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Cablegate: Petrocanada Caught in Qadhafi's Cross-Hairs

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DE RUEHTRO #0867/01 3000847
ZNY CCCCC ZZH
P 270847Z OCT 09
FM AMEMBASSY TRIPOLI
TO RUEHC/SECSTATE WASHDC PRIORITY 5413
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHRO/AMEMBASSY ROME PRIORITY 0632
RUEHVT/AMEMBASSY VALLETTA PRIORITY 0459
RUEHGA/AMCONSUL CALGARY PRIORITY 0014
RUEHOT/AMEMBASSY OTTAWA PRIORITY 0039
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEHTRO/AMEMBASSY TRIPOLI 5962

C O N F I D E N T I A L SECTION 01 OF 03 TRIPOLI 000867

SIPDIS

STATE FOR NEA/MAG; STATE PLEASE PASS USTR PAUL BURKHEAD; COMMERCE FOR NATE MASON E.O. 12958: DECL: 10/27/2019

TAGS: PREL ECON EPET EMIN ENRG LY CA

SUBJECT: PETROCANADA CAUGHT IN QADHAFI'S CROSS-HAIRS REF: A) TRIPOLI 775; B) TRIPOLI 770; C) TRIPOLI 825 TRIPOLI 00000867 001.2 OF 003

CLASSIFIED BY: Joan Polaschik, DCM, U.S. Embassy Tripoli, U.S. Department of State. REASON: 1.4 (b), (d)

1.(C) Summary: According to the xxxxxxxxxxxx of PetroCanada, xxxxxxxxxxxx the Libyan government demanded PetroCanada cut its oil production due to misunderstandings between Libya and Canada over Muammar al-Qadhafi's aborted trip to Canada in late September. xxxxxxxxxxxx believes that PM-equivalent al-Baghdad al-Mahmoudi was "calling all the shots" in the ongoing dispute, and Canadian diplomats are hopeful that their Foreign Minister's October 19 meeting with al-Mahmoudi may have laid the groundwork for a solution. The effects of the dispute continue to reverberate throughout Libya, with PetroCanada conducting contingency planning to evacuate its staff, other Canadian citizens fearing expulsion, and still others experiencing visa difficulties. In the past few days, Canadian citizens on a cruise ship were not allowed to disembark in Tripoli, while the other passengers (mainly Europeans) were permitted to leave the ship for the day. Separately, U.S. company Marathon may be benefiting from PetroCanada's woes, as it has been instructed to increase production to make up for PetroCanada's shortfall. End summary.

FROM THE HORSE'S MOUTH: PETROCANADA GM DETAILS RECENT ORDEAL

2. (C) xxxxxxxxxxxx of PetroCanada, shared with Econoff his company's recent ordeal in Libya that began with a threat of nationalization, but which was pared down to an order by the National Oil Corporation (NOC) to cut production by 50 percent. He said PetroCanada and Hrouj, its NOC-owned partner, had actually surpassed production quotas for the past six months but the NOC had never asked them to cut back. Although the NOC never gave PetroCanada a clear reason for the production cuts (and may simply have been passing down an order from PM-equivalent al-Mahmoudi), xxxxxxxxxxxx believed they were linked to the diplomatic row surrounding Libyan Leader Muammar al-Qadhafi's aborted trip to Canada. xxxxxxxxxxxx noted that press reports had "spun out of control," alleging that the Canadian FM had planned to see al-Qadhafi on his stop-over in Newfoundland to complain about Lockerbie bomber Abdel Basset al-Megrahi's "hero's welcome." A Canadian engineer working for Hrouj separately told us he had heard the row stemmed from the issuance of a tourist visa for al-Qadhafi, rather than a diplomatic visa as Head of State.

3. (C) xxxxxxxxxxxx said the Canadian company was suddenly threatened with nationalization during the week of September 27 which was then pared down to the required decrease in production. xxxxxxxxxxxx said he had received phone-calls from the NOC "every 15 minutes" with new instructions. By the end of the week, xxxxxxxxxxxx said he was ready to tell the NOC to "do whatever you want with us." He believed the Secretary of the General People's Committee (PM-equivalent) al-Baghdad al-Mahmoudi was "calling all the shots," particularly in his role as head of the newly-created Supreme Council for Energy Affairs, now that Shokri Ghanem had resigned from his position as Chair of the NOC. xxxxxxxxxxxx praised the efforts of Canada's new Ambassador to Libya to help resolve PetroCanada's problems and noted that her gender had played to her advantage, opining that the Libyans would have been "much tougher on a man."

4. (C) xxxxxxxxxxxx confirmed that PetroCanada had prepared contingency plans for repatriating its Canadian staff following reports that the Libyan authorities were planning to "raid" PetroCanada's offices. He noted that before the recent crisis, the company had actually begun a process of regularizing the visa status of its expatriate employees about six weeks ago, by providing the Immigration Office with a list of staff who needed to convert their visas from business visas to resident visas. (Note: It is a common practice for foreign firms to bring in long-term staff on multiple-entry business visas as they are easier to procure, and do not require exit visas for vacations and other trips outside Libya. These visas are not meant to be used by long-term residents. End note). He intimated that PetroCanada perhaps should not have been so forthcoming with their list of expatriate staff with technically irregular visa statuses, and that their efforts to "come clean" had only caused them more trouble.

5. (C) Of PetroCanada's 232 employees in Libya, around 100 are expatriates, mainly from Canada, the UK, and the U.S. xxxxxxxxxxxx commented that even before this episode, the company had planned to decrease the number of expatriate staff due to the high costs TRIPOLI 00000867 002.2 OF 003 involved of bringing employees and their families to Libya, and that the firm would vacate at least 56 houses in Tripoli. A British employee of PetroCanada complained that, although the company's management continued to hold regular meetings to update Canadian staff on the situation, other expat employees have been left in the dark.

6. (C) In spite of the current dispute, xxxxxxxxxxxx said PetroCanada still planned to continue with its plans to drill 49 new wells starting in the first quarter of 2010. PetroCanada has also detailed 50 of its staff to work in Hrouj in order to provide on-the-job training and share new technologies such as enhanced oil recovery (EOR) and improved oil recovery (IOR). This has had mixed results. xxxxxxxxxxxx was skeptical whether the Libyans really wanted their advice, and in particular, the Libyan middle managers of NOC-owned companies projected the attitude that Libya had continued to produce oil during the embargo "just fine" and if need be, could do it again.

OTHER CANADIAN CITIZENS ON EDGE

7. (C) The recent diplomatic spat between Libya and Canada has had a ripple effect on Canadians working in other companies who are afraid of being deported. According to the Canadian Commercial Counselor, there are 1,000 Canadians living in Libya (not counting dual national Libyan/Canadians). Many of them have been calling the Canadian Embassy asking whether they will be deported or whether they will be not allowed to enter Libya if they leave. Even long-time residents of Libya are worried. The Canadian principal of the International Martyr's School sent out a text message to Canadian staff warning of possible deportations. (Note: This school, formerly the American Oil Company School, was taken over by the Libyans after the U.S. sanctions were imposed. End note). One Swiss-Canadian teacher (a 15-year Tripoli resident), who received the text message, said she was especially concerned as she had thought her Canadian passport had provided more protection of late than her Swiss one. The heads of several U.S. oil companies have expressed concern that their Canadian employees are having trouble receiving or renewing their visas. According to xxxxxxxxxxxx, press reports that Libya is no longer no issuing visas to Canadians appear to be due to the recent visit of a cruise-ship to Libya that had European and Canadian tourists onboard. All tourists except the Canadian tourists were allowed to disembark for their day-trip in Tripoli. xxxxxxxxxxxx believes this incident was picked up by Canadian press.

PETROCANADA'S CUTS MAY HELP OTHER PRODUCERS

8. (C) xxxxxxxxxxxx said he saw the PetroCanada cuts as a positive development for Marathon and the Waha Group (comprised of the NOC, Marathon, Amerada Hess, and ConocoPhillips). He said the NOC had encouraged Waha to "produce unrestricted" amounts of oil during an annual meeting last week, and he heard other oil companies were told to do the same. (Note: This is a contradiction of statements by Acting NOC Chair Ali Sugheir that even two NOC-owned companies were ordered to cut production according to OPEC quotas; see Ref C. End note) However, he heard the German company Wintershall was told to cut back by 15,000 b/d from its production of 90,000 b/d, an apparent effort by the NOC to try to break through the impasse in renegotiating Wintershall's agreement with the NOC. In his view, the Libyans are trying to make up for the shortfall from PetroCanada and Wintershall and at the same time, assess the true production capacity of all oil producers in Libya. He said PetroCanada had publicly stated their cuts were due to OPEC-mandated restrictions, but that no one in Tripoli believed this.

CANADIAN FOREIGN MINISTER VISITS TRIPOLI

9. (C) According to the newly-arrived Canadian Commercial Counselor, a solution to the recent quarrels between Libya and Canada is in sight after the October 19-20 visit of FM Lawrence Cannon. He noted the FM had met with the "source of the problem," al-Baghdadi al-Mahmoudi. The Canadian Ambassador told us that the meeting with al-Mahmoudi had been "tough" and that it had only gone part-way to resolving the problem. The Libyans had requested that the Canadians prepare a report on the circumstances surrounding Qadhafi's aborted trip to Canada; in exchange for the report, the Libyans would address PetroCanada's TRIPOLI 00000867 003.2 OF 003 problems. The Canadian Commercial Counselor believes PM-equivalent al-Baghdadi was using the PetroCanada incident to bolster his own position, now that he heads the Supreme Council for Energy, and has gotten rid of Shokri Ghanem.

10. (C) Comment: Libya's moves against PetroCanada, set against the backdrop of an escalating conflict with Switzerland, have left the expatriate business community on edge. Libya's willingness to explicitly link commercial contracts to political disputes has only added to the international energy companies' growing frustration with the Libyan business climate. Although most oil industry insiders do not believe the Canadian saga will escalate to the extent of the Swiss-Libya standoff, it is unclear how this dispute ultimately will be resolved. End comment. CRETZ

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