C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000750

SIPDIS

SCA/CEN; EEB
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER

E.O. 12958: DECL: 06/12/2019
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: CADDO EXPLORATION MAKING SOLID
PROGRESS WITH PILOT ENERGY PROJECT

Classified By: Charge d'Affaires Sylvia Reed Curran, reasons 1.4 (b) an
d (d).


1. (C) SUMMARY: U.S. energy services company Caddo
Exploration has signed an agreement to do a pilot oil well
sand control project in Balkan province, representatives told
poloff. If the pilot goes well, the company expects to sign
a large contract that will have Caddo doing sand control and
other production optimization work for the Turkmen State Oil
Concern. Although the company is interested in more
expansive project work that involves production sharing
onshore, Caddo representatives confirmed that the near-term
work is a solid and profitable first step toward a larger
commercial relationship. The company's willingness to build
its reputation with a pilot project, combined with its
creative use of a Turkmen partner to successfully negotiate
the intricacies of the government bureaucracy, has been key
in the company's progress in getting a contract. END SUMMARY.


2. (C) Poloff met June 10 with representatives of the
U.S.-based energy services company Caddo Exploration to get
an update on the company's efforts to enter the Turkmenistan
market. Post had first encountered the company's
representatives when they attended the November 2007 TIOGE
oil and gas exhibition. The representatives said the company
had made substantial progress since then in introducing their
company to Turkmen energy officials. They gave substantial
credit for their progress to a Turkmen partner they
identified about a year ago through the company's Moscow
office.


3. (C) The partner is a private Turkmen business
entrepreneur named Murat Batyrov. Batyrov has a number of
business activities. He owns the City Pub Restaurant in
Ashgabat (a popular destination for expats), imports
agricultural equipment, and owns some office buildings. They
noted that he was a former local representative for
Caterpillar several years ago. The Caddo representatives
said that Batyrov has extensive contacts within the Turkmen
government, as well as in the private sector, and has

proved
his ability to facilitate quick turnaround communication
between Caddo and the Turkmen State Oil Concern again and
again.


4. (C) The representatives said that Caddo's initial
interest in Turkmenistan was in obtaining an onshore
production sharing agreement. With the push from the
government toward service agreements, Caddo has turned its
attention to winning a service agreement contract, at least
in the near term. The company is currently negotiating a
sand control project with Turkmen State Oil Concern. (NOTE:
Sand control is a set of methodologies implemented with
specialized equipment to prevent sand from being extracted
with oil from a field. Effective sand control operations
make production more efficient and reduces repair-related
costs, and successful implementation of these methodologies
would boost oil production here. END NOTE.) Because the
company approached the government through Batyrov, it has
been engaged in direct negotiations with the State Concern.
The representatives said that State Concern officials appear
to be deeply interested in sand control and other production
optimization work the company does, and have become very
proactive in contacting them to seek clarification on
proposal details.


5. (C) Although the Cabinet of Ministers has not yet given
its permission for the Concern to sign a deal with Caddo, it
has given the Concern approval to sign an agreement with the
company to do a pilot project, most likely in order to test
Caddo's expertise and work quality, they assessed. This will

ASHGABAT 00000750 002 OF 002


be the company's first project in Turkmenistan. According to
the terms of the pilot project agreement, in the near term
the company will choose three oil wells in Balkanabat that
are most appropriate for the sand control mechanisms it will
put in place. Caddo plans to subcontract some of the work to
energy services giant Schlumberger. The representatives
hoped to sign the confidentiality agreement for the contract
this week, they said.


6. (C) According to its website, Caddo Exploration was
founded in 2007, and has been involved in gas and oil
exploration and field development in the United States and
Russia. The website indicates the company engages in gas
production optimization, development drilling, field
development planning, construction of oil treatment
facilities, exploration, field development and drilling in
high pressure gas fields, seismic and other geological
services, and exploratory drilling. The company declares
itself privately held and does not disclose financial or
shareholder information.


7. (C) According to the representatives, Caddo has sought
work in Turkmenistan almost since its founding, seeking to
make use of the founders' previous experience with other
companies in Russia. The November 2007 TIOGE Conference
Program shows that the company was a sponsor for the
conference, and its president gave a speech on prospects for
exploration. In November 2008 the company again sponsored a
session of the conference and a representative gave a speech.


8. (C) COMMENT: Although the company's original objectives
in Turkmenistan were ambitious, it is clear that company
representatives understand that, as a relatively new company,
they will have to initiate the relationship with a small
pilot project that will provide the foundation for the
company's reputation here. Given the lack of a track record,
there is no doubt that partnering with local
entrepreneur--and likely insider--Batyrov has been key in
making it possible for the company to negotiate its project
proposal directly with the Turkmen State Oil Concern, largely
without involving other elements of the government
bureaucracy. By getting a handle on the local peculiarities
of doing business in Turkmenistan, Caddo has made more
progress here in two years than many do in five. END COMMENT.
CURRAN