TURKMANISTAN TRIANGULATES: CONOCOPHILLIPS/LUKOIL TANDEM

UNCLAS ASHGABAT 001222 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB PLEASE PASS TO USTDA DAN STEIN COMMERCE FOR HUEPER ENERGY FOR EKIMOFF/THOMPSON E.O. 12958: N/A TAGS: PGOV PREL ECON EINV EPET RS TX SUBJECT: TURKMANISTAN TRIANGULATES: CONOCOPHILLIPS/LUKOIL TANDEM READY TO STRIKE OFF-SHORE DEAL ¶1. (U) Sensitive but unclassified. Business sensitive. Not for public Internet. ¶2. (SBU) SUMMARY: ConocoPhillips and Lukoil are in the very final stages of negotiating a product-sharing agreement (PSA) for the Ordekli (Block 21) and Ogurji (Blocks 19 and 20) offshore fields. The PSA for the Ordekli field deal, with Lukoil as the operator, may be signed during the Turkmenistan International Oil and Gas Exhibition (TIOGE). ConocoPhillips will operate the Ogurji field. Each consortium member will have a 50% stake in both fields. END SUMMARY. PSA OR PSAS? ¶3. (SBU) ConocoPhillips and Lukoil will have two separate agreements, one for Ordekli and the other for Ogurjli field. The partners will have an equal 50% stake in both production areas. Under this deal, the Government of Turkmenistan will have a right to acquire up to 30% of the shares. This would require Turkmenistan to set up a national operating company, similar to KazMunaiGaz of Kazakhstan. ¶4. (SBU) The PSA's content seems to have stayed within the framework of the previous model agreement. However, the PSA with ConocoPhillips/Lukoil will not have a lifting provision. (NOTE: According to the original model PSA adopted in 1997, Turkmenistan may require the contractor to arrange the sale of Turkmenistan's share of petroleum. The contractor was entitled to recover associated costs. END NOTE.) Turkmenistan also requires more social and training elements in the newly negotiated PSAs. CONOCOPHILLIPS TO OPEN ASHGABAT OFFICE ¶5. (SBU) According to a ConocoPhillips representative currently visiting Ashgabat, the company has already registered ConocoPhillips Turkmenistan Exploration Inc in the United States, and the company will start working in Turkmenistan after ConocoPhillips signs its PSA. ConocoPhillips will open an initial Ashgabat office in the Ak Altyn Hotel/Office Center. ConocoPhilips' CEO plans to visit Turkmenistan during the TIOGE (November 13-15). ¶6. (SBU) COMMENT: The ConocoPhillips contract sets the first new precedent for a major Western company entering the Turkmenistan market in the last ten years. It will have a positive impact on the image of the country's leadership and investment regime. The deal will not only attract a host of subcontractors, but also send a signal to other oil and gas companies that Turkmenistan is now in a position to offer attractive commercial provisions and assurances of political stability. Additionally, ConocoPhillips has substantial experience working in Kazakhstan that it can share with Turkmen counterparts. END COMMENT. HOAGLAND