristiansen ended the discussion on Sincor by 
stressing its importance to Statoil.  He believes the Faja 
could contain reserves of as many as 1.3 trillion barrels of 
oil.  Even assuming a recovery rate of only 20 percent, the 
amount of oil the Faja contains is staggering.  Kristiansen 
said he believes technology will significantly improve the 
recovery rate for the Faja in the coming years. 
 
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IS GAS DIFFERENT? 
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10.  (C) Although Venezuela's 2001 Hydrocarbon Law places 
significant restrictions on IOC's activities in the oil 
sector, the 1999 Gas Law permits private sector entities with 
the proper license to carry out exploration and production 
activities, take title of the non-associated gas at the well 
head, own all the project assets, and directly receive the 
proceeds of the sale of gas.  GOV officials, however, have 
made statements that indicate the provisions of the 2001 
Hydrocarbon Law should be applied to gas.  When asked if he 
was concerned that the rules of the game would change for 
gas, Kristiansen admitted that it was possible, particularly 
given the GOV's policies toward the IOCs recently. 
 
11. (C) He went on to state he did not think the GOV would 
apply the Hydrocarbon Law to gas because, as noted above, it 
realizes it needs the IOCs.  In addition, he believes 
Mommer's presence in the GOV will keep it from changing the 
rules in the gas sector.  Mommer was a key author of both the 
Hydrocarbon Law and the Gas Law.  Kristiansen said Mommer was 
proud of both of his creations and he did not think he would 
blithely toss the Gas Law out. 
 
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KRISTIANSEN BIO INFORMATION 
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12. (C) Kristiansen is a pleasant, urbane man who speaks 
flawless English.  He also speaks German and Spanish.  He 
appears to have a good working relationship with Mommer. 
Part of this may stem from his ability to speak German. 
Rumor has it that Mommer is most comfortable when he is 
negotiating in German.  Kristiansen has worked in London and 
prior to coming to Venezuela in February, he was stationed in 
the U.S.  His executive assistant worked at Embassy Caracas 
for 23 years.  Kristiansen stated he saw a number of 
Department of State and Department of Energy officials when 
he visited Washington in November for an Institute of the 
Americas energy forum.  He said the meetings went well and 
that he values contact with USG officials.  He plans on 
visiting the U.S. every six months if possible.  He also 
welcomed regular contact with Post. 
 
 
 
 
BROWNFIELD