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