TURKMENISTAN: MARATHON WILLING TO BE PATIENT, BUT

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001500 SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: DECL: 11/18/2018 TAGS: EPET ECON EIND PGOV PREL TX SUBJECT: TURKMENISTAN: MARATHON WILLING TO BE PATIENT, BUT NEEDS TO SEE A PATH FORWARD REF: A. ASHGABAT 741 ¶B. ASHGABAT 1137 Classified By: Charge d'Affaires a.i. Richard M. Miles for reasons 1.4 (B) and (D). ¶1. (C) SUMMARY. During the upcoming international oil and gas conference, Marathon executives are looking for substantive engagement with GOTX officials about the company's proposed integrated gas-to-fuels project. Since the signing of a confidentiality agreement and presentations about the project earlier this year (reftels),the company is still waiting for substantive feedback and an indication that consideration of their proposal is moving ahead. Marathon officials will also use the conference as an opportunity to discuss business conditions with foreign companies already operating in Turkmenistan. Company officials' earlier optimism about the pace of project negotiations is tempered, but the company insists it will be patient as long as it sees a path forward. END SUMMARY. ¶2. (C) On November 17, poloff met with Marathon Oil company officials visiting Ashgabat to attend the 2008 Turkmenistan International Oil and Gas Conference. They are part of a team of company officials, including technical experts, here to follow up with Turkmen officials regarding a proposed joint definitional study for a project that would involve construction of an onshore gas extraction rig, a gas processing facility, and a gas-to-fuels refinery. During the current trip, they hope to conduct substantive meetings with Executive Director of the State Agency for Management and Use of Hydrocarbon Resources Yagshygeldi Kakayev and his staff. To this end, they brought a team that could address any question posed by the Turkmen side. Vice President for Eurasia Business Growth Declan K. O'Byrne acknowledged, however, that conference-related events could make Turkmenistan government officials too busy for such a meeting at this time. ¶3. (C) Additionally, in planning a project that could employ 7,000 people and involve an investment in excess of USD one billion, O'Byrne said they want to talk with companies that are already operating on the ground, such as Dragon Oil and Petronas, as well as Chevron, which has opened an office. Their goal is to assess "above-ground risk" for foreign companies in Turkmenistan, including Foreign Corrupt Practices Act issues, local labor laws, customs issues and other issues that would determine whether it is acceptable for a U.S. company to do business here. ¶4. (C) O'Byrne noted that "all IOCs are interested" in Turkmenistan because it is one of the few countries with significant uncommitted resources. He said Marathon can be very patient, especially when the size of the prize is substantial, citing Marathon's venture in Indonesia, which took more than four years to negotiate, as an example. At the same time, Marathon also has to see a path forward in order to dedicate resources to a proposal. He mentioned that, in the past, Marathon's management was not interested in Turkmenistan because of the country's landlocked geographical position and the resulting transport difficulties. ¶5. (C) On the subject of the propsed EU Caspian Development Corporation (CDC),O'Byrne suggested it would be a positive development. Marathon is not interested in owning a pipeline, but rather in developing and producing gas. A CDC pipeline would diversify the outlets for Turkmen gas, and the resulting competition would allow the Turkmen to receive a higher price. ¶6. (C) O'Byrne and his colleagues speculated about changes that would take place in Ashgabat if IOCs begin doing business in Turkmenistan, noting that there would be an ASHGABAT 00001500 002 OF 002 immediate shortage of hotel rooms and office space. Despite the prevalence of marble government office buildings, O'Byrne mentioned that, in Marathon's preliminary search for office space, the market was very limited. Likewise, financial infrastructure and even the airport would all become quickly overwhelmed. On the subject of possible USG support for Marathon's efforts in Turkmenistan, Upstream Business Development Manager Anna Hensel noted that a U.S. Trade and Development Agency trip for Turkmen officials to the U.S., which included a visit to a Marathon refinery, had been valuable in promoting the company and she welcomed more such opportunities. ¶7. (C) COMMENT: In August, Marathon officials spoke optimistically about the possibility of opening a local office by the end of the year. Since that time, the lack of Turkmen feedback on their proposal and the replacement of the director at the State Hydrocarbons Agency seem to have tempered their expectations. Nonetheless, they continue to seriously pursue their proposal, as evidenced by the hiring of a local Marathon staff person and the large Marathon delegation at the conference. The fact that the Marathon project would yield a higher value-added product might be particularly attractive to the Turkmen, although the government has given no indication that it is ready to change its policy of keeping IOCs offshore. END COMMENT. MILES