VZCZCXRO4638
RR RUEHDE
DE RUEHCV #1948/01 2751617
ZNY CCCCC ZZH
R 021617Z OCT 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 9846
INFO RUEHHH/OPEC COLLECTIVE
RUEHAC/AMEMBASSY ASUNCION 0882
RUEHBO/AMEMBASSY BOGOTA 7517
RUEHBR/AMEMBASSY BRASILIA 5990
RUEHBU/AMEMBASSY BUENOS AIRES 1678
RUEHLP/AMEMBASSY LA PAZ 2591
RUEHPE/AMEMBASSY LIMA 0866
RUEHSP/AMEMBASSY PORT OF SPAIN 3492
RUEHQT/AMEMBASSY QUITO 2680
RUEHSG/AMEMBASSY SANTIAGO 4003
RUEHDG/AMEMBASSY SANTO DOMINGO 0510
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RHEBAAA/DEPT OF ENERGY
RUCNDT/USMISSION USUN NEW YORK 0930
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001948 
 
SIPDIS 
 
SIPDIS 
 
ENERGY FOR CDAY AND ALOCKWOOD 
NSC FOR JCARDENAS AND JSHRIER 
TREASURY FOR OFAC 
STATE FOR EB/ESC/ESP 
 
E.O. 12958: DECL: 01/12/2017 
TAGS: EPET ENRG EINV ECON PREL KFPC ETTC CU IR VE
SUBJECT: SERVICE COMPANIES FACE USG IRANIAN AND CUBAN 
SANCTIONS ISSUES 
 
REF: A. DUDDY-MCCARTHY E-MAIL 10/1/07 
     ¶B. CARACAS 102 
     ¶C. CARACAS 526 
 
Classified By:  Economic Counselor Andrew N. Bowen for Reason 1.4 (D) 
 
¶1. (C) SUMMARY: Baker Hughes (BH) has three contracts with 
PDVSA in various stages of execution that they believe appear 
to violate USG Iranian and Cuban sanctions legislation. 
According to BH, other U.S. service companies have similar 
contracts that raise the same issues.  BH will meet with 
PDVSA officials on October 4 to inform that BH cannot 
continue to be a party to the contracts if information from 
its activities is supplied to Iranian and Cuban state oil 
companies.  BH is very concerned that its actions will lead 
to the loss of its business in Venezuela.  It is also 
concerned that the BRV, particularly President Chavez, will 
publicize the problem and use it for propaganda purposes. 
END SUMMARY 
 
----------------------------------------- 
PDVSA CONTRACTS AND SANCTIONS LEGISLATION 
----------------------------------------- 
¶2.  (C) BH Latin America Vice President for Sales Edgar 
Pelaez (strictly protect throughout) met with Petroleum 
Attache (Petatt) on October 1 to discuss his company's 
concerns over PDVSA contracts that appear to violate USG 
Iranian and Cuban sanctions legislation (Reftel A).  Pelaez 
stated BH has three contracts with PDVSA in the Faja region 
in various stages of execution that are cause for concern. 
 
¶3.  (C) The first contract covers the entire Faja region, the 
second contract covers Block 1 of the Boyaca sector of the 
Faja, and the third Block 7 of the Ayacucho sector.  Of the 
three contracts, only the Ayacucho sector contract is being 
executed.  Of the remaining two contracts, one is awaiting 
signature and the other is being drawn up following its 
awarding to BH. 
 
¶4.  (C) Cupet, the Cuban state oil company, is currently 
carrying out certification studies for reserves in the Boyaca 
block and Petropars, the Iranian state oil company, is 
carrying out the same studies in the Ayacucho block.  Neither 
Cupet nor Petropars has any rights to develop the blocks in 
question.  They merely have contracts to carry out the 
certification studies. 
 
¶5.  (C) Pelaez stated that Petropars employees contacted BH 
directly in September with questions regarding BH data from 
the Ayacucho block.  When BH contacted Pedro Leon, the PDVSA 
manager in charge of the certification program regarding 
Petropars, he told BH that Petropars had no business 
contacting BH and stressed that BH's contract was with PDVSA. 
 Following the inquiry from the Iranians, BH stopped 
supplying data to PDVSA and began an internal review of the 
contracts and U.S. sanctions legislation.  BH compliance 
personnel determined that BH could not supply information to 
PDVSA under the contract if it believed PDVSA would pass the 
information to Petropars or Cupet.  Pelaez added that BH 
internal policies prohibit its employees from working on 
projects that involve Iran. 
 
------------------------------ 
BH MEETINGS WITH USG OFFICIALS 
------------------------------ 
¶6.  (C) According to Pelaez, BH personnel met with officials 
from the State Department and OFAC the week of September 23. 
Both the State officials and OFAC reportedly told BH that the 
contracts violated sanctions legislation.  When BH officials 
 
CARACAS 00001948  002 OF 002 
 
 
queried State officials if they should try to approach the 
BRV via Ambassador Bernardo Alvarez in order to soften any 
negative consequences, they were told that it was not a good 
idea to do so.  (COMMENT:  Post has been unable to determine 
which State and OFAC officials met with BH.  END COMMENT) 
 
¶7.  (C) Pelaez stated BH executives would be discussing their 
options on October 2 and 3.  He stated he would meet with 
Leon on October 4 and inform him that BH would be unable to 
execute the contracts in their current state.  He also stated 
BH was considering an approach to PDVSA Vice President for 
Exploration and Production Luis Vierma.  He added that he 
would be meeting with a PDVSA director on October 2 in order 
to see if there was any way BH could reduce collateral damage 
from its decision. 
 
--------------------------------------------- ------- 
POSSIBLE INVOLVEMENT OF OTHER U.S. SERVICE COMPANIES 
--------------------------------------------- ------- 
¶8.  (C) Pelaez stated several U.S. service companies have 
similar contracts in the Faja region.  He asked if Petatt 
knew if the companies were structured in such a way that 
sanctions legislation did not apply to them.  Petatt replied 
that he did not know. 
 
¶9.  (C) Pelaez said BH compliance personnel met with their 
counterparts from some of the other service companies in 
Houston to discuss the situation and discovered that they 
were unaware of the situation.  He speculated that local 
service company representatives had not kept their respective 
headquarters informed on the issue.  He then complained that 
a PDVSA official had told BH employees that he did not 
understand why BH had a problem with the situation since he 
had recently been in Houston and none of the other U.S. 
service companies appeared to have any problems. 
 
------- 
COMMENT 
------- 
¶10. (C) As reported in Reftels B and C, this is not the first 
time that sanctions issues have arisen in the petroleum 
sector.  Based on the previous incidents and BH's comments, 
it appears that the BRV and PDVSA are not aware of the 
mandate U.S. companies have under the sanctions legislation 
or the penalties for violating the laws.  We also share BH's 
concern that President Chavez may use the issue in order to 
score political points.  The issue strikes us as one that 
fits perfectly with Chavez' frequent rants that the Empire no 
longer dictates Venezuelan foreign or energy policies. 
 
DUDDY