KILLING DETERS CHEVRON IN SE TURKEY

UNCLAS SECTION 01 OF 02 ANKARA 004481

SIPDIS

USDOE FOR CHARLES WASHINGTON
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET ASEC EINV SENV EWWT TU IZ
SUBJECT: KILLING DETERS CHEVRON IN SE TURKEY

REF: 05 ADANA 220

Sensitive But Unclassified. Please handle accordingly.


1. (SBU) SUMMARY: Having long struggled to gain security
permission for access to do a seismic survey on its petroleum
exploration permit near Silopi on the Iraqi border, Chevron has
overcome one obstacle after another, but the recent death from an
improvised explosive device (IED) of one of its security firm's
employees has caused it to abandon operations there. Chevron still
aims to avoid pursuing full "force majeure" under its contract,
planning for its French partner Perenco to do some drilling in a
relatively safer area. Chevron admits that the geology is not
overwhelmingly promising, but hopes to maintain good relations with
the GOT and wants to gain geological information that might be
relevant for more promising terrain across the Iraqi border - for
the day when there is more clarity on doing oil business in northern
Iraq. End Summary.

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Quest for SE Turkey Access - Northern Iraq Potential
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2. (SBU) Approximately two years ago Chevron officials told us that
it aimed to resume exploration operations on an old permit in the
Cudi Mountains near Silopi and Sirnak on the Iraqi border. The GOT
had lifted "force majeure" provisions under the contract associated
with PKK violence in the area and Chevron had limited time in which
to show exploration investment under the contract. Later, Chevron
approached the Embassy for assistance in gaining permission for
access, apparently held up by the Turkish General Staff (TGS) for
security concerns. In 2005 Chevron and its partner state oil
company (TPAO) were able to do limited field survey work using
Turkish nationals. With Embassy assistance and the support of the
Minister of Energy, Chevron and its partners gained permission to
start a full seismic survey (using helicopters) in spring 2006.


3. (SBU) Unfortunately, at this point the French seismic contractor
CCG decided that it did not want to do the work because of security
concerns. Chevron and TPAO decided to do a more limited seismic
survey using roads. Chevron officials admitted to us that the
geology was not viewed as extremely favorable, but they wanted to
maintain good relations with the Ministry of Energy. Moreover, they
viewed the similar geology across the Iraqi border as more
favorable, and thought that this work might provide valuable
information for the day that there was clarity on how to do oil
business in northern Iraq.

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Killing of Turkish Security Firm Employee
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4. (SBU) Chevron country manager John Connor told us that Chevron
and TPAO began its road-based seismic campaign in mid June,
involving teams of mine detectors, surveyors, drillers, blasters,
recorders, and security personnel. The teams methodically worked
along the road along the Iraqi border northeast of Silopi. On the
morning of July 11, when the Yukselis Company security team advanced
ahead of the mine detection team (contrary to procedures),the team
hit and detonated an improvised explosive device, resulting in two
injuries of Turkish personnel, one grave. The gravely injured
victim later died in the hospital. The Chevron official said that
the device had been placed the night before, presumably by the PKK,
in an obvious tire rut, after some Chevron teams had passed on that
road the day before. He estimated that it comprised about 3 kg of
explosives.


5. (SBU) Chevron's subsequent security assessment determined that
they would cease the seismic operations and Chevron personnel
consulted with the Embassy RSO and DAO on its plans to remove
equipment and detonate any prepared explosives. During July 25-28
Chevron removed equipment, cleaned up operations, and demobilized
its teams, without any security incidents.

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Still Aiming to Keep the Contract Alive - Plan B
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ANKARA 00004481 002 OF 002



6. (SBU) Connor told us that the partners did not have sole right
to declare "force majeure" under the contract (granting an exemption
for work requirements because of events outside of their control).
Under the contract, the GOT must approve force majeure and there
would be political sensitivities and points of contention in going
down this path. Chevron used relatively minor comparable clauses to
shut down the seismic operations, and informed the GOT that the
partners planned to undertake exploratory drilling later this year
in an area perceived as relatively safer west of Silopi. Under the
partnership agreement this obligation would fall to the third
partner, French company Perenco. Perenco would presumably perform
its own security assessment before moving forward.


7. (SBU) Comment: Chevron and other oil shippers have closely
watched progress on potential Bosphorus bypass projects. Chevron's
involvement in the efforts to gain Russian approval for the CPC
(Caspian to Black Sea) pipeline expansion have resulted in some
pressure from the Russian government for it to participate in the
Russian favored Burgas-Alexandropoulos project, rather than the
Turkish favored Samsun-Ceyhan bypass project. Chevron's
determination to keep the Southeast permit alive is based on the
company's desire to maintain good relations with the GOT for the
range of its oil activities. The shippers are still maintaining
cautious flexibility while bypass sponsors seek oil throughput
guarantees to secure financing.


8. (SBU) Comment Continued: There is great interest from Turkish
and foreign companies in Turkey for clarity on how to do oil and gas
exploration and production in northern Iraq. Achieving this clarity
still depends on Baghdad and the KRG working out a road map and
legislation for companies to follow. While a few companies have
apparently struck deals solely with the KRG, the reputable Turkish
and western companies are waiting for clear rules of the game.

McEldowney