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Viewing cable 06MANAGUA764, PETROLEUM EXPLORATION CONCESSIONS ON THE MOVE IN

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Reference ID Created Released Classification Origin
06MANAGUA764 2006-04-06 14:54 2011-06-21 08:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Managua
VZCZCXYZ0002
RR RUEHWEB

DE RUEHMU #0764/01 0961454
ZNR UUUUU ZZH
R 061454Z APR 06
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 5853
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS MANAGUA 000764 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, EPSC, EB/ESC 
STATE PASS TO 
 
E.O. 12958: N/A 
TAGS: EINV EIND EPET PGOV BMGT NU
SUBJECT: PETROLEUM EXPLORATION CONCESSIONS ON THE MOVE IN 
NICARAGUA 
 
REF: (2005) MANAGUA 02551 
 
1.  (SBU) Summary:  The President and Vice President of MKJ 
Exploration Inc. - a small, independent gas and petroleum 
exploration company - announced to the Ambassador on March 30 
that MKJ is approaching the end of a hopefully successful 
three-and-a-half-year effort to obtain two concessions for 
the exploration of oil and gas along Nicaragua's Atlantic 
Coast.  MKJ gave "high marks" to the leadership at the 
National Energy Institute (INE) that took over in December 
2005 after Nicaragua's failed one-year experiment with a 
Superintendent for Public Utilities (SISEP) in energy, 
telecommunications, water and consumer affairs.  Post, at all 
levels, has mounted a commercial advocacy effort aimed at 
efficient final negotiation of concession contracts for MKJ 
and Infinity Energy Resources, Inc, another independent 
energy company with Atlantic Coast concessions pending.  It 
is possible that that concession contracts for MKJ and 
Infinity could be finalized in April, in time for a 
ceremonial signing during the planned visit of OPIC President 
Robert Mosbacher in May.  (OPIC insures MKJ, Infinity and a 
third project with US participation, Industria 
Oklahoma-Nicaragua S.A. (Oklanicsa).)  On April 26, 2004, 
Oklanicsa signed its 845,000 acre onshore concession  with 
the GON and 11 months later received its environmental 
permits, subsequent to the GON's environmental impact 
analysis.  Anticipating possible political, bureaucratic and 
technical delays in the fulfillment of environmental impact 
analyses for the MKJ and Infinity concessions, post has begun 
to build goodwill and capacity among public sector actors in 
the energy sector through training, technical assistance and 
public affairs programs.  End Summary. 
 
2.  (SBU) MKJ Exploration Inc. Vice President and General 
Counsel Brent Abadie, who is based in Matairie, LA, has 
spearheaded a three-and-a-half year effort to establish two 
exploration and exploitation concession 70 miles off of 
Nicaragua's Atlantic Coast.  The MKJ concessions encompass 
two exploration sites in shallow to moderate waters above the 
continental shelf in areas known as the Tyra Bank and the 
Isabel Bank.  At stake are potential oil reserves of 
approximately two million acres with a possible yield in 
excess of nine billion barrels.  The concession bid round 
closed January 2003, the concession resolutions were awarded 
May 2003 and a lengthy negotiation ensued through December 
2004.  The identical terms of the concessions - contract 
language is the same except for the names of the bank - call 
for exploration periods of six years and production periods 
of 30 years.  MKJ expects to begin the exploration phase 
within 24 to 26 months with a budget of $55 million.  US 
publically-traded companies Noble Energy of Houston, TX and 
Energy Partners of New Orleans, LA will participate in the 
project. 
 
3.  (SBU) Just as MKJ neared completion of its concession 
negotiations with INE in late 2004, the National Assembly 
promulgated a law to establish a Superintendent of Public 
Services (SISEP), an umbrella entity proposed to oversee 
directorates of energy, telecommunications, water/sewer and 
consumer affairs.  The SISEP concept, perhaps reasonable in 
its original design, was in it implementation a disguise for 
an unconstitutional usurpation of executive branch powers by 
the legislature, and a creature of the Ortega-Aleman pact 
(reftel).  One immediate result of the ensuing regulatory 
chaos was to freeze all contracting authority by INE.  MKJ, 
despite effective local counsel and regular tactical advice 
from the Embassy, was not able to achieve any movement in 
finalizing its concessions until the Framework Law reinstated 
INE's authorities and David Castillo became INE's new 
Director in November 2005.  Since December 2005, ECON has 
provided regular diplomatic intervention at INE to encourage 
efficient completion of contract negotiations, and the 
Ambassador urged the same in a December 12, 2005 meeting with 
David Castillo and in subsequent conversations.  During a 
March 30 meeting with the Ambassador, MKJ President Eric 
Conrad and Brent Abadie gave "high marks" to Castillo and his 
renewed team for quick progress.  The one hiccup in an 
otherwise smooth process had been an INE demand that MKJ 
cover exorbitant professional fees, including notarial fees 
to INE lawyers.  MKJ successfully negotiated the fees to a 
more reasonable level; however, given that similar charges 
have yet to be assigned to another US concession, Post will 
revisit the issue with INE to seek a policy of transparent 
and fair assignment of professional fees.  Post will also 
support OPIC and MKJ efforts to receive a side letter from 
the GON to overcome a contract clause that waives subrogation 
against the GON.  The offending contract language contradicts 
the OPIC Bilateral Agreement specifying the transfer of 
interests from the US investor to OPIC if OPIC pays a claim. 
 
4.  (SBU) During the last week of March, President Bolanos 
authorized Attorney General Alberto Novoa to sign MKJ's Tyra 
and Isabel banks concessions for the GON.  Econoff met with 
Attorney General for Environmental Affairs Lisandro D'Leon on 
April 3 to inquire about prospects for a quick signing of the 
concessions.  D'Leon responded that such signatures are 
routine and he foresaw no obstacles.  Any delay would be 
justifiably related to Novoa's workload.  Post will follow 
the concessions through to conclusion, as needed.  On April 
4, Ambassador raised the issue with Foreign Minister Caldera, 
who promised to urge a quick signature.  Likewise, post will 
continue to offer diplomatic support for the Tyra and Perlas 
bank concessions of Infinity Energy Resources, Inc.  Infinity 
has also concluded its contract negotiations with INE since 
December 2005 and expects to sign the concessions in late 
April or early May 2006.  If all continues apace, MKJ and 
Infinity will shortly become the second and third US 
exploration and development concessions signed during the 
Bolanos administration.  The first involved the March 31, 
2003 award of a 845,000 acre onshore concession along 
Nicaragua's Pacific Coast to Industria Oklahoma-Nicaragua 
(Oklanicsa). On April 24, 2004 Oklanicsa signed its 
exploration and development concession - becoming the first 
such contract to be signed in Nicaragua in 40 years - and its 
environmental permit was received in March 2005.  Oklanicsa 
is 70 percent owned by the Norwood Resources, a oil and gas 
firm out of Vancouver, Canada.  The US participation, and 
driving force behind the project, hails from Atoka, OK in the 
person of Harold Witcher.  OPIC has insured all three 
projects. 
 
5. (SBU) Post has been assiduous in its efforts to build 
goodwill and capacity among those GON agencies that will have 
permitting authority over current and future concessions. 
INE's Executive Secretary will participate in a May 2005 
International Visitors program on environmental protection 
and sustainable development.  The Ambassador has discussed 
with his Dutch counterpart the possibility that the 
Netherlands' active environmental portfolio might be 
attentive to efficient and effective environmental impact 
assessments.  Finally, USAID is currently reviewing training 
and technical assistance projects to help the GON manage 
transparent and objective environmental reviews for offshore 
exploration. 
 
6. (U) MKJ leadership responded positively to the 
Ambassador's request that they consider a ceremonial signing, 
involving OPIC leadership, in mid-May.  Abadie added that the 
March 30 publication of a positive, front-page story on the 
concessions in the left-leaning El Nuevo Diario had forced 
him to reconsider his instinctive desire to maintain a low 
profile.  Under the circumstances, MKJ  welcomed the 
publicity opportunity.  Post has raised the same possibility 
with Infinity leadership. 
TRIVELLI