KAZAKHSTAN: THE HIGH-FLYING MARABAYEV BROTHERS ARE A

UNCLAS SECTION 01 OF 03 ASTANA 000430 SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB/ESC STATE PLEASE PASS TO USTDA FOR DAN STEIN E.O. 12958: N/A TAGS: PGOV PINR ECON EPET EINV KZ SUBJECT: KAZAKHSTAN: THE HIGH-FLYING MARABAYEV BROTHERS ARE A FORCE IN THE ENERGY INDUSTRY ASTANA 00000430 001.2 OF 003 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: Yermek Marabayev and his brother Zhakyp Marabayev are two of Kazakhstan's most influential oilmen. Yermek is General Director of KazMunaiTeniz (KMT),which manages the government's offshore oil exploration and production assets; his younger brother Zhakyp was recently appointed Deputy General Director of the North Caspian Operating Company developing the supergiant Kashagan oil field. Sons of the late Nasibkali Marabayev, a highly regarded veteran of the industry, the brothers are smart, savvy, and well-positioned to have an impact on the future development of Kazakhstan's largest, most important oil fields for years to come. On March 3, Energy Officer spoke with Yermek Marabayev about offshore prospects in the Caspian, the investment climate in Kazakhstan, and choosing international partners to develop new discoveries. END SUMMARY. CASPIAN OIL EXPLORATION ONLY JUST BEGINNING ¶3. (SBU) Marabayev was extremely optimistic about the future prospects for KazMunaiTeniz (KMT) -- which is a subsidiary of state oil and gas company KazMunaiGas (KMG) -- despite current economic conditions. He said that although KMT does not currently manage any producing fields, he expects great things from the Zhemchuzhina ("Pearls") and Kashagan projects in the near future. (NOTE: Shell is the lead operator of the Pearls project and reported successful tests in 2008 from two exploratory wells at the project site. Appraisal drilling is expected to begin in April. Shell also leads the offshore development of Kashagan and partners with KMT, the government's authorized representative, on both projects. END NOTE.) Although he is focused on developing Pearls and Kashagan, Marabayev insisted that there are other large offshore oil fields in the Caspian, waiting to be discovered. In particular, he pointed to a map on his wall and traced an unexplored area just south of the Kalamkas reservoir and north of the port of Bautino, circling a block owned by KMT called the Kurmangazy Contract Area. "There's more out there," he said, "This is just the beginning" for KMT. When asked what constraints his business faced at the moment, he replied, "Only rigs. We need more drilling rigs." IMPACT OF ECONOMIC CRISIS DOWNPLAYED ¶4. (SBU) Marabayev denied that the economic crisis has had an adverse effect on KMT's operations and said his company will continue to invest in seismic testing and other exploration activities at Pearls. He also said that KMT would continue to meet Kashagan's cash calls three times a month. Marabayev also denied rumors that production at Kashagan would be delayed because of the crisis and said the consortium still expects early oil in the fourth quarter of 2012 and initial production in 2013. "We can't miss that deadline," he said, smiling, "or else the government will not reimburse us for capital expenditures. And that is a price nobody can afford to pay." INVESTMENT CLIMATE COMMENTS ¶5. (SBU) When asked about increasingly strict local content requirements, Marabayev said he understood the government's goals of developing skilled labor and supporting domestic employment. However, he suggested that the "intelligent way" to build local capacity would be to transfer skills, technology and know-how gradually, over a period of 20 to 25 years, and he cited Shell's work in Oman as an example of how that could be done in a mutually beneficial manner. ¶6. (SBU) Marabayev was also unfazed by proposed changes to the Subsoil Law that could lead to separate contracts for the exploration and production of new fields. "International oil companies should not worry," he said, "because the company that wins the exploration contract will be given preferential treatment to produce the field." (COMMENT: That is easy for him to say. As ASTANA 00000430 002.2 OF 003 General Director of the government's "authorized agent," he would be guaranteed a role in the future development of a field in any case. END COMMENT). CHOOSING A PARTNER ¶7. (SBU) When asked how the government chooses international partners for exploration and development projects, Marabayev initially tried to deflect the question. He modestly said that he merely manages the state's stake in offshore projects and is not consulted on all strategic decisions. When pressed, however, he said that KMT's parent company KazMunaiGas (KMG) bases its decision on a calculation of risk and return and an assessment of the "total package" offered by prospective partners. He cited, for example, the recent announcement that Norway's StatoilHydro would be given the right to negotiate with KMG to develop the Abai offshore block. Marabayev suggested that StatoilHydro would be a good strategic partner to develop that field because of the company's prior experience developing structures with a similar gas-oil mix, its innovative trunkline gas pipeline system, and its ecologically clean production methods. ¶8. (SBU) On February 26, KMG President Kairgeldy Kabyldin met with StatoilHydro CEO Helge Lund to discuss terms of the deal, which reportedly offers KMG the opportunity to participate in other international projects managed by StatoilHydro. StatoilHydro has been attempting to win exploration and production rights for the block since it signed a memorandum with the government in 2005. The Abai block is located in the offshore area of Kazakhstan's sector of the Caspian shelf, 60-70 kilometers northwest of the Bozashi peninsula. The sea depth in the exploration area is 8-10 meters. U.S. COMPANIES COMMENT ON THE MARABAYEV BROTHERS ¶9. (SBU) Patty Graham, ExxonMobil Kazakhstan's Government Relations Director, told Energy Officer on March 5 that Yermek Marabayev is "a good partner and a good guy who comes from an oil dynasty." (NOTE: ExxonMobil owns 16.66 percent of the Kashagan project, for which Zhakyp Marabayev is Deputy General Director. KMT manages the government's stake of 16.81 percent. END NOTE). Graham said that Yermek Marabayev has focused on building KMT's capacity to prepare for its eventual transition to a lead operatorship. She praised his business acumen and "IOC outlook" and called him a "strong ally," who understands and supports the business process. ¶10. (SBU) Nick Olds, Caspian Region President for ConocoPhillips, said Yermek Marabayev is "someone we're comfortable doing business with," adding, "It's likely that he'll be asked to oversee the state's interest in the N Block, once we move to exploration." (NOTE: ConocoPhillips owns 8.28 percent of the Kashagan project and is negotiating with the government to develop the N Block. END NOTE.) Olds also said that Yermek Marabayev has been very helpful in ongoing negotiations with the government over the removal of a sunken Soviet-era rig in the N Block exploration area. When asked about Yermek's younger brother Zhakyp, Olds said, "He is also very capable, very smart, and very connected. But he has had a checkered past, including charges of corruption." (COMMENT: ExxonMobil's Graham also hinted that Zhakyp Marabayev had skeletons in his closet, but we were unable to substantiate the charges. END COMMENT.) BIONOTES ¶11. (SBU) Yermek Marabayev, 49, was born on December 26, 1959, in Moscow, where he followed in his father's footsteps and graduated from the Soviet Union's Oil and Gas Institute in 1982. Like his father, he began his career as a driller at the Uzen oil field in Mangistau oblast, where he worked from 1982-84. He held various engineering and drilling jobs in the oil industry in western Kazakhstan from 1984-1991. From 1991-95, he worked for the Mangistau oblast government in the natural resources and ASTANA 00000430 003.2 OF 003 international affairs departments, and in 1995, Marabayev moved to London, where he marketed and traded Kazakhstani crude for Kazakhstan Trading House until 1997. From 1997-99, he was Deputy General Director for KuatAmlonMunay JV and from 1999-2001, he was Deputy Director for Exploration and Development of HurricaneKumkolMunay. In 2001, Marabayev joined Chevron, where he worked until 2005 as a commercial manager for ChevronNefteGas. From 2005-2007, he worked for KurmangazyPetroleum, eventually becoming General Director. In April 2007, he was named First Deputy General Director of KazMunayTeniz (KMT) and in September 2007, he was named General Director of KMT. Marabayev received a Master's degree in Economics from Kingston University in London in 2004. He is married with three daughters. ¶12. (SBU) Zhakyp Marabayev, 46, was born on August 9, 1962 in Kazakhstan's oil capital of Atyrau (then known as Guriev). He graduated from the Oil and Gas Institute in Moscow in 1984, where he majored in mining engineering. From 1984-90, he worked for Komsomolskneft in various technical positions, eventually heading the technology department. In 1990-91, he joined the government as Director of the Commercial Office of the Ministry of Internal Economic Affairs. In 1991, he joined the Ministry of Energy, where he worked on offshore oil exploration technology until 1993. From 1993-98, he worked for KazakhstanCaspiShelf as Vice President and ultimately General Director. From 1998-99, he was First Vice President of KazakhOil, with responsibility for project finance. From 1999-2001, he was a Vice President for KazTransOil; from 2001-02, he was Deputy General Director of the Oil and Gas Transportation Company, a predecessor of KazMunaiGas (KMG). From 2004-06, he was General Director of KMG Exploration and Production, and in December 2006, he was appointed Chairman of the Board for Oil and Gas Industry Development of KazEnergy Association. He is now Deputy Managing Director of the North Caspian Operating Company and non-executive chairman of Timan Oil and Gas LLP, listed on the London Stock Exchange. In 2002, he received a Ph.D.-equivalent degree from the Moscow State University of Management. ¶13. (SBU) Nasibkali Marabayev, the father of Yermek and Zhakyp, was a highly respected figure in Kazakhstan's oil and gas industry. He graduated from the Oil and Gas Institute in Moscow, started his career as a driller, and worked in the industry until his death in August 2007, at the age of 70. HOAGLAND