TURKMENISTAN: HYDROCARBON TOUR D'HORIZON WITH

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000894

SIPDIS

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

E.O. 12958: DECL: 07/15/2018
TAGS: PREL PGOV EPET TX
SUBJECT: TURKMENISTAN: HYDROCARBON TOUR D'HORIZON WITH
WINTERSHALL COUNTRY MANAGER

REF: A. ASHGABAT 0884

B. ASHGABAT 0686

C. ASHGABAT 0762

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


1. (C) SUMMARY: During a July 11 tour d'horizon meeting,
German oil company Wintershall's country manager told emboff
that Wintershall is beginning exploratory drilling the week
of July 14 in the southern part of block 11. In an effort to
promote rapid exploration of Block III, for which Canadian
company Buried Hill holds a production contract, the
Government of Turkmenistan is trying to work an arrangement
that would transfer the drilling rig Wintershall is using for
its exploration to Buried Hill. Sandhu also stated that an
Itera/Rosneft consortium is aggressively seeking to outbid
ConocoPhillips/Lukoil for Caspian offshore blocks 19, 20, and
21 and indicated that Turkmenistan hydrocarbon officials are
hinting that Wintershall should begin pulling together a
proposal to work onshore, if it is interested in doing so.
Sandhu is generally a good source of news and views making
the rounds in hydrocarbon circles. END SUMMARY.


2. (C) During a July 11 meeting, Wintershall's country
manager, Kal Sandhu, told emboff that the Maersk Explorer --
a semi-submersible rig -- has arrived in Turkmenistan from
Russia's Central block and Wintershall plans to begin
exploratory drilling the week of July 14 in the southern part
of block 11, for which the company holds a production sharing
agreement. So far, Wintershall has not found a commercially
exploitable reserve, but is hoping to hit the jackpot this
time, since it believes that its drilling location lies along
the same geological structure on which Petronas' gas-rich
Livanov field lies. The Explorer will work for Wintershall
for 45 days. When it is finished, it is scheduled to go to
Azerbaijan to drill for Lukoil -- unless it remains in
Turkmenistan to do a rush drilling job for Canadian oil firm
Buried Hill. (NOTE: Buried Hill has a contract to produce
hydrocarbons in Turkmenistan's block III, which contains the
disputed Serdar/Kyapaz field. END NOTE.)


3. (C) According to Sandhu, Turkmenistan's government is
putting strong pressure on Buried Hill to begin drilling,
even though the Canadian firm is unlikely to be able to
prepare in time to do the drilling. But the alternative
would be for Buried Hill to wait until 2009 to begin its
exploratory drilling -- a schedule which would put Buried
Hill far behind its ambitious schedule. The Explorer's
owners are willing to drill for Buried Hill, but only if both
the governments of Azerbaijan and Turkmenistan sign documents
stating that they have no objection to the Explorer carrying
out drilling operations in block III; Maersk has no wish to
get caught in a standoff similar to that which a Petronas rig
experienced in early April (Ref. A).

ITERA POSING A SERIOUS THREAT TO LUKOIL/CONOCOPHILLIPS?


4. (C) Sandhu also confirmed reports that other foreign oil
companies -- most notably Itera -- are aggressively seeking
to conclude a production agreement with the Government of
Turkmenistan for blocks 19, 20 and 21 -- the three blocks for
which ConocoPhillips and its partner Lukoil have been
negotiating for almost a year. (NOTE: According to Ref. B,
Itera has formed a consortium with Rosneft that is interested
in bidding on Blocks 19, 20 and 21. END NOTE.) According to
Sandhu, Itera is seeking to sweeten its case by promising
individual Turkmen officials "special deals." It also is
seeking to win the president's favor by agreeing to build a

ASHGABAT 00000894 002 OF 002


sports entertainment complex in Turkmenistan's Avaza tourist
zone. Sandhu suggested that Lukoil is so alarmed by the
reports it is hearing of Itera's inroads that it may seek to
partner with Gazprom, as it has done with surprising success
in Russia's Central Caspian field. (COMMENT: This is the
first suggestion we have heard that Gazprom might partner
with Lukoil. If this is true, adding Gazprom to the
Lukoil/ConocoPhillips partnership could further complicate
ConocoPhillips' already complex problems in concluding a
production sharing agreement with the Government of
Turkmenistan -- see Ref. C. The only other possible solution
would be for Lukoil and ConocoPhillips to agree to go in
separate directions without enforcing a partnership clause
that ConocoPhillips told us would prohibit either side from
pursuing contracts for blocks 19, 20 and 21 for a year. END
COMMENT.)

ONSHORE DRILLING POLICY MAY BE CHANGING


5. (C) Sandhu told emboff that he recently has received
indications from high-level Turkmen hydrocarbon officials
that Turkmenistan's onshore drilling policy may be changing.
Sandhu claimed that officials are well aware of their
inability to produce natural gas in large enough volumes to
meet all of Turkmenistan's contract commitments beginning in

2009. However, he suggested, officials had wanted to bid out
the Caspian blocks before beginning bidding by foreign
companies for onshore production. Chevron, BP, Total, Shell,
ExxonMobil and Wintershall are all seeking contracts for
onshore production.


6. (C) COMMENT: Sandhu, who has been in Turkmenistan for
almost 18 months, is a genial interlocutor who seems to get
along reasonably well with Turkmenistan's hydrocarbon
authorities and foreign company representatives. He is a
good source for news and views making the rounds in
hydrocarbon circles. We believe that the information about
Itera is likely accurate, and his statement that
Turkmenistan's officials are reconsidering their previous ban
against foreign companies working onshore tracks closely with
what we are picking up from other companies. END COMMENT.
CURRAN