VZCZCXRO0228
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHFT #2892 1710538
ZNR UUUUU ZZH
R 200538Z JUN 07
FM AMCONSUL FRANKFURT
TO RUEHC/SECSTATE WASHDC 1991
INFO RHEBAAA/DEPT OF ENERGY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 6127
RUEHKV/AMEMBASSY KYIV 0081
RUEHSK/AMEMBASSY MINSK 1521
RUCNFRG/FRG COLLECTIVE

UNCLAS FRANKFURT 002892 
 
SIPDIS 
 
SIPDIS 
 
EB/ESC/IEC for Steve Gallogly 
 
E.O. 12958: N/A 
TAGS: ENRG EINV GM RS
SUBJECT: Moncrief Sues BASF Over Gazprom Gasfield Contracts 
 
 
¶1. SUMMARY: U.S.-based Moncrief Oil International has filed suit 
against German chemical giant BASF in a German regional court 
seeking EUR 6.3 billion in compensation for BASF's alleged role in a 
cancelled Gazprom concession.  Moncrief signed a contract with 
Gazprom in 1997 to exploit 40 percent of the Yuzhno Ruskoye gas 
field, one of western Siberia's largest (an estimated 600 billion 
cubic meters); it now claims BASF damaged it by signing a later 
contract with Gazprom over the same rights.  Since 2004, BASF and 
Gazprom have signed several far-reaching agreements to jointly 
exploit the field (with the support of Russian President Putin and 
chancellors Schroeder and Merkel) -- BASF is to hold 35 percent of 
the shares, and German utility company Eon may also participate. 
Moncrief says it had already invested heavily in the project and 
accuses BASF of complicity in the deal's rupture. At a May 31 
hearing, however, the presiding judge questioned whether Moncrief 
can prove the validity of its prior agreement.  Media sources say 
that without such proof, Moncrief's chances to win the suit are 
limited.  END SUMMARY. 
 
BACKGROUND / MONCRIEF'S PERSPECTIVE 
----------------------------------- 
 
¶2. Moncrief Oil -- a large, privately held Texas gas and crude oil 
producer -- recently filed suit against Ludwigshafen-based BASF (the 
world's largest chemical company) and its subsidiary Wintershall in 
connection with disputed rights to the Yuzhno Russkoye gas fields in 
Russia.  Moncrief claims BASF purposefully induced Russian gas 
company Gazprom to breach its contracts with Moncrief. 
 
¶3. In 1997, Moncrief and Russian Gazprom subsidiary Zapsibgazprom 
signed an exclusive contract guaranteeing a forty percent stake for 
Moncrief in the Yuzhno Russkoye gas field in exchange for Moncrief 
to provide equity capital, financial investors, technical expertise, 
and business development for the gas fields.  Moncrief claims that 
it was unfairly denied its share in the gas fields (valued at $8.5 
billion) -- after spending millions in project-related expenses -- 
due to a competing contract between BASF and Gazprom signed in 2004. 
 
 
¶4. Moncrief filed its case at the Frankenthal county court 
(Rheinland-Pfalz) in December 2006.  Moncrief's legal action seeks 
to annul BASF's contract along with injunctive relief, restitution, 
and damages by proving a "tortuous interference" under German law. 
To do so, it must show that BASF's actions toward Gazprom induced a 
violation of Gazprom's existing contractual duties with Moncrief 
(BASF rejects all charges).  Presiding judge Manfred Nox has 
acknowledged the court's jurisdiction and stated that German law 
applies to the case; a ruling is scheduled for July 5, 2007. 
 
¶5. NOTE: Moncrief's legal arguments are detailed at: 
http://moncriefoilinternational.com/id37.html 
 
IMPLICATIONS 
------------ 
 
¶6. Moncrief believes that its litigation could affect the planned 
Russian-German Baltic Sea Pipeline.  The pipeline project, whose 
economic viability has been criticized by energy analysts in the 
past, can only meet its targets with a significant supply of gas 
from the contested Yuzhno Russkoye field.  Litigation by Moncrief 
could further delay completion of the project, which is already 
predicted to be unable to meet its scheduled operational target of 
¶2010.  Analysts and observers say publicly, however, that Moncrief 
has yet to prove it had (and still has) a valid agreement with 
Gazprom. 
 
¶7. The contested gas fields have political implications as well. 
The company says the Moncrief-Gazprom partnership was part of the 
Bush-Putin Energy Initiative in 2003.  On the German side, the 
contested 2004 contract between BASF and Gazprom was signed in the 
presence of then-Chancellor Gerhard Schroeder and Russian President 
Putin. 
 
¶8.  This message was coordinated with Embassy Berlin. 
 
POWELL