Identifier
Created
Classification
Origin
09ASHGABAT82
2009-01-16 13:14:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN: PSA HOLDER BURIED HILL DELAYING

Tags:  EPET PGOV EINV TX 
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DE RUEHAH #0082/01 0161314
ZNY CCCCC ZZH
P 161314Z JAN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2159
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 4707
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2508
RUEHKO/AMEMBASSY TOKYO PRIORITY 2373
RUEHIT/AMCONSUL ISTANBUL PRIORITY 2955
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RHMFISS/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHVEN/USMISSION USOSCE PRIORITY 3247
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000082 

SIPDIS

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

E.O. 12958: DECL: 01/16/2019
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN: PSA HOLDER BURIED HILL DELAYING
DRILLING IN CONTESTED SERDAR/KYAPAZ FIELD

Classified By: Charge Richard M. Miles for reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000082

SIPDIS

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

E.O. 12958: DECL: 01/16/2019
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN: PSA HOLDER BURIED HILL DELAYING
DRILLING IN CONTESTED SERDAR/KYAPAZ FIELD

Classified By: Charge Richard M. Miles for reasons 1.4 (b) and (d).


1. (C) SUMMARY: The UK-registered Buried Hill energy
company completed its seismic work in the contested
Serdar/Kyapaz field in Block III, and reported the government
was pleased with the results. The company is moving forward
with plans to undertake exploratory drilling of three sites
there, but has again moved its timeline for starting the work
to late 2009. The company's general manager cites the fall
in world oil prices as the main reason for the delay, but
described plans for building infrastructure and getting a rig
established. All companies in the hydrocarbon sector here
have had to make changes in order to weather price
fluctuations, and perceive it as a storm that will pass. In
the meantime, however, companies are re-negotiating their own
prices, and putting off significant expenses. Government
agencies are getting an education in market fluctuation and
response, and ultimately may not see the production that they
are hoping for this year. END SUMMARY.


2. (C) Poloff met with Buried Hill General Manager Eldar
Iskanderov for an update on how the Canadian/Omani offshore
production sharing agreement (PSA) holder's work is
progressing in the Western Caspian. Buried Hill's PSA is
Block III, where the disputed Serdar/Kyapaz field is located.
In 2008, the company concluded its seismic exploratory work
and presented its findings to the government.
Representatives at the State Agency for Management and Use of
Hydrocarbons were pleased with the seismic results, and
pressed the company to begin initial drilling operations as
soon as possible. They reached agreement with company
representatives to begin drilling three exploratory holes in
the first quarter of 2009.


3. (C) Due to the global decline in oil prices, however,
Iskanderov said the plan now is to wait until the last
quarter of 2009 to allow oil prices to stabilize. The steep
decline in world oil prices caused various companies, whether

upstream or downstream, to seek adjustments for fees and
charges, which are set partially based on a percentage of the
sale price of the given product. Thus companies producing
oil, for example, earning substantially lower profits, have
been re-negotiating the fees that their subcontracted service
companies charge. This process has set off a chain reaction
among companies that play a role in refining and producing
oil, as well as for the governments that control the
resource. Iskanderov said that all companies working in the
hydrocarbon sector in Turkmenistan have been affected by
these events, as well as the Turkmenistan government. The
government's oil export profits have fallen, it is grappling
with the companies' financial re-negotiation efforts, and it
is finding that companies have been limiting or delaying
their capital expenditures on projects here as they wait for
prices to level out.


4. (C) Still, as Buried Hill waits out the market, it has
also been considering plans to expand its business interests
here. The company recently moved into a new building and
occupies some 20,000 square feet of office space. Although
the company envisions the Ashgabat office eventually
employing 200 people, the staff is currently at 37, although
Iskanderov envisions the staff growing to about 70 when
drilling operations begin. The company will likely rent
Maersk's drilling rig, but the severe shortage of drilling
rigs in the Caspian continues to be a concern for all
offshore companies. Buried Hill plans to construct all other
necessary infrastructure itself, in what will be a five or
six year effort. A supply base for steel piping and other
needed construction materials is planned for Turkmenbashy.
There is also some consideration of a possible onshore

ASHGABAT 00000082 002 OF 002


proposal, which Iskanderov called "low-hanging fruit," but
the company has not yet identified a site.


5. (C) Iskanderov talked a bit about why he thought Buried
Hill has enjoyed a level of success in Turkmenistan. He said
that when the company, which is owned in part by former
Canadian Prime Minister Jean Chretien and the brother of an
Omani sultan, approached the government with its desire to do
business here, company representatives told the president,
"Tell us what you need and what you want us to do." The
government responded by pointing them toward exploration, and
gave them a list of blocks to choose from. The other thing
the company learned from its experience with the government
is that every proposal should clearly represent at least one
benefit for the government, and that it "resists what it does
not understand."


6. (C) COMMENT: The instability in global oil prices is
clearly having an impact on what hydrocarbon companies are
doing in Turkmenistan right now, and the government is likely
feeling the pain as it adjusts to the changing situation and
the need to weather it out. Buried Hill's twice-delayed
timeline for initiating drilling activity in Block III is but
one example of how foreign companies are slowing their
expenditures. Other companies may also be slowing down their
development projects, to greater or lesser extents, and could
collectively impair the sector's ability to meet the
president's production goals this year. END COMMENT.
MILES