Viewing cable 07CARACAS112,

VZCZCXRO1977
RR RUEHDE
DE RUEHCV #0112/01 0182027
ZNY CCCCC ZZH
R 182027Z JAN 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 7517
INFO RUEHHH/OPEC COLLECTIVE
RUEHAC/AMEMBASSY ASUNCION 0756
RUEHBO/AMEMBASSY BOGOTA 7193
RUEHBR/AMEMBASSY BRASILIA 5855
RUEHBU/AMEMBASSY BUENOS AIRES 1548
RUEHLP/AMEMBASSY LA PAZ 2442
RUEHPE/AMEMBASSY LIMA 0703
RUEHNY/AMEMBASSY OSLO 0097
RUEHSP/AMEMBASSY PORT OF SPAIN 3322
RUEHQT/AMEMBASSY QUITO 2533
RUEHSG/AMEMBASSY SANTIAGO 3859
RUEHDG/AMEMBASSY SANTO DOMINGO 0368
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RHEHAAA/WHITEHOUSE WASHDC
RHEBAAA/DEPT OF ENERGY
RUCNDT/USMISSION USUN NEW YORK 0716
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RHEHNSC/NSC WASHDC

2007-01-18 20:27

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000112

SIPDIS

SIPDIS

ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD NSC FOR DTOMLINSON

E.O. 12958: DECL: 01/12/2017 TAGS: EPET ENRG EINV ECON VE

Classified By: [TEXT REMOVED BY AFTENPOSTEN] Reason 1.4 (D)


¶1. (C) SUMMARY: Energy (MEP) Vice Minister [TEXT REMOVED BY AFTENPOSTEN] realizes that the BRV needs the private sector to run the strategic associations but his influence in the Chavez administration is waning, according to Statoil. Statoil is not worried about changes in the regulatory or fiscal framework for the gas sector since it believes the BRV will have its hands full with the oil sector. PDVSA relies heavily on Sarda, an Iranian service company. Statoil will not invest a single additional kroner or dollar in Venezuela until there is a clear legal framework. END SUMMARY

---------------------- STRATEGIC ASSOCIATIONS ----------------------

¶2. (C) Petroleum Attache (Petatt) met with Statoil Venezuela President Thore Kristiansen on January 18 to discuss BRV plans for the oil and gas sectors. Kristiansen stated he had just come from a four and one half hour meeting with MEP Vice Minister [TEXT REMOVED BY AFTENPOSTEN]. Although Kristiansen was fairly tight-lipped about the meeting, he said he firmly believed that [TEXT REMOVED BY AFTENPOSTEN] realizes the BRV needs the private sector to run the strategic associations. Kristiansen rattled off a series of statistics on the amount of investment needed to run Sincor, as well as the number of employees and contractors needed to keep it in operation, to prove his point. He stated that a significant portion of the meeting with [TEXT REMOVED BY AFTENPOSTEN] covered corporate governance and management structure issues. However, Kristiansen stated twice during the meeting that he believed [TEXT REMOVED BY AFTENPOSTEN] s influence within the BRV is waning.

¶3. (C) When Petatt mentioned press reports quoting MEP Minister Ramirez comments that PDVSA would take a 60 percent stake in the associations, Kristiansen indicated that he was not sure that we should believe the reports. Although he did not specifically say it, he appeared to believe that the BRV was willing to negotiate on the size of PDVSAs stake, based on discussions with BRV officials. Kristiansen later added that senior BRV and PDVSA officials do not really understand the oil and gas policies that they are supposed to be implementing. (COMMENT: Kristiansen is not the only oil executive who is getting mixed signals from senior BRV and PDVSA officials. [TEXT REMOVED BY AFTENPOSTEN]told Petatt on January 15 that he had received e-mails from senior officials that indicated they wanted to negotiate with [TEXT REMOVED BY AFTENPOSTEN]. It is clear that at this point even senior officials within the MEP and PDVSA have no idea what the BRVs policy is regarding the migration of the strategic associations to PDVSA controlled joint ventures. END COMMENT)

---------- GAS SECTOR ----------

¶4. (C) Given vague statements by President Chavez that the BRV would overhaul the legal and fiscal framework for the gas sector, Petatt assumed that Kristiansen would be concerned about Statoils substantial gas investment in Venezuela. However, when Petatt raised the subject, Kristiansen said he was not worried. He stated he believed the BRV would not make any changes in the gas sector until it had finished migrating the strategic associations, the exploratory round fields, and the Sinovensa joint venture to PDVSA controlled joint ventures. Given the lack of qualified personnel in MEP and PDVSA, Kristiansen believed that the migration of all of these entities would be a long, drawn-out process. (COMMENT: Although Kristiansens position is perfectly reasonable, he did not offer any evidence to back up his views. We suspect he arrived at his position after meeting with [TEXT REMOVED BY AFTENPOSTEN]. Since oil is far more important politically and economically than gas for the BRV, it stands to reason that it would focus its limited resources on migrating all of the various oil projects before it tackled gas sector reforms. END COMMENT)

¶5. (C) Kristiansen noted Statoil would fulfill its exploration commitments in Venezuela. Since this is a long-term commitment, Statoil would have plenty of time to evaluate the Venezuelan investment climate before it actually had to invest significant amounts to begin production. In addition, Kristiansen noted another company would reach the point where it would have to decide on making significant investments in production long before Statoil. He implied that evaluation, when it occurred, would give Statoil the opportunity to sit back and see how the BRV treated its colleague. (NOTE: We believe Kristiansen was referring to [TEXT REMOVED BY AFTENPOSTEN] END NOTE) Kristiansen said Statoil would not invest another kroner or dollar in Venezuela until there is a clear investment framework.

----- SARDA -----

¶6. (C) After questioning Petatt about Iranian influence in Venezuela, Kristiansen noted that Sarda, an Iranian service company, is a key PDVSA contractor. He said Statoil is forced to use Sardas services for its Iranian operations. In Kristiansens opinion, Sarda is one of the most incompetent service companies in the world and said he could not understand why PDVSA would use their services.

------------------------- THE BLOOM IS OFF THE ROSE -------------------------

¶7. (C) COMMENT: In the past, Kristiansen has been very optimistic about expanding Statoils operations in Venezuela. He has stated directly and indirectly that Statoil was willing to accept just about any negotiated agreement that would allow it to increase crude production in Venezuela. All that has changed. During the meeting, Kristiansen repeatedly used the term "communist" to describe BRV policy and peppered Petatt with questions about the Embassys views on Chavez. He was particularly interested in our views on how far Chavez was going to go with economic reforms. At one point, he stated it was clear educated Venezuelans would not have much of a future if they stayed in Venezuela.

¶8. (C) Kristiansen, an urbane man who looks like he just stepped out of a Brooks Brothers catalogue, was animated during the meeting. At the conclusion of the meeting, he thanked Petatt for maintaining contact with Statoil. We have noted during the past two months that private sector petroleum contacts have been more forthcoming with us. We suspect the change in attitude stems from the constant demand for analysis by worried home offices as well as a need to vent. Petroleum contacts are under tremendous pressure to provide their headquarters with analysis on the present situation. Reporting that they are in contact with the Embassy assuages nervous bosses back in corporate headquarters. In addition, some contacts clearly approach meetings with us as if they were going to a counseling session or visiting a priest. END COMMENT.

BROWNFIELD