Identifier
Created
Classification
Origin
07MOSCOW4240
2007-08-29 13:25:00
CONFIDENTIAL
Embassy Moscow
Cable title:
RUSSIA ENERGY: TNK-BP LOOKING INTO IRAQ,
how-toVZCZCXRO3159 PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHMO #4240/01 2411325 ZNY CCCCC ZZH P 291325Z AUG 07 FM AMEMBASSY MOSCOW TO RUEHC/SECSTATE WASHDC PRIORITY 3383 INFO RUCNCIS/CIS COLLECTIVE PRIORITY RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY RUEHAH/AMEMBASSY ASHGABAT PRIORITY 2036 RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0190 RUEHCV/AMEMBASSY CARACAS PRIORITY 0233 RHEHNSC/NSC WASHDC PRIORITY RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 004240
SIPDIS
SIPDIS
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR MCKIBBEN
E.O. 12958: DECL: 08/27/2017
TAGS: EPET ENRG ECON PREL RS IZ TX VE
SUBJECT: RUSSIA ENERGY: TNK-BP LOOKING INTO IRAQ,
TURKMENISTAN, INCREASING CAPEX
REF: ASHGABAT 877
Classified By: Econ MC Eric Schultz for Reasons 1.4 (b/d)
-------
SUMMARY
-------
C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 004240
SIPDIS
SIPDIS
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR MCKIBBEN
E.O. 12958: DECL: 08/27/2017
TAGS: EPET ENRG ECON PREL RS IZ TX VE
SUBJECT: RUSSIA ENERGY: TNK-BP LOOKING INTO IRAQ,
TURKMENISTAN, INCREASING CAPEX
REF: ASHGABAT 877
Classified By: Econ MC Eric Schultz for Reasons 1.4 (b/d)
--------------
SUMMARY
--------------
1. (C) TNK-BP VP for International Affairs Shawn McCormick
told us on August 24th that the company is venturing into
Iraq, has sent a team to Venezuela with mixed results, and is
optimistic about prospects in Turkmenistan. Its capital
expenditure budget is up $700 million in 2007 to $3.4 billion
and expected to rise again in 2008. U.S. firms appear poised
to win a significant chunk of this year's contracts. The
possible acquisition of the Russian shares of the company by
either Rosneft or Gazprom is unlikely anytime soon as both
suitors are finding it difficult to raise the $20 - $25
billion needed to make such a purchase and the TNK owners are
still fighting amongst themselves. End summary.
--------------
TNK-BP LOOKING TO EXPAND INTERNATIONALLY
--------------
2. (C) During an August 24 lunch, McCormick told us the
company's Deputy Chairman, German Khan, will travel to Erbil,
Iraq this week to meet with Kurdish leader Massoud Barazani
to talk about hydrocarbon prospects. McCormick said he
declined to join Kahn due to security concerns. He will
update us upon Khan's return. McCormick also told us a
TNK-BP team just returned from Venezuela with the assessment
that the geological potential of proposed sites offered to
TNK-BP were good, but that there were serious doubts about
the terms offered as well as the political situation there.
McCormick said Lukoil had been given a "real dog" of a
license, which Chavez had used to rope Russia into political
support. Cuba had also invited TNK-BP, among others, to
explore its waters but McCormick insisted that TNK-BP was notQlanning on sending a team to Cuba anytime soon. In response
to our question, he said Iran has not been mentioned as a
potential site for future expansion.
3. (C) McCormick was positive about TNK-BP's push into
Turkmenistan, where it hopes to develop at least one field
(in the Block 1 area) and possibly a second. He suggested
that Petronas needs a partner. He added that BP is pursuing
its own interests in Turkmenistan separately. Describing the
difficulties of doing business there (as Ashgabat alluded to
in reftel),McCormick said TNK-BP had been asked to develop a
resort on the Caspian coast of Turkmenistan to gain more
favorable consideration of its pursuit of hydrocarbons.
Since TNK-BP is not in the resort-building business,
McCormick said it was scratching its head trying to figure
out next steps. He emphasized that TNK-BP is after oil, not
gas, in Turkmenistan since transportation difficulties
detract from the value of gas assets.
--------------
FUTURE OF TNK SIDE OF COMPANY STILL UNCERTAIN
--------------
4. (C) On the long-rumored sale of the TNK half of TNK-BP
(owned 50% by Mikhail Fridman's Alfa Group, 25% by
billionaire Viktor Vekselberg, and 25% by U.S. firm Access
Industries),McCormick said the future is unclear. Only
Gazprom and Rosneft would have the Kremlin's blessing to buy
the Russian shares. But, given a valuation of between
$20-$25 billion for the TNK half (based on market prices of
TNK-BP's small free-float),neither can afford it right now.
McCormick confirmed that banks have told TNK-BP they simply
cannot lend more money to either of the over-extended state
giants at this time. In any event, there is dissension among
the TNK shareholders as some waffle over which state company
might offer the highest price and others (especially
Vekselberg) focus on parochial concerns related to how to
leverage such a sale into better positions for their other
businesses.
MOSCOW 00004240 002 OF 002
--------------
LARGE AND GROWING CAPITAL EXPENDITURE BUDGET
--------------
5. (C) McCormick said he wasn't concerned about possible GOR
actions to bring TNK-BP (Russia's 3rd largest oil producer)
under state control on the cheap. He suggested BP's 50%
ownership helps protect the company, as a move against TNK-BP
would further tarnish the Kremlin's reputation in the West.
Senior TNK-BP management and ownership is confident in the
company's future, as demonstrated by the $700 million
increase in the 2007 capital expenditure budget to $3.4
billion, which is set to rise again in 2008. This, McCormick
noted, is not what companies do if they think they could be
taken over by the state, adding that Sibneft sent all its
earnings out as dividends rather than reinvesting in the
business before its sale to Gazprom.
6. (SBU) McCormick said TNK-BP was trying to accelerate its
spending (it has only spent $500 million of its capital
expenditure budget this year),but lacks both the human
capacity to manage it, as well as capable partners to supply
it with the products and services it needs. He specifically
asked us to point U.S. suppliers to opportunities with
TNK-BP. On August 27, the company announced its second big
tender of the summer -- a $1.3 billion offer for workover
rigs. In July the company announced a $2 billion tender for
drilling rigs. (Note: The human resource concern is often
cited by companies as a major challenge in Russia. Like
other companies, TNK-BP is pouring money into Russian
higher-education institutions to train the people it needs
for its continued success. End note.)
--------------
DUDLEY VISIT
--------------
7. (SBU) McCormick said that TNK-BP president (and Amcit) Bob
Dudley would visit Washington October 17-18 and hoped to see
senior officials at State, Energy, Commerce, the NSC, and
others.
--------------
COMMENT
--------------
8. (C) TNK-BP's rising investment, international expansion
efforts, and human capacity development plans clearly reflect
a company convinced of its long-term sustainability. It is
an example of the value that sophisticated international
partners such as BP bring to their operations in Russia. If
TNK-BP can remain independent, it will likely continue to be
a force for good -- greater transparency, effective
deployment of capital, and management efficiency -- in
Russia's energy sector. In that regard, it is unquestionably
fortunate that that the souring of the credit markets has
made it difficult for Gazprom and Rosneft to further expand
their reach in the sector.
9. (C) Dudley's trip to Washington is a good opportunity for
the USG to urge more U.S. company involvement in TNK-BP's
growth and to explore the possibilities in third countries
for cooperation with this unique half-western, half-Russian
company.
Burns
SIPDIS
SIPDIS
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR MCKIBBEN
E.O. 12958: DECL: 08/27/2017
TAGS: EPET ENRG ECON PREL RS IZ TX VE
SUBJECT: RUSSIA ENERGY: TNK-BP LOOKING INTO IRAQ,
TURKMENISTAN, INCREASING CAPEX
REF: ASHGABAT 877
Classified By: Econ MC Eric Schultz for Reasons 1.4 (b/d)
--------------
SUMMARY
--------------
1. (C) TNK-BP VP for International Affairs Shawn McCormick
told us on August 24th that the company is venturing into
Iraq, has sent a team to Venezuela with mixed results, and is
optimistic about prospects in Turkmenistan. Its capital
expenditure budget is up $700 million in 2007 to $3.4 billion
and expected to rise again in 2008. U.S. firms appear poised
to win a significant chunk of this year's contracts. The
possible acquisition of the Russian shares of the company by
either Rosneft or Gazprom is unlikely anytime soon as both
suitors are finding it difficult to raise the $20 - $25
billion needed to make such a purchase and the TNK owners are
still fighting amongst themselves. End summary.
--------------
TNK-BP LOOKING TO EXPAND INTERNATIONALLY
--------------
2. (C) During an August 24 lunch, McCormick told us the
company's Deputy Chairman, German Khan, will travel to Erbil,
Iraq this week to meet with Kurdish leader Massoud Barazani
to talk about hydrocarbon prospects. McCormick said he
declined to join Kahn due to security concerns. He will
update us upon Khan's return. McCormick also told us a
TNK-BP team just returned from Venezuela with the assessment
that the geological potential of proposed sites offered to
TNK-BP were good, but that there were serious doubts about
the terms offered as well as the political situation there.
McCormick said Lukoil had been given a "real dog" of a
license, which Chavez had used to rope Russia into political
support. Cuba had also invited TNK-BP, among others, to
explore its waters but McCormick insisted that TNK-BP was notQlanning on sending a team to Cuba anytime soon. In response
to our question, he said Iran has not been mentioned as a
potential site for future expansion.
3. (C) McCormick was positive about TNK-BP's push into
Turkmenistan, where it hopes to develop at least one field
(in the Block 1 area) and possibly a second. He suggested
that Petronas needs a partner. He added that BP is pursuing
its own interests in Turkmenistan separately. Describing the
difficulties of doing business there (as Ashgabat alluded to
in reftel),McCormick said TNK-BP had been asked to develop a
resort on the Caspian coast of Turkmenistan to gain more
favorable consideration of its pursuit of hydrocarbons.
Since TNK-BP is not in the resort-building business,
McCormick said it was scratching its head trying to figure
out next steps. He emphasized that TNK-BP is after oil, not
gas, in Turkmenistan since transportation difficulties
detract from the value of gas assets.
--------------
FUTURE OF TNK SIDE OF COMPANY STILL UNCERTAIN
--------------
4. (C) On the long-rumored sale of the TNK half of TNK-BP
(owned 50% by Mikhail Fridman's Alfa Group, 25% by
billionaire Viktor Vekselberg, and 25% by U.S. firm Access
Industries),McCormick said the future is unclear. Only
Gazprom and Rosneft would have the Kremlin's blessing to buy
the Russian shares. But, given a valuation of between
$20-$25 billion for the TNK half (based on market prices of
TNK-BP's small free-float),neither can afford it right now.
McCormick confirmed that banks have told TNK-BP they simply
cannot lend more money to either of the over-extended state
giants at this time. In any event, there is dissension among
the TNK shareholders as some waffle over which state company
might offer the highest price and others (especially
Vekselberg) focus on parochial concerns related to how to
leverage such a sale into better positions for their other
businesses.
MOSCOW 00004240 002 OF 002
--------------
LARGE AND GROWING CAPITAL EXPENDITURE BUDGET
--------------
5. (C) McCormick said he wasn't concerned about possible GOR
actions to bring TNK-BP (Russia's 3rd largest oil producer)
under state control on the cheap. He suggested BP's 50%
ownership helps protect the company, as a move against TNK-BP
would further tarnish the Kremlin's reputation in the West.
Senior TNK-BP management and ownership is confident in the
company's future, as demonstrated by the $700 million
increase in the 2007 capital expenditure budget to $3.4
billion, which is set to rise again in 2008. This, McCormick
noted, is not what companies do if they think they could be
taken over by the state, adding that Sibneft sent all its
earnings out as dividends rather than reinvesting in the
business before its sale to Gazprom.
6. (SBU) McCormick said TNK-BP was trying to accelerate its
spending (it has only spent $500 million of its capital
expenditure budget this year),but lacks both the human
capacity to manage it, as well as capable partners to supply
it with the products and services it needs. He specifically
asked us to point U.S. suppliers to opportunities with
TNK-BP. On August 27, the company announced its second big
tender of the summer -- a $1.3 billion offer for workover
rigs. In July the company announced a $2 billion tender for
drilling rigs. (Note: The human resource concern is often
cited by companies as a major challenge in Russia. Like
other companies, TNK-BP is pouring money into Russian
higher-education institutions to train the people it needs
for its continued success. End note.)
--------------
DUDLEY VISIT
--------------
7. (SBU) McCormick said that TNK-BP president (and Amcit) Bob
Dudley would visit Washington October 17-18 and hoped to see
senior officials at State, Energy, Commerce, the NSC, and
others.
--------------
COMMENT
--------------
8. (C) TNK-BP's rising investment, international expansion
efforts, and human capacity development plans clearly reflect
a company convinced of its long-term sustainability. It is
an example of the value that sophisticated international
partners such as BP bring to their operations in Russia. If
TNK-BP can remain independent, it will likely continue to be
a force for good -- greater transparency, effective
deployment of capital, and management efficiency -- in
Russia's energy sector. In that regard, it is unquestionably
fortunate that that the souring of the credit markets has
made it difficult for Gazprom and Rosneft to further expand
their reach in the sector.
9. (C) Dudley's trip to Washington is a good opportunity for
the USG to urge more U.S. company involvement in TNK-BP's
growth and to explore the possibilities in third countries
for cooperation with this unique half-western, half-Russian
company.
Burns