Identifier
Created
Classification
Origin
06ASTANA738
2006-12-06 07:04:00
CONFIDENTIAL//NOFORN
Embassy Astana
Cable title:  

KAZAKHSTAN: CONOCOPHILLIPS UPDATES AMBASSADOR ON

Tags:  BTIO ENRG EPET KZ 
pdf how-to read a cable
VZCZCXRO7376
PP RUEHDBU
DE RUEHTA #0738/01 3400704
ZNY CCCCC ZZH
P 060704Z DEC 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7847
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000738 

SIPDIS

NOFORN
SIPDIS

DEPT FOR EB/ESC; SCA/CEN (O'MARA)
COMMERCE FOR ADVOCACY CENTER: BLOPP AND DBLOOM

E.O. 12958: DECL: 12/05/2015
TAGS: BTIO ENRG EPET KZ
SUBJECT: KAZAKHSTAN: CONOCOPHILLIPS UPDATES AMBASSADOR ON
"N" BLOCK, KASHAGAN

REF: A. ASTANA 204

B. ALMATY 2157

C. ALMATY 1085

Classified By: Ambassador John Ordway; Reasons 1.5(b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000738

SIPDIS

NOFORN
SIPDIS

DEPT FOR EB/ESC; SCA/CEN (O'MARA)
COMMERCE FOR ADVOCACY CENTER: BLOPP AND DBLOOM

E.O. 12958: DECL: 12/05/2015
TAGS: BTIO ENRG EPET KZ
SUBJECT: KAZAKHSTAN: CONOCOPHILLIPS UPDATES AMBASSADOR ON
"N" BLOCK, KASHAGAN

REF: A. ASTANA 204

B. ALMATY 2157

C. ALMATY 1085

Classified By: Ambassador John Ordway; Reasons 1.5(b) and (d).


1. (C) Summary: ConocoPhillips (CP) Executive Vice President
Bill Berry told the Ambassador on the morning of December 1
that rival Shell had recently approached CP with a proposal
to split the offshore "N" Block. CP had declined the offer,
Berry said, pending an anticipated meeting with Kazakhstani
Deputy Prime Minister Karim Masimov, whom President
Nazarbayev had chosen to broker a final "N" Block deal.
Following a meeting later that afternoon in which Berry
received unspecified "bad news" from Energy Minister
Izmukhambetov and KazMunaiGaz President Karabalin, CP
urgently requested Ambassador's assistance in contacting
Masimov in the U.S. Masimov and CP Chairman Jim Mulva spoke
later in the day, but as of December 2 CP reported no
progress in clarifying the status of their bid.


2. (C) Summary (continued): Speaking of Kashagan, Berry
reported that project partners had recently selected a new
design for an offshore platform judged to pose safety risks;
the corresponding first-stage infrastructure will accommodate
production of 300,000 barrels/day (b/d),rather than the
450,000 b/d initially planned. Berry confirmed reports (Ref
A) that Chevron was seeking a role in the ongoing Kazakhstan
Caspian Transportation System (KCTS) discussions, with an eye
toward using the planned Eskene-Kurik pipeline to ship
"second-generation" Tengiz oil. End summary.


"N" Block: CP's Status Unclear
--------------


3. (C) The Ambassador opened the meeting by briefing Berry on
his recent conversation with Masimov on the status of CP's
bid to participate in the development of the offshore "N"
Block. Masimov he explained, had confirmed that President
Nazarbayev had assigned him to sort out Shell and CP's
competing offers. Masimov had noted that Shell had recently
improved its offer, making the two companies' bids virtually

equal. The best outcome, Masimov had concluded, would be a
shared deal. The Ambassador suggested that Masimov was
probably hoping that Shell and CP would reach agreement on a
joint proposal, thus sparing Masimov and the GOK a difficult
decision. Speculating that Shell had likely received the same
message from Masimov Berry informed the Ambassador that Shell
had approached CP "two weeks ago" with a proposal to split
the block. CP had declined, Berry said, pending an
anticipated meeting with Masimov which he had hoped to hold
that day, but which had been rescheduled for December 15.


4. (C) Berry told the Ambassador that, during an afternoon
meeting with Izmukhambetov, he expected to be pressured to
build a petrochemical facility as part of the "N" Block deal,
as Mulva had been pressured in June (Ref B). However, he
added, "no one," including Shell, would commit to building a
petrochemical facility in Kazakhstan, least of all before the
quantity and quality of available gas was determined. Not
only was the Caspian 3,000 miles away from prospective
markets -- China and Europe -- but the end products would
compete with higher-value crude for limited railway capacity.
Kazakhstan would do better to liquefy the feedstocks for
shipment by pipeline, Berry concluded, rather than add
transport costs by transforming them into solids such as
polyethelene. (Note: Post will report septel on GOK efforts
to gain TengizChevrOil's cooperation in a petrochemical
project. End note.)


5. (C) CP called back after the meeting with Izmukhambetov
and Karabalin, reporting that Izmukhambetov had delivered
"bad news" on the "N" Block. CP asked for the Ambassador's
assistance in urgently reaching Masimov who was visiting the
U.S. Ambassador reached Masimov shortly thereafter, and
Masimov called Mulva later on December 1, but as of the
morning of December 2 CP had not received a clear sense
whether Izmukhambetov's "bad news" had been authoritative.
(Note: Due to concerns about cell phone security, CP did not
elaborate on what the "bad news" was. A journalist told
Energy Officer on December 2 that Izmukhambetov had told a
colleague on December 1 that Shell would be given 35% of "N",
and CP 15%, but his rumor is unconfirmed. End note.)


ASTANA 00000738 002 OF 002


Kashagan: Coping with the Design Flaw
--------------


6. (C) Berry reported that Kashagan partners had recently
selected a new design and development plan to correct flaws
discovered a year ago in the design of an offshore platform
(Ref C). The new plan, he said, called for the construction
of an initial 300,000 barrel/day production train, rather
than the 450,000 barrel/day train initially planned. (Berry
did not specify when "first oil" was expected. On November
29, however, an ExxonMobil representative told Energy Officer
that the new plan entailed a delay in "first oil" "at least
until 2011 -- and maybe longer.") Berry told the Ambassador
that he expected the GOK to launch a fierce battle to recoup
revenues lost due to the delays and cost overruns. While the
Kashagan partners were "okay" from a contract perspective, no
oil company can win "going toe-to-toe with a sovereign
nation," and a pay-off of some magnitude seemed inevitable.


7. (C) Berry told the Ambassador that the other project
partners had largely succeeded in diluting operator AGIP's
management responsibilities, in response to partner
perception that AGIP was to blame, at least in part, for the
delays and cost overruns. The other companies had seconded
"thirty to forty" additional managers to the project, he
said, and now occupied not only the "Project Director"
position but four "key" Deputy Director slots.

KCTS Process: Chevron Wants In
--------------


8. (C) CP's Country Manager, Nick Olds, confirmed
ExxonMobil's earlier report (Ref C) that Chevron was seeking
to join the ongoing Kazakhstan Caspian Transportation System
(KCTS) discussions, with an eye toward shipping
second-generation Tengiz volumes through a planned
Eskene-Kurik pipeline in the years before CPC expansion.
Project investors were hoping to finalize an MOU with the GOK
before year's end, Olds said, in order to pave the way for
Host Government Agreement (HGA) negotiations during 2007.


9. (C) Berry told the Ambassador that at least some of
Kashagan's European partners appeared inclined to ship their
Kashagan volumes through Iran, while ExxonMobil and CP were
still focused on the Baku-Tblisi-Ceyhan (BTC) pipeline. With
production from Azerbaijan's Azeri-Chirac-Guneshli (ACG) oil
field now expected to prolong Azerbaijan's production
plateau, he said, BTC shareholders (including CP) were
already talking about BTC expansion. Berry expressed
interest in the USTDA-financed Trans-Caspian pipeline
feasibility study, commenting that, with its projected
"sizable" gas reserves, the "N" block might "be the starting
point" for discussions about Kazakhstan's available gas
supplies.
ORDWAY