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Cablegate: Turkmanistan Triangulates: Conocophillips/Lukoil Tandem

VZCZCXRO2631
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDBU RUEHDF RUEHIK RUEHLH RUEHLN
RUEHLZ RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #1222 3130921
ZNR UUUUU ZZH
P 090921Z NOV 07
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9681
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 2964
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0784
RUEHKO/AMEMBASSY TOKYO PRIORITY 0660
RUEHIT/AMCONSUL ISTANBUL PRIORITY 1237
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS ASHGABAT 001222

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB
PLEASE PASS TO USTDA DAN STEIN
COMMERCE FOR HUEPER
ENERGY FOR EKIMOFF/THOMPSON

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV EPET RS TX
SUBJECT: TURKMANISTAN TRIANGULATES: CONOCOPHILLIPS/LUKOIL TANDEM
READY TO STRIKE OFF-SHORE DEAL


1. (U) Sensitive but unclassified. Business sensitive. Not for
public Internet.

2. (SBU) SUMMARY: ConocoPhillips and Lukoil are in the very final
stages of negotiating a product-sharing agreement (PSA) for the
Ordekli (Block 21) and Ogurji (Blocks 19 and 20) offshore fields.
The PSA for the Ordekli field deal, with Lukoil as the operator, may
be signed during the Turkmenistan International Oil and Gas
Exhibition (TIOGE). ConocoPhillips will operate the Ogurji field.
Each consortium member will have a 50% stake in both fields. END
SUMMARY.

PSA OR PSAS?

3. (SBU) ConocoPhillips and Lukoil will have two separate
agreements, one for Ordekli and the other for Ogurjli field. The
partners will have an equal 50% stake in both production areas.
Under this deal, the Government of Turkmenistan will have a right to
acquire up to 30% of the shares. This would require Turkmenistan to
set up a national operating company, similar to KazMunaiGaz of
Kazakhstan.

4. (SBU) The PSA's content seems to have stayed within the
framework of the previous model agreement. However, the PSA with
ConocoPhillips/Lukoil will not have a lifting provision. (NOTE:
According to the original model PSA adopted in 1997, Turkmenistan
may require the contractor to arrange the sale of Turkmenistan's
share of petroleum. The contractor was entitled to recover
associated costs. END NOTE.) Turkmenistan also requires more
social and training elements in the newly negotiated PSAs.

CONOCOPHILLIPS TO OPEN ASHGABAT OFFICE

5. (SBU) According to a ConocoPhillips representative currently
visiting Ashgabat, the company has already registered ConocoPhillips
Turkmenistan Exploration Inc in the United States, and the company
will start working in Turkmenistan after ConocoPhillips signs its
PSA. ConocoPhillips will open an initial Ashgabat office in the Ak
Altyn Hotel/Office Center. ConocoPhilips' CEO plans to visit
Turkmenistan during the TIOGE (November 13-15).

6. (SBU) COMMENT: The ConocoPhillips contract sets the first new
precedent for a major Western company entering the Turkmenistan
market in the last ten years. It will have a positive impact on the
image of the country's leadership and investment regime. The deal
will not only attract a host of subcontractors, but also send a
signal to other oil and gas companies that Turkmenistan is now in a
position to offer attractive commercial provisions and assurances of
political stability. Additionally, ConocoPhillips has substantial
experience working in Kazakhstan that it can share with Turkmen
counterparts. END COMMENT.
HOAGLAND

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