TURKMENISTAN ENERGY: BP IN THE MIX, EXPRESSES

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000774

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EEB

E.O. 12958: DECL: 08/03/2017
TAGS: ECON EPET EINV UK RS TX
SUBJECT: TURKMENISTAN ENERGY: BP IN THE MIX, EXPRESSES
DISCOMFORT WITH TNK/BP

ASHGABAT 00000774 001.2 OF 002


Classified By: Charge d'Affaires a.i. Ambassador Richard E. Hoagland fo
r reasons 1.4 (B) and (D).


1. (C) SUMMARY: BP officials are serious about entering the
hydrocarbon sector in Turkmenistan, focusing on oil. In two
meetings, they left a mixed message about the potential role
of TNK/BP. The BP advance team indicated three
possibilities: BP alone, TNK/BP alone, or the two together
in some configuration. The more senior BP officials were
candid about BP's discomfort with TNK/BP, and indicated an
understanding of the role and optics of geopolitics. END
SUMMARY.


2. (SBU) Charge met August 2 with President of BP Central
Asia Jonathan Popper, BP Manager of Business Development
Central Asia Andy Waters, and Head of BP Representative
Office in Turkmenistan Serdar Atabayev. Popper and a larger
BP team have been in Turkmenistan for at least a week "trying
to decide what's doable," he said. Although he generally
played his cards very close to his vest, Popper said BP is
interested primarily in oil "but you have to deal with the
gas associated with oil."


3. (C) In response to a question about possible export
routes, Popper replied, "Export's what it's all about." The
best option is south through Iran, "but that's off the agenda
for now." He said the only route currently available is
through Russia, and BP's inclination would be to use existing
infrastructure to start and then upgrade it as necessary.
"However," he added, "politics clearly plays a role."

BP AND TNK/BP


4. (C) Charge asked how TNK/BP fits into BP as a whole,
noting recent press reports that TNK/BP is opening an office
in Ashgabat. Popper said firmly, "The office is both TNK/BP
and BP." He explained TNK/BP is a separate company, but
ultimately under the BP corporate umbrella. TNK/BP is a
50%-50% partnership (the Russian side is three oligarchs),
which means BP has "negative control -- we can stop things,
but we can't make them happen." TNK/BP came to Turkmenistan
early because a directive from the Kremlin ordered Russian
energy concerns to "lock up" Turkmenistan. Popper noted it's
especially important for TNK/BP to be seen promoting Russian
policy (COMMENT: Presumably because of the shaky position of
Western energy partners in Russia. END COMMENT).


5. (SBU) Popper added TNK/BP will likely focus on mature
fields on-shore, managing reserves rather than attempting new
exploration. BP itself will focus off-shore, although BP is
unlikely to promote a Trans-Caspian Pipeline: "There's not
enough (off-shore) gas here yet."


6. (C) With surprising candor, Popper said he doubts TNK/BP
has the long-term intent and capability to do anything
serious in Turkmenistan. He added, "We (BP) are not at all
comfortable with TNK/BP. They won't do anything here unless
we agree -- negative control."

GOSSIP ABOUT OTHER MAJORS


ASHGABAT 00000774 002.2 OF 002



7. (SBU) In passing, Popper commented that LukOil is
beginning to back away from its initial enthusiasm because
Russian geologists looked more closely at off-shore
possibilities and "didn't see too much." Noting that Shell
is in town, he predicted that Shell is about to make a "big
proposal" based on their knowledge and experience from ten
years ago. He added that Shell is now "looking on-shore."
(NOTE: See para 10 below for text of press report on the
Shell visit. END NOTE.)

THE ADVANCE TEAM LEAVES MORE DOORS OPEN


8. (SBU) On July 28, A/DCM met with BP representatives in
from London to advance Popper's visit. They seemed primarily
interested in identifying major political risks of operating
in Turkmenistan, and appeared particularly concerned about
the legitimacy/stability of President Berdimuhamedov, and the
potential for the leadership to become a dictatorship again.
A/DCM also discussed with them the lack of human capacity
(including in the government),the opaque legal and
regulatory framework, corruption, the underdeveloped
infrastructure, and the high unemployment rate.


9. (C) The BP advance team's take on BP intentions was
somewhat different from what Popper said. The team told
A/DCM BP is interested in extracting oil in Turkmenistan, and
is trying to find the proper vehicle for penetrating
Turkmenistan,s market. They said the options include BP,
TNK/BP, or a joint operation between BP and TNK/BP. Among
other things, the advance team probed whether U.S. energy
policy is directed toward decreasing the influence of Russia
and Iran in Turkmenistan. BP also asked whether a Russian
oil company has advantages over other international oil
companies in doing business in Turkmenistan. They expressed
strong skepticism about the possibility of a Trans-Caspian
Pipeline.


10. (U) BEGIN TEXT: Global Insight Daily Analysis, August
2: The Anglo-Dutch oil and gas major Shell is considering
plans to carry out joint exploration and production projects
with Austria's OMV and the Abu-Dhabi-based International
Petroleum Investment Co. (IPIC) in Turkmenistan. Reuters
reports that the UAE state news agency, WAM, said that the
three companies are planning to build a $500-million urea
plant in Turkmenistan and will jointly explore for gas
reserves to feed the plant. Significance: Shell has a
growing presence in the Central Asia region. By partnering
with each other and OMV, the companies will be able to
enhance their presence in the region and use existing
business interests as leverage, easing the path into
Turkmenistan. With IPIC involved on the downstream side, but
eager to move upstream, partnering with Shell would help that
transition, while providing Shell with a ready buyer for any
gas discovered in the country. END TEXT.
HOAGLAND