TURKMENISTAN: CHEVRON PREPARING FOR NEGOTIATIONS

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001139 SIPDIS STATE FOR SCA/CEN, EEB PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: DECL: 08/28/2018 TAGS: PREL PGOV EPET TX SUBJECT: TURKMENISTAN: CHEVRON PREPARING FOR NEGOTIATIONS BEGINNING SEPTEMBER 15 REF: A. ASHGABAT 1131 ¶B. ASHGABAT 1103 ¶C. ASHGABAT 0996 Classified By: Charge d'Affaires Sylvia Reed Curran for reasons 1.4(B) and (D). ¶1. (C) SUMMARY: Chevron has received two letters from Minister of Oil and Gas Baymurat Hojamuhammedov stating that Turkmenistan is ready to open negotiations on the company's proposal to work natural gas onshore. The country manager talked with both Hojamuhammedov and the Executive Director of the State Agency for Management and Use of Hydrocarbon Resources, Bayrammurat Muradov, on August 25. They confirmed that they are ready to begin negotiations, although not until after September 15. Chevron is eager to begin negotiations, not least of all because it now believes that the Gaffney-Kline audit of the South Yoloten-Osman field will show that the field's sub-salt natural gas volumes may be even larger than earlier (and, most believed, optimistically) predicted by Turkmenistan's government. END SUMMARY. ¶2. (C) During an August 27 meeting, the AMCIT country manager for Chevron's Turkmenistan office told the Charge that the Minister of Oil and Gas, Baymurat Hojamuhammedov, sent him two letters in August stating that the Government of Turkmenistan is ready to open negotiations with Turkmenistan. The country manager was a bit taken aback by the fact that it was Hojamuhammedov, rather than the Executive Director of the State Agency for Management and Use of Hydrocarbon Resources, Bayrammurat Muradov, who sent the letter. (COMMENT: The Chevron country manager told Charge August 28 that, in the wake of a hydrocarbon leadership shakeup (Ref. A) that resulted in Muradov being replaced at the State Agency, he was glad that Hojamuhammedov had signed the letter. END COMMENT.) However, he confirmed, in meetings with both Hojamuhammedov and Muradov on August 25 that Muradov knew about the letter and that Turkmenistan is sincere about opening negotiations with Turkmenistan -- but not until after September 15. He was told earlier negotiations would be impossible, given Chinese President Hu Jintao's August 28-29 visit, the September 9-11 Baku Oil and Gas Exhibit, and the need for the State Agency to reorganize to fulfill its new role under the just-implemented Petroleum Law (Ref B). (NOTE: Embassy has been told that ConocoPhillips, which is currently in the midst of negotiations with Turkmenistan, has been given a similar message. END NOTE.) ¶3. (C) According to the Chevron country manager, Hojamuhammedov in the August 25 meeting asked two questions. To the first -- what is Chevron going to do for Turkmenistan -- the country manager referred him back to the detailed proposal that the company passed to the State Agency on March ¶11. Chevron, he said, is prepared to provide technology, expertise, development and capital in support of Turkmenistan's efforts to increase its hydrocarbon production. In response to the second question -- what agreement form Chevron would favor -- the country manager responded that Chevron could work with any of the four agreement forms mentioned in the new Petroleum Law. (NOTE: However, the country manager told the Charge that his company would prefer a production sharing agreement, followed by a concession agreement. Chevron least wants a risk-service agreement. END NOTE.) Hojamuhammedov told the Chevron manager that he still needs guidance on this issue from the Cabinet of Ministers, and he probably will not have that guidance until September 15. ASHGABAT 00001139 002 OF 002 ¶4. (C) The country manager said, given the progress since July 31, Chevron has scrapped for now its plans for a visit by Chevron Vice President Jay Pryor (Ref C). The company is now planning a Pryor visit once negotiations have started, so that he (hopefully) could express pleasure with the negotiation progress. At the meeting, Chevron wants to deliver a sweetener, in the form of a 6-12 month internship program at Chevron for 3-4 hydrocarbon sector workers. The manager said that this is a new program at Chevron, and it is one for which Chevron is hoping to pilot in Turkmenistan. Even further down the road and in response to President Berdimuhamedov's known interest in promoting the Avaza tourist zone, Chevron believes that providing training to hotel personnel could fit in with its work force development focus on education, development of small and medium enterprises, and healthcare. The country manager asked for U.S. government assistance in seeing the the movement toward negotiations continues to move. ¶5. (C) According to the country manager, Hojamuhammedov confirmed that the preliminary data coming in from Gaffney-Kline's audit of the South Yoloten/Osman field is "very positive." The country manager said that Chevron had thought there would prove to be seven trillion cubic feet of natural gas in the field, but Chevron has learned that the field could contain more than seven trillion cubic meters of gas and this figure could reach up to 500 trillion cubic meters. (COMMENT: While government media for some time have been trumpeting the discovery of large natural gas volumes in the South Yoloten field, this is the first indication that we've received to date that the Gaffney-Kline audit results (which are expected to be delivered on/around September 30) could back up the government's almost fantastical figures. END COMMENT.) The country manager would not disclose the source of the new figures, but stated in response to a question that "even Gaffney-Kline would say the field is big, and even bigger than initially believed." ¶6. (C) COMMENT: This meeting occured immediately before the news broke of a hydrocarbon sector leadership shake-up (Ref A). Nonetheless, Chevron seems enthused by the prospect of finally getting to the table. While Chevron undoubtedly still faces a tough slough through negotiations, it clearly is beginning to believe that, based on the South Yoloten audit results, the final results will be worth the long wait it had getting officials to the table. END COMMENT. CURRAN