TURKMENISTAN: CADDO EXPLORATION MAKING SOLID

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