KAZAKHSTAN: CONOCOPHILLIPS SIGNS MAJOR OFFSHORE DEAL

UNCLAS SECTION 01 OF 02 ASTANA 001974

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TAGS: PGOV PREL EPET EINV RS TX KZ
SUBJECT: KAZAKHSTAN: CONOCOPHILLIPS SIGNS MAJOR OFFSHORE DEAL

REF: MOSOCW 2855 (NOTAL)

1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: On October 5, ConocoPhillips CEO Jim Mulva
signed a memorandum of understanding with Kazakhstan's national oil
and gas company, KazMunaiGas (KMG),and Abu Dhabi's Mubadala for the
exploration and development of the N Block, a very significant
offshore field 30 kilometers south of Aktau in the Caspian Sea.
During a meeting with the Ambassador and visiting Caspian Basin
Energy Diplomacy Coordinator Ambassador Steve Mann following the
signing ceremony, Mulva requested U.S. assistance with his company's
negotiations on a production deal with Turkmenistan, discussed
Russian President Putin's comments at the September 19 CEO summit in
Sochi, and praised the efforts of Kazakhstani Minister of Energy and
Mineral Resources Mynbayev to finalize negotiations on Kashagan.
END SUMMARY.

AT LONG LAST, CONOCO-PHILLIPS SIGNS DEAL TO DEVELOP THE N BLOCK


3. (SBU) ConocoPhillips CEO Jim Mulva (strictly protect) informed
the Ambassador and visiting Eurasian Energy Diplomacy Coordinator
Ambassador Steve Mann on October 5 that his company had signed a
memorandum of understanding that day with Kazakhstan's national oil
and gas company, KazMunaiGas (KMG),and Abu Dhabi's Mubadala for the
exploration and development of the N Block, a very significant
offshore field 30 kilometers south of Aktau in the Caspian Sea. The
contract will be a tax and royalties agreement, rather than a
production sharing agreement (PSA),since PSAs will no longer be
used in Kazakhstan in accordance with a new subsoil use law that the
government will soon submit to parliament. Per the memorandum of
understanding, KMG will own 51% of the venture, while ConocoPhillips
and Mubadala will each own 24.5%. ConocoPhillips will be the lead
operator and will have exclusivity on the final negotiations, which
must be concluded by December 31. The N Block covers approximately
8,100 square kilometers, with strong prospects there for both oil
and gas.


4. (SBU) ConocoPhillips has served as technical advisor to KMG for
the N Block since February and has pursued the exploration contract
for the past six years. Shell has also aggressively pursued the N
Block, and at one time was told by President Nazarbayev that they
would be chosen for the project. Mulva explained that, in fact, the
Dutch Ambassador was trying to schedule a meeting with President
Nazarbayev on October 6 to renew Shell's offer. Mulva candidly told
the Ambassadors how ConocoPhillips won the day. He said that during
his previous visit to Kazakhstan in June, Prime Minister Massimov
pulled him aside after a brief formal meeting and said, "the
solution to the N Block is in Abu Dhabi. The President and the
Sheikh want to get something done." According to Mulva, President
Nazarbayev and Sheikh Mohamed bin Zayed maintain a close personal
friendship, and Nazarbayev "loves going down there to play golf once
or twice a year." It was clear to Mulva that KMG had been ordered
by the President to conclude the deal for the N Block quickly and
together with Abu Dhabi. "This was a state-to-state deal, pushed
from the top down," said Mulva.

TURKMENISTAN DEAL STILL STALLED


5. (SBU) Mulva said that ConocoPhillips has never met with Turkmen
President Berdimuhamedov and asked for the U.S. government's
assistance to arrange a meeting and a fair hearing. Ambassadors
Hoagland and Mann suggested that Mulva meet in Washington with
Ambassador Richard Miles, incoming Ashgabat Charge, to brief him on
the relevant issues. Mulva said that ConocoPhillips had been "very
close" to negotiating a deal for the development of offshore blocks
19, 20 and 21 (the last of which would be developed jointly by
ConocoPhillips' partner Lukoil, with both partners equally sharing
the profits from all three blocks) and had had a meeting scheduled
with Berdimuhamedov, but that was called off at the last minute "at
the request of the Russian Foreign Ministry." Mulva said that
previous efforts to build relationships with mid-level officials in
the Turkmen government had been hindered by the "heavy handed"

ASTANA 00001974 002 OF 002


1. (U) Sensitive but unclassified. Not for public Internet.

approach of Lukoil, in which ConocoPhillips holds a 20% stake.
"That irritates the hell out of people," he said. According to
Mulva, former Russian Ambassador to the United States Yuri Ushakov
understands and appreciates this. Mulva said that in his
conversations with Ushakov, it was clear that he recognizes that
Russia needs to become a more reliable supplier of energy.

PUTIN'S PASSION AT SOCHI SUMMIT


6. (SBU) Mulva said that on September 19, he had participated in a
business roundtable with Russian Prime Minister Putin and other
prominent CEOs in Sochi. According to Mulva, Putin was especially
passionate and animated when addressing the Western CEOs present.
Putin pointed his finger at them and said that Russia has been naive
for many years in its relations with the West. Mulva paraphrased
Putin: "When you said tear down the Berlin Wall, we tore down the
Berlin Wall. When you said give up your satellite countries, we
gave up the satellite countries. When you said export your energy
resources, we exported our energy resources. What else do you want
from us? You just want everything. You don't ask us what we need
or understand what we want. We feel like we've rolled over and been
taken advantage of." (NOTE: See reftel for a different take on
Putin's comments from Chevron CEO David O'Reilly. END NOTE.)

MYNBAYEV DRIVES KASHAGAN NEGOTIATIONS FORWARD


7. (SBU) Mulva also participated this week in the final-stage
Kashagan negotiations to resolve taxation and operating structure
issues. Mulva said that a Kashagan agreement will be signed by
October 25, thanks largely to the efforts of Minister of Energy and
Mineral Resources Sauat Mynbayev. Mulva told the Ambassadors that
Mynbayev was "personally, directly, heavily involved" in the
Kashagan negotiations. "He put hours and hours into this deal,"
said Mulva. "He's the guy who made this happen." (NOTE:
ExxonMobil informed us on October 6 that the Kashagan talks had
stalled over export and transportation issues. As a result, their
senior corporate representatives would be tied up and thus not be
able to attend the Kazakhstan International Oil and Gas Exhibition
taking place in Almaty during October 7-10. END NOTE.)

HOAGLAND