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C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000109 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/RUS, EEB (AMB. MANN) 
PLEASE PASS TO USTDA DAN STEIN 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 01/22/2018 
TAGS: PREL PGOV ENRG EPET ENIV TX
SUBJECT:  TURKMENISTAN'S HYDROCARBONS SECTOR:  U.S. FIRMS 
SEE LITTLE RECENT MOVEMENT BUT REMAIN OPTIMISTIC ABOUT 
PROSPECTS 
 
REF: A. 07 ASHGABAT 1209 
 
     ¶B. 07 ASHGABAT 1353 
     ¶C. 07 ASHGABAT 1364 
     ¶D. ASHGABAT 0049 
     ¶E. 07 ASHGABAT 1318 
 
Classified By: Charge Richard E. Hoagland for reasons 1.4(B) and (D). 
 
¶1.  (C) SUMMARY:  U.S. hydrocarbon firms have seen little 
progress since November (Ref. A) in terms of receiving 
responses from the Government of Turkmenistan to their 
offers.  Looking to the future, Chevron has appointed an 
Amcit country manager and is opening an office in 
Turkmenistan.  However, the government still has not 
responded to Chevron's initial proposal.  The December 
kerfluffle regarding a Lukoil announcement that it had signed 
an agreement with the Government of Turkmenistan to develop 
three Caspian blocks seems to have blown over (Refs B and C), 
ConocoPhillips only now is returning to the negotiating 
table, and Lukoil/ConocoPhillips and the State Agency for 
Hydrocarbon Resources could reach an agreement very soon 
(Ref. D).  TNK BP/BP continue to talk to Turkmenistan but, 
according to the State Agency's Director, Byrammurat Muradov, 
the talks up to now have been largely conceptual and "need 
more time."  Finally, although Marathon had a "productive" 
meeting with President Berdimuhamedov in early December 
regarding its proprietary gas-to-fuels technology (Ref. E), 
it has not heard anything more from the Ministry of Oil and 
Gas.  More than ever, the lack of progress seems to be 
attributable to a lack of confidence on Turkmenistan's part 
in dealing with large hydrocarbons firms and international 
hydrocarbons markets.  Post hopes that a training program, 
which the U.S. Trade and Development Agency (USTDA) will 
begin in February, will help to address this problem and lead 
to tangible progress soon.  We are also encouraging the State 
Agency to contract with an international law firm or other 
consultancy that would provide badly needed advice.  END 
SUMMARY. 
 
CHEVRON 
 
¶2.  (C) During a January 19 meeting, Chevron's new country 
manager told the Charge that his company had submitted two 
proposals to Turkmenistan's State Agency for Management and 
Use of Hydrocarbon Resources during the November 13-15 oil 
and gas exhibition (TIOGE).  Chevron had bid to develop the 
disputed Serdar offshore area if Turkmenistan could resolve 
its border dispute there with Azerbaijan.  The firm had also 
submitted a joint venture (JV) proposal to increase 
Turkmenistan's onshore gas production in the Amu Darya basin. 
 Under the new JV proposal, Chevron said that it would assist 
Turkmenistan to increase production in existing fields with 
declining production and to begin working discovered but 
undeveloped fields.  As part of its JV, Chevron also proposed 
to begin drilling Turkmenistan's dangerous-to-access subsalt 
reserves -- Chevron's top priority and an area in which 
Chevron is well-equipped, both in experience and technology, 
to work. 
 
¶3.  (C) During the Chevron manager's January 18 courtesy call 
on Muradov, however, Muradov had focused very narrowly on the 
Serdar bid, telling the manager that he should focus on 
"blocks" rather than "areas."  (COMMENT:  Post continues to 
hear rumors that the Canadian firm Buried Hill has at least a 
memorandum of understanding and possibly an unpublicized 
production sharing agreement (PSA) to develop Serdar in an 
agreement dating from former President Niyazov's tenure. 
According to Wintershall/Maersk Country Manager Kal Sandhu, 
Muradov at one point stated that Turkmenistan was aware of 
rumors suggesting that Buried Hill is a "shady operation" and 
 
ASHGABAT 00000109  002 OF 003 
 
 
that it did not want to have anything to do with the firm, 
but could not come up with a legal way of abrogating the 
arrangement.  END COMMENT.)  The Chevron manager said that 
his company submitted a bid to work Serdar because it 
believes that Serdar is the only offshore area with 
"worthwhile prospects" for drilling.  When the Chevron 
manager had tried to pump Muradov on the JV proposal, Muradov 
had referred the manager to Deputy Chairman of the Cabinet of 
Ministers for Oil and Gas Tachberdi Tagiyev.  Responding to a 
question, the manager said Chevron will only work the Amu 
Darya basin through a JV agreement and will not agree to a 
service agreement.  "It's not right for us to have only a 
service agreement there when we're one of the largest 
hydrocarbon firms in the world." 
 
¶4.  (C) While Chevron is quickly coming to believe that 
Turkmenistan is only comfortable in dealing with small 
players that it can control -- Petronas, Dragonoil and Burren 
Resources -- the manager said he is considering a new 
approach which would link what Turkmenistan wants -- a major 
company working offshore -- with a JV focused on developing 
subsalt gas production that would offer Turkmenistan 
tremendous expertise in subsalt drilling.  Therefore, the 
manager was prepared to use a package approach of "we don't 
say no to offshore cooperation if you don't say no to onshore 
cooperation."  Chevron will begin to work up a fuller 
proposal that would offer more detail than the 10-page 
proposal that it gave the government in November. 
 
¶5.  (C) Despite these frustrations, Chevron is establishing 
an office in Ashgabat.  The company is continuing to work on 
registering itself as a legal entity and hopes to have the 
process completed in the next few weeks (although, the 
manager added, like everything else, this schedule could 
still slide if Chevron hits any bureaucratic snags).  The 
company is leasing and retrofitting a two-story block of 
offices in the Arkach Hotel (one of the small, "loser" hotels 
that Niyazov forced his ministries to build on the 
increasingly prestigeous Archibil Road). 
 
CONOCOPHILLIPS 
 
¶6.  (C) ConocoPhillips seems to have recovered from its 
dismay following a December 12 Lukoil press release stating 
that Lukoil had signed an agreement with the Government of 
Turkmenistan to work three offshore blocks (blocks 19, 20 and 
21).  All here, as well as ConocoPhillips itself, agree that 
the announcement was premature, rather than a covert Lukoil 
effort to cut its U.S. partner out of the action.  With the 
winter holidays over, ConocoPhillips is returning to its 
negotiations and hopes to send a team to Ashgabat in the next 
few weeks.  Commenting on ConocoPhillips' prospects, State 
Agency Executive Director Muradov told the Charge January 10 
that, if ConocoPhillips/Lukoil's position has not changed 
since the last round of negotiations, the two sides could 
reach an agreement very soon.  According to Muradov, "We are 
very, very close." 
 
TNK-BP/BP 
 
¶7.  (C) TNK-BP/BP has not visited Turkmenistan since 
November.  Muradov told the Charge January 10 that BP is a 
"serious company" that has explained in general terms its 
philosophy for developing the Caspian Sea.  However, the 
company has not yet submitted a concrete proposal. 
 
MARATHON 
 
¶8.  (C)  Unlike other U.S. firms that are considering doing 
business in Turkmenistan, Marathon hopes to interest 
 
ASHGABAT 00000109  003 OF 003 
 
 
Turkmenistan in its proprietary gas-to-fuels technology, a 
gas-conversion process that is more carbon-efficient than 
conventional gas-conversion processes.  A high-level 
delegation visited Turkmenistan the week of December 3 and 
presented its product to President Berdimuhamedov December 6. 
 While a company representative has confirmed that the 
president seemed interested in Marathon's product and that 
the meeting went well, there has been no further follow-up by 
either side. 
 
¶9.  (C) COMMENT:  Although U.S. firms are still trying to get 
used to Turkmenistan's unique process for negotiating 
development of its hydrocarbon reserves, they are not alone 
in their frustration.  The Government of Turkmenistan has yet 
to sign a single new production sharing agreement for 
offshore development.  Post attributes the unwillingness of 
Turkmenistan's hydrocarbon sector agencies to commit to new 
agreements to officials' lack of confidence in dealing with 
large companies and unfamiliarity with international 
hydrocarbons markets, rather than to a dislike of the 
companies involved.  Post hopes that the USTDA training 
program due to come on line in mid-February will help to 
address at least some of these issues.  We are also 
encouraging the State Agency to contract with an 
international law firm or other consultancy that could 
provide badly needed expert advice to speed things along. 
END COMMENT. 
HOAGLAND