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