Gaddafi coddled by US oil whose hearts are where the money is Thursday, 16 June 2011 03:47

US oil companies have largely abandoned production and pulled their employees out of Libya, underscoring the futility of their huge efforts to
help Gaddafi.

he week after US oil executives in Libya received tongue-lashings from Moammar Gadhafi and one of his lieutenants in February 2008, Occidental Petroleum Corp. hired an additional lobbyist.

Hogan & Hartson, one of Washington’s oldest law firms, had one mission, according to documents filed by Occidental: To get Libya exempted from a law signed the previous month by President George W. Bush letting American terrorism victims seize assets of countries found liable.

The dictatorship was an explicit target of the legislation. Gaddafi had taken responsibility for the 1988 crash of a Pan Am flight in Lockerbie, Scotland, that killed 270 people, including 189 Americans. Courts in France, Germany and the US also had linked his regime to a 1989 blast that downed a Paris-bound flight in the Sahara, killing 171, and a 1986 attack at a Berlin disco that killed two American soldiers and a Turkish woman.

US oil producers nonetheless rallied on behalf of Gaddafi, according to formerly secret State Department cables published this year by WikiLeaks and lobbying records. The six US oil companies, including Occidental, and two US units of foreign companies doing business in Libya, boosted lobbying expenditures 63 percent to $75.8m in 2008, when they were pursuing the waiver for Libya, filings show.

Congress voted in July 2008 to spare Libya from the terrorism measure in exchange for its promise to create a fund for victims. The companies’ wooing of US lawmakers and officials seemed to have paid off.

Then came the uprising in February that triggered the civil war now ravaging Libya. The US oil companies have largely abandoned production and pulled their employees out of the country, underscoring the futility of their actions to help Gadhafi and, in the view of critics, their dubious propriety.

“I don’t understand where the corporate citizenship comes in,” said Sen. Frank Lautenberg, the New Jersey Democrat who sponsored the amendment that incurred Gadhafi’s wrath. “In many cases, their hearts are where the money is,” he said in an interview.

Lautenberg, who had singled out Gadhafi in introducing his amendment, ultimately co-sponsored the waiver for Libya because of the victims’ compensation fund.

The oil companies’ efforts for Gadhafi and their own profits enriched a repressive regime, said Arvind Ganesan, business and human rights director in the Washington office of Human Rights Watch.

“Instead of pushing for short-term stability in business, these people should have been pushing for more accountability” by the Libyan government, said Ganesan, who has studied and written about Africa’s oil industry.

For the companies operating in Libya at the time — Occidental, ConocoPhillips, Exxon Mobil, Marathon Oil, Hess, Chevron and the US subsidiaries of BP and Royal Dutch Shell — the exemption was a relief.

It meant a continuing opportunity to tap Libya’s coveted light, easily refined crude and to solidify ties with a country that has the largest proven reserves in Africa. In 2008, US companies were accounting for 30 percent of the 1.7 million barrels of oil Libya produced daily, a cable from the US embassy in Libya said on Aug. 29 of that year.

The companies’ waiver quest gained urgency after Gadhafi’s demand that they get Libya off the hook or else, according to interviews and State Department cables examined by Bloomberg that were posted by WikiLeaks on its website. Gadhafi chose executives of two companies with successful lobbying track records in Washington to convey his message.

On or about Feb. 24, 2008, the dictator summoned ConocoPhillips Chairman and Chief Executive Officer James J Mulva to Sirte, Gadhafi’s hometown in northern Libya. Mulva endured “a half-hour ‘browbeating,’ “ according to a March 12, 2008, cable written by Chris Stevens, US charge d’affaires for Libya. Gadhafi “threatened to dramatically reduce Libya’s oil production and/or expel” US oil companies, and told Mulva to “engage members of the US Congress and The Administration” on the issue, Stevens wrote.

On Feb. 25, Shokri Ghanem, chairman of Libya’s state-owned oil company, “chastised” Phil Goss, Exxon Mobil’s country manager, for almost an hour, Stevens wrote. US companies had to “’tell Washington’” that “Libya was serious,” about slashing production in retaliation, according to the Stevens cable, which is among thousands of State Department documents published since January by WikiLeaks.

The companies were worried that their Libyan holdings were at risk, with their contracts threatened if payments to Gadhafi’s government were channeled to terrorism victims by courts or potentially worthless if Gadhafi ordered them out of the country.

“We felt that using our assets as collateral in finding a solution to the Lockerbie funding was extremely unfair,” Don Duncan, who was ConocoPhillips’ top lobbyist at the time of the Gadhafi meetings, said in an interview.

Oil companies in Libya had to perform a balancing act after the Lautenberg amendment, said Duncan, who retired in April 2008, before the Libya exemption was granted: Fight against legislation they felt to be unjust without being seen as arguing against the interests of terrorism victims.

“It’s not something you develop white papers on,” Duncan said.

Within days of Gadhafi’s scolding of ConocoPhillips’ Mulva, the US-Libya Business Association, formed in Washington by US oil companies operating in Libya, wrote to Secretary of State Condoleezza Rice urging her to pursue a waiver from the law. It “unjustly puts the entire burden of terrorism claims reparations on a few US companies that have made substantial investments” in Libya, according to the letter.

The US Chamber of Commerce, the National Association of Manufacturers and the National Foreign Trade Council joined the Libya group in signing the letter.

David Goldwyn, a Washington consultant who previously was an Energy Department assistant secretary for international affairs, had the US-Libya Business Association as a client at the time and served as its executive director. The association paid Goldwyn’s firm $203,500 in the fiscal year ended June 30, 2008, according to filings with the Internal Revenue Service.

The group was created after a 2003 rapprochement with Libya, in which Gadhafi’s government renounced terrorism and weapons of mass destruction.

The US responded to Gadhafi’s gesture by lifting 19-year-old sanctions on Libya. American oil companies moved into the country to make up for time lost to European competitors, according to cables spanning 2004 through 2009 published by WikiLeaks.

There was “fierce competition” to enter the Libyan market, a Nov. 21, 2007, cable from the embassy in Tripoli said. More than 40 companies were already operating there, and the latest bidding for exploration and production rights had drawn offers from 60 oil producers, according to the cable.

Libya was “an exceptionally difficult place in which to operate,” the cable said. The state-owned National Oil Corp. was seeking a bigger share of the oil the companies produced than called for in negotiated agreements, raising “serious questions about NOC adherence to the sanctity of existing contracts,” according to a cable from a US embassy official on Oct. 26, 2007.

The Americans also struggled to get employee visas, which were usually contingent on hiring Libyans, the November cable said. Gadhafi’s government “regularly assigns both qualified and unqualified Libyan workers to foreign energy companies,” which often reacted by “paying these individuals without expecting them to work,” according to a State Department investment-climate statement last March. The rule of thumb was one job to a Libyan for each US employee’s initial visa and another Libyan job for every year the U.S. worker stayed.

The U.S. companies pushed on. With the country planning to increase production to 3 million barrels daily by 2013, Libya promised to be lucrative for oil companies set up there.

“Libya is a very attractive place,” Occidental Chairman and CEO Ray R Irani told analysts on an October 2007 earnings call.

The Lautenberg amendment threatened to undo everything.

“We talked to both the State department and the Libyan government about the compensation issue,” Goldwyn said in an interview, speaking of the U.S.-Libya Business Association. “We provided the State Department our insights, we told them the message we were delivering to the Libyan government and helped them brainstorm.”

Companies acted on their own as well. Among them was Los Angeles-based Occidental, which had extended more than a dozen Libya contracts for 25 years, agreeing to spend more than $13bn in the country, according to Stevens’ cables, one of which said Occidental was spending 70 percent of its global exploration budget in Libya.

With the hiring of Hogan & Hartson in March 2008, Occidental obtained the services of former House Republican leader Robert Michel and former Rep. John Edward Porter, who both worked for the firm. Occidental paid $190,000 to Hogan & Hartson, as well as $100,000 to O’Melveny & Myers, a Los Angeles law firm whose Washington office already had been hired to focus on the Libya exemption.

Richard S Kline, a spokesman for Occidental, declined to comment. Robert Kyle of Hogan Lovells, the successor to Hogan & Hartson, led the firm’s lobbying effort and didn’t respond to messages seeking comment.

The US companies all used their in-house lobbyists to make the case as well, their lobbying reports show.

“We lobby ethically, constructively and in a bipartisan manner,” Chevron spokesman Lloyd Avram said in an e-mail. Hess spokesman Jon Pepper didn’t respond to an e-mail and phone calls. Lee Warren, a Marathon spokesman, declined to comment.

For Libya, the concern was that oil taxes, rents and production money from U.S. companies would be diverted to pay victims. Oil and gas proceeds accounted for more than 90 percent of Libyan government revenue, according to a report last October by the International Monetary Fund.

The Libyans wanted to protect that income, which their government estimated at $1bn a month and a ConocoPhillips executive put at $500 million to $750m a month, according to a Stevens cable. Libya demanded that US companies begin paying in euros to avoid the US financial system, Stevens wrote. The companies complied, he said in a cable. On March 12, Libya signed a $2.4 million contract with its own lobbyist, the Livingston Group, according to reports filed with the Justice Department. The firm was co-founded by Bob Livingston, a former Republican representative from Louisiana.

Throughout the week of March 24, the Livingston Group had “ongoing contact” about Libya by phone with Goldwyn, a Hogan & Hartson lawyer retained by Occidental, the US-Libya Business Association and the US Chamber of Commerce, according to the filings. The Livingston Group also escorted Libya’s ambassador to meetings with 64 members of Congress between April and July of 2008, the firm reported to the Justice Department.

Livingston himself met twice with oil company representatives about a Libya waiver, he said in an interview. “They were very anxious to do business over there,” he said. The Livingston Group dropped Libya as a client in 2009.

The message was getting through. On March 18, four members of Bush’s Cabinet — Secretary of State Rice, Defense Secretary Robert Gates, Energy Secretary Samuel W Bodman and Commerce Secretary Carlos M Gutierrez — had written to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid proposing legislation that would let Bush exempt Libya from the Lautenberg amendment.

Applying it to countries no longer designated a state sponsor of terrorism would “hamper severely” US efforts to get those countries “to stand with us against the threats of global terrorism,” according to the letter.

Allowing assets to be attached also would have “a chilling effect on potentially billions of dollars in investments by US companies in Libya’s oil sector, investments affecting US energy security,” the Cabinet secretaries wrote.

On July 31, 2008, the Libyan Claims Resolution Act passed by unanimous consent in Congress. Signed into law by Bush on Aug. 4, the legislation gave Libya immunity from lawsuits tied to past terrorism. The following month, Secretary of State Rice made the highest-level visit to Libya by a US official in more than 50 years, welcoming Gadhafi as an ally in the war against terrorism and symbolically sealing ties between the two nations.

On Feb. 10, 2009, according to a cable written two days later, Ghanem, Libya’s oil chief, met with Gene Cretz, the new U.S. ambassador, “saying he was pleased that normal relations had been restored.”

The meeting also made it clear that Gadhafi’s demands hadn’t ended. The state-owned oil company had “lent” $700m to the $1.5bn compensation fund and needed reimbursement, Ghanem told the ambassador, according to the cable. Prime Minister Baghdadi Mahmudi had assembled international oil companies for a meeting earlier in the month “and pressed them” to contribute, Ghanem said. Their failure to do so “had led the leadership to conclude that the companies were merely exploiting Libya’s resources,” the cable paraphrased Ghanem as saying.

Cretz responded that putting pressure on US companies to finance the fund “crossed a red line” and contradicted the understanding between Libya and the US. There is no indication in the cables that any US company donated.

Almost two years later to the day from that meeting, protesters following the lead of pro-democracy demonstrators in Egypt and Bahrain rallied in Benghazi, demanding Gadhafi’s ouster and set off a civil war that continues today.

Conoco, Marathon, Occidental and Hess all have quit production in Libya and pulled expatriate employees out of the country, according to spokesmen for the companies.

Exxon Mobil wasn’t producing oil in Libya at the time of the uprising and hadn’t yet begun planned exploratory drilling, said Margaret Ross, a spokeswoman. Chevron already had pulled out in 2009, after an exploratory well came up dry.

The companies say they don’t know what’s happening to their assets in Libya. “We have no visibility on that,” David Roberts, a Marathon executive vice president, told analysts and investors on a May 3 earnings call. “Libya and the whole thing was not exactly a financial success” for the oil companies, Fadel Gheit, an analyst for Oppenheimer & Co. in New York, said in an e-mail, “although it was a bonanza for the madman Gaddafi.”

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