Cablegate: Cyprus to Announce Tenders for Offshore

VZCZCXRO3206
PP RUEHAG RUEHROV
DE RUEHNC #0811 2841113
ZNY CCCCC ZZH
P 101113Z OCT 08
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC PRIORITY 9223
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 5285
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 6446
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L NICOSIA 000811

SIPDIS

E.O. 12958: DECL: 10/10/2018
TAGS: ECON PREL EPET CY
SUBJECT: CYPRUS TO ANNOUNCE TENDERS FOR OFFSHORE
EXPLORATION, SEVERE NEGATIVE TURKISH REACTION EXPECTED

REF: A. 07 NICOSIA 675
B. 07 ANKARA 2206

Classified By: AMB FRANK URBANCIC FOR REASONS 1.5 (B AND D)

1. (C) The Cypriot Department of Energy is planning to
announce the next round of bidding for offshore oil and gas
exploration in Cypriot-claimed waters this November. During
the first round of bidding in August, 2007, only three of the
eleven blocs on offer received bids. Subsequently, only Noble
Energy of Houston proceeded to negotiate an exploration and
production agreement for a bloc abutting Israel,s EEZ where
the company currently is operating gas fields with an Israeli
partner. Noble,s agreement was approved by the ROC Council
of Ministers in late September 2008 and is expected to be
signed by the end of October.

2. (C) The next round of bidding, expected to take place the
first half of 2009, will include the blocs contracted for in
the first round as well as two new blocs at the eastern edge
of Cyprus, EEZ. The U/S of the Department of Energy tells us
that the 3D seismic data for these blocs indicates strong
likelihood of significant liquid deposits. The Commerce
Ministry believes the poor bidding results in the first round
were due to Turkish saber rattling. Noble executives told us
that in September, 2007 they were visited in their Houston
offices by the Turkish CG in town and told that if they
proceeded with the bid, the company "could never expect to do
business with Turkey." Note. The Noble bloc, and all other
blocs identified by the ROC at this point, are south of
coastal territory administered by the Turkish Cypriots. End
Note.

3. (C) On October 8, the President of the Turkish Cypriot
Chamber of Commerce, during a general conversation with
econoff, said that he believes that Turkey is very likely to
again challenge the ROC,s right to proceed with exploiting
its offshore assets in the absence of an overall settlement
to the Cyprus problem. He believes that Turkey will "at
least send a warship to the area8 as it did in the run-up to
the first round of bidding. In November 2007, the number
two of the "ruling" Turkish Republican Party (CTP) told
poloff that T/C leader Talat gave then RoC President
Papadopoulos a strongly worded warning regarding the
consequences of such action at their last meeting on
September 5, 2007. Last month, another CTP insider told us
that he hoped that Christofias would not pull anything
"crazy" like starting off-shore oil and gas exploration.
Otherwise, he said in all seriousness, Turkey would send the
&fleet8 down.

4. (C) Comment: The G/Cs are aware of Turkish concerns and
one contact in the Commerce Ministry told us that this is why
the second round has been delayed until now. She even opined
that it could be delayed again for fear of affecting the
reunification talks. The ROC also wants to avoid another
bidding round that results in few bids; a possibility if
Turkey reacts strongly. Additional fallout from this problem
is the ROC probably blocking the opening of the Energy
Chapter in Turkey,s EU accession talks. The USG (and EU)
position during the first round of bidding was that the ROC,
as the recognized government of a sovereign state and a
signatory to the UN Law of the Sea, has the right to proceed
with exploring it EEZ. We defer to Embassy Ankara for
assessment of potential Turkish reactions.
Urbancic

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