(S) LUKOIL'S ALEKPEROV PRAISES COOPERATION WITH

S E C R E T SECTION 01 OF 02 MOSCOW 002098

SIPDIS

DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT
EUR/CARC, SCA (GALLAGHER, SUMAR)
DOE FOR FREDRIKSEN, HEGBORG, EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: DECL: 07/08/2018
TAGS: EPET ENRG ECON PREL RS
SUBJECT: (S) LUKOIL'S ALEKPEROV PRAISES COOPERATION WITH
CONOCOPHILLIPS, CALLS SHAHRISTANI A HINDRANCE IN IRAQ

REF: MOSCOW 912

Classified By: John R. Beyrle for Reasons 1.4 (b/d)

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SUMMARY
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1. (S) In a July 21 meeting with the Ambassador, Special
Envoy C. Boyden Gray, and Ambassador Steven Mann, Lukoil
President Vagit Alekperov welcomed greater U.S.-Russian
business cooperation, praising his company's successful
partnership with ConocoPhillips as a model for others. He
said Central Asian gas can help supply the needs of Russia,
China, and Europe, if only export transportation issues can
be resolved. He blamed the lack of progress on CPC expansion
over the years on the previous management of Transneft and
expressed hope that expansion would happen soon. Alekperov
criticized Gazprom as the "only monopoly left in Russia" and
said he was pressing for reforms, including third-party
access to the domestic pipeline system. Finally, on Iraq,
Alekperov echoed his April comments to Ambassador Satterfield
(reftel) that Oil Minister Shahristani is the major
impediment to oil field development in Iraq -- development
that would not only add oil supplies to world markets but
also help stabilize the country. End Summary.

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PARTNERSHIP WITH CONOCOPHILLIPS
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2. (C) Noting the need for economic cooperation between the
U.S. and Russia, Lukoil President Vagit Alekperov lauded the
Lukoil-ConocoPhillips partnership as a model of how other
U.S. companies can work successfully here. He credited
extensive interaction between senior executives of both
companies as having created the mutual understanding that is
the foundation of the relationship. Alekperov described a
system of executive exchange through which numerous senior
managers from both companies work at the other for extended
periods of time. He joked that the exchanges have also
resulted in "everyone at Lukoil speaking English except me."
He repeatedly emphasized that ConocoPhillips is not a mere
shareholder (20% of Lukoil stock),but a "true partner"
helping to create "one team." Contrasting the
Lukoil-ConocoPhillips experience with the troubled experience
of BP in Russia, Alekperov said the two sides in TNK-BP never
developed a joint understanding of the nature of the venture.



3. (C) Alekperov invited the Ambassador, SE Gray, and
Ambassador Mann to attend an August 27th event commissioning
the company's YK oil field and the Varendei terminal on the
Barents sea, which he said ConocoPhillips had played an
important role in developing. He described the terminal as
the first gateway for Russian oil to directly enter the world
market by tanker.

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CASPIAN
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4. (C) Alekperov described the Caspian region in general as
woefully underexplored and underexploited, citing his
first-hand knowledge of Soviet oil and gas policy that saw
the region as a "reserve" to be tapped when West Siberian
production declined. He believes the region holds enough gas
to help satisfy Russian, Chinese, and European demand but
lamented the lack of progress on export routes. Noting the
importance of the region, Alekperov lauded the creation of
Ambassador Gray's position as an important symbol of U.S.
interest. He added that the prospects for Nabucco were
"unclear," but suggested that all of the proposed pipelines
could be filled if the region were adequately exploited.


5. (C) In that regard, Alekperov said Lukoil's joint proposal
with ConocoPhillips to develop certain fields in Turkmenistan
is virtually a done deal and is only awaiting a decision by
President Berdymuhammedov on a signing date. He asked that
the USG make clear its support for the deal. Ambassador Mann

MOSCOW 00002098 002 OF 002


responded that he had already made USG support known
explicitly to the GOTX. Alekperov also cited prospects in
Uzbekistan, where Lukoil expects to increase its gas
production five-fold in the next seven years.

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TRANSNEFT AND GAZPROM
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6. (C) In a jab at Transneft, Alekperov blamed the lack of
progress on expansion of the CPC (in which it is a partner)
on previous Transneft management. He was hopeful, however,
that expansion would now happen quickly because it is
beneficial to all sides. Alekperov also took shots at
Gazprom. Apparently forgetting Transneft's monopoly status,
he called Gazprom "the only remaining monopoly in Russia."
When discussing Lukoil's competitive advantage in the Caspian
region, he said "Gazprom's only advantage is that can
transport Central Asian gas across its network." He was
pleased with the GOR's recent calls on Gazprom to grant
third-party access to its domestic pipeline system and
believed further oil and gas reforms were on the way.
Ambassador Gray urged that Russia grant third country access
to the system, which he claimed would resolve many of the
current disputes over transit routes.

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IRAQ
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7. (S) Responding to the Ambassador's inquiry about the West
Qurna oil field in Iraq, Alekperov responded "we have just
one opponent: the Oil Minister." He said the West Qurna
field could produce 250,000 barrels per day very quickly,
providing needed jobs, income, and stability. However,
reiterating comments he made to Ambassador Satterfield in
April, Alekperov said Shahristani's years in Iran had
convinced him that the Iranian model of service contracts is
preferable to Production Sharing Agreements. He described
Shahristani as emotionally wedded to this thinking and
spreading "negative feelings" about PSAs. He believed that
oil sector development in Iraq would not progress quickly as
long as Shahristani is Oil Minister. He lamented this lack
of progress as not only keeping essential crude off the world
market, but also preventing socio-economic development in
Iraq. "You don't have extremists when people are receiving
good salaries," he said.

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COMMENT
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8. (C) Alekperov's appreciation of the partnership with
ConocoPhillips, his welcoming of further cooperation with the
U.S. and his interest in productive projects internationally
were refreshing. He has shrewdly managed his relationship
with the GOR to keep his company outside of direct Kremlin
control. That relative independence, his interaction with
ConocoPhillips, and his experience with international
competition, seem to have positively shaped his outlook.
Although they come from similar Soviet backgrounds, Gazprom's
senior leaders (who were unavailable for meetings with the
Ambassador and SE Gray) rely on their monopoly and convey a
zero-sum mentality between U.S. and Russian interests, while
Alekperov seems to embrace working with U.S. companies and
competing in the global marketplace. End comment.
BEYRLE