TURKISH OIL COMPANY WANTS TO DO BUSINESS IN

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 006043

SIPDIS

USDOC FOR ITA/SAMUEL NEWMAN
USDOC FOR MAC/OEURA/CPD/DDEFALCO

E.O. 12958: DECL: 10/14/2009
TAGS: EPET EWWT TU IZ
SUBJECT: TURKISH OIL COMPANY WANTS TO DO BUSINESS IN
NORTHERN IRAQ

Classified By: DCM ROBERT S. DEUTSCH FOR REASONS 1.4 (B) AND (D)


1. (C) SUMMARY: According to its CEO, the state-owned
Turkish Petroleum Corporation (TPAO) has developed a
"strategic plan" for reengaging in oil and gas development in
Northern Iraq that it will present in Baghdad, Washington,
and London. Understanding that Iraq's oil and gas resources
are controlled in Baghdad, the plan also requires working
with the Kurdish Regional Government (KRG). Building on its
pre-1990 experience in Northern Iraq, available personnel and
equipment based in southeast Turkey, and good relations with
central and regional Iraqi officials, the company believes
its agenda will contribute to economic development in Iraq
and encourage other oil companies to follow its lead. End
Summary.

--------------
Parallel Tracks
--------------


2. (C) TPAO President Osman Saim Dinc described his
company's vision for reengaging in the oil/gas business in
Northern Iraq in an October 14 meeting with energy officer.
Dinc said that operationally commencing oil or gas
development in the region would require approvals from both
Baghdad and the KRG, and expressed frustration that while the
KRG appears eager to move forward, the Oil Ministry in
Baghdad had postponed tendering permits for production
sharing agreements (PSA's). Dinc said he has been in contact
with Halliburton, Baker-Hughes and KBR (and previously with
the CPA) and had understood that Baghdad had decided to focus
on a PSA approach, rather than buy-back agreements for
hydrocarbon development.


3. (C) The TPAO President said that some private companies
were talking to Barzani and Talabani and that two Turkish
firms (Pet Holding and Genel Energy) were producing small
amounts of product in Northern Iraq, but were unable to
market their oil. Dinc said that these companies had
requested TPAO's assistance, but that Baghdad officials had
told TPAO not to work with them. Dinc stressed that TPAO was
aware of the need to work with the IIG and would remain
patient, while continuing to press Baghdad to open the door.

--------------
Why TPAO?
--------------


4. (C) Dinc made the following points on why TPAO was
well-positioned to facilitate oil and gas development in
Northern Iraq and contribute to economic activity in the
region:

--PREVIOUS EXPERIENCE IN NORTHERN IRAQ: Dinc said TPAO was
very active in Northern Iraq before 1990. TPAO had been part
of a five company consortium working on natural gas
development north of Baghdad (with Total, ENI, BOTAS- Turkish
pipeline Company, and Tekfin- a Turkish construction
company). Shell led a separate project based on associated
natural gas. According to Dinc, both projects targeted 10
bcm gas per year for a 30 plus year life. More recently,
Dinc said that TPAO had held informal discussions with Shell
on working together on potential gas development, marketing,
and transmission via Turkey. Dinc said that at the time of
the Gulf War, TPAO had been on the verge of signing long-term
oil/gas agreements with Iraq.

--AVAILABLE PERSONNEL AND EQUIPMENT: Dinc said that he had
almost 4000 people and extensive equipment positioned in
southeastern Turkey ready to take advantage of this
opportunity (2400 people in Batman and 1200 people in
Adiyaman). He claimed to be holding some of his best
equipment in reserve for potential use in Iraq.

--TRUST OF BOTH BAGHDAD AND KRG: Dinc said that TPAO
retains good relations with Iraqi oil minister Thamir
Ghadhban from the pre-1990 period. TPAO has continued to
build trust with post-Saddam authorities through its
extensive deliveries of refined products to KBR and SOMO.
(He said TPAO had delivered 300,000 tons in the first seven
months of 2004 and contracted for 350,000 tons in second half
2004). Dinc noted that most of his personnel in southeast
Turkey were Kurdish and/or Arabic speakers.

--INTEREST OF OTHER COMPANIES: Dinc said that Statoil and
Shell have expressed an interest in operating in Iraq, but
have said "you go first". TPAO is willing to take the
initial risk and pave the way, and others will follow, he
said.

--------------
Next Steps
--------------


5. (C) Dinc said he has received positive initial reactions
from the Turkish Ministers of Energy and Foreign Affairs.
(Energy Minister Guler included Dinc in his September 21
meeting with Secretary Abraham.) He now intends to prepare a
more detailed and formal strategic plan to present first to
Prime Minister Erdogan, and then senior officials in
Washington and London. Dinc stressed that his proposals
would provide a practical way to build hope and employment in
a increasingly difficult situation, and would constructively
counter pressure from outsiders who sought to provoke terror.
He said his plan would comprehensively deal with phased
logistics, security, and development in a number of areas.
Dinc said his plan would target "white" and "gray" areas in
which he could provide appropriate security.

--------------
Other Gas Issues
--------------


6. (C) Dinc is a strong proponent of developing Turkey as an
East-West Energy Corridor and is bullish about BTC not only
quickly running at capacity, but being boosted to 1.8 million
b/d. He said he expects a deal for five large tankers to
ship crude from Aktau in Kazakhstan to Baku to be announced
in December to provide the supplemental oil. He said that he
has had long conversations with the highest levels in
Kazakhstan about development and transportation of natural
gas. Dinc asserted that he has firmly counseled against
transit options via Iran, noting that Iran would be a
"nightmare" for them.

--------------
TPAO Background
--------------


7. (SBU) TPAO is active in oil and gas exploration,
drilling, and production in Turkey and internationally. It
partners with western firms for exploration and production in
Turkey. TPAO and U.S. firm Madison Oil recently announced
the discovery of commercial natural gas on an offshore Black
Sea permit. TPAO/BP will be bringing an American drilling rig
into the eastern Black Sea early next year. TPAO has also
partnered with ChrevronTexaco and El Paso. TPAO participates
in oil/gas development in Libya, Kazakhstan, and Azerbaijan
(Azeri-Chirag-Guneshli, Shah Deniz gas, Baku-Tbilisi-Ceyhan
(BTC) oil pipeline, and South Caucasus Natural Gas pipeline).


8. (SBU) Dinc himself is new to the oil business, having
been appointed only about eighteen months ago. He said he is
a mechanical engineer with a U.S. perspective, having worked
for about fifteen years for General Electric in upstate New
York.

--------------
Comment
--------------


9. (C) Without knowing the details of TPAO's ideas, as
described by Dinc they would seem to support a number of USG
interests, including developing Turkey as an East-West Energy
Corridor (from Iraq) and encouraging economic development and
prosperity in Iraq. TPAO is willing and appears to be able
to take and manage initial risks, which could catalyze both
entry of other international oil majors and economic growth
and stability.


10. (U) Baghdad minimize considered.
EDELMAN