TURKMENISTAN: DEPUTY CHAIRMAN TAGIYEV -- THE

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000166

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E.O. 12958: DECL: 01/30/2018
TAGS: PGOV PREL EPET EINV TX
SUBJECT: TURKMENISTAN: DEPUTY CHAIRMAN TAGIYEV -- THE
DINOSAUR BEGINS TO EVOLVE

REF: A. ASHGABAT 0165

B. ASHGABAT 0164

Classified By: CHARGE RICHARD E. HOAGLAND FOR REASONS 1.4(B),(D)


1. (C) SUMMARY: On January 29, Turkmenistan's Deputy
Chairman of the Cabinet of Ministers for hydrocarbon issues,
Tachberdi Tagiyev, told U.S. Coordinator for Eurasian Energy
Diplomacy Ambassador Steven Mann things are going well for
Turkmenistan. The country is discovering promising new
hydrocarbon fields, and is finding foreign hydrocarbon firms
willing to work in Turkmenistan on the government's terms.
Tagiyev said that Turkmenistan's ban on allowing foreign
firms to work onshore remains in place, and that he would
support an onshore role for Chevron only in a service
capacity. However, he also offered an apparent opening for a
reversal of this verdict, noting that "time is
important...because it gives us an opportunity to study one
another." From an official who previously rigorously opposed
a Trans-Caspian pipeline but who now is preaching the
advantages of pipeline diversification, this represents a
degree of evolution. END SUMMARY.


2. (C) U.S. Coordinator for Eurasian Energy Diplomacy
Ambassador Steven Mann met Deputy Chairman of the Cabinet of
Ministers for hydrocarbon issues Tachberdi Tagiyev for nearly
an hour on January 29. Tagiyev noted that things are going
well for Turkmenistan: geologists are discovering new fields
and Turkmenistan is continuing with its capital improvement
work on existing wells. Congratulating Tagiyev on the
country's new achievements, Mann emphasized he will work to
intensify U.S. energy diplomacy.

UNITED STATES SUPPORTS NEW WORLD-CLASS INVESTMENT IN CASPIAN


3. (C) Mann briefed Tagiyev on his meeting earlier that day
with President Berdimuhamedov (septel).

-- Mann said he had given to the president his commitment to
work full-time on energy issues, and pledged to work closely
with Turkmenistan's leaders in support of their energy goals.

-- He reiterated U.S. interest in supporting new world-class
investment in the Caspian region, stated that there are
energy opportunities in the European market, and stressed
that development of alternate export routes is important both
commercially and strategically for Turkmenistan.

-- Berdimuhamedov had proposed Turkmenistan and Azerbaijan
hold joint International Oil and Gas Exhibitions, alternating
countries every year. Mann said we could support this idea
and promised to raise it in Baku.

CHEVRON IS WAITING FOR TURKMENISTAN TO REPLY


4. (C) Noting the significant possibilities for Caspian
hydrocarbon development, Mann stressed our desire to have
U.S. companies participate both on-shore and off-shore. He
said he was heartened by Berdimuhamedov's assurances that he
absolutely wants U.S. companies to develop Turkmenistan's
resources. Mann encouraged Turkmenistan to reply to
Chevron's initial summary proposal so they can prepare a more
detailed proposal.


ASHGABAT 00000166 002 OF 003



5. (C) Mann emphasized Chevron's interest in working both
off-shore (in the Serdar field) and on-shore (on the subsalt
layers in the Amu Darya basin). Noting that Chevron's
experience in working high-sulphur, high-pressure fields
would be helpful in the Amu Darya, Mann said Chevron remains
flexible in structuring a joint venture agreement that would
allow it to work with the Government of Turkmenistan.
Stating that the United States does not "play favorites among
its children," Mann said he had talked about Chevron because
it compared to other companies and it was fairly far along in
structuring a detailed proposal. Mann also stressed the
advantages that U.S. companies in general can offer
Turkmenistan.


6. (C) Briefing Tagiyev on his stop in Astana prior to
arriving in Turkmenistan, Mann said that he had interesting
discussions there with government and Kazmunaigaz officials
about trans-Caspian pipelines and about Iranian and Russian
objections to new pipelines. Kazmunaigaz Chairman Karabalin
had observed that there are already 6000 kilometers of
existing pipelines in the Caspian.

TURKMENISTAN WANTS TO DEVELOP ONSHORE FIELDS ITSELF


7. (C) Noting that "in recent years" Turkmenistan has paid
special attention to working with the United States, Europe
and other countries, Tagiyev responded that each meeting with
Mann is leading to stronger relations and mutual
understanding. Berdimuhamedov has placed a priority on
acquiring the latest technologies, and to that end had met
with U.S. and European companies during his September trip to
New York and October trip to Brussels.


8. (C) Turkmenistan's goal, Tagiyev said, is to develop its
onshore fields by itself. Last year, exploratory drilling
resulted in the discovery of new reserves totalling three
trillion cubic meters of natural gas in the Yoloten, Osman
and other Amu Darya fields. Turkmenistan will seek to develop
these fields through service contracts with foreign
companies. Tagiyev asserted that there were a number of U.S.
and European companies that have expressed interest in
providing such services, including in drilling wells and
developing sulphur treatment and other gas-cleaning
facilities.


9. (C) Off-shore is a different story. Since Turkmenistan
does not have off-shore hydrocarbon experience, it is
negotiating with foreign companies that want to work
Turkmenistan's off-shore blocks. Tagiyev suggested that the
Turkmen government will shortly sign a contract with
ConocoPhillips for blocks 19 and 20. (NOTE: Although
ConocoPhillips is bidding with its partner Lukoil for rights
to work blocks 19, 20 and 21, we understand ConocoPhillips
would work blocks 20 and 21. Lukoil would work block 19.
END NOTE.)


10. (C) Tagiyev added Turkmenistan has carefully studied
Chevron's initial proposal, and would not object if Chevron
wants to provide services on-shore. Chevron has also applied
to develop fields off-shore and is now in discussion with the
State Agency on its bid.

TAGIYEV SUPPORTS PIPELINE DIVERSIFICATION


ASHGABAT 00000166 003.2 OF 003



11. (C) Stating, "You know we want to increase our pipeline
options," Tagiyev noted that a Trans-Caspian pipeline (TCP)
has been discussed since 1997. If all issues had been
resolved back then, Turkmenistan would have a TCP now. He
added, "We would like to get a world-market price of $300 per
thousand cubic meters (for our gas)," a position
Berdimuhamedov has several times told U.S. visitors. He
stuck to Turkmenistan's position of selling gas at its
borders, but then he added Turkmenistan remains open to both
a TCP and a trans-Afghan pipeline. "We must learn from each
other and from companies." He confirmed that Turkmenistan
wants to have U.S. and European companies working in
Turkmenistan because "we need to learn from each other."

MANN ADVOCATES STRENGTHS U.S. FIRMS BRING TO THE TABLE


12. (C) Mann suggested that Turkmenistan's policy of selling
gas at its borders has lost Turkmenistan a lot of money and
urged the government to review its policy in terms of future
contracts. While he did not want to speak for U.S.
companies, he questioned whether any major U.S. company would
want to provide only services to Turkmenistan on-shore.
While it is necessary to respect Turkmenistan's desires and
customs, he suggested there is a need to find new ways of
working in cooperative ownerships. Mann once again invited
Tagiyev to visit the United States.

TAGIYEV: TIME GIVES US A CHANCE TO STUDY ONE ANOTHER


13. (C) Thanking Mann for all he was doing, Tagiyev said,
"The most important factor is time. Time will show, but time
also gives us an opportunity to study one another." Tagiyev
noted his country had started signing on-shore production
sharing agreements (PSAs) in the early 1990's with a range of
foreign companies, including from the United States. "You
are well aware of what happened," he added, "and we need to
study that experience. We got ourselves into situations
on-shore."


14. (C) COMMENT: Continuing the trend he demonstrated in
his November 19 meeting with Mann, Tagiyev, a technocrat who
frequently comes off as hopelessly old-school, seemed
somewhat more forthcoming. Tagiyev's comments about
Turkmenistan's past bad experiences with onshore PSAs were
particularly significant, and may help to explain why the
government continues to resist on-shore participation by
foreign firms. Given Turkmenistan's painful experience in
the 1990's with Argentinian oil firm Bridas, which led to
international arbitration and a particularly damaging (for
Turkmenistan) legal wrangle, authorities are clearly cautious
about leaving themselves in a similar position in future. In
evaluating Turkmenistan's ability to work the gas fields in
eastern Turkmenistan, however, Turkmenistan's hydrocarbon
authorities may be overestimating the abilities of their own
state enterprises. And yet, Tagiyev's comments about time
offering an opportunity to study one another might imply the
government's ban of on-shore activity by the foreign majors
may be wavering. Time provides the opportunity for
evolution. END COMMENT.


15. (U) Ambassador Mann has cleared this cable.
HOAGLAND