REGIONAL CONOCOPHILLIPS PRESIDENT CONCURS WITH YANBU REFINERY UPDATE

CONFIDENTIAL C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 001999 SIPDIS SIPDIS EB/ESC FOR SGALLOGLY AND MMCMANUS DEPT OF ENERGY PASS TO MWILLIAMSON, AHEGBURG, GPERSON, AND JHART E.O. 12958: DECL: 09/29/2017 TAGS: EPET, ENRG, ECON, SA SUBJECT: REGIONAL CONOCOPHILLIPS PRESIDENT CONCURS WITH YANBU REFINERY UPDATE REF: RIYADH 1920 Classified By: Economic Counselor Robert Murphy for reasons 1.4 (b) (c) and (d). --------- Summary --------- 1. (C) In a September 25 teleconference, ConocoPhillips (COP) Abu Dhabi-based Regional President Nick Spencer reiterated that press reports regarding the cancellation of the planned 400,000 barrel a day joint-venture Saudi Aramco/COP refinery were not true (ref A). Recent press reports indicated the refinery may now cost $13-$14 billion USD, leading to public speculation over the project's cancellation. While noting final cost figures are still in the works, Spencer pointed out all new refinery capacity around the world is coming on line at a high cost. Spencer stated COP "still sees Saudi Arabia as a good place to be," and described the firm as "very committed" to the Yanbu project. For now, COP appears to see the strategic benefits of entering the Saudi market as justifying a potentially expensive entry ticket. -------------------------------- "We're Very Committed to This" -------------------------------- 2. (C) In line with earlier comments from COP consultant Brooks Buxton (ref A), Spencer told us that COP had not made final determinations on moving ahead on either the joint venture refinery with Saudi Aramco in Yanbu, or the UAE-based Fujairah refinery. Speaking of the Yanbu refinery, he stated, "The media got ahold of some snippets, probably from a contractor, and extrapolated from that." He advised us strongly to "discount" the gossip which was currently circulating, and emphasized that both COP and Saudi Aramco management continue to believe the project makes strategic sense. He stated, "We're still enthusiastic about the project. Our CEO (Jim Mulva) was just here in Abu Dhabi yesterday (September 24) and is very, very committed to this. Senior Aramco managers also want this to happen." ------------------------------------------- Projects Costs and Structure Still in Play, but "We See Saudi as a Good Place to Be" ------------------------------------------- 3. (C) Spencer went on to explain that COP did not yet have a full and realistic accounting of the costs for the Yanbu project. "We're still working on the front end engineering (FEED) to establish the true cost of the project, and we're still talking to Aramco about the structure of the project. Emphasizing that high costs alone would not bar moving ahead, Spencer noted, "All new incremental refining capacity (around the world) is coming on line at a high cost." He noted that projects, such as Yanbu, which leveraged existing infrastructure, were more likely to move ahead. Remarking on the explosion of proposed refining projects around the world, Spencer mused, "Many of these won't go ahead, especially the greenfield projects. However, Yanbu is plugging into existing infrastructure (of the Yanbu Royal Commission and the Yanbu Industrial City), so it's not really a greenfield project. The Fujairah refinery is a greenfield, but it's still being studied, and I can't comment on it." He wrapped up by adding, "We still see Saudi as a good place to be." (Note: COP as a company has not any significant presence in Saudi Arabia since the 2003 collapse of the joint venture gas negotiations. ChevronPhillips, COP's 50-50 petrochemical sector joint venture with Chevron, is represented in the KSA, but is globally operated as a separate entity. End note.) --------------------------------------------- Saudi Demand for 30% Initial Public Offering Still Under Negotiation --------------------------------------------- 4. (C) COP continues to have concerns with the SAG's demand RIYADH 00001999 002 OF 002 that 30 percent of the project's shares be offered in initial public offering (IPO) at the project's inception. Spencer noted that he had a good discussion with Jadwa Investments banker Brad Bourland on the issue, and he continues to information gather and engage Saudi Aramco on the topic. He believes COP is making "some progress on the issue, but it's a continuing area of uncertainty. IPOs of this magnitude are new to Saudi." With the volatility in the Saudi TASI stock market of the last two years, Spencer concurred with Emb Offs that the SAG is gaining an increasingly sophisticated understanding of the potential downside to an early IPO, rather than, as earlier, reflexively viewing a compulsory IPO as an easy mechanism to "spread the wealth" among the Saudi public. ----------------------------------- Philanthropic Outreach in Education ----------------------------------- 5. (SBU) Spencer also noted that COP was working with the Saudi Arabian General Investment Authority (SAGIA), the SAG's investment promotion agency, to identify possible strategic partners for education-oriented philanthropy. In partnering with SAGIA, COP will be working at the cutting edge of educational reform in the KSA. (Note: SAGIA, as the regulator for the newly-established new economic cities, has been granted wide authority in the KSA for opening up the educational field. SAGIA will become the de facto education regulator for all educational establishments in these newly cities, for both universities, as well as dozens of new primary and secondary schools. End note.) COP hopes to establish both university chairs in the engineering field, and partnerships between US and Saudi universities, particularly in areas related to petroleum engineering. FRAKER