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Cablegate: Black Gold: Petroleum Resources in Ethiopia

VZCZCXRO8674
RR RUEHROV
DE RUEHDS #0512/01 0581419
ZNR UUUUU ZZH
R 271419Z FEB 08
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 9729
INFO RUCNIAD/IGAD COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0450
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 02 ADDIS ABABA 000512

SIPDIS

SIPDIS
DEPT FOR EEB, AF/E WYSHAM


E.O. 12958: N/A
TAGS: EINV ETRD ECON ENRG ET
SUBJECT: BLACK GOLD: PETROLEUM RESOURCES IN ETHIOPIA

1. SUMMARY: The Government of Ethiopia (GoE), through the Ministry
of Mines and Energy, is actively seeking investment and exploration
in the oil and gas sector. While to date there are no proven
reserves of oil or gas, exploration is taking place in several areas
of the country with promising geology. If petroleum resources are
located, the GoE can reap financial benefits from exports. END
SUMMARY.

2. Ethiopia does not have proven oil resources. There are
indications that there may be some oil and possibly significant
natural gas resources in five sedimentary basins throughout the
country: Mekele (Tigray); Ogaden (Somali State); Abay (northern
Oromo and southern Amhara); Metema (Amhara); Gambella; and the South
Rift Valley.
The greatest concentrations of petroleum resources are thought to be
in the Ogaden basin.

HISTORY
-------

3. Dr. Ketsela Tadesse, Petroleum Operations Department, Ministry of
Mines and Energy told emboffs that petroleum exploration in Ethiopia
dates to the 1950's. Exploration has been sporadic, delayed and
hampered by global fluctuations in prices and changes in
government/instability in Ethiopia. Also, the geology in Ethiopia
is complex, making it more difficult to locate and extract any
resources that are eventually found. Current high prices are
driving companies to less-than-perfect places with potential for
exploration.

4. In the 1970's, US company Tenneco performed geologic survey and
drilling work. Tenneco made two discoveries of gas in the Ogaden,
but the discoveries were not particularly attractive. Tenneco left
Ethiopia after the Communist revolution. Following the rise of the
Communist Dergue regime, the Soviet Petroleum Exploration Expedition
(SPEE) entered the Ogaden and focused mainly on Tenneco's two
discoveries. SPEE drilled several wells, especially in the Calub
and Hilala fields and reported good indicators for oil in Hilala.
SPEE departed Ethiopia when the Dergue fell in 1991.

5. Following the end of communist rule, Ethiopia decided to market
its oil and gas potential globally. Initially, the GoE reserved
blocks with the most potential for government ownership and rented
them to exploration companies. In the early 1990's, two US
companies, Hunt Oil and Maxis Energy entered the Ogaden. Maxis
departed after two years. Hunt stayed for about 8 years and drilled
one unproductive well before abandoning operations.

6. In 1998, the GoE developed a new promotional document and
re-examined the way they partner with oil and gas companies.
Instead of retaining ownership and renting the blocks, the GoE and
the exploration companies enter into production sharing agreements.
Companies pay a signing bonus to the GoE (White Nile reportedly paid
$1 million upon signature) and community development benefits such
as schools, clinics and water projects. The GoE also utilizes joint
study agreements. Under these agreements, the exploration companies
collaborate with GoE to conduct initial exploration. To compensate
for the cost of the studies, the exploration company gets
preferential access to blocks.

AREAS OF EXPLORATION
--------------------

7.There are currently 7 foreign companies with exploration blocks
assigned to them in Ethiopia: White Nile (UK); Inter Global (US);
Lundin (Swedish); Petronas (Malaysian); Pexco (Malaysian); South
West Energy (Hong Kong registered, owned by an Ethiopian-American);
and Afar Explorer (US). Currently in the Ogaden, there are the 8
Petronas blocks, 3 granted to South West Energy, 3 to Pexco and 4 to
Lundin. 4 are open. There are no Chinese companies engaged in
exploration.

8. A joint study agreement from 2000/2001 between GoE and Malaysian
firm Petronas led to Petronas being granted the Gambella block in
south eastern Ethiopia. Petronas has drilled one well in Gambella,
which was unproductive. Petronas and GoE also collaborated on
studies in the Ogaden, and Petronas has been granted 8 blocks,
including the Calub and Hilala discoveries.

9. Exploration is also occurring in other parts of the country.
Afar Exploration and Trans Global have been granted blocks in the
Afar region. There are applications for 2 or 3 of the 9 blocks in
the unexplored Abay Basin in Amhara region in the north-central area
of the country. White Nile has been granted blocks in the extreme
southwest. A joint study project with an undisclosed company is
underway around Jimma.


ADDIS ABAB 00000512 002 OF 002


PROSPECTS FOR THE FUTURE
------------------------

10. If oil or natural gas is extracted it would be for export only,
according to Dr. Ketsela. Ethiopia is not a large consumer of
petroleum due to its highly rural population. Few people in rural
areas have cars, nor do they use motorized farm machinery. Ongoing
projects in geothermal and hydroelectric energy are intended to
reduce the country's dependence on diesel fuel for power generation,
thus freeing any oil or gas for export and foreign exchange earning.
Additionally, the GoE is undertaking several biofuel projects which
may further reduce Ethiopia's need for petroleum.


Instability Still a Concern
---------------------------

11. Ketsela was reluctant to comment on the April 2007 attacks in
the Ogaden in which 74 workers were killed by the insurgent Ogaden
National Liberation Front (ONLF). He did say that it has had a
dampening effect on new entrants into exploration, but companies are
still interested. Furthermore, he said that the Chinese company
Zhoungyan Petroleum Exploration Bureau (ZPEB), which lost seven
workers in the ONLF attack, worked in similarly unstable and
dangerous conditions in other countries and questioned why they
would not return to the Ogaden. He stated that the security
conditions in the Ogaden are much improved since the attack. He
also doubts recent press reports that an Iranian company, Oil
Exploration Operation Company, (OEOC) would actually take over the
work ZPEB had been performing for Petronas.

12. A US petroleum expert, Dr. Stephen Sears of Louisiana State
University, informed econoff that the geology of Ethiopia has
neither the big sedimentary basins that generate hydrocarbons in the
Tertiary period, as found in West Africa, nor the carbonates
deposited in the Cretaceous period, as found in the Middle East.
Sears stated that he expects that some oil will be found in Ethiopia
eventually, but the find will be small-scale resembling the size of
finds in Pennsylvania or Michigan in the US.

13. COMMENT: Despite many years of exploration without any concrete
results, Ethiopia remains convinced that petroleum resources will
eventually be proven in its territory. The country's geology does
not appear to lend itself to the large-scale production of West
Africa or the Middle East. However, with global petroleum prices at
record levels, the potential of Ethiopian oil and gas is attracting
smaller companies to seek out any possible find. Ethiopia's
petroleum reserves lie, for the most part, in one of the least
stable or secure regions, the Ogaden, and maintaining security is a
key to future revenues for the GoE. Any oil or gas exports would
have a positive impact on Ethiopia's economy, which is desperate for
foreign exchange revenues. Even licensing and exploration are
having a positive monetary impact through signing bonuses and other
fees. Ethiopia is unlikely to become a petroleum powerhouse, but
any proven discovery in the future will provide revenue to the GoE
that may be used to spur overall economic development. END COMMENT

YAMAMOTO

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