Identifier
Created
Classification
Origin
08ASTANA2144
2008-10-30 08:48:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Astana
Cable title:  

KAZAKHSTAN: BP SUPPORTS CPC EXPANSION - AT THE RIGHT

Tags:  PGOV EPET EINV KZ 
pdf how-to read a cable
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UNCLAS SECTION 01 OF 02 ASTANA 002144 

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/CARC, EEB/ESC

PLEASE PASS TO USTDA DAN STEIN

E.O. 12958: N/A
TAGS: PGOV EPET EINV KZ
SUBJECT: KAZAKHSTAN: BP SUPPORTS CPC EXPANSION - AT THE RIGHT
PRICE

REF: ASTANA 1672

UNCLAS SECTION 01 OF 02 ASTANA 002144

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/CARC, EEB/ESC

PLEASE PASS TO USTDA DAN STEIN

E.O. 12958: N/A
TAGS: PGOV EPET EINV KZ
SUBJECT: KAZAKHSTAN: BP SUPPORTS CPC EXPANSION - AT THE RIGHT
PRICE

REF: ASTANA 1672


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


2. (SBU) SUMMARY. On October 29, Jonathan Popper of British
Petroleum's (BP) Exploration Operating Company, briefed Energy
Officer on the status of negotiations to expand the capacity of the
Caspian Pipeline Consortium (CPC) pipeline from Atyrau to
Novorossiysk. He confirmed that BP is actively pursuing an exit
strategy, identified several remaining legal issues, and expressed
optimism that a deal would be reached before the end of 2008. END
SUMMARY.

DON'T BELIEVE EVERYTHING YOU READ IN THE PAPERS


3. (SBU) Popper said that, despite press reports to the contrary,
BP is "actively pursing a strategy of exiting CPC" and continues to
negotiate with other CPC partners to sell its 6% share in the
consortium, which it holds through its interests in LukArco, a
Lukoil/BP joint venture, and Kazakhstan Pipeline Ventures (KPV) LLC,
a KazMunaiGas/BP joint venture. (NOTE: Current CPC shareholders
are Transneft - 24%; KazMunaiGas - 19%; Oman - 7%; Chevron - 15%;
LukArco - 12.5%; Mobil - 7.5%; Rosneft - 7.5%; Agip - 2%; British
Gas - 2%; Oryx Caspian Pipeline LLC - 1.75%; and Kazakhstan Pipeline
Ventures LLC - 1.75%. END NOTE). Popper emphasized that BP is not
opposed to CPC expansion. In fact, he said, two weeks ago, BP voted
in favor of a resolution to spend $100 million on expansion
engineering. However, BP must "secure our exit" before it will sign
a Memorandum of Understanding (MOU) on expansion.

IN SEARCH OF A SECURE EXIT


4. (SBU) Popper suggested that BP would be willing to sign the MOU
on expansion even before it completes the sale of its interests in
KPV and LukArco, provided they receive certain legal guarantees. In
particular, BP wants a commitment that no one will block their exit
and that CPC will release them from what they consider to be onerous
financial guarantees. Specifically, BP is pressing for the
following legally binding agreements:

-- Agreement with KMG to release them from the KPV joint venture;

-- Agreement with Lukoil to release them from the LukArco joint
venture;

-- Agreement with CPC shareholders to (a) let BP sell its shares to
Lukoil and KMG and (b) release them from the guarantees intrinsic to
those joint venture agreements;

-- Agreement with Tengizchevroil (TCO) partners to let BP sell its
shares to one or more international oil and gas companies (as a
contingency, should the share sales to Lukoil and KMG fail); and

-- Agreements with the Republic of Kazakhstan to exit CPC and TCO.


5. (SBU) Popper reported "pretty good progress" in securing all of
the above agreements and expressed optimism that negotiations could
be concluded by the end of 2008, if not sooner. BP teams have been
meeting each week with both KMG and Lukoil to negotiate a sales
price and Popper said that these negotiations are making progress.
He also stated that BP has had "strong support" from both the
Governments of Russia and Kazakhstan throughout these negotiations.

U.S. PARTNERS PRESENT MORE OF A CHALLENGE


6. (SBU) According to Popper, a much bigger challenge has been
obtaining the consent of Chevron and ExxonMobil. In September, BP

ASTANA 00002144 002 OF 002


sent them and all other CPC shareholders a draft agreement that
would allow BP to sell its interests in CPC to Lukoil and KMG.
Surprisingly, BP received negative responses from both Chevron and
ExxonMobil, neither of which was prepared to offer BP a firm,
written approval. However, late last week, BP received a
counter-proposal, which does not satisfy all of their needs, but did
show a good faith effort to reach an agreement. As Popper put it,
"At least we now know that Chevron and Exxon-Mobil accept the
principle of a legally binding agreement."


7. (SBU) COMMENT. Popper was positive and businesslike in his tone
and outlook. Since BP owns only a minor share in upstream oil
assets (approximately 3% of TCO, through the Lukarco joint venture),
it makes sense for them to exit CPC as expeditiously as possible so
as not to complicate an expansion which is not in their commercial
interests. At this point, BP is not asking for the U.S. Government
to facilitate negotiations or take sides in the matter. BP does,
however, seem eager to provide Washington with its perspective on
negotiations, perhaps to counterbalance what it perceives as biased
information from U.S. partners in the consortium. END COMMENT.

HOAGLAND