KAZAKHSTAN - BAKER HUGHES SAYS BUSINESS IS GOOD AND ABOUT

UNCLAS ASTANA 001767

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EPET EINV PGOV KZ
SUBJECT: KAZAKHSTAN - BAKER HUGHES SAYS BUSINESS IS GOOD AND ABOUT
TO GET BETTER

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SUMMARY
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1. (SBU) Baker Hughes Country Director for Kazakhstan Don McKelvie
and Houston-based Government Relations Director Jennifer Cutaia told
the Ambassador on September 10 that their company's business in
Kazakhstan is good and will likely get even better, once
Tengizchevroil (TCO) completes construction and installation of new
drilling rigs in about a year's time. Baker Hughes intends to move
its Kazakhstan headquarters to Aktau, is committed to local content,
and has had some difficulties obtaining hazardous materials permits
and work permits for expat staff, McKelvie and Cutaia explained.
End Summary.

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CHANGE IN DRILLING TACTICS AT TENGIZ
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2. (SBU) Baker Hughes Country Director for Kazakhstan Don McKelvie
and Houston-based Government Relations Director Jennifer Cutaia told
the Ambassador on September 10 that their company's previous tax
problems have all been resolved and a separate financial police
investigation has concluded with no long-term implications for the
company's work in Kazakhstan. McKelvie said future business
development opportunities in Kazakhstan are "enormous", particularly
at Tengizchevroil (TCO),where Baker Hughes -- although not involved
in current exploration and production activities -- recently
responded to a tender for non-core and future generation development
services. McKelvie said that TCO is changing its drilling approach
and will build onshore platforms and use extended, directional
drilling technologies to lower costs and reduce its environmental
footprint. McKelvie indicated that due to the change in approach,
TCO will not require new drilling services for another year.

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NEW DRILLING SERVICES FACILITY IN AKTAU
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3. (SBU) McKelvie told the Ambassador that Baker Hughes is building
a new 25,000 square meter drilling and completion services facility
in Aktau and will move its Kazakhstan headquarters there from Almaty
once construction is complete. Baker Hughes purchased the land for
approximately $2 million and plans to invest approximately $30
million to construct the facility.

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COMMITMENT TO LOCAL CONTENT
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4. (SBU) According to McKelvie and Cutaia, Baker Hughes has made a
serious commitment to national content and local suppliers and is
well within reach of its stated goal for Kazakhstanis to comprise
90% of its staff. McKelvie said that Baker Hughes offers up to 18
months of formal training in Houston, Aberdeen, or Abu Dhabi for
Kazakhstani petroleum engineers, which is followed by an intensive
on-the-job training program. He said that the company is satisfied
with the performance of its local engineers, but admitted that Baker
Hughes has had difficulty building local capacity among machine shop
technicians. (Note: As an oil services company, Baker Hughes is not
subject to the national content requirements of oilfield production
until it joins a production consortium. Its high percentage of
local national staff can therefore be a competitive advantage by
making Baker Hughes an attractive partner for exploration and
production companies. End note).

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SOME DIFFICULTY SECURING PERMITS
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5. (SBU) McKelvie told the Ambassador that Baker Hughes continues to
encounter difficulty securing permits for radioactive and explosive
materials, as well as work permits for international staff,
particularly those without a university degree who technically do
not qualify for category three Kazakhstani work permits. The
Ambassador expressed confidence that the work permit issue would
resolve itself once Kazakhstan accedes to the World Trade
Organization (WTO). He reassured McKelvie and Cutaia that the
Kazakhstani government is working diligently on WTO accession.

ORDWAY