TURKMENISTAN: EXXONMOBIL INCREASING ITS ENGAGEMENT

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001495

SIPDIS

STATE FOR SCA/CEN; EEB;
ENERGY FOR EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: DECL: 11/20/2019
TAGS: EPET ECON PGOV EINV BTIO TX
SUBJECT: TURKMENISTAN: EXXONMOBIL INCREASING ITS ENGAGEMENT
WITH GOTX

REF: A. ASHGABAT 1381

B. ASHGABAT 1312

Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d).


1. (C) SUMMARY. ExxonMobil officials have increased their
presence in Turkmenistan over the last few months. Given the
GOTX's plans to deliver up to 65 billion cubic meters of gas
to Iran and China by the end of 2011, the company sees
opportunities to gain GOTX trust in the hope of eventually
getting an onshore deal (ref B). Company representatives
suggested starting on projects at two oil refineries as a way
to build such trust. In addition, company reps felt that the
ongoing gas standoff between Russia and Turkmenistan had
spurred the GOTX to consider all sorts of proposals from
large energy companies. ExxonMobil stopped short of agreeing
to an onshore service contract, insisting that any deal with
Turkmenistan include the ability for the company to book
reserves. END SUMMARY.


2. (C) On the margins of the annual Turkmenistan
International Oil and Gas Exhibition (TIOGE),ExxonMobil
representatives met with Charge on November 17 to discuss the
company's plans to present proposals to the GOTX in the
nearest future. They noted ExxonMobil's role as a "gold"
sponsor of TIOGE and one of the company's VPs would be
speaking at the forum. ExxonMobil representatives were
adamant that despite promptings from GOTX officials, their
company was not willing to build the East-West pipeline,
which would allow Turkmenistan to transport gas from the
South Yolatan-Osman gas fields in southeastern Turkmenistan
to the Caspian shore. The reps opined that no large energy
company with shareholders would take a multi-billion dollar
risk on a project that could not guarantee gas deliveries to
Europe, given that no trans-Caspian pipeline was in the works
yet.


3. (C) ExxonMobil reps were pleased that the GOTX seemed to
be engaging more with U.S. companies since the recent
U.S.-Turkmenistan Business Council Meeting held in Ashgabat
on October 28 (ref A). The company reps regretted, however,
that they did not have someone in town for the event, noting
that GOTX officials sometimes notice companies that do not
attend high-level events more than companies that do attend.
Nevertheless, they added that they had positive signals from
Turkmen Deputy Chairman for Oil and Gas Baymyrat
Hojamuhammedov and Head of the State Agency for the
Management and Use of Hydrocarbon Resources Yagshygeldi
Kakayev, and as a result were busy preparing proposals to
take to back to the GOTX. They understood the GOTX was leery
of production sharing agreements (PSA),but they still
insisted that the company be able to book reserves as part of
a deal, regardless of what the agreement would be called
(e.g., a PSA or risk service agreement). They added that
ExxonMobil was working in a "low-key" fashion with officials
from Turkmengaz and TurkmenGeologia in order to mesh its
proposals with projects the GOTX "was in a hurry to start."


4. (C) ExxonMobil reps acknowledged that they have considered
partnering with the GOTX on providing technology licenses at
the Turkmenbashy and Seidi oil refineries. In addition, the
company has not ruled out spending additional money at these
refineries in order to help ExxonMobil look good in the eyes
of GOTX officials. They added, however, that they would not
pursue any project in "blind faith" and that they would have
to receive guarantees from the GOTX that any preliminary
projects could lead to an onshore deal in the future.


5. (C) According to ExxonMobil reps, the GOTX is hurting
financially from the lack of Russian revenues for Turkmen gas

ASHGABAT 00001495 002 OF 002


since April. Their contacts at foreign construction
companies stated that, in the past, the GOTX was able to pay
off buildings before they were completed, but now companies
are receiving delayed payments. The reps added that
Turkmenistan's policy to diversify its customer base is no
longer a "stick to beat the Russians with," but instead is a
necessary step to regain lost hydrocarbon revenues. They
asserted that Turkmenistan's good business relationship with
China has resulted in an additional $5 billion loan from the
Chinese, which the Turkmen can pay off via in kind with gas
within 2-3 years when 40 billion cubic meters (bcm) of
Turkmen gas is flowing to China. (Note: China has already
loaned the GOTX $4 billion, bringing the total loan amount to
$9 billion. End note.)


6. (C) Gas swaps between Iran and Turkmenistan, according to
the reps, would be a way for Turkmenistan to gain revenue for
gas that would be consumed in Iran and then replaced with
Iranian gas shipped to Turkey. Through this swap, Turkey
would be able to save on transit fees, due to a decrease in
distance to the end user. The new
Dowletabat-Sarakhs-Khangiran pipeline, expected to be
completed by the end of 2009, will add up to 12.5 bcm to the
Turkmen gas exports to Iran. This will bring the total
potential annual amount of Turkmen gas exported to Iran to 25
bcm. When combined with up to 40 bcm of gas designated for
China, the GOTX could eventually export up to 65 bcm of gas
per year without calculating any volumes to Russia.

7. (C) COMMENT. ExxonMobil's current assessment of long-term
possibilities in Turkmenistan is more positive than it was
only a month ago. Company officials hope the GOTX's
proactive stance to diversify its gas customers will result
in greater foreign investment, which could lead to increased
hydrocarbon production. Like other large, energy companies,
ExxonMobil is no longer insisting on a PSA with the Turkmen.
At the same time, ExxonMobil is not interested in offshore
blocks, nor in onshore service contracts. It hopes that
increased engagement with the GOTX, and President
Berdimuhamedov in particular, will result in an onshore deal
sometime in the future. END COMMENT.
CURRAN