TURKMENISTAN/AZERBAIJAN: DETAIL FROM OIL COMPANY

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000884 SIPDIS STATE FOR SCA/CEN, EUR/CARC AND EEB PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: DECL: 07/14/2018 TAGS: PREL EPET MOPS AJ TX SUBJECT: TURKMENISTAN/AZERBAIJAN: DETAIL FROM OIL COMPANY EXECUTIVE ON THE AZERI GUNBOAT EPISODE REF: A. ASHGABAT 0817 ¶B. IIR 6 940 0006 08 ¶C. BAKU 0620 Classified By: Charge d'Affaires Sylvia R. Curran for reasons 1.4(b) an d (d). ¶1. (C) SUMMARY: The country manager for German oil company Wintershall told us that the early-April standoff between two Azeri border guard gunboats and an international oil company involved Petronas, in block I, rather than Buried Hill in block III, a block that contains a boundary under dispute between Azerbaijan and Turkmenistan. If true, the episode took place in waters that all agree belong to Turkmenistan, making even more inexplicable the actions of Azerbaijan's border guard. The country manager also indicated that officials debated for several days who should tell the president. In the end, the news was delivered by Deputy Premier for Foreign Affairs Meredov and Executive Director of the State Agency for Management and Use of Hydrocarbon Resources Muradov. This story demonstrates just how reluctant Turkmenistan's officials are to deliver bad news to the president. END SUMMARY. ¶2. (C) The Canadian-national country manager for German oil company Wintershall, Kal Sandhu (please protect),told emboff on July 11 that the early-April standoff between two Azeri border guard gunboats and an international oil company actually involved not Canadian oil company Buried Hill, but rather Malaysian oil company Petronas. According to Sandhu, at that time, Buried Hill, which has a contract from the Government of Turkmenistan to work Block III, which contains the contested Serdar/Kyapaz field, was carrying out seismic explorations on and immediately around Serdar island. However, Petronas at that time was also carrying out its own exploratory drilling of small pockets immediately to the north and west of its large gas field (the Livanov Bank Central field) in block I, which it suspects have oil deposits. Although the ships towing the Petronas rig reportedly were in Block I waters the entire time -- and well east of Azerbaijan's claimed boundary -- they triggered Azeri alarms as they explored the waters immediately to the west of the Livanov Bank Central field, and the Azeri border guard sent out two gunboats. ¶3. (C) The Azeri border guard forced the Buried Hill seismic exploration team to leave Serdar and, upon closing in on the Petronas ships/rig, the Azeri gunboats instructed the Petronas captain to move away. He reportedly refused to move, stating that he was nowhere close to Azerbaijan's claimed border. The standoff reportedly lasted for more than a day. In the end, the Petronas captain agreed to move slightly to the east (although not as far as the Azeri border guards at first had demanded),which apparently satisfied the Azeris. However, Sandhu said, the entire delay cost Petronas almost a million dollars. ¶4. (C) Sandhu also reported that nobody told President Berdimuhamedov of the standoff for several days; all were too afraid to be the messenger. He claimed that oil officials asked him how similar incidents were handled in other countries, and he suggested that the Foreign Minister usually becomes involved. In the end, Deputy Premier for Oil and Gas Tagiyev and Minister of Oil and Gas Hojamuhammedov went to London for the "Oil and Gas in Turkmenistan" conference. Executive Director of the State Agency for Management and Use of Hydrocarbon Resources Bayrammurat Muradov remained in Ashgabat for an extra day, and -- along with Deputy Premier for Foreign Affairs Rashid Meredov -- told the president of ASHGABAT 00000884 002 OF 002 the situation. Berdimuhamedov immediately sent Meredov to Baku for secret high-level diplomacy. ¶5. (C) COMMENT: Sandhu claims that, while foreign oil companies compete fiercely for contracts in Turkmenistan, they also cooperate closely once the contracts are awarded because Turkmenistan has a very difficult business investment climate and such cooperation is very much in all companies' interests. We know from other tidbits that he has dropped that Sandhu has a relatively open relationship with Petronas, as he also does with Tagiyev and Muradov. For this reason, we assume that the basic details of Sandhu's story are correct, even if it has been slightly embroidered to play up his role in advising the Government of Turkmenistan how to resolve the episode with Azerbaijan. If true, however, this story demonstrates just how reluctant Turkmenistan's officials are to deliver bad news to the president. ¶6. (C) COMMENT CONTINUED: It is doubtful that any of the parties involved in the incident had any intent to provoke either the Turkmen or Azeri governments, considering the recent re-establishment of relations between the two governments. Although Petronas of course has an interest in stating that it was nowhere close to Azerbaijan's claimed border, we tend to believe the assertion that the vessels/rig were well east of the border line, which runs through block III (belonging to Buried Hill),rather than block I (belonging to Petronas). But this raises even more questions about the reasons for the border guards' actions, since it does appear that they were well outside their bounds -- literally -- in going after the rig. END COMMENT. CURRAN