TURKMENISTAN: MARATHON CLOSE TO SIGNING

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000741 SIPDIS STATE FOR SCA/CEN, EEB PLEASE PASS TO USTDA DAN STEIN USEU FOR SPECIAL ENVOY GRAY ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: DECL: 06/10/2018 TAGS: PREL PGOV EPET EINV TX SUBJECT: TURKMENISTAN: MARATHON CLOSE TO SIGNING CONFIDENTIALITY AGREEMENT Classified By: CDA RICHARD E. HOAGLAND: 1.4(B),(D). ¶1. (C) SUMMARY: Marathon International Petroleum Limited is very close to signing a confidentiality agreement that would allow it to carry out a definitional study for a project that would, if allowed to go forward, involve construction of an onshore gas extraction rig, a gas processing facility, and a gas-to-fuels refinery, two Marathon business development managers told the Charge on June 9. Marathon is describing its proposed arrangement as a joint venture. Marathon was told that all appropriate agencies have approved the draft confidentiality agreement. The agreement would be signed as soon as the Executive Director of the State Agency for Management and Use of Hydrocarbon Resources slowed down long enough to actually meet with the Marathon employees. While an actual contract is still far off, the fact that the two sides are actually considering an arrangement that might allow Marathon to drill onshore is an intriguing hint that Turkmenistan might eventually reverse its current ban on onshore drilling by foreign companies. END SUMMARY. ¶2. (C) Two Marathon business development managers visiting Ashgabat in connection with Turkmenistan's June 6-7 Oil Exploration and Petrochemical Exhibition and International Conference told the Charge June 9 that they were still hoping to sign a confidentiality agreement with the State Agency for Management and Use of Hydrocarbon Resources. They had been told that the confidentiality agreement had been vetted and approved both at the State Agency and the Ministry of Justice. As far as they were aware, the only thing blocking the signing of the agreement was the schedule of the State Agency's Executive Director, Bayrammurad Muradov, who had been pulled into a number of different activities and therefore had been unable to meet with them, although they had positive meetings with his staff. ¶3. (C) According to the two, Marathon wants to pursue a joint project definitional study for a specific field and refinery project. Marathon is proposing an integrated project that would involve handling gas from the time it is in the ground through gas-to-fuels refinery production. The ideal, according to one of the business development managers, would be to find a discovered -- but not yet worked -- field. As part of Marathon's "integrated" approach, it would extract the gas, treat the gas to remove the sulfur, and refine it further in a gas-to-fuels plant. Marathon is describing its proposed arrangement as a joint venture. The other business development manager added that Marathon is also interested in working in Turkmenistan's offshore, where there are some promising fields -- even if the real wealth is onshore. ¶4. (C) Marathon has no immediate plans to open an office in Ashgabat, nor does it foresee in the near future a meeting between President Berdimuhamedov and a high-level company officer, according to both Marathon employees. A senior Marathon official met the president during a visit to Turkmenistan in December. Since then, he's been promoted to Executive Vice President of the Upstream, and the company wants to keep a second visit in reserve for a significant event. ¶5. (C) In discussing Turkmenistan's current ban against allowing foreign companies (except China's CNPC) to extract gas onshore, the Charge noted that support for the current policy seems to be centered around the country's hydrocarbon technocrats, but added that the Embassy is seeing increasing ASHGABAT 00000741 002 OF 002 support for relaxing the policy among generalists, who recognize that Turkmenistan cannot on its own satisfy the gas commitments that the president is making. The first business development manager agreed, stating that "we've talked with lower-level folks and heard a bit of desperation. They know they do not have the tools and expertise to move things forward themselves." He added that the onshore opportunities have longer horizons and are more difficult to develop. The Turkmenistan's 1980s-era technology and expertise are insufficient for the purpose. ¶6. (C) COMMENT: Marathon's proposal to establish a gas-to-fuels plant in Turkmenistan must be of interest to Turkmenistan officials, who have shown increasing enthusiasm in recent months for becoming involved further up the value chain, including in petrochemical production. Whether the proposed plant will be enough of a lure to gain Turkmenistan's agreement to reconsider its ban on allowing foreign companies to produce gas onshore is still an open question. However, it is encouraging that Turkmenistan is maintaining an interest in the Marathon proposal. END COMMENT. HOAGLAND