Viewing cable 05VILNIUS1186
Title: CONOCOPHILLIPS SET TO REQUEST USG ADVOCACY ON BID

IdentifierCreatedReleasedClassificationOrigin
05VILNIUS11862005-11-04 05:36:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 001186 
 
SIPDIS 
 
STATE FOR EUR/NB, EB/CBA, L, P (DBAME) 
COMMERCE FOR ITA/ADVOCACY CENTER (PNUGENT) 
 
E.O. 12958: DECL: 11/02/2015 
TAGS: ECON ENRG EINV PREL PGOV LH
SUBJECT: CONOCOPHILLIPS SET TO REQUEST USG ADVOCACY ON BID 
WITH LUKOIL FOR REFINERY 
 
REF: A. VILNIUS 1007 
 
     ¶B. VILNIUS 781 
     ¶C. VILNIUS 380 
     ¶D. VILNIUS 326 
 
Classified By: Economic Officer Scott Woodard for reasons 1.4 (b) and ( 
d) 
 
¶1. This cable contains confidential proprietary business 
information.  Please handle accordingly. 
 
¶2. (C) SUMMARY:  ConocoPhillips Chairman and CEO James Mulva 
told the Ambassador October 27 that CP will likely bid with 
the Russian oil giant Lukoil on a controlling share of 
Lithuania's Mazeikiu Nafta oil refinery.  Mulva said he 
expects former Secretary of State and former Phillips board 
member Lawrence Eagleburger to contact the State Department 
to seek USG support of the ConocoPhillips/Lukoil bid.  The 
Ambassador noted that allegations of Lukoil's corrupt 
business practices and influence in Lithuanian politics 
soured many Lithuanians to a Lukoil-Mazeikiu Nafta deal. 
Mulva said that he assumed such allegations about Lukoil are 
factual. CP appears prepared to ask the USG to advocate 
formally and actively for its bid on MN.  To do so will put 
us in the position of advocating what many here see as 
promoting Kremlin control of Lithuania's oil and, perhaps, 
its political/economic agenda.  END SUMMARY. 
 
--------------------------------------------- ---- 
BUYING/SELLING MAZEIKIU NAFTA:  THE STATE OF PLAY 
--------------------------------------------- ---- 
 
¶3. (U) Wrangling over the only oil refinery in the Baltics 
continues, with the GOL announcing its intention to start 
negotiations with TNK-BP on the company's plan to bid on a 
controlling interest in Mazeikiu Nafta (MN).  The GOL plan, 
at this point, is to reacquire from embattled Yukos their 
53.7 percent share in MN as well as bargain-priced options 
the company holds on government shares and a new stock 
issuance.  The GOL will then resell the Yukos shares and 
options under more favorable terms.  The plan will also 
enable the GOL to negotiate a better shareholder and 
management arrangement for the country's largest industrial 
asset.  Against opposition from the Conservative Party, 
President Adamkus signed legislation, November 2, enabling 
the government to borrow more than USD 1 billion to pave the 
way for the purchase/sale. 
 
¶4. (U) Presenting a possible monkey wrench in the works, a 
Dutch court decision, October 12, froze for 90 days the 
disposition of Yukos-owned shares.  The freeze came in 
consideration of a debt recovery action that Rozneft and 
Yukansneftegaz initiated in the Netherlands, alleging that 
Yukos owes them USD 2.8 billion for crude supplies previously 
delivered.  Although the case could conceivably result in the 
Dutch courts auctioning off Yukos's shares of MN to satisfy 
the creditors, our interlocutors (including a representative 
of a potential purchaser of MN) say this is unlikely, since 
both Rozneft and Yukansneftegaz stand to profit more from a 
negotiated sale of MN than from a debt recovery settlement. 
A quick trip to the Netherlands apparently satisfied 
Brazauskas that the freeze does not preclude the GOL from 
opening talks with potential buyers, and he publicly 
reiterated his intention to open negotiations with TNK-BP. 
 
------------------------------ 
CONOCOPHILLIPS COMES A-CALLING 
------------------------------ 
 
¶5. (C) The announcement of the PM's plan to begin 
negotiations with TNK-BP drew other serious bidders back to 
Lithuania to stake their claims, including ConocoPhillips 
(CP).  James Mulva, CP's Chairman and CEO, and Mike Fretwell, 
President of International Downstream Operations, met with 
Minister of Economy Dauksys on October 27 to discuss the 
company's interest in the Mazeikiu Nafta oil refinery (MN). 
After this meeting, Mulva and Fretwell told the Ambassador 
that Dauksys had assured them that the GOL had neither begun 
negotiations over MN with any one company, nor closed the 
bidding to others, despite Prime Minister Brazauskas's 
publicly-declared preference for TNK-BP. 
 
¶6. (C) Mulva told the Ambassador that CP and Lukoil will 
likely participate 50-50 in a bidding entity to purchase MN. 
He said that Lukoil would prefer to name the "figurehead" 
president of this entity, while CP hopes to name the 
operational managers -- an arrangement that Mulva said will 
give CP the control over operations.  He noted, however, that 
the GOL appears to want an American at the helm.  Mulva said 
that CP will not consider making a solo bid for MN, and he 
doubts that Lukoil will attempt to do so, either. 
 
----------------------------------------- 
OMINOUS RUSSIAN VIEWS OF CP'S COMPETITION 
----------------------------------------- 
¶7. (C) Mulva, requesting business confidentiality, said that, 
in an October 25 conversation in Houston, Russian Industry 
and Energy Minister Viktor Khristenko told him that Russia 
does not view TNK-BP as a "Russian company."  Khristenko 
further implied that the Kremlin may not be happy if TNK-BP 
buys MN.  Khristenko reportedly added that if Lithuania does 
not "handle things properly," Russian oil could easily bypass 
Lithuania, and Lithuania would become "a spinster without a 
dowry." 
 
¶8. (C) The Ambassador told Mulva that many Lithuanians are 
aghast at the idea of Lukoil in control of the country's 
largest industrial asset, and he suggested that this aversion 
may hamper a CP-Lukoil bid.  The Ambassador noted that 
persistent rumors of Lukoil's attempts to bribe, blackmail, 
and engage in all manner of unseemly and illicit political 
intrigue in Lithuania go back at least a decade.  Mulva 
reflected on the Ambassador's remarks, and then quietly 
acknowledged that the rumors were probably well founded. 
Mulva underlined the fact that Lukoil is now a privately held 
company.  In his opinion, nonetheless, Lukoil's good 
relationship with the Russian Government is a selling point, 
because it will ensure a CP-Lukoil-owned MN's ability to 
secure supplies of crude. 
 
----------------------- 
CP SEEKING USG ADVOCACY 
----------------------- 
 
¶9. (C) Mulva told the Ambassador that he had asked former 
Secretary of State Lawrence Eagleburger (a member of the 
 
SIPDIS 
Board of Directors of Phillips before it merged with Conoco) 
for help in securing USG support CP's bid, and that Amb. 
Eagleburger indicated that he will call Undersecretary Burns. 
 (Note: Lithuania's Minister of Economy, briefing the press 
after his meeting with Mulva, said CP enjoys the support of 
President Bush and the U.S. Government.  In response to press 
inquiries, we made clear that the USG at this time is not 
officially supporting any company's bid for MN.  End note.) 
The Ambassador explained the role of the Department of 
Commerce in ensuring that the USG advocates fairly on behalf 
of U.S. businesses.  He advised Mulva that CP should apply to 
the Department of Commerce's Advocacy Center to set the 
process in motion. 
 
¶10. (C) E-mails we received from CP employees strongly 
suggest that Mulva visited Lithuania at Lukoil's request. 
These employees also complained that Lukoil tried to add 
several additional meetings with GOL officials onto the 
schedules of Mulva and Fretwell the day before the meetings 
were to occur. 
 
------- 
COMMENT 
------- 
 
¶11. (C) We emphasized in ref A that we risk our much broader 
relationship with Lithuania if we advocate strongly on behalf 
of CP-Lukoil.  As long as CP and Lukoil pursue this bid 
together, even our Lithuanian friends would see our advocacy 
on behalf of CP as advocacy for Lukoil, a company that many 
here see as a Kremlin tool that has mucked around in domestic 
politics for a decade.  Mulva's acknowledgement of Lukoil's 
likely involvement in dirty deeds in Lithuania inspires 
little confidence in transparency under a Lukoil-CP 
operation.  Given our broader interests here, we recommend 
not assuming a direct role in the competition for Mazeikiu 
Nafta, even if CP-Lukoil is the only "American" contestant. 
MULL