This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L  ALMATY 003143 
 
SIPDIS 
 
 
DEPT FOR EB/ESC; EUR/SNEC (MANN); EUR/CACEN (MUDGE) 
 
E.O. 12958: DECL: 08/25/2015 
TAGS: EPET CA CH IN KZ ECONOMIC
SUBJECT: PETROKAZAKSTAN FOLLOW-UP 
 
REF: A. ALMATY 3075 
 
     ¶B. 03 ALMATY 2522 
 
Classified By: CHARGE MARK ASQUINO, REASONS 1.4(B) and (D) 
 
¶1. (C) Summary:  PetroKazakhstan (PK) officials expect to 
finalize the company's sale (ref A) to "PetroChina" (a CNPC 
subsidiary) next week, and a company vice-president 
discounted press rumors that India's Oil and Natural Gas 
Corporation (ONGC) might attempt to top PetroChina's bid.  A 
well-placed employee of a SINOPEC (Chinese Petroleum and 
Chemical Corporation) subsidiary, however, revealed that 
SIPC, a SINOPEC subsidiary, is a secret CNPC partner in the 
PetroChina joint-venture.  The oil community consensus here 
is that the Chinese paid a premium for PK.  The proximity of 
PK's fields to the Chinese pipeline, along with the rumor of 
significant unbooked PK assets, reduce the perceived 
magnitude of that premium.  The Government of Kazakhstan 
(GOK) has yet to officially acknowledge the sale, but 
insiders now assume that CNPC had the GOK's blessing prior to 
public announcement of the deal.  End Summary. 
 
Ownership Surprise 
------------------ 
 
¶2. (C) In a August 25 conversation with Emboffs, PK Vice 
President Rob Goldsmith dismissed press reports that India's 
ONGC was likely to top CNPC's bid.  ONGC had not approached 
PK about such a bid, Goldsmith noted, and added that it made 
neither economic nor political sense for the two companies to 
compete over PK:  the proximity of PK's Turgai fields in 
Eastern Kazakhstan to the Chinese pipeline made the company 
worth "at least seven dollars a share more" to CNPC than to 
ONGC, which would face higher transportation costs to bring 
Turgai oil to market.  Further, Goldsmith doubted that India 
would undermine a recent energy cooperation agreement with 
China in order to secure PK assets. 
 
¶3. (C) On August 26, an expat employee of the First 
International Oil Corporation, Ltd. (FIUC) -- itself a 
subsidiary of SINOPEC -- told Emboffs that the PK ownership 
surprise would come from a different direction:  SIPC, a 
subsidiary of SINOPEC, was in fact CNPC's secret 
joint-venture partner in the buying "PetroChina" entity. 
Asked why SINOPEC's role in the deal was being kept secret, 
the FIUC employee speculated that the Chinese did not want 
this deal associated with SIPC/CNPC's failed attempt to buy 
into the Kashagan consortium (ref B). 
 
Valuation:  Paying a Premium or Unbooked Reserves? 
--------------------------------------------- ----- 
 
¶4. (C) The general consensus here is that CNPC overpaid for 
PK.  Conoco-Phillips Country Director Hakim Janah called the 
$4.18 billion bid "crazy," calculating that once fair-value 
for PK's Shymkent refinery ($300 million in his estimation) 
was factored out, the Chinese had paid nearly $8 per barrel 
for PK's proven and probable reserves (estimated at 
500,000,000 barrels), compared to an industry norm of $4-5 a 
barrel.  Goldsmith seemed to acknowledge that the Chinese had 
paid a premium, while suggesting that PK's "exploration" 
activities also added value to the company.  Our FIUC source 
reinforced the point, which we have heard elsewhere, 
suggesting that PK had recently made some significant 
discoveries which had not yet been booked as reserves. 
 
 
Kazakhstani "Yukos" 
---------------------------- 
 
¶5. (C) To date, the GOK has not commented officially on the 
sale.  When the Charge asked the Canadian Ambassador if she 
thought the GOK had blessed the deal, she paused before 
giving a noncommittal answer.  Nevertheless, the official 
daily "Kazakstanskaya Pravda,"  published two glowing 
articles about an ongoing CNPC venture here, CNPC-AKTOBE, on 
August 23 and August 25. In one piece, the CNPC-AKTOBE 
Chinese national director pledged to go beyond GOK requests 
for discounted diesel during the harvest season -- a cause de 
guerre for PetroKazakhstan and flashpoint with the 
government. A Russian internet trade journal, "RusEnergy.Com" 
dubbed the sale "Turgaiskii Yukos," after the basin where 
PetroKazakhstan has its fields. A Kazakhstani-based 
electronic media source, "Kursiv," forecast a battle with the 
GOK since the state producer KazMunaiGaz lost out. Our 
 
sources, including the FIUC employee, hint at CNPC giving up 
the Shymkent refinery to KMG to placate the GOK. 
 
¶6. (C) Comment:  It appears that the GOK is on-board with 
this deal.  If so, the question becomes: what did CNPC give 
up to gain the GOK green light?  Contacts tell us the 
Shymkent refinery is one possibility.  That leaves the 
Russians to placate.  They may, however, have been left out 
of this deal, with a GOK promise to protect the Chinese from 
the kind of one-sided Kazakhstani justice with which Lukoil 
helped bring down PK. If the GOK's guarantee is good, a 
CNPC-owned PK has little to fear from Lukoil in Kazakhstani 
courts.  Nevertheless, little can be know for certain until 
we get a public GOK statement.  End Comment. 
ASQUINO 
 
 
NNNN