Identifier
Created
Classification
Origin
08ASHGABAT109
2008-01-22 11:52:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN'S HYDROCARBONS SECTOR: U.S. FIRMS

Tags:  PREL PGOV ENRG EPET ENIV TX 
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C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000109 

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EEB (AMB. MANN)
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 01/22/2018
TAGS: PREL PGOV ENRG EPET ENIV TX
SUBJECT: TURKMENISTAN'S HYDROCARBONS SECTOR: U.S. FIRMS
SEE LITTLE RECENT MOVEMENT BUT REMAIN OPTIMISTIC ABOUT
PROSPECTS

REF: A. 07 ASHGABAT 1209


B. 07 ASHGABAT 1353

C. 07 ASHGABAT 1364

D. ASHGABAT 0049

E. 07 ASHGABAT 1318

Classified By: Charge Richard E. Hoagland for reasons 1.4(B) and (D).

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000109

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EEB (AMB. MANN)
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 01/22/2018
TAGS: PREL PGOV ENRG EPET ENIV TX
SUBJECT: TURKMENISTAN'S HYDROCARBONS SECTOR: U.S. FIRMS
SEE LITTLE RECENT MOVEMENT BUT REMAIN OPTIMISTIC ABOUT
PROSPECTS

REF: A. 07 ASHGABAT 1209


B. 07 ASHGABAT 1353

C. 07 ASHGABAT 1364

D. ASHGABAT 0049

E. 07 ASHGABAT 1318

Classified By: Charge Richard E. Hoagland for reasons 1.4(B) and (D).


1. (C) SUMMARY: U.S. hydrocarbon firms have seen little
progress since November (Ref. A) in terms of receiving
responses from the Government of Turkmenistan to their
offers. Looking to the future, Chevron has appointed an
Amcit country manager and is opening an office in
Turkmenistan. However, the government still has not
responded to Chevron's initial proposal. The December
kerfluffle regarding a Lukoil announcement that it had signed
an agreement with the Government of Turkmenistan to develop
three Caspian blocks seems to have blown over (Refs B and C),
ConocoPhillips only now is returning to the negotiating
table, and Lukoil/ConocoPhillips and the State Agency for
Hydrocarbon Resources could reach an agreement very soon
(Ref. D). TNK BP/BP continue to talk to Turkmenistan but,
according to the State Agency's Director, Byrammurat Muradov,
the talks up to now have been largely conceptual and "need
more time." Finally, although Marathon had a "productive"
meeting with President Berdimuhamedov in early December
regarding its proprietary gas-to-fuels technology (Ref. E),
it has not heard anything more from the Ministry of Oil and
Gas. More than ever, the lack of progress seems to be
attributable to a lack of confidence on Turkmenistan's part
in dealing with large hydrocarbons firms and international
hydrocarbons markets. Post hopes that a training program,
which the U.S. Trade and Development Agency (USTDA) will
begin in February, will help to address this problem and lead
to tangible progress soon. We are also encouraging the State

Agency to contract with an international law firm or other
consultancy that would provide badly needed advice. END
SUMMARY.

CHEVRON


2. (C) During a January 19 meeting, Chevron's new country
manager told the Charge that his company had submitted two
proposals to Turkmenistan's State Agency for Management and
Use of Hydrocarbon Resources during the November 13-15 oil
and gas exhibition (TIOGE). Chevron had bid to develop the
disputed Serdar offshore area if Turkmenistan could resolve
its border dispute there with Azerbaijan. The firm had also
submitted a joint venture (JV) proposal to increase
Turkmenistan's onshore gas production in the Amu Darya basin.
Under the new JV proposal, Chevron said that it would assist
Turkmenistan to increase production in existing fields with
declining production and to begin working discovered but
undeveloped fields. As part of its JV, Chevron also proposed
to begin drilling Turkmenistan's dangerous-to-access subsalt
reserves -- Chevron's top priority and an area in which
Chevron is well-equipped, both in experience and technology,
to work.


3. (C) During the Chevron manager's January 18 courtesy call
on Muradov, however, Muradov had focused very narrowly on the
Serdar bid, telling the manager that he should focus on
"blocks" rather than "areas." (COMMENT: Post continues to
hear rumors that the Canadian firm Buried Hill has at least a
memorandum of understanding and possibly an unpublicized
production sharing agreement (PSA) to develop Serdar in an
agreement dating from former President Niyazov's tenure.
According to Wintershall/Maersk Country Manager Kal Sandhu,
Muradov at one point stated that Turkmenistan was aware of
rumors suggesting that Buried Hill is a "shady operation" and

ASHGABAT 00000109 002 OF 003


that it did not want to have anything to do with the firm,
but could not come up with a legal way of abrogating the
arrangement. END COMMENT.) The Chevron manager said that
his company submitted a bid to work Serdar because it
believes that Serdar is the only offshore area with
"worthwhile prospects" for drilling. When the Chevron
manager had tried to pump Muradov on the JV proposal, Muradov
had referred the manager to Deputy Chairman of the Cabinet of
Ministers for Oil and Gas Tachberdi Tagiyev. Responding to a
question, the manager said Chevron will only work the Amu
Darya basin through a JV agreement and will not agree to a
service agreement. "It's not right for us to have only a
service agreement there when we're one of the largest
hydrocarbon firms in the world."


4. (C) While Chevron is quickly coming to believe that
Turkmenistan is only comfortable in dealing with small
players that it can control -- Petronas, Dragonoil and Burren
Resources -- the manager said he is considering a new
approach which would link what Turkmenistan wants -- a major
company working offshore -- with a JV focused on developing
subsalt gas production that would offer Turkmenistan
tremendous expertise in subsalt drilling. Therefore, the
manager was prepared to use a package approach of "we don't
say no to offshore cooperation if you don't say no to onshore
cooperation." Chevron will begin to work up a fuller
proposal that would offer more detail than the 10-page
proposal that it gave the government in November.


5. (C) Despite these frustrations, Chevron is establishing
an office in Ashgabat. The company is continuing to work on
registering itself as a legal entity and hopes to have the
process completed in the next few weeks (although, the
manager added, like everything else, this schedule could
still slide if Chevron hits any bureaucratic snags). The
company is leasing and retrofitting a two-story block of
offices in the Arkach Hotel (one of the small, "loser" hotels
that Niyazov forced his ministries to build on the
increasingly prestigeous Archibil Road).

CONOCOPHILLIPS


6. (C) ConocoPhillips seems to have recovered from its
dismay following a December 12 Lukoil press release stating
that Lukoil had signed an agreement with the Government of
Turkmenistan to work three offshore blocks (blocks 19, 20 and
21). All here, as well as ConocoPhillips itself, agree that
the announcement was premature, rather than a covert Lukoil
effort to cut its U.S. partner out of the action. With the
winter holidays over, ConocoPhillips is returning to its
negotiations and hopes to send a team to Ashgabat in the next
few weeks. Commenting on ConocoPhillips' prospects, State
Agency Executive Director Muradov told the Charge January 10
that, if ConocoPhillips/Lukoil's position has not changed
since the last round of negotiations, the two sides could
reach an agreement very soon. According to Muradov, "We are
very, very close."

TNK-BP/BP


7. (C) TNK-BP/BP has not visited Turkmenistan since
November. Muradov told the Charge January 10 that BP is a
"serious company" that has explained in general terms its
philosophy for developing the Caspian Sea. However, the
company has not yet submitted a concrete proposal.

MARATHON


8. (C) Unlike other U.S. firms that are considering doing
business in Turkmenistan, Marathon hopes to interest

ASHGABAT 00000109 003 OF 003


Turkmenistan in its proprietary gas-to-fuels technology, a
gas-conversion process that is more carbon-efficient than
conventional gas-conversion processes. A high-level
delegation visited Turkmenistan the week of December 3 and
presented its product to President Berdimuhamedov December 6.
While a company representative has confirmed that the
president seemed interested in Marathon's product and that
the meeting went well, there has been no further follow-up by
either side.


9. (C) COMMENT: Although U.S. firms are still trying to get
used to Turkmenistan's unique process for negotiating
development of its hydrocarbon reserves, they are not alone
in their frustration. The Government of Turkmenistan has yet
to sign a single new production sharing agreement for
offshore development. Post attributes the unwillingness of
Turkmenistan's hydrocarbon sector agencies to commit to new
agreements to officials' lack of confidence in dealing with
large companies and unfamiliarity with international
hydrocarbons markets, rather than to a dislike of the
companies involved. Post hopes that the USTDA training
program due to come on line in mid-February will help to
address at least some of these issues. We are also
encouraging the State Agency to contract with an
international law firm or other consultancy that could
provide badly needed expert advice to speed things along.
END COMMENT.
HOAGLAND