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PP RUEHDE RUEHDIR
DE RUEHKU #0707/01 1270858
ZNY CCCCC ZZH
P 070858Z MAY 07
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 9031
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 07 KUWAIT 000707 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
EB/ESC/IEC FOR GALLOGLY AND GRIFFIN, NEA/ARP FOR JACKSON 
AND BAGWELL, ENERGY FOR IE 
 
E.O. 12958: DECL: 04/13/2017 
TAGS: EPET ENRG EINV KU OIL SECTOR
SUBJECT: PROJECT KUWAIT STILL STALLED; ROLE FOR FOREIGN OIL 
COMPANIES MAY TAKE A DIFFERENT FORM 
 
Classified By: Ambassador Richard LeBaron for reasons 1.4 (b) and (d). 
 
¶1.  (C/NF)  SUMMARY AND COMMENT:  Based on a series of recent 
meetings with Oil Ministry officials, leaders in Kuwait's 
state-owned petroleum companies (the K-companies), 
representatives of the major international oil companies 
(IOCs) in Kuwait, and local managers of international oil 
service companies, Post assesses that the 
short-to-medium-term outlook for Project Kuwait (the $8.5 
billion proposal to invite IOCs to participate as partners in 
the development of Kuwait's upstream oil sector) is bleak. 
Despite recent press statements by the Amir and Oil Minister 
in apparent support of the Project, a lack of leadership 
within Kuwait's oil sector, strained relations between the 
Parliament and the Government, and exceptionally strong 
government finances all undermine the case for pushing 
Project Kuwait through the Parliament. 
 
¶2.  (C/NF)  Summary and Comment cont'd:  Nevertheless, the 
fundamental issues that created the need for Project Kuwait 
are even more pressing now than they were a decade ago when 
the Project was first proposed.  Kuwait continues to 
overproduce its cash cow, Burgan oil field, thereby limiting 
its ultimate potential productivity.  In the absence of 
state-of-the-art technology and professional expertise, 
Kuwait Oil Company (KOC) struggles to increase the output 
from the difficult fields in the North that would be covered 
by the Project.  Within KOC, underinvestment in training, the 
constraints of civil service pay scales, and the lack of 
professional ambition typical of a government-owned company 
in a cradle-to-grave welfare state mean that without the 
partnership of major IOCs, Kuwait faces enormous opportunity 
costs in terms of lost production due to mismanagement. 
 
¶3.  (C/NF)  Summary and Comment Cont'd:  A strong Oil 
Minister could present a compelling case for the Project to 
the Parliament and the public, but the current Minister 
appears indecisive, risk-averse, and overwhelmed by the 
challenges facing an industry in which he has little 
background.  In the long absence of any progress on Project 
Kuwait, K-company managers and some of the IOCs are now 
pursuing "enhanced" technical service agreements (ETSAs) as 
an alternative.  Under this model, Kuwait would pay premium 
prices to have IOCs assign engineers and managers to Kuwait 
Oil Company as long-term consultants.  High fixed fees would 
be complemented by variable, performance-based pay contingent 
upon meeting agreed production targets.  The advantage of 
ETSAs is that, legally, the contracts could be signed without 
Parliamentary approval, although there could still be 
political challenges depending on the magnitude of the fees 
and the size of the IOC footprint.  The downside is that the 
overall level of participation of IOCs would likely be less 
than it would under Project Kuwait.  There is also a danger 
that IOCs may be incentivized to maximize short-term 
production to the detriment of the long-term productivity of 
the reservoirs. 
 
¶4.  (C/NF)  Summary and Comment Cont'd:  The IOCs seem to 
consider ETSAs to be a reasonable alternative as long as the 
fees are large enough to justify reassigning scarce personnel 
resources from other profitable international projects. 
Overall, the IOCs express pessimism about the Kuwait Project 
and guarded optimism about ETSAs.  The better positioned 
IOCs, including Chevron, ExxonMobil, and BP see possible 
opportunities to profitably grow their business through 
ETSAs.  All of the IOCs that are currently doing limited 
business with Kuwait, through limited TSAs that barely cover 
costs, say they are finding it increasingly difficult to 
justify their continued presence here after ten years of 
effort with little to show for it.  END SUMMARY AND COMMENT. 
 
¶5.  (C/NF)  This report is based on views expressed in a 
series of meetings between late March and early May 2007 with 
the Oil Minister; the managers of Kuwait Petroleum 
Corporation (KPC), Kuwait Oil Company (KOC), Kuwait National 
Petroleum Company (KNPC), and Oil Development Company(ODC); 
members of the Supreme Petroleum Council (SPC), and country 
managers from ExxonMobil, Chevron, BP, Shell, Total, 
Halliburton and Schlumberger. 
 
----------------------------------- 
Project Kuwait: From 1997 until Now 
----------------------------------- 
 
¶6.  (U)  In 1997, Kuwait's Supreme Petroleum Council approved 
the concept of allowing foreign oil companies to participate 
 
KUWAIT 00000707  002 OF 007 
 
 
in development of Kuwait's northern oil fields and tasked KOC 
(responsible for domestic exploration and production) with 
developing proposals on what form foreign participation might 
take.  Kuwait's constitution forbids foreign ownership of the 
country's upstream oil resources, so traditional production 
sharing agreements were off the table.  There were two 
principal reasons for the proposal which became known as 
Project Kuwait.  First, from an engineering and geological 
standpoint, the northern fields are difficult to develop, and 
KOC needed the help of IOCs to boost their production, 
thereby allowing KOC to correspondingly reduce production 
levels at its super-giant Burgan field to avoid damaging the 
field.  Second, following the Iraqi invasion of Kuwait in 
1990, there was a security argument for Project Kuwait.  The 
Kuwaitis hoped that the presence of major international oil 
companies near the border with Iraq would give the Western 
powers an additional incentive to protect the integrity of 
that border. 
 
¶7.  (U)  Draft legislation was introduced in Parliament in 
2003 enabling KPC, the parent corporation of Kuwait's 
state-owned petroleum companies, to sign contracts with 
foreign oil companies giving them operational control over 
certain oil fields.  The Parliament's Financial and Economic 
Affairs Committee began to study the legislation in 2004 and 
issued a favorable report on the enabling legislation in 
¶2005.  However, after the State Audit Bureau questioned the 
constitutionality of the legislation, the committee withdrew 
the report.  In December 2005, the Government estimated that 
the legislation would pass with 33 out 50 votes in the 
Parliament.  However, the Government sought even stronger 
Parliamentary support and decided to defer the vote to early 
¶2006.  In January 2006, the Amir died, and the vote was 
delayed to accommodate the mourning period and succession. 
At the same time as it again appeared that the legislation 
was finally going to be brought forward for a vote, the new 
Amir dissolved the Parliament due to ongoing confrontation 
with the Government.  The new Parliament was elected in June 
2006 and a new Government was appointed in July.  However, 
the new "reformist" Parliament took the Government to task on 
a number of alleged corruption issues and called a number of 
Ministers for questioning until the Government decided to 
resign in February 2007.  A new Government was appointed in 
March, but the initial indications are that the relationship 
between the Government and Parliament will continue to be 
largely adversarial. 
 
¶8.  (SBU)  Under the terms of the existing draft legislation, 
generally described as an Operating Service Agreement (OSA), 
IOCs would be compensated for 50% of operating costs on a 
monthly basis and for 50% of capital costs over 10 years. 
They would be paid fixed fees per quantity of oil and gas 
produced up to a baseline level, with the fee per barrel 
increasing for any production beyond this threshold.  The 
companies would be required to "Kuwaitiize" 80% of their 
local work force within 18 months.  The current draft 
contracts were prepared as commercial agreements between two 
companies:  Kuwait Oil Company and an IOC.  Some MPs now 
argue that these contracts should be rewritten as government 
contracts which would have to adhere to more stringent 
standards. 
 
¶9.  (SBU)  Shortly after assuming his post in July 2006, the 
new Oil Minister hired Morgan Stanley and Lazard to review 
the economics of Project Kuwait.  These two studies were 
completed and delivered to the Minister at the end of April 
¶2007.  Their conclusions are unknown.  The Minister announced 
in April that following the completion of the study, the way 
forward for Project Kuwait would be announced within two 
months.  The terms and conditions of the draft contracts have 
been revised a number of times since they were last reviewed 
by the IOCs in 2003.  At that time, the IOC country managers 
said that the terms and conditions were not economically 
attractive enough to make it worthwhile for them to bid.  We 
do not know if any subsequent work has been done on the 
contracts to make them more attractive, and of course, if 
tenders are released, the IOCs would need to conduct due 
diligence to examine the current condition of the fields and 
production facilities.  IOC country managers say that 
individuals within KPC understand how the market and 
investment climate have changed over the past ten years, but 
the institution as a whole does not.  These IOC managers 
suspect that the current terms and conditions of contracts 
would not reflect current market conditions.  Thus even if 
the Kuwait Project legislation is approved by the Parliament, 
there is a risk that the major IOCs may decline to bid. 
 
KUWAIT 00000707  003 OF 007 
 
 
 
----------------------------------------- 
Industrial Context: Aging Fields, New Gas 
----------------------------------------- 
 
¶10.  (C/NF)  One of the principal reasons for passage of 
Project Kuwait has always been the need to increase the 
production of Kuwait's northern fields to allow Kuwait Oil 
Company (KOC) to "rest" its super-giant Burgan field while 
maintaining the country's overall level of production. 
Burgan has been producing the lion's share of Kuwait's crude 
output for decades and still accounts for more than half of 
total production, but decreasing reservoir pressures and 
increasing water flow from producing wells are causing KOC 
engineers to fear that they could do permanent harm to their 
"cash cow" oil field unless they reduce the rate of 
production.  Beyond Burgan, Kuwaiti engineers and geologists 
recognize that the era of "easy oil" in Kuwait is coming to 
an end.  In order to increase production in accordance with 
established targets (3 mb/d by 2010, 3.5 mb/d by 2015, and 4 
mb/d by 2020), they recognize that they will need to acquire 
new technology and expertise to develop more complex 
reservoirs and process heavier and more sour crudes.  Thus 
far, KOC has relied on service companies (such as Halliburton 
and Schlumberger) and limited technical service agreements 
with IOCs (BP, Chevron, Exxon, and Total) to provide some of 
these capabilities, but there is increasing recognition among 
the senior management that their ambitious production targets 
will never be reached without the more robust participation 
of IOCs in every aspect of production. 
 
¶11.  (C/NF)  Kuwait announced the discovery of a 35 tcf 
(est.) non-associated gas field in February 2006 which could 
ultimately allow Kuwait to join the club of gas-exporting 
countries.  Preliminary studies completed by Schlumberger and 
Shell indicate that there is indeed a vast quantity of gas in 
this field but also suggest that the characteristics of the 
reservoir will make it technically difficult to produce.  A 
detailed study is still underway, but reliable contacts say 
that the gas is mostly condensate and very sour.  The Oil 
Minister and KPC and KOC managers have told the Ambassador 
that IOC help will be essential if Kuwait is to achieve its 
established gas production targets of 600 mcf/d by the end of 
2011 and 1 bcf/d by 2015.  Until large-scale gas production 
begins, Kuwait continues to seek imported gas to support its 
rapidly growing domestic power needs.  With potential 
pipeline imports from Iran, Qatar, and Iraq off the table for 
different political reasons, Kuwait is now approaching 
several suppliers including Shell and RasGas to discuss the 
option of importing LNG for offshore, shipboard 
regasification during its peak power demand season of May 
through October of the next 2-3 years. 
 
--------------------------------------------- ------- 
Organizational Context: K-companies are in Bad Shape 
--------------------------------------------- ------- 
 
¶12.  (C/NF) The K-companies are increasingly looking to IOCs 
to help them with education, training, and research and 
development.  KPC has asked IOCs to serve as partners in the 
development of world-class petroleum research and training 
facilities, to replace the underperforming Kuwait Institute 
for Scientific Research and KPC Petroleum Training Center. At 
the same time, Kuwait University's petroleum engineering 
department has difficulty attracting talented students and 
graduates only 20 petroleum engineers per year.  A petroleum 
engineering professor and member of Kuwait's Supreme 
Petroleum Council (SPC) told econoff that he encourages his 
best students to work for IOCs, where they will receive 
mentoring and continual professional development, which they 
would not receive at the K-companies.  He said that the 
K-companies typically end up with the D-students from the 
petroleum engineering department.  This contact added that, 
in his opinion, the 1975 nationalization of Kuwait Oil 
Company was one of the greatest blunders in the history of 
the country.  He contrasts the high level of training and 
exposure that his generation of petroleum engineers received 
from BP and Gulf (now Chevron) with the lack of attention 
paid to professional development in today's KOC.  One IOC 
country manager explains that "within KOC, employees are 
treated as a cost center, rather than as assets to be 
invested in." 
 
¶13.  (C/NF)  Several contacts have remarked that the 
Government effectively uses K-companies as a jobs program. 
Senior managers complain that a significant portion of their 
 
KUWAIT 00000707  004 OF 007 
 
 
calendar is taken up by meetings with politicians seeking 
positions for their supporters, regardless of their 
qualifications.  Within the Kuwaiti system, job placement and 
advancement are generally based on family connections more 
than talent and qualifications, so there is little extrinsic 
incentive to excel at work.  Those with an innate desire to 
achieve tend to gravitate towards the private sector.  In 
recent years, a number of the more talented engineers and 
managers at the K-companies have left to join IOCs or start 
consultancies or services companies. 
 
--------------------------------------------- -------------- 
Political Context: Strain between Government and Parliament 
--------------------------------------------- -------------- 
 
¶14.  (C/NF)  Implementation of the Kuwait Project would 
require the approval of enabling legislation by the 
Parliament.  In the past year friction between MPs and the 
Government led the Amir to dissolve the Parliament once and 
appoint a new Government twice.  The current Parliament was 
elected last June largely on an anti-corruption, pro-reform 
platform.  Many of the most serious allegations of corruption 
had circled around the previous Energy Minister, Shaykh Ahmed 
Al-Fahd, who had been strongly supportive of the Kuwait 
Project.  As a result of this and a number of other 
corruption allegations related to major investment projects, 
the Government has appeared very risk-averse in the promotion 
of major projects, and MPs have been especially aggressive in 
scrutinizing and obstructing such projects.  One embassy 
contact from the Supreme Petroleum Council says that most MPs 
understand the need for the Kuwait Project but continue to 
play politics and cater to special interests in a system in 
which patronage and tribalism frequently trump broader, 
long-term national interests.  Eager to distinguish himself 
from his predecessor, the new Oil Minister seems focused on 
appearing transparent and avoiding contentious decisions that 
could invite public scrutiny.  He also seems willing to make 
concessions that could make the Project even more difficult 
to execute.  He announced publicly that he had no problem 
with a demand that each contract with an IOC under the 
Project be approved by the National Assembly. 
 
--------------------------------------------- ---- 
Economic Context: Huge Trade and Budget Surpluses 
--------------------------------------------- ---- 
 
¶15.  (SBU)  Over the past few years, Kuwait's economy has 
grown significantly on the back of high oil prices.  GDP 
growth in the last year was approximately eight per cent.  In 
the fiscal year that ended on March 31, Kuwait is estimated 
to have amassed a $17 billion budget surplus (19% of GDP). 
The 2006/7 trade surplus is estimated to be $40 billion (44% 
of GDP).  Largely due to Kuwait's bloated public sector, 
unemployment among Kuwaiti citizens is virtually 
non-existent.  Nominal GDP per capita is about $29,000.  The 
Kuwait Investment Authority manages approximately $180 
billion in assets abroad, and while private outward 
investment is more difficult to measure, it is believed to 
have reached a comparable level.  Although the Kuwait economy 
is still heavily dependent on the petroleum sector for about 
50% of GDP, 95% of exports, and 90% of Government Revenue, 
Kuwait has seen strong growth and international expansion in 
its banking, telecommunications, and construction sectors. 
Overall, the Kuwaiti public enjoys a high standard of living 
and economic security supported by a cradle-to-grave welfare 
state which covers the costs of health care, housing, and 
education, and heavily subsidizes the costs of fuel, 
electricity, and water.  In this context, the Kuwaiti public 
does not perceive any pressing economic need to grant foreign 
entities a major stake in Kuwait's oil resources which they 
consider to be their national patrimony. 
 
-------------------------------------------- 
The Leadership Problem: No Vision, No Action 
-------------------------------------------- 
 
¶16.  (C/NF)  Though the current Amir, Shaykh Sabah Al-Ahmed 
Al-Jabr Al-Sabah, was a strong proponent of the Kuwait 
Project while Prime Minister, his support for the Project 
since becoming Amir in January 2006 has been more subdued, up 
until late April, in which he publicly stated on at least two 
occasions that the Project should be one of the nation's 
priority areas of legislation.  However, the Supreme 
Petroleum Council, which is supposed to set the strategic 
direction for Kuwait's oil sector, has not been convened by 
the Prime Minister in months. 
 
KUWAIT 00000707  005 OF 007 
 
 
 
¶17.  (C/NF)  At the ministerial level, the Project has 
received very little attention until recently.  As Minister 
of Energy from July 2006 until March 2007, Shaykh Ali Jarrah 
Al-Sabah seemed too preoccupied with severe problems in 
electricity and water to devote much of his time or attention 
to the upstream oil sector.  In recent weeks, the Minister 
has begun to express more public support for the Kuwait 
Project.  In a recent meeting with the Ambassador, the 
Minister confided that he thought the security rationale for 
Project Kuwait was re-emerging due to the potential spillover 
from instability in Iraq. Meanwhile, the Minister's managers 
in the K-companies suggest that he is still suspicious of the 
project and has not made up his mind how, or whether, to go 
forward.  In general, contacts in the K-companies 
characterize the Minister as risk-averse, distrustful of 
them, and much more comfortable with finance, his background, 
than with the technical aspects of the oil sector.  A member 
of the SPC confided to econoff, "I don't understand this 
Minister, and I don't think he understands the oil sector." 
Understanding of oil aside, the KPC CEO told the Ambassador 
that Shaykh Ali clearly lacks the political skills and 
influence of his predecessor. 
 
¶18.  (C/NF)  Within the leadership of the K-companies, there 
seems to be little confidence or optimism that the Kuwait 
Project will go forward, despite the Amir's recent 
statements.  At all decision-making levels within the oil 
sector, there seems to be a lack of will to aggressively 
champion the Project in the face of expected parliamentary 
opposition.  The KOC Chairman and outgoing KPC CEO were both 
much more enthusiastic about the potential for using ETSAs to 
accomplish many of the same goals for which the Kuwait 
Project was originally intended, and without having to face a 
political battle. 
 
¶19.  (U)  Several contacts cite the historically short terms 
of oil ministers and K-company CEOs as a major contributing 
factor to the lack of progress.  Typically, Kuwait's 
Oil/Energy Minister changes every eighteen months to two 
years.  K-company CEOs serve terms of three years.  With such 
a short tenure, it is difficult for oil sector leaders to 
take a long-term view regarding investment and development 
decisions that won't bear fruit during their term of service. 
 For the Ministers, many of whom assume their posts with no 
professional background in oil, they barely have enough time 
to develop a firm comprehension of the issues and workings of 
Kuwait's oil sector before they are replaced. 
 
--------------------------------------------- -------- 
Enhanced TSAs: Less Controversial, but Less Effective 
--------------------------------------------- -------- 
 
¶20.  (C/NF)  Due to the lack of movement on Project Kuwait, 
the K-companies and IOCs have been considering an alternate 
model which they call an Enhanced Technical Service Agreement 
(ETSA), described by the KOC Chairman as a hybrid of 
Production Sharing Agreements (PSAs) and traditional TSAs. 
One of the most important selling points of the ETSA model is 
that it would allow IOCs to provide a broad array of 
"consulting services" and receive the commensurate level of 
compensation to justify a significant commitment of resources 
without requiring approval from the Parliament.  KOC Chairman 
Farouk Al-Zanki told the Ambassador in January 2007 that 
under existing TSAs - with Exxon, Chevron, BP, and others - 
the IOCs do "everything for us" (i.e. provide assistance with 
exploration, reservoir mapping, production planning, and 
field operations), and "they don't get paid enough" for doing 
it.  In private conversations, IOC managers in Kuwait confess 
that revenues from TSAs barely cover costs, and that they 
enter into these contracts only to maintain a relationship 
with KOC in the hope of eventually being awarded an Operating 
Service Agreement (OSA), which is the model envisioned in 
Project Kuwait. "We admit that it's a consultation 
relationship with the IOCs," Al-Zanki said. The enhanced TSAs 
would incentivize the IOCs to increase their scope and level 
of involvement in upstream activities while giving them more 
supervisory authority and allowing them to be rewarded for 
helping KOC reach designated production targets. The 
difficulty, he said, was that enhanced TSAs were likely to be 
closely scrutinized by the State Audit Bureau, with questions 
asked about why the GOK was paying ten times more for 
services and technical expertise than under a standard TSA. 
 
¶21.  (C/NF)  Barring the possibility of an OSA (under Project 
Kuwait) or a PSA (which seems constitutionally impossible), 
 
KUWAIT 00000707  006 OF 007 
 
 
IOCs would prefer ETSAs which would include production 
incentives, over existing TSAs, which only provided a fixed 
fee for limited services rendered.  The difference between an 
OSA and an ETSA seems to be fine and largely semantic, but 
the primary distinction appears to be that OSAs include an 
implied, and controversial, level of foreign control of oil 
resources that ETSAs do not.  It seems that ETSAs would be 
written to resemble a more standard fee-for-service contract, 
though, in reality, there would be a fairly robust level of 
IOC involvement in management decisions. 
 
¶22.  (C/NF)  KOC is enthusiastically considering ETSAs for 
both oil and gas.  Outgoing KPC CEO Hani Hussein told the 
Ambassador in early May that he has convinced the Oil 
Minister that ETSAs are an excellent option.  Furthermore, he 
said he linked bonuses for KOC managers to the effective 
crafting and implementation of ETSAs.  KOC Chairman Al-Zanki 
now seems much more focused on ETSAs than on Project Kuwait. 
There have been no formal announcements or commitments but 
contacts suggest that KOC intends to eventually sign ETSAs 
with: ExxonMobil for managing production and processing of 
high specific-gravity, heavy crude (which comprises a growing 
proportion of Kuwait's overall reserves as access to 
relatively easy-to-produce, lighter crude gradually 
diminishes); Chevron for managing production of and extending 
the productive life of the aging super-giant Burgan field 
(which still accounts for half of Kuwait's overall crude 
production); BP for planning and managing production in 
Kuwait's northern and western fields; and possibly Total for 
assisting with production in the onshore partitioned neutral 
zone shared by Kuwait and Saudi Arabia.  Shell may be in 
talks regarding ETSAs for managing production in the offshore 
neutral zone and the newly discovered, 35 tcf (est.) 
non-associated gas field in the northern Kuwait.  (The Total 
contract may depend on whether Saudi Arabian Chevron's 
neutral zone concession is renewed by the Saudis.)  A big 
question that remains to be answered is whether the Kuwaitis 
will be willing to offer the level of compensation that the 
IOCs would demand in exchange for a significant commitment of 
resources in the absence of any bookable reserves. 
ExxonMobil and Chevron are both fond of citing that, on 
average worldwide, they earn $4 million in annual revenue per 
engineer.  KOC will have to offer substantial service fees to 
persuade the major IOCs to reassign engineers from other 
profitable projects.  Another question is whether ETSAs would 
be a less effective, albeit easier to implement, substitute 
for the Kuwait Project.  This will largely depend on whether 
the incentives for IOCs are structured in such a way as to 
invite a significant level of technological investment and 
encourage a long-term approach to production planning and 
reservoir management. 
 
--------------------------------------------- ---------- 
IOCs not Optimistic about Project, but Considering TSAs 
--------------------------------------------- ---------- 
 
¶23.  (SBU)  Currently, BP and Chevron each have about 20 
people in country, down from 30 and 40 last year, 
respectively.  BP is working in the North and West, Chevron 
is working in Burgan.  Total has 15 people spread around the 
country, but concentrated in the onshore neutral zone.  Shell 
has one consultant working downstream in refineries. 
ExxonMobil has a handful of engineers working on specific 
projects around the country.  All of these IOCs admit that 
their current TSAs, which barely cover their costs, are 
primarily a means of maintaining a relationship with the 
Kuwaitis until the day comes when they are invited to take on 
a larger and more lucrative role.  After ten years of 
waiting, and given the current climate, they are skeptical 
about the near-term prospects for Project Kuwait despite the 
recent public endorsements by the Amir and Oil Minister, but 
they do express growing optimism over ETSAs.  Chevron seems 
to view ETSAs as an intermediate step towards an OSA under 
Project Kuwait, whereas ExxonMobil seems to consider ETSAs to 
be an alternative to the Project.  One perception that all 
the local IOC country managers share, however, is that none 
of the relevant Kuwaiti decision-makers seem ready to 
demonstrate the political will required to bring the Kuwait 
Project to fruition.  They also agree that once the security 
situation in neighboring Iraq improves, the level of IOC 
interest in Kuwait is likely to diminish sharply. 
 
 
********************************************* * 
For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/?cable s 
 
KUWAIT 00000707  007 OF 007 
 
 
 
Visit Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
********************************************* * 
 
LeBaron