Identifier
Created
Classification
Origin
09ASHGABAT414
2009-04-02 08:31:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN: SCHLUMBERGER DOING WELL, BUT NOT

Tags:  PGOV EPET EINV TX 
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FM AMEMBASSY ASHGABAT
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C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000414 

SIPDIS

SCA/CEN; EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 04/02/2019
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: SCHLUMBERGER DOING WELL, BUT NOT
WITHOUT ITS DRAMA

Classified By: Deputy Chief of Mission Sylvia R. Curran.
Reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000414

SIPDIS

SCA/CEN; EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 04/02/2019
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: SCHLUMBERGER DOING WELL, BUT NOT
WITHOUT ITS DRAMA

Classified By: Deputy Chief of Mission Sylvia R. Curran.
Reasons 1.4 (b) and (d).


1. (C) SUMMARY: Schlumberger's general manager described
the company's ongoing work, largely for foreign energy
companies, in field development and management. Although
things are generally going well, there have been some
mini-dramas within both the companies that Schlumberger works
with, as well as within its own operations, that will keep
Turkmenistan listed in the "challenging" category. END
SUMMARY.


2. (C) Poloff met on March 26 with Schlumberger general
manager Patrick Van de Slijke, who said the company has been
operating in Turkmenistan for about ten years. For a long
time, Schlumberger was the only foreign company providing a
range of complex field development services and technologies
here, he added. The company as been a sub-contractor for
Calik Energy, Burren, Dragon Oil, and occasionally works for
CNPC. It has performed field development work at fields
stretching from Balkanabat down along the Caspian coast, as
well as at Yoloten. Schlumberger's Ashgabat office has a
staff of 40, but a much larger office with 320 personnel is
located in Balkanabat, from which all service and maintenance
operations are managed for the whole country, he said.


3. (C) The country manager noted that the UAE-based Dragon
Oil had been a good client in the past, but that recently the
company had unexpectedly terminated a contract with the rig
company CIS, which had been contracting with Schlumberger.
He had heard that the company's Turkmen managers were in jail
or missing, and that some sort of in-house scandal had
occurred. (NOTE: Azerbaijani press reported on March 27
that Dragon Oil had made a statement that a department
responsible for purchasing and contracts had been involved in
a bribery and protectionism investigation, and that some
senior managers had been dismissed for "improper conduct."
END NOTE.)


4. (C) He said that the company's main client, Malaysian
energy company Petronas, and BP are both interested in the

block that Buried Hill is currently working under the terms
of a production sharing agreement. Serdar/Kyapaz sits on the
same fracture zone that Petronas' successful wells are
sitting on, so the area, which is disputed with Azerbaijan,
is almost certain to hold significant reserves. The two
companies do not think Buried Hill intends to follow through
with work beyond exploration, he said. Meanwhile, he said
that Petronas has found oil on both sides of the fault where
they are working in Block I. They have one rig available,
but need another, and Schlumberger is hoping to play a role
in its construction.


5. (C) Van de Slijke noted that the government's current
onshore policy limits service companies' ability to expand
business development and maximize their profits, because of
the complications of contracting with government enterprises.
The rate at which the government is contracting with service
companies, he assessed, is too slow to make it sufficiently
profitable for the companies. As a result, companies like
Schlumberger will continue to prefer projects working for the
foreign energy companies operating here, he said.


6. (C) The company also holds contracts with Turkmen State
Oil Concern and Turkmen State Gas Concern, as well as Turkmen
Geological Corporation, but the government contracts only
constitute about ten percent of its overall business here.
Van de Slijke said that although foreign companies are
familiar with the array of technologies and services

ASHGABAT 00000414 002 OF 003


Schlumberger offers, the Turkmen Government generally has not
been interested in the more modern equipment and techniques
the company employs. He thought this lack of interest was
because they do not understand the modern techniques that
Schlumberger applies to make field development efficient and
less costly. Instead, they cling to familiar techniques and
methodologies from the Soviet era, he said. Even more
frustrating, Schlumberger representatives have found it
impossible to discourage Turkmen officials from employing old
Soviet field management practices that have been found to
cause equipment or facility damage further down the road.


7. (C) He noted that many of the Turkmen fields have
problems with reservoir management. When it is done poorly,
it results in producing more water than oil from a reservoir.
The company has tried to suggest solutions to the problem
when it has given presentations during oil and gas
conferences here, in the hopes that a tutorial would help
point the Turkmen in the direction of a technical solution,
he added. A while back, the company offered to set up its
premier gas lift technology at one well head so that it could
demonstrate its impact on production, but Turkmen officials
refused the offer, which showed that they were "still
following the Soviet recipe," he said. Schlumberger has long
undertaken an effort to minimize the impact of this
mentality, and sends all of its local engineers abroad for
extensive training, as well as technicians and mechanics, he
said. Some of the higher training can take 3-5 years to
complete, but is well worth the effort and cost.


8. (C) Van de Slijke said that in January 2009, shortly
after President Berdimuhammedov publicly reprimanded Deputy
Chairman Tagiyev, Tagiyev called the company manager into his
office and said that the oil and gas fields were not meeting
their production targets, and said that Schlumberger had to
do more to help. However, Van de Slijke said that after he
provided information regarding some specific procedures and
technologies that could be employed at many of the fields in
question to officials at the Ministry of Oil and Gas, he was
never called back. For example, he said one specific problem
that the Turkmen oil rigs struggle with is sand production,
which can foul equipment and reduce production performance.
He said it frustrates him that there are specific
technologies that can keep sand production to a minimum, but
the idea has found no resonance with Turkmen officials. He
also expressed concern that the Turkmen State Oil Concern has
not made a payment in over seven months to Calik Energy,
which built a well for the Concern with Schlumberger as
sub-contractor. In addition to tax audits the government has
undertaken on Schlumberger twice in the last three years, the
company has also had problems with expatriate personnel
getting involved with young Turkmen women in Balkanabat. In
the last several years, the government has forcibly deported
6 Schlumberger employees for having had sexual relations with
local ethnic Turkmen women. In spite of the company's
warnings, and its efforts to construct facilities for their
expat employees to keep them comfortable and happy, they
still go looking for female companionship, he said.


9. (C) COMMENT: What Schlumberger's manager said about
Turkmen officials clinging to old Soviet practices is
something we have heard frequently from other Western
companies, and reflects the continued human capacity problem
here. Van de Slijke's comment about the Turkmen State Oil
Concern not having paid on a contract in seven months is
curious, raising the possibility that the Concern has been
cash-strapped for a while, possibly due to the drop in global
oil prices last year. This would suggest that we will see
little in the way of additional service contracts in the oil

ASHGABAT 00000414 003 OF 003


sector unfolding in the coming months. END COMMENT.
MILES