TURKMENISTAN: NORWAY'S STATOILHYDRO OFFERS TO

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000600

SIPDIS

STATE FOR SCA/CEN, EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 05/08/2018
TAGS: PREL EPET NO TX
SUBJECT: TURKMENISTAN: NORWAY'S STATOILHYDRO OFFERS TO
CARRY OUT "COMMERCIALLY BASED" FEASIBILITY STUDY

REF: ASHGABAT 588

Classified By: Charge d'Affaires Sylvia Reed Curran for reasons 1.4(B)
and (D).


1. (C) SUMMARY. Like many other foreign oil companies,
Norway's Statoilhydro is looking for a formula that will
allow it to get a contract to drill for natural gas in
Turkmenistan's on-shore fields, the company's Vice President
for Caspian Operations, Kristian Hausken, told EmbOff May 8.
Hausken claimed that his firm's real interest is in becoming
involved in a Turkmenistan-to-Europe gas supply chain, rather
than in going into large-scale production. For this reason,
Statoilhydro is hoping that, if the government signs a
contract to sell the firm 10-15 billion cubic meters of gas
per year, the government will also agree to allow the company
to drill that gas under a "service agreement" in order to
guarantee the delivery. To get the ball rolling with
hydrocarbon officials, Hausken presented a proposal to carry
out a "commercially based" gas supply chain feasibility study
-- with unclear results. Unless Statoilhydro is willing to
sign a contract that does not give it extraction rights,
however, the firm may find its proposal as hard to sell to a
government leery of "giving away" its resources as all other
foreign companies currently vying for on-shore contracts.
END SUMMARY.


2. (C) Norwegian oil company Statoilhydro is looking at
possibilities for drilling on-shore for natural gas,
according to Hausken. The company has concluded that the
off-shore Caspian blocks do not contain enough oil to make
drilling there profitable. Instead, it is looking at the
possibilities of receiving a contract to drill on-shore. A
team led by Hausken has been in Turkmenistan May 6-8 for
discussions with Deputy Chairman of the Cabinet of Ministers
for gas and oil Tachberdi Tagiyev, Executive Director of the
State Agency for Management and Use of Hydrocarbon Resources
Bayrammurat Muradov, and Minister for Oil and Gas Industry
Baymurat Hojamuhammedov.

STATOILHYDRO LOOKING FOR A DIFFERENT KIND OF CONTRACT ON-SHORE


3. (C) Hausken told EmbOff that Tagiyev and Muradov have
both told Hausken that no foreign companies will be allowed
to drill on-shore in anything other than a service capacity.
However, Hausken interprets this as an indicator that there
is some room for maneuver. Specifically, he believes there
is a possibility that, if Statoilhydro contracts to purchase
10-15 billion cubic meters (bcm) of natural gas per year from
Turkmenistan, it could receive a "service contract" that
would allow it to produce enough gas on-shore to ensure
fulfillment of the contract. Such a contract, he claimed,
would be similar to the arrangement that China National
Petroleum Corporation (CNPC) currently has with Turkmenistan.
(NOTE: CNPC is operating on the right bank of the Amu Darya
River under a production sharing agreement, rather than a
service contract. END NOTE.) Hausken stressed that
Statoilhydro is not looking for a large contract. Rather, he
said, his company wants to be involved in the
Turkmenistan-to-Europe gas chain. To that end, the firm is
opening an office in Ashgabat and is hoping to bring
Statoilhydro's CEO to Ashgabat this summer to meet with
President Berdimuhamedov and launch the office.

A "COMMERCIALLY BASED" GAS SUPPLY CHAIN FEASIBILITY STUDY


4. (C) Hausken noted the feasibility study on a potential
gas supply chain from Kazakhstan to Azerbaijan that is
currently being carried out. He characterized the study as
"basically useless" because it does not make economic sense
to establish such a chain from Kazakhstan. During his
meeting with Muradov, Hausken said, his company offered to
carry out a "commercially-based" feasibility study for a gas
supply chain from Turkmenistan to Europe. He said that
Muradov became "quite heated" as the two discussed the
possibility, but Hausken would not indicate whether Muradov
actually seemed willing to consider the proposal.


ASHGABAT 00000600 002 OF 002



5. (C) COMMENT: Statoilhydro's idea of using an unusual
approach to get a contract to drill on-shore, while
intriguing, is dubious. As Chevron noted reftel, most
companies making the scale of investment that would be needed
to initiate almost any major on-shore project will want to
have at least some basic extraction rights. Turkmenistan is
unwilling to hand over the rights to "its" resources -- at
least not until Turkmenistan's inability to satisfy its
natural gas export commitments brings this issue to a point
where it must be reconsidered. Unless Statoilhydro is
willing to drill without those rights -- and it does not
sound as if this is what the company has in mind -- it could
be tough getting Turkmenistan to sign a contract, whatever
the terminology used to describe that contract is. END
COMMENT.
CURRAN