VZCZCXRO0540
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHAH #0922/01 2421211
ZNR UUUUU ZZH
R 301211Z AUG 06
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 7743
INFO RUCNCIS/CIS COLLECTIVE
RUEHKL/AMEMBASSY KUALA LUMPUR 0011
RUEHLO/AMEMBASSY LONDON 0394

UNCLAS SECTION 01 OF 02 ASHGABAT 000922 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR SCA/CEN (PERRY) 
 
E.O. 12958: N/A 
TAGS: EPET ECON PREL TX
SUBJECT: FOREIGN FIRMS PUMP UP THE VOLUME IN TURKMENISTAN'S 
OIL SECTOR 
 
REF: ASHGABAT 905 
 
Summary 
------- 
 
 ¶1.  (SBU) Crude oil production figures among foreign oil 
firms operating off of Turkmenistan's Caspian Sea coast and 
onshore in hydrocarbon-rich Balkan province exceed 85,000 
barrels a day.  The large Petronas support base in 
Turkmenbashy outfits a fleet of 14 support ships, massive 
amounts of drill pipe and a non-stop sludge reprocessing 
facility.  The Turkmenbashy refinery, operating off of 
domestic production purchased at roughly two dollars a metric 
ton, exports more than 60% of its refined product to generate 
several hundred millions of dollars in estimated profits for 
the Government of Turkmenistan.  End summary. 
 
Show Me the Oil (and Money) 
--------------------------- 
 
¶2.  (U) During a recent trip to Turkmenistan's western Balkan 
Welayat (province), which borders the Caspian Sea, embassy 
personnel discussed oil and gas issues with Turkmenbashy's 
mayor, the head of the Turkmenbashy refinery, subcontractors 
of the Malaysian firm Petronas and personnel from the U.K.'s 
Burren Resources.  Specific feedback regarding natural gas 
issues appears reftel. 
 
¶3.  (SBU) Foreign oil firms operating in Turkmenistan report 
increased daily crude oil output.  A Petronas subcontractor 
told emboff that Petronas production from offshore wells in 
the Caspian Sea is currently 45,000 barrels per day.  Latest 
data from Dragon Oil's operations around the Celeken (Hazar) 
peninsula indicate a daily production figure of approximately 
20,000 barrels.  Burren Resources Operations Manager Ron 
Gartner advised emboff that his company's production is up to 
20,000 barrels per day as well. 
 
¶4.  (SBU) The Petronas base camp in the port city of 
Turkmenbashy is expanding to accommodate Petronas activity in 
the Caspian Sea.  On a tour of the base camp, emboff explored 
the support facilities and viewed support ships dedicated to 
servicing Petronas facilities offshore.  According to a 
Petronas subcontractor, the fleet of support ships recently 
increased from 8 to the present number of 14.  (Note: At the 
time of emboff's visit on August 20, Petronas was beginning 
preparations to reposition its offshore drilling rig to a new 
site.)  Amidst large stockpiles of piping for drilling 
operations, a sludge reprocessing facility, currently 
operating full-time at a rate of two-three tons per hour, 
towers over the base camp facility. 
¶5.  (SBU) Gartner proudly advertised the profitable nature of 
Burren's operations in their fields 30 minutes southwest of 
Balkanabat.  Excluding investment costs, Gartner estimated 
his operating costs to be less than $10 per barrel.  Burren 
shoulders the burden of financing all infrastructure 
requirements in accordance with its existing production 
sharing agreement with the Government of Turkmenistan. 
Gartner added that his operations have benefited from 
consistently reasonable and level-headed interaction with 
Government of Turkmenistan officials. 
¶6.  (SBU) According to Gartner, Burren is in its final stages 
of exploration and expects to maintain current levels of 
production for the next 15 years.  A seismic exploration 
study completed three years ago revealed no new reserves. 
Burren's current production is handed over to British 
Petroleum representatives in the southern Turkmenistan port 
of Ekerem. 
 
Refinery Profit Margins Profitable 
---------------------------------- 
 
¶7.  (SBU) Phase two of the Turkmenbashy refinery's $2 billion 
expansion project is nearing completion with refining 
capacity approaching nine million tons.  According to 
Refinery Director Tachberdy Tagiev, only domestically-sourced 
crude oil, purchased from state-owned Turkmennebit at 48,000 
manat (slightly more than $2/ton using the unofficial 
exchange rate), is refined in Turkmenbashy.  While Tagiev 
refused to identify his operating costs, he revealed that the 
refinery has achieved an 85% recovery rate from crude oil 
input and exports, mostly via tanker, over 60% of overall 
production.  With low input and operating costs, and even 
allowing for reduced premiums for refined product "trapped" 
in the Caspian Sea basin, market-rate exports from the 
Turkmenbashy refinery should at least generate several 
hundreds of millions of dollars in profits for the 
 
ASHGABAT 00000922  002 OF 002 
 
 
government. 
 
Comment 
------- 
 
¶8.  (SBU) Embassy is providing this crude oil production and 
related information for further analysis in Washington.  We 
plan to explore septel the reasons for the absurdly 
uncompetitive deal that Turkmennebit has with the 
Turkmenbashy refinery and the impact of these low revenues 
for crude oil on Turkmennebit's ability to finance 
exploration and infrastructure activities.  End Comment. 
BRUSH