TURKMENISTAN: CHEVRON READY TO SUBMIT REVISED

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000875

SIPDIS

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

E.O. 12958: DECL: 07/11/2019
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN: CHEVRON READY TO SUBMIT REVISED
PROPOSAL FOR ONSHORE DEVELOPMENT

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


1. (C) SUMMARY: Chevron plans to present a new proposal for
an onshore gas project to the Turkmen government. It will
focus on development of the Minara, South Yolotan and Osman
deposits, but not include exploration. Chevron is prepared
to be flexible about the terms of an eventual agreement, but
it must provide the basis for a long-term partnership that is
more than a service contract. A first step would be a
memorandum of understanding that would allow Chevron access
to data about the deposits. Based on such data, the company
could proceed with planning work on the scope and scale of
the project. A second phase would involve an appraisal of
the field, engineering studies and construction contracts.
The proposal will be vague about Chevron's proposed revenue
stream. Deputy Chairman Tagiyev's recent replacement by
Turkmengas Chief Hojamuhammedov might throw a wrench in the
works, since Tagiyev had been urging Chevron to submit a
revised proposal. On the other hand, coming from Turkmengas,
Chevron's likely partner, Hojamuhammedov should be well
informed about how Chevron's proposal could fit into
Turkmenistan's long-term plan for development of the gas
sector. END SUMMARY.


2. (C) On July 9, the head of the local Chevron office
briefed the Charge about the revised proposal for onshore
development that the company will present to the government
next week. He said he planned to meet with now former Deputy
Chairman for Oil and Gas Tachberdi Tagiyev on July 16 for
that purpose. (NOTE: On the following day, July 10, Tagiyev
was removed from office and made the director of
Turkmenistan's smaller oil refinery. His replacement is the
former head of Turkmengas Baymyrat Hojamuhammedov. END
NOTE.) The Chevron rep said during the April visit of
Chevron officials that included a meeting with President
Berdimuhamedov, they had also met with Tagiyev and that a few
weeks ago, Tagiyev had asked when Chevron would submit a new
proposal.


3. (C) According to the Chevron rep, the new proposal is
focused on development of the Minara, South Yolotan and Osman
gas fields, working on the subsalt, high sulfur deposits
located there. There is no exploration component. Chevron
wants to enter a long-term partnership with the state gas
concern, something more than a service contract. He said
Chevron would contribute its share of the investment, and
would help the Turkmen side to obtain its share as well.


4. (C) Stating that Turkmenistan's gas production is
currently not close to meeting its export commitments,
especially after the Chinese pipeline comes on line, the
Chevron rep said the company could help the Turkmen become a
reliable energy supplier. In the proposal, Chevron will
propose a signature bonus , without specifying an amount. In
the Chevron proposal submitted last year, the company offered
a USD 100 million signature bonus.


5. (C) It is Chevron's goal to reach an agreement that
complies with the Turkmenistan Petroleum Law. The company
does not need a production sharing agreement, since the
revenue provisions of various types of agreements are
similar, the Chevron rep said. The Chevron proposal is
"flexible, but vague" about the Chevron revenue stream. He
thought that a long-term agreement was unlikely at the
outset. The first step would probably be a memorandum of
understanding that would include the goal of an eventual
long-term agreement and a confidentiality provision to allow
access to data during the first phase of the project.
Chevron is currently doing a lot of extrapolation about the
deposits and needs to see data. The first phase could also
include work on the scale and scope of the project and some

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additional seismic work. A Phase Two would involve an
appraisal of the field, engineering studies and conclusion of
engineering and construction contracts for building the
complex.


6. (C) The Chevron rep said he would like to see the signing
of a Chevron-Turkmen agreement coordinated with a high-level
bilateral visit, combining two milestones. He suggested that
a U.S.-Turkmen bilateral commission would only be useful if
it was anchored to commercial or other concrete deliverables,
otherwise the Turkmen would view the creation of the
commission itself as an accomplishment with no need for
further substance. He cited the example of the Turkmen-South
Korean commission, noting that local Korean diplomats had
told him that it has not been useful.


7. (C) Chevron is pursuing other areas with the Turkmen in
hopes of improving their prospects for landing an onshore
project. Following up on an earlier meeting at the Academy
of Sciences, next week a team from Chevron Energy Solutions
will meet with the Turkmen to discuss alternative energy,
renewables and efficiency. Chevron is also waiting for the
government to propose the names of six experts for a training
trip to the U.S. later this month.


8. (C) COMMENT: By moving quickly to put together a revised
proposal following its officials' meetings with
Berdimuhamedov, Chevron is showing that it is serious about
pursuing a project in Turkmenistan. Whether Tagiyev's
removal from office will throw a monkey wrench in the works
remains to be seen. While Tagiyev was familiar with Chevron
and had urged a new proposal, his successor Hojamuhammedov
comes from Turkmengas, Chevron's likely partner. He might
show himself to be more open to new partners in light of the
continuing difficulties with Turkmenistan's long-term partner
Gazprom. END COMMENT.
MILES