AIOC PRESIDENT BRIEFS ON SHAH DENIZ AND BTC

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 001211

SIPDIS

SIPDIS

DEPT FOR EUR DAS MATTHEW BRYZA
USDOE FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 08/17/2016
TAGS: ECON ENRG EPET PREL IR AJ KZ RU
SUBJECT: AIOC PRESIDENT BRIEFS ON SHAH DENIZ AND BTC
OPERATIONS

Classified By: Acting DCM Polaschik per reasons 1.4 (B,D).


1. (C) SUMMARY: AIOC President Woodward briefed U.S. and UK
emboffs August 15 on Shah Deniz and BTC operations. Woodward
noted that Shah Deniz first gas could be delayed until
October, with a official celebrations possible November 9-10
in Baku. The GOAJ, according to Woodward, is still
interested in keeping some of the gas volumes for domestic
use or export to Georgia. He said that the BTC pipeline was
operating smoothly despite some minor difficulties with
Turkish pipeline operator BOTAS. BP plans to organize a
high-level revenue management conference in early 2007 with
the State Oil Fund. Regarding Iran and the disputed Alov
field operations, Woodward stated that the Iranian platform
likely would not ship and be installed until 2007, but noted
that BP plans to begin exploratory drilling at the partially
disputed Inam field in 2007. END SUMMARY.


2. (SBU) On August 15 AIOC President David Woodward briefed
U.S. and UK emboffs on BTC and Shah Deniz operations.
Woodward said that the East Azeri platform at the ACG field
would begin production by November, despite minor operational
delays due to weather, noting that the project was still
ahead of schedule.

SHAH DENIZ PHASE I GAS ON TRACK
--------------


3. (SBU) On Shah Deniz phase I, Woodward said that "first
gas," scheduled for the end of September, likely would slip
to October due to some technical production issues regarding
the wells that still needed to be resolved. BP has proposed
that official First Gas celebrations be held in Baku November
9-10, although Woodward noted that President Aliyev has not
yet approved the date.


4. (SBU) Woodward explained that the Government of Azerbaijan
(GOAJ) was still interested in taking any gas that Turkey
refused due to the slow construction of the gas pipeline by
pipeline operator BOTAS. These volumes could then be used
for Azerbaijan's domestic gas needs or for resale to Georgia.
He added that it was still unclear whether Azerbaijan and
Georgia had completed discussions on how to divvy up the
initial Shah Deniz gas volumes that could not be transferred
to Turkey until the Turkish SCP link was complete. In
addition, it was unclear whether Azerbaijan and Georgia had
begun discussions on gas volumes and prices for the 2006/2007
winter.


5. (SBU) Woodward noted that AIOC/BP had informed SOCAR and
the GOAJ that Sangachal and the AIOC pipelines could handle
additional gas volumes if Turkey refused some volumes. AIOC
did not, however, study Azerbaijan's domestic gas pipeline
structure to determine if it could handle further downstream
an increase in gas volumes. Regarding the current Shah Deniz
Phase II well explorations, Woodward noted that there had
been some minor problems as the drilling reached "deeper
horizons;" however, BP expected to resolve them soon.

BTC RUNNING SMOOTHLY
--------------


6. (SBU) Woodward said that despite some minor "teething"
problems, BTC was operating smoothly. The majority of the
problems, he explained, had been occurring in Turkey, and
AIOC has been pushing BOTAS to resolve them. Woodward also
said that he and new BTC Chief Rashid Javanshir would travel
to Turkey this week in order to complete the negotiations
regarding the USD 333 million payment that BP had agreed to
pay to resolve previous construction issues. In addition, BP
plans to second some executives to the BTC operations in
order to facilitate pipeline function and improve overall
performance.

SOCAR AND NORTHERN EXPORT ROUTE
--------------


7. (SBU) Woodward noted that SOCAR and AIOC had been
discussing future plans for the northern export route for
crude oil. AIOC had been actively using this route to export

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ACG crude prior to BTC completion. The Azerbaijan-Russia
inter-governmental agreement governing the northern route's
usage is renewed automatically every year. Woodward thought
that, with the completion of the BTC pipeline, the northern
route will not be as useful and its usage can transfer
directly back to SOCAR by the beginning of 2007.


8. (SBU) As in previous meetings, Woodward said that AIOC and
BP are continuing to have problems with SOCAR and its
management team. In particular, Woodward noted that the ACG
steering committee is always being canceled by SOCAR for
undisclosed reasons. Woodward did not think SOCAR was doing
this on purpose, but rather SOCAR's general disorganization
and lack of management capacity led to meeting cancellations.

BP STUDY OF GOAJ MINISTERS ENERGY VIEWS
--------------


9. (SBU) Woodward said that BP had commissioned a study of
GOAJ ministers' perception of BP, Azerbaijan's strategic
global energy role, and the role of international energy
companies in Azerbaijan's energy future. While the report
was not completely finished, Woodward noted that most of the
views provided by GOAJ ministers reflected personal views and
opinions. He added that there did not appear to be an
"official view" of BP or Azerbaijan's energy strategy
provided by the ministers.

HIGH-LEVEL OIL REVENUE MANAGEMENT CONFERENCE
--------------


10. (SBU) BP Public Relations Director briefed on discussions
with the State Oil Fund to organize a high-level conference
on oil/gas revenue management, focused on raising public
awareness of the issue. The Oil Fund agreed to the
conference and wanted a well-known economic speaker, such as
Jeffrey Sachs. BP proposed the conference occur in the first
quarter of 2007, possibly February or March. The PR director
also noted that the Oil Fund and BP had signed a memorandum
of understanding involving the BP-financed macroeconomic
quantitative unit at the Oil Fund.

IRAN'S ALOV FIELD
--------------


11. (C) Woodward noted that, according to press sources,
while the Iranian "Alborz" oil platform was ready to ship and
be installed, it appeared that Iran would delay sailing the
rig to the disputed Alov field until early 2007. Woodward
did not know the reason for the delay. Woodward noted that
BP planned to begin exploratory drilling at the Inam field
(partially disputed by Iran and close to the Alov field) in

2007.
HYLAND