TURKMENISTAN: CONOCO-PHILLIPS AND CHEVRON UPDATE

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001364

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EEB
STATE PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 12/17/2017
TAGS: PREL EPET PGOV TX
SUBJECT: TURKMENISTAN: CONOCO-PHILLIPS AND CHEVRON UPDATE

REF: A. ASHGABAT 1353


B. ASHGABAT 1222

Classified By: Charge Richard E. Hoagland for reason 1.4(b) and (d).


1. (C) SUMMARY: The new year is approaching with the two
U.S. hydrocarbons firms -- ConocoPhillips and Chevron -- just
a few months ago were bullish on perceived new opportunities
in Turkmenistan but now resigned to the reality that
ageements may still be at least a few months away. In
ConocoPhillips' case, the December 12 news that Lukoil had
signed an agreement with the Government of Turkmenistan,
combined with the failure of ConocoPhillips' president to get
a meeting with President Berdimuhamedov, set off alarm bells
that Lukoil may be trying to squeeze ConocoPhillips out.
And, although Chevron's efforts to register and open up a new
office in Ashgabat are proceeding smoothly, the government
has yet to respond to Chevron's proposed production sharing
agreement. Post does not know enough about the details of
ConocoPhillips' partnership agreements with Lukoil to comment
on the possibility that the Russian company is seeking to
squeeze out ConocoPhillips. However, any understanding
between Russia and Berdimuhamedov to keep western hydrocarbon
companies out of Turkmenistan would send the worst sort of
signals about Turkmenistan's trustworthiness -- and could
negatively impact its economic development hopes. One
possibility is that Russian Prime Minister Zubkov asked
Berdimuhamedov to postpone announcements of any new
agreements with western hydrocarbons companies until after
Russia's presidential elections. END SUMMARY.

CONOCOPHILLIPS WORRIED ABOUT BEING SQUEEZED OUT OF
TURKMENISTAN


2. (C) Raikhan Ismailova, ConocoPhillips' Almaty-based
Director of Administration and External Affairs, expressed
great concern over a "worrying" series of events that
culminated in the December 12 news in Russian-based Interfax
about an agreement being signed between Lukoil and the
Government of Turkmenistan, which was subsequently retracted
by Lukoil on December 13 (ref a). According to Ismailova, a
meeting between ConocoPhillips CEO James Murtha and President
Berdimuhamedov that had been set for December 8 was suddenly
called off by Executive Director of Turkmenistan's State
Agency for Management and Use of Hydrocarbon Resources
Bayrammyrat Muradov just a few days prior to the meeting.
Subsequent efforts by ConocoPhillips to reset the meeting for
December 12, then December 14-15 (while Murtha was still in
the region) were met by the statement that President
Berdimuhamedov would not be available on these dates, but
that maybe Murtha could meet with Deputy Chairman of the
Cabinet of Ministers for Oil and Gas Tachberdi Tagyev.
Unable to meet with Berdimuhamedov (and stating that it did
not make sense that he, as the head of a huge international
hydrocarbon firm, should not be able to get a presidential
meeting when Lukoil CEO Vagit Alikperov could),Murtha
returned to the United States without visiting Ashgabat, and
has stated that he will not again visit Turkmenistan until he
has received an invitation with a concrete meeting date from
the president's office.


3. (C) Ismailova also noted that ConocoPhillips had no
indication ahead of time of an agreement -- or memorandum of
understanding (MOU) -- being signed between Lukoil and the
Government of Turkmenistan, and it is unclear what -- if
anything -- had been signed. The December 12 Interfax news
story set off alarm bells at ConocoPhillips. According to
Ismailova, the State Agency's Executive Director, Muradov,
was livid when ConocoPhillips called him to ask about the
story. Muradov told Lukoil to retract the story, or the
government's negotiations with Lukoil would be cut off,
leading to Lukoil's subsequent December 13 retraction.

ASHGABAT 00001364 002 OF 002


Ismailova claimed ignorance of any follow-up conversations
that her bosses might have had with Lukoil.


4. (C) Ismailova indicated that ConocoPhillips Vice
President for Russian and the Caspian Region Don Wallette,
currently home for the holidays, hopes to visit Ashgabat in
early January to sort out the situation. She told Emboff
that it is not clear whether Lukoil is planning to squeeze
out ConocoPhillips, or whether Turkmenistan is hoping to
renegotiate more favorable PSA deals for the three offshore
blocks (blocks 19, 20 and 21),which Lukoil/ConocoPhillips
had bid on in tandem, now that Gazprom has promised to
increase its payments for Turkmenistan's gas. She listed one
possible motive for a potential sell-out as the fact that the
Ogurji offshore fields (blocks 19 and 20) that ConocoPhillips
is supposed to work under its proposed arrangement with
Lukoil (ref b) are suspected to be gas-rich, while the
Ordekli field that Lukoil would receive is expected to
produce primarily oil. She asked for U.S. government
assistance in getting Murtha meetings with Berdimuhamedov
after the New Year holiday.

CHEVRON: BUSINESS AS USUAL, EVEN IF SLOWER THAN HOPED


5. (C) By contrast, Chevron reported that everything seems
to proceeding normally, if slower than the company had hoped.
The firm has hired a local legal firm, Medet, to oversee its
registration. There have been no problems, and Chevron
expects to be registered in Turkmenistan by early in 2008.
Chevron has heard nothing back from Turkmenistan on the
firm's production sharing agreement proposal, but Muradov
claims that the State Agency is continuing to "work on it."
In the meantime, the training programs that Chevron is
providing hydrocarbon officials are going well, and the most
recent course -- on the commercialization of Turkmenistan's
gas sector -- has just concluded.


6. (C) COMMENT: Embassy is not in a position to comment on
the possibility that Lukoil is seeking to sell out
ConocoPhillips without knowing the details of partnership
agreements between the two, and would appreciate any insight
Embassy Moscow might have. Certainly, Alikperov seems to
have enough clout in Moscow to be able to exert significant
pressure on Turkmenistan, and -- if Russia pushed hard enough
to keep westerners out of Turkmenistan -- this might have
been part of an understanding Berdimuhamedov reached with
Russian Prime Minister Zubkov November 23. However, such an
agreement would send the worst sort of signal about
Turkmenistan's trustworthiness to the same international
community that Berdimuhamedov is currently trying to court.
With many experts expressing great doubt about Turkmenistan's
ability to boost (or even to maintain at current levels)
hydrocarbon production without new investment by Western
companies, such a course would doom -- or, at least, greatly
delay -- Turkmenistan's plans for economic development.
Another possibility is that Berdimuhamedov may have agreed to
postpone announcements of any new agreements with Western
energy majors until after Russia's March presidential
election. Post is seeking a meeting with Petronas, another
foreign offshore player, in hopes of gaining additional
clarification, including on the agreement/MOU that Lukoil
initially was reputed to have signed. END COMMENT.
HOAGLAND