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Viewing cable 06KINSHASA1364, PETROLEUM SECTOR UPDATE

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Reference ID Created Released Classification Origin
06KINSHASA1364 2006-08-29 12:13 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kinshasa
VZCZCXRO3919
RR RUEHDU RUEHGI RUEHJO RUEHMR RUEHRN
DE RUEHKI #1364/01 2411213
ZNR UUUUU ZZH
R 291213Z AUG 06
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 4690
INFO RUEHXR/RWANDA COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RHEBAAA/DEPT OF ENERGY WASHDC
UNCLAS SECTION 01 OF 04 KINSHASA 001364 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR (WJACKSON), OPIC (JEDWARDS) 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ETRD EINV ECON CG
SUBJECT: PETROLEUM SECTOR UPDATE 
 
REF: KAMPALA 981 
 
1. (SBU) Summary.  While DRC's petroleum production has 
stagnated, international interest in exploring the DRC's 
potential reserves has expanded.  French company Perenco 
currently operates the only two producing concessions, 
although the GDRC recently granted three new concessions for 
exploration.  The Coastal Basin, Central Basin and the Rift 
in eastern Congo are the three potential reserve areas, 
although very little geological data exists for the latter 
two.  While the GDRC welcomes investment, its lack of data, 
infrastructure, transparency, and knowledgeable government 
officials hinder development in this potentially lucrative 
sector.  End summary. 
 
Current production 
------------------ 
 
2. (SBU) The DRC's crude oil production, which consists of 
one offshore and one onshore concession, averaged about 
25,000 barrels of semi-heavy crude per day in 2005, totaling 
just over 9.2 million barrels for the year. According to the 
Congolese Central Bank, the DRC's 2005 crude oil export 
revenue was USD 452.7 million, representing about 22 percent 
of total export revenue. (Comment: The DRC's official 
statistics are of questionable reliability and should only 
serve as general benchmarks. End comment.) 
 
3. (SBU) The French company Perenco operates both 
concessions. Chevron-Texaco has a 17 percent interest in the 
offshore concession as the result of its 2005 Unocal 
acquisition; a Japanese company, Teikoku, owns 32 percent, 
and Cohydro (the DRC's petroleum holding company and retail 
parastatal) 20 percent. Exploration rights run through 2034. 
Chevron's DRC representative says this operation produces 
about 14,000 barrels per day, although it produced about 
22,000 barrels per day before Perenco's purchase of the 
concession from Total in 2000. Production has decreased 
because Perenco has not invested in exploration and equipment 
modernization and because the global production surge has 
tripled the cost of oil rigs.  However, Perenco's DRC 
director says the company is in the process of cleaning and 
modernizing the wells. The GDRC receives about sixty percent 
of net offshore petroleum revenues, payable upon each 
petroleum sale. Chevron receives 17 percent of the oil 
produced, which it sells primarily through its U.S.-based 
trading company.  The U.S. imported USD 118 million worth of 
petroleum from the DRC in 2005. 
 
4. (SBU) Perenco currently produces 9,000 to 10,000 barrels 
per day on its 200 to 250 square mile onshore block. Cohydro, 
the DRC's petroleum parastatal, has a 15 percent joint 
venture interest. Perenco pays the GDRC 12.5 percent in 
royalties (payable directly to the DRC's income tax agency) 
and about 40 percent of net revenues, payable to the DRC's 
Administrative fee collection agency. The exploration rights 
run through 2029. 
 
Possible production areas 
------------------------- 
 
5. (SBU) The DRC has three actual and/or potential production 
areas: the Coastal Basin, the Central Basin and the Eastern 
border region (Graben Albertine).  Joseph Pili-pili, the 
Ministry of Energy's Director of Petroleum Projects, says 
that all onshore areas combined may contain an estimated 500 
million barrels, although this can be no more than a rough 
(and optimistic) guess.  Only the coastal basin is currently 
being exploited or explored. The 391 square mile offshore 
portion, Perenco's concession, includes all of the DRC's 
territorial waters.  The onshore area, including Perenco's 
concession, is an estimated 3700 square miles and is part of 
the generally peaceful Bas-Congo province, adjacent to 
Angola's Cabinda region. 
 
6. (SBU) A Polish-owned company, King and King, had five-year 
onshore exploration rights that expired in late 2005. The 
reversion of King and King's rights prompted the 
then-outgoing Minister of Energy to split the area into five 
blocks and to launch a round of negotiations for them, even 
though EconOff was told that King and King is in litigation 
with the GDRC over this reversion. The Minister of Energy 
 
KINSHASA 00001364  002 OF 004 
 
 
granted three blocks to a company called Surestream, (a 
company that Perenco's director said is likely to resell its 
rights), and one to London-based Soco, a portion of which is 
Senegalese-owned.  Toronto Stock Exchange-listed EnerGulf 
obtained a 260 square mile block that its CEO estimates has 
90 million barrels of recoverable reserves.  Surestream has 
received presidential approval, but EnerGulf and Soco have 
not, although EnerGulf's Board Chairman told EconOffs that 
his company already paid the USD 500,000 signing bonus. The 
World Bank's (WB) Resident Representative, Jean-Michel Happi, 
said the IMF and WB asked the GDRC to refrain from signing 
contracts in the natural resource sector during the IMF's 
Staff-Monitored Program, which will run at least through 
December 2006. 
 
7. (SBU) Prospects for Coastal Basin exploration may increase 
if the GDRC is able to reach agreement with the Government of 
Angola over the proposed Joint Development Zone (JDZ). 
Pili-pili said that in 2003 the GDRC and GOA signed a 
memorandum of understanding on the JDZ. Although the GOA's 
Council of Ministers approved a final document, the GDRC has 
not yet done so. Chevron's representative says the current 
draft would entitle the GDRC to half of all petroleum revenue 
Congolese entities discover within the zone, while the GOA 
would receive all proceeds on petroleum that Angolan entities 
discover. Part of the delay is undoubtedly due to a 
difference in interpretation of the draft accord. According 
to the Chevron representative, the Angolans view the 
agreement as merely giving the DRC exploration rights and 
access to commercial sea lanes, while the GDRC views the 
agreement as impacting unclear maritime boundaries.  Another 
obstacle is an internal GDRC dispute; while the respective 
Energy vice-ministers negotiated the agreement, the DRC's 
Ministry of Foreign Affairs now wants to take over 
negotiations. (Note: Vice President Bemba's MLC controls the 
Ministry of Foreign Affairs in the transitional government, 
while the PPRD, the party with which President Kabila is 
affiliated, controls the Ministry of Energy. End note.) 
 
8. (SBU) The Central Basin stretches across the provinces of 
Mbandanka, Bandundu and Equateur. Pili-pili optimistically 
asserts that this basin includes the two Kasai provinces and 
Maniema province, and that it totals 500,000 square miles. 
He also said reserves have recently been discovered in the 
Republic of Congo (ROC) near the DRC's border, indicating a 
strong possibility of petroleum reserves on the DRC's side, 
and that the GDRC has an agreement with the ROC to share data 
that comes from sample wells in either country's border 
region. 
 
9. (SBU) The Graben Albertine area of eastern Congo runs 
along the Ugandan border in North Kivu province and in Ituri 
District, consists of five blocks, includes Lakes Albert and 
Edward, and covers 31,000 square miles, according to 
Pili-pili. This region is virtually unexplored, and its 
potential unknown, despite interest over the years from 
various petroleum companies including Amoco, Exxon, and most 
recently, U.K.-based Tullow Oil.  Pili-pili said that the 
GDRC launched a tender offer in 2004, and that two Chinese 
companies, two Angolan companies and one South African 
company made offers but that none ultimately obtained 
concession rights.  Although there are no plans yet to launch 
a new tender offer, the GDRC is negotiating with the Canadian 
company Heritage, which is also exploring on the Ugandan side 
of the border (reftel). 
 
10. (SBU) Particular interest focuses on potential reserves 
under Lake Albert, divided by the DRC-Ugandan border. 
According to Jean-Pierre Bemba's Chief of Staff, the GDRC and 
GOU have an agreement to share geological data, but there is 
no evidence this is occurring. The GOU has also reportedly 
tried unsuccessfully to convince the GDRC to have seismic 
tests conducted in Lake Albert.  In addition to Heritage, 
Australian petroleum firm Hardman Resources is exploring on 
the Ugandan side of the lake.  (Comment: Such exploration 
raises potentially sticky border issues. End comment.) The 
Ministry of Energy would like to reach an agreement with 
Heritage so that it can have data for both sides of the 
border, and in turn, possibly mitigate a cross-border 
resource-sharing dispute. 
 
Obstacles to investing 
 
KINSHASA 00001364  003 OF 004 
 
 
---------------------- 
 
11. (SBU) Corruption and a lack of infrastructure, data, and 
government officials with substantive expertise are all 
obstacles to investment. The Hydrocarbon Code and the 2002 
Investment Code are supposed to govern petroleum investment, 
and there is a separate document outlining steps for 
obtaining exploration and exploitation rights.  However, 
EconOff's and EconCouns' observations indicate that the GDRC 
only loosely follows its own stated procedures and that the 
concession-granting process is far from transparent. 
 
12. (SBU) Further, the GDRC often fails to respect legal 
requirements to retrocede tax revenues back to the provincial 
or local levels.  Residents of Moanda, the Bas-Congo town 
near which Perenco is based, blame Perenco for the resulting 
lack of social and infrastructure development, erroneously 
believing that Perenco does not pay royalties and taxes due 
to the GDRC.  Indeed, the separatist group Bunda dia Kongo 
has organized river and road blockades to impede Perenco's 
operations. 
 
13. (SBU) The GDRC has little reliable geological data, 
partly because Cohydro does not use its revenue to improve 
its geological database. (Note: Similarly, one oil company 
manager said Cohydro is a bloated parastatal that fails to 
use its revenue from Perenco - about USD 4.5 million per 
month - to develop the company. End note.) Bemba's Chief of 
Staff, a former petroleum sector executive, agrees that the 
GDRC desperately needs a good databank. Houston-based Fusion 
Petroleum Technologies entered into an agreement in 2005 with 
Cohydro to conduct an assessment of potential DRC reserves. 
According to Pili-pili, the survey will cost Fusion USD 5 to 
10 million, which it will recoup by selling the data to oil 
exploration companies. 
 
14.  (SBU) The GDRC also has little petroleum sector 
expertise, which one petroleum sector manager called a "big 
mistake," contrasting the GDRC with the Angolan government's 
substantial expertise.  Part of the reason for this dearth of 
a knowledge base is that the Belgians, more interested in the 
DRC's mining sector, did not promote petroleum sector 
training and education among the Congolese. Another petroleum 
sector contact said that the Belgians only drilled a few 
sample wells, and oil was not discovered in the DRC until 
1969. 
 
15. (U) Further, the DRC lacks a developed infrastructure 
able to support substantial exploration and, more 
importantly, exploitation. Road and rail transport, water and 
electricity are the key underdeveloped sectors, and reliable 
telecommunications are also unavailable in many parts of the 
country. Poor infrastructure has the greatest impact on 
Central Basin exploration because much of that area is in the 
country's interior, some of which is essentially inaccessible 
equatorial forest. Conversely, the other two regions at least 
have access to transport via the Atlantic Ocean on one side 
and Ugandan, Rwandan and Tanzanian road and rail systems in 
the East. Only two pipelines, both from Matadi to Kinshasa, 
exist, although the GDRC has a preliminary plan to develop a 
pipeline network to support future Central Basin production. 
 
16. (U) Although the WB and other multilateral and bilateral 
donors are pouring millions of dollars into various 
infrastructure projects throughout the DRC, Post is not aware 
of any efforts particularly targeting development of the 
petroleum sector. (Note: Pili-pili told EconOff that the WB 
funded petroleum research in the late 1980s, but that civil 
unrest in the DRC and discoveries in the former Soviet Union 
turned interested companies such as Exxon and Amoco away from 
exploration in the Congo. End note.) 
 
Refining capacity 
----------------- 
 
17. (U) The DRC has one petroleum refinery, SOCIR, but it 
currently functions only as a storage facility, with Swiss 
and French managers.  The facility was built in 1967 to 
refine light crude from the Middle East, with a 750,000 
barrels per day capacity. It ceased operations in the late 
90s. 
 
 
KINSHASA 00001364  004 OF 004 
 
 
Consumption and import 
---------------------- 
 
18. (U) Chevron's representative told EconOff that the DRC 
market consumes about 60-70 percent light crude, and 30-40 
percent heavy fuel.  The DRC parastatal SEP-Congo imports 
petroleum for the western Congo (reftel B); various South 
African sources supply Katanga province; and Ugandan, 
Rwandan, Burundian and Kenyan sources supply eastern Congo. 
An inter-ministerial commission sets the price of petroleum 
products, although outside of Kinshasa and Bas-Congo high 
transportation expenses cause shortages that frequently force 
dealers to sell above the GDRC's fixed price. 
 
COMMENT 
------- 
 
18. (SBU) With the high price of petroleum and increasing 
stability in the DRC, many exploration companies, including 
at least two large American entities, are examining 
possibilities here and all along the west coast of Africa. 
Until recently, beyond Perenco's concessions only small, 
little-known companies have ventured into the sector, while 
larger corporations have perhaps wisely been taking a more 
cautious approach. End comment. 
MEECE