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Cablegate: Brazil, Petrobras Appear Ambivalent On Ecuador Oil

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DE RUEHRI #0280 2821705
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R 081705Z OCT 08
FM AMCONSUL RIO DE JANEIRO
TO RUEHC/SECSTATE WASHDC 4660
INFO RUEHBR/AMEMBASSY BRASILIA 0993
RUEHSO/AMCONSUL SAO PAULO 5195
RUEHRG/AMCONSUL RECIFE 3465
RUEHQT/AMEMBASSY QUITO 0121
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RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS RIO DE JANEIRO 000280

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STATE FOR WHA/BSC, WHA/AND, WHA/EPSC, EB/ESC

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TAGS: ENRG ETTC EPET EINV PREL EC AR NI AO LY IN TZ PK
BR
SUBJECT: BRAZIL, PETROBRAS APPEAR AMBIVALENT ON ECUADOR OIL
CONTRACTS

SENSITIVE BUT UNCLASSIFIED, PLEASE PROTECT ACCORDINGLY

1. (U) Jose Sergio Gabrielli, President of Brazil's
state-controlled oil and gas company Petrobras, said October 7 that
the company would not renegotiate with the Government of Ecuador on
its oil production in the country. The statement was made during
the inauguration of Petrobras' P-51 platform in the Campos Basin
deepwater "Marlim Sul" field off the coast of Rio de Janeiro state.
It was Gabrielli's first official statement after Ecuador's
President Rafael Correa threatened to expel Petrobras from his
country if the company did not renegotiate on new terms of oil
production.

2. (U) In early September, Correa ordered the renegotiation of the
contracts with all foreign oil companies which currently exploit
half of the country's oil fields and keep 82 percent of the
revenues. France's Repsol-YFP, Spain's Perenco and China's Andes
Petroleum have already agreed to change their contracts. Under the
new contract, Ecuador keeps the oil production by paying for the
production costs as well as a share of the profits.

3. (U) Petrobras has a very limited presence in Ecuador -- only one
exploration block and one production block with average daily output
of 10,400 barrels per day. That accounts for less than 0.5% of the
company's total production.

4. (U) Brazil's President Lula, who also attended the Petrobras
platform inauguration, said the government was not taking part in
the negotiations, but government departments might join the
discussion if necessary. Lula stressed that though the problem is
minor, Petrobras could reconsider its position about its operations
in Ecuador. He said, "If there is an agreement, great. If not,
Petrobras will find another way, and Ecuador will find new
partners."

5. (SBU) Comment: Petrobras was probably considering pulling out of
Ecuador anyway, for purely business reasons, so that it can focus
resources here in Brazil. On October 2, Petrobras Global Business
Manager Samir Awad told State Department Undersecretary for
Economic, Energy, and Agricultural Affairs Reuben Jeffery that the
company will likely pull back on many of its international
operations with the exception of investments in the U.S., Argentina,
Nigeria and Angola. He said that Petrobras will probably pull out
completely from Libya, India, Tanzania, and Pakistan. Given the
Petrobras' relatively minor interests in Ecuador, it appears that
the Government of Brazil will not intervene in Petrobras' business
decisions like it has previously done on deals with countries such
as Venezuela and Bolivia. We do not expect Petrobras to renegotiate
its contracts in Ecuador, and could see the company pull out from
Ecuador in the near future. What implications the GOB may draw from
the oil industry's response to Ecuador's changes as Brazil considers
its own plans for oil sector restructuring remains to be seen. End
Comment.

6. This message was cleared/coordinated with Embassy Brasilia.

MARTINEZ

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