KAZAKHSTAN: LUKOIL, CHINESE BIDDING FOR "NATIONS

C O N F I D E N T I A L ALMATY 000603 SIPDIS SIPDIS DEPT FOR EB/ESC; EUR/SNEC (MANN); SCA/CEN (MUDGE) E.O. 12958: DECL: 02/14/2015 TAGS: ENRG EPET KZ CH SUBJECT: KAZAKHSTAN: LUKOIL, CHINESE BIDDING FOR "NATIONS ENERGY" REF: A. 05 ALMATY 3075 ¶B. 05 ALMATY 3857 Classified By: POEC CHIEF DEBORAH MENNUTI FOR REASONS 1.4(B) and (D) ¶1. (C) Summary: Patrick O'Mara, Vice President of the privately-held Canadian oil company "Nations Energy," told Poloff on February 10 that Lukoil and "the Chinese" were bidding to buy his company, Kazakhstan's eighth-largest oil producer. Contrary to press reports, India's Oil and Natural Gas Corporation (ONGC) had not made a serious bid. CNPC (Chinese National Petroleum Company) had made early overtures, but according to O'Mara had ended negotiations after purchasing PetroKazakhstan, fearing that the GOK would oppose another CNPC acquisition in Kazakhstan. The Chinese were regrouping, O'Mara explained, and would likely choose a different company to bid against Lukoil. Musing about his own future, O'Mara expressed a desire to join "Max Petroleum," telling Econoff that the UK company was poised to be "the next PetroKazakhstan," having acquired an influential GOK patron and an enviable collection of onshore blocks. End Summary. Playing Off the Russians Against the Chinese -------------- ¶2. (C) O'Mara told Poloff that negotiations to sell Nations Energy -- owner of the Karazhanbas onshore block, with estimated reserves of 400 million barrels and 2005 production of 48,000 bpd -- were in full swing with both Lukoil and the Chinese. Nations Energy had publicly set the opening price at $2 billion, O'Mara said, but hoped to entice a bidding war. India's ONGC had expressed early interest, O'Mara said, but had "tried to set too many conditions on the deal." The ONGC negotiators were "clowns," O'Mara concluded in scorn. "They didn't even have the cash." CNPC Fears GOK Opposition; Shifts Gears -------------- ¶3. (C) O'Mara explained that negotiations with the Chinese had taken a new turn following CNPC's bid to buy PetroKazakhstan (ref A) and subsequent GOK legislative amendments enlarging the State's purported "pre-emptive rights" and national security interests in the energy sector (ref B). CNPC had been spooked, O'Mara said, by an amendment to Article 18, paragraph 3 of the Law Concerning the National Security of the Republic of Kazakhstan, which gave the State the right to block transactions which "may entail concentration by one entity...of rights associated with the performance of petroleum operations." Fearing that the GOK would view a second CNPC acquisition in this light, O'Mara said, the company stopped negotiations. The Chinese, however, "were only waiting for the dust to settle" before fronting another company -- either SINOPEC or CNOOC -- to begin negotiations anew. O'Mara told Econoff that he was off to China the following day, February 11,to continue discussions with the Chinese. ¶4. (C) O'Mara told Econoff that he thought Lukoil was "determined" to buy Nations Energy. Both Lukoil and the Chinese, he said, were "grabbing all the Kazakhstani oil resources they can." Lukoil, he said, was negotiating to buy British Gas's stake in Karachaganak. O'Mara predicted that MangistauMunaiGaz's onshore Kalamkas field, owned in large part by Dariga Nazarbayeva (the President's daughter),would be the next block to be sold; it would likely go to Lukoil, as sellers rushed to take advantage of high oil prices and Russian and Chinese greed for Kazakhstani oil assets. Max Petroleum: The Next Big Thing? -------------- ¶5. (C) Asked what he planned to do once his company was sold, O'Mara told Econoff that he wanted to be a part of Max Petroleum, a UK company which had recently made a splash in Kazakhstan with its acquisition of the prized "Astrakhan" onshore block. The company now had an impressive set of onshore blocks on the Caspian, O'Mara explained, and had the growth potential "of a PetroKazakhstan." Furthermore, he said, the company had a powerful GOK patron, Mazhilis (Lower House) Chairman Ural Mukhamedzhanov. Mukhamedzhanov would guarantee that the company could survive without accommodating itself to Timur Kulibayev, O'Mara continued -- a distinct advantage for any company operating in Kazakhstan. ¶6. (C) Comment: It is interesting that CNPC would cede its place as a bidder for Nations Energy out of fear of a negative GOK reaction. This adds to a growing body of evidence that the GOK views Chinese avidity for Kazakhstani oil with caution. In terms of the rumor mill, this is the first we've heard of Lukoil's (possible) interest in Karachaganak, while the rumor that MangistauMunaiGaz is up for sale has been widely circulated. End Comment. ORDWAY