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C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 000365 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
PLEASE PASS TO USTDA DAN STEIN 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 03/24/2018 
TAGS: PGOV PINR EPET GE TX
SUBJECT:  TURKMENISTAN:  CHEVRON TO PARTNER WITH WINTERSHALL 
 
 
Classified By: CDA Richard E. Hoagland: 1.4(B), (D). 
 
¶1.  (C) SUMMARY:  Country Manager for German oil firm 
Wintershall, Cal Sandhu (protect throughout), told EmbOff 
during a March 20 tour d'horizon his company and Chevron are 
negotiating a partnership in Turkmenistan that could be 
announced as early as June.  More speculatively, he also 
suggested that Turkmenistan's government -- and likely 
President Berdimuhamedov himself -- is hesitant to give 
Russian oil companies in general and Gazprom in particular 
too much power over Turkmenistan's hydrocarbon sector.  He 
suggested this is the real reason the ConocoPhillips/Lukoil 
partnership is having so many problems bringing its 
production sharing agreement bid to a successful conclusion 
-- and the reason that Berdimuhamedov remained cool during a 
March 14 meeting with hydrocarbon agencies to Gazprom's March 
11 announcement that it was prepared to buy Central Asian gas 
at "European prices."  Sandhu briefly discussed other issues, 
including unprecedented government assistance that Canadian 
oil firm Buried Hill is receiving (perhaps because of alleged 
bribes to the president and other officials), and the State 
Agency for Hydrocarbon Resources' ongoing difficulties in 
coping with a tough, technically demanding portfolio, which 
reportedly led six weeks ago to the agency's director, 
Byrammurat Muradov, to offer to resign.  END SUMMARY. 
 
WINTERSHALL AND CHEVRON:  PARTNERS IN TURKMENISTAN 
 
¶2.  (C) During a March 20 meeting, Wintershall's Country 
Manager Cal Sandhu told EmbOff Wintershall and Chevron have 
identified a potentially mutual benefit from partnering in 
Turkmenistan.  Wintershall would bring to the partnership 
PSAs for two (and possibly more) offshore Caspian Sea blocks, 
while Chevron would bring funding and tremendous onshore 
drilling experience.  (COMMENT:  Sandhu estimates that 
developing Turkmenistan's on-shore production to meet the 
2030 Plan alone will take tens of billions of dollars per 
year, which Turkmenistan does not have.  Post agrees -- one 
of the reasons that we believe Turkmenistan will either need 
to allow a major oil company onshore, or cut back 
substantially its president's expectations and development 
plans.  END COMMENT.)  Sandhu believes that the authorities 
in Turkmenistan are interested in seeing at least one major 
U.S. company and one EU company working in Turkmenistan, and 
will favor this two-in-one arrangement.  The two companies 
are currently carrying out negotiations in London, and expect 
that their respective presidents will meet and discuss the 
arrangement further in London during the April 17-18 "Oil and 
Gas in Turkmenistan" conference.  A signed agreement could be 
announced by June of this year. 
 
NO RUSSIANS IN TURKMENISTAN'S UPSTREAM? 
 
¶3.  (C) Claiming to meet biweekly with both Deputy Chairman 
of the Cabinet of Ministers for Oil and Gas Tachberdi Tagiyev 
and Executive Director of the State Agency for Management and 
Use of Hydrocarbon Resources Byrammurat Muradov, Sandhu said 
Turkmenistan is very pleased to have major western oil 
companies wanting to do business in Turkmenistan and believes 
that Turkmenistan will allow Chevron or another western 
company to work onshore -- eventually.  He suggested 
ConocoPhillips, which has been negotiating an offshore PSA 
with Turkmenistan for an extremely long time has been 
hindered, rather than helped, by its affiliation with Lukoil. 
 Sandhu claims to have been told by host government officials 
that Turkmenistan does not want to have Russian companies 
present in the upstream.  (NOTE:  This was the second time in 
48 hours we heard this assertion from foreign businessmen 
active in Turkmenistan's hydrocarbon sector.  END NOTE.) 
Cognizant of Gazprom's already massive role in the midstream 
 
ASHGABAT 00000365  002 OF 004 
 
 
and the fact that Gazprom reportedly has been angling to form 
a partnership to work in Turkmenistan, the authorities are 
dragging their feet on ConocoPhillips not because they are 
unsure about working with ConocoPhillips, but rather, because 
they do not want Lukoil in the equation. 
 
TURKMENISTAN'S HOTTEST CASPIAN BLOCK 
 
¶4.  (C) Sandhu said that Wintershall, which has a PSA for the 
old Maersk blocks 11 and 12, sometime between late April and 
mid-June will carry out exploratory drilling.  After the 
results are in, Wintershall, Petronas, and Dragonoil have 
agreed they will share their seismic imaging data to develop 
a better picture of Caspian Sea and figure out whether there 
are any other blocks worth bidding on.  According to Sandhu, 
nobody has ever carried out imaging of Turkmenistan's 
offshore blocks 1-6.  "Everyone knows" that 
ConocoPhillips/Lukoil is bidding on blocks 19, 20 and 21; 
there is some interest in block 22; but block 23 is "hot," 
with seven companies -- including the French firm Total, BP 
and Wintershall itself -- that have submitted expressions of 
interest. 
 
BURIED HILL:  PROFITING FROM UNPRECEDENTED ASSISTANCE 
 
¶5.  (C) Sandhu agreed that Buried Hill does not have the 
experience, capital, or technology to begin drilling in the 
(block III) Serdar fields.  Sandhu, who claims to know Buried 
Hill CEO Roger Haines very well, has described him as a 
"wheeler-dealer" who most likely is more interested in using 
Buried Hill's Block III PSA for speculative reasons than 
because of a long-term drilling commitment.  Sandhu suggested 
that after carrying out seismic imaging of the waters off 
Serdar and doing some exploratory drilling, Haines will 
likely seek to resell the PSA at a substantial profit.  In 
Sandhu's view, by the time Haines has skimmed "several 100 
million dollars" off the top of the selling price, the block 
will be priced too high to be worth bidding on. 
 
¶6.  (C) Pointing to the picture of President Berdimuhamedov 
hanging in his office and rubbing his thumb and first two 
fingers together in the signal for "corruption," Sandhu 
commented that Buried Hill is getting unprecedented 
facilitation assistance from the State Agency -- presumably 
at the president's order.  He related one recent instance in 
which the State Agency went to Dragonoil with an urgent 
request for one of its barges, but would not tell Dragonoil 
what it needed the barge for.  Dragonoil submitted to the 
State Agency a bill for the use of the barge, and several 
days later Buried Hill called to find out how to pay the 
bill.  When Dragonoil went to the State Agency about the 
bill, the State Agency was very angry that Dragonoil had 
found out that the barge was being used by Buried Hill 
because the use was supposed to be a secret. 
 
PRESIDENT LOOKING FOR BALANCE IN GAS EXPORTS? 
 
¶7.  (C) According to Sandhu, Turkmengaz Chairman Yagshygeldi 
Kakayev, who went to Moscow to meet with Gazprom CEO Andrei 
Miller the sencond week of March, returned to Ashgabat very 
pleased with Miller's promises of more money for 
Turkmenistan's gas and convinced that Russia is looking out 
for Turkmenistan's interests.  However, Sandhu said, 
elsewhere he has heard that the government has not yet 
decided to commit its gas to Russia.  Noting that the 
president had a meeting March 14 at the Ministry of Oil and 
Gas, he said that it was clear that the president, at least, 
recognizes the dangers of selling all Turkmenistan's gas to 
Russia.  As a result, there was substantial discussion during 
the meeting of the new Chinese pipeline -- and the president 
 
ASHGABAT 00000365  003 OF 004 
 
 
also held open the possibilities of a Trans-Afghanistan and a 
Trans-Caspian pipeline in much the same language as he had 
used during the May 2007 trilateral summit in Turkmenbashy 
with Presidents Berdimuhamedov, Putin and Nazarbayev, 
following the agreement to rebuild the Caspian littoral 
pipeline. 
 
EMPIRE-BUILDING IN TURKMENISTAN, CHINESE STYLE 
 
¶8.  (C) Although Turkmenistan has been busy trumpeting its 
increased production in the South Yoloten/Osman fields and 
its 2007 natural gas sales agreement with the Chinese, Sandhu 
suggested that Chinese companies drilling on the right bank 
of the Amu Darya River are "never" going to be able to 
produce the 30 billion cubic meters per year that 
Turkmenistan has committed to send to China for the next 30 
years.  Without greatly boosted production, Turkmenistan also 
will not be able to make up the difference, as it promised to 
do in its contract with China.  Sandhu suggested that, after 
a few years of gas delivery shortfalls, the Chinese could 
seek as compensation additional production sharing agreements 
to work other blocks in the Amu Darya basin. 
 
TAGIYEV, THE UNCROWNED KING OF HYDROCARBONS 
 
¶9.  (C) Sandhu characterized Deputy Prime MinisterTagiyev as 
a bluff, old-style oil and gas technocrat, very capable in 
hydrocarbons, but without a strategic vision.  Several times 
in meetings, Tagiyev has offered to step in and help 
Wintershall cut through red tape -- and Sandhu believes that 
he would do so.  However, Sandhu added, Tagiyev also has a 
"kingly" habit of making demands with no regard for the 
reality of what it takes in time or resources to fulfill 
them.  According to Sandhu, Berdimuhamedov trusts Tagiyev 
because he is very happy with what he is doing -- Tagiyev has 
his domain, over which he has absolute power -- but lacks the 
ambition and ability to do anything different. 
 
¶10.  (C) By contrast, State Agency Director Muradov is 
probably much smarter than Tagiyev, but is also way out of 
his league in working hydrocarbon issues.  He is "very 
Turkmen," working his people very hard -- often keeping them 
until 10:30 at night -- and cursing them in reportedly very 
foul language if he is displeased with their work.  While 
State Agency personnel are continuing to make progress in 
learning about Turkmenistan's hydrocarbon industry, they 
still have a long way to go.  Sandhu recounted one recent 
story in which Petronas wanted to hook a feeder pipeline up 
with the main line, and asked for permission to spend 
$250,000 to hire a pipe-laying barge with a crane to lift the 
pipeline up slightly so that the connection could be made. 
According to Sandhu, the State Agency refused this expense, 
suggesting that the platform crane could do the job instead. 
Petronas used the platform crane, as ordered, and ended up 
damaging the platform so badly that it could not be used for 
almost two months.  This miserly micromanagement on the State 
Agency's part led to almost $4 million in lost production 
revenue for Petronas. 
 
¶11.  (C) Sandhu also claimed that, more than a year after the 
State Agency's establishment, it still lacks the authority to 
sign contracts.  According to Sandhu, the State Agency's 
charter, which gives it contractingthat authority, has yet to 
be drafted, because nobody in the Justice Ministry or the 
State Agency -- the lead bodies in drafting the document -- 
has the requisite knowledge to carry out the task. 
 
PRESIDENT REFUSED MURADOV'S RESIGNATION 
 
¶12.  (C) Sandhu said what surprised him most about the 
 
ASHGABAT 00000365  004 OF 004 
 
 
president's March 14 visit to the Ministry of Oil and Gas was 
that Muradov emerged from the meeting with his job intact. 
Sandhu claimed that Tagiyev had told the president that 
Muradov was useless because he does not understand the 
technical aspects of the hydrocarbon business.  Upon hearing 
of Tagiyev's comments, Muradov had gone to the president six 
or seven weeks ago and offered his resignation.  According to 
Sandhu, the president refused to accept Muradov's 
resignation:  "In my government, officials do not resign. 
They are only fired."  Sandhu speculated that the president 
refused to accept Muradov's resignation because there is 
nobody else to replace him.  Although Kakayev, a technocrat 
and an oil professional, has the technical knowledge and is 
very close to Tagiyev, there would be nobody available who 
could replace him at Turkmengaz.  While Muradov would 
probably be moved to the position of Minister of Finance -- a 
position in which he would be happy and do very well, 
according to Sandhu -- the president needs him for now in the 
State Agency. 
 
¶13.  (C) COMMENT:  Sandhu, who has been in Turkmenistan for 
over a year, is a genial interlocutor who seems to get along 
reasonably well with Turkmenistan's hydrocarbon authorities. 
He is a good source for news and views making the rounds in 
hydrocarbon circles.  His stories about Buried Hill and 
Petronas are believable, given the players involved.  We note 
other contacts have separately confirmed both that Muradov is 
a difficult boss, and that he and Tagiyev have a poor working 
relationship.  END COMMENT. 
HOAGLAND