VZCZCXRO2350
RR RUEHAG RUEHDBU RUEHDF RUEHIK RUEHLN RUEHLZ RUEHROV RUEHVK RUEHYG
DE RUEHAK #0187/01 0301146
ZNR UUUUU ZZH
R 301146Z JAN 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 0757
INFO RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHGB/AMEMBASSY BAGHDAD 0875
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHIT/AMCONSUL ISTANBUL 2010
RUEHDA/AMCONSUL ADANA 1592

UNCLAS SECTION 01 OF 02 ANKARA 000187 
 
SIPDIS 
 
USDOE FOR CHARLES WASHINGTON 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET BEXP TU IZ
SUBJECT:  TURKEY REVITALIZES ITS PETROLEUM CODE 
 
REF: A: ANKARA 41 
B: 06 ANKARA 2877 
 
ANKARA 00000187  001.2 OF 002 
 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
¶1.  (SBU) SUMMARY: In a long-awaited good news story for its 
investment environment, Turkey finally passed a new petroleum code, 
intended to provide more attractive incentives to encourage foreign 
investment in oil and gas exploration and production.  The U.S. 
company Toreador, which will start production in March at a small 
natural gas field on the Black Sea, described the new law as 
providing appropriate incentives to attract foreign companies given 
that Turkey does not enjoy a hydrocarbon-rich geology.  Toreador 
gave the U.S. Embassy credit for the success; the Ambassador's 
letter to the Prime Minister urging passage came at a critical point 
to finally push the law onto the parliament's agenda.  The company 
was happy with the new law, even though the Finance Ministry 
whittled away some elements from earlier drafts.  Meanwhile, Turkish 
and Turkey-based U.S. companies continue to explore oil and gas 
opportunities in northern Iraq.  End Summary. 
 
------------------------------------- 
Long-Awaited New Petroleum Law Passes 
------------------------------------- 
 
¶2.  (SBU) While the electricity sector faces woes from looming 
supply shortages to delays in privatization and inability to 
liberalize prices (refs), the petroleum sector with little fanfare 
achieved an important "open for business" step forward.  American 
Toreador's country manager Roy Barker thanked the Embassy for its 
role in finally gaining passage of the new petroleum law, which had 
been pending for four years.  Barker summarized the new law as up to 
international standards, appropriate for a "difficult" place; i.e., 
not Norway.  He cited these positive elements: 
 
-Steep reduction in royalty payments, particularly for offshore 
licenses, with various steps depending on level of production; 
 
-Clarification and ease of licensing, particularly for offshore 
development; 
 
-Ease of import of oil field equipment; 
 
-Longer license terms; 
 
-More advantageous repatriation of registered capital (an issue of 
particular importance to Toreador). 
 
¶3.  (SBU) Barker observed that the Finance Ministry hacked some 
other important provisions at the last minute, such as reducing the 
loss carry-forward period, but he expressed satisfaction with the 
final product.  The Toreador rep noted that Turkish state oil 
company TPAO maintained its privileged position, but foreign 
companies would enjoy greater rights and protections. 
 
--------------------------------------- 
American Domestic Natural Gas Good News 
--------------------------------------- 
¶4.  (SBU)  Barker stated that Toreador's new shallow Black Sea 
natural gas field at Akcakoca would begin production in March.  He 
expected Prime Minister Erdogan to attend the opening ceremony and 
hoped for Embassy representation.  Barker noted that this was an 
American investment good news story.  Although production would be a 
modest 2-4 million cm per day, it was welcome given Turkey's 
overwhelming dependence on imported natural gas.  It could cushion a 
small part of domestic supply or contribute in a modest way to 
export to Greece.  Barker stated that the Akcakoca project totaled 
$330 million in investment, with partners TPAO and American Stratic. 
 He noted that Toreador was continuing to drill promising 
exploratory wells at additional locations.  While enthusiastic about 
their success, Barker admitted that Toreador would likely continue 
its lawsuits on contention over repatriation of profits and a 
disputed adjacent license with TPAO. 
 
----------------------------------- 
Chevron Perseveres in the Southeast 
----------------------------------- 
 
¶5.  (SBU)  Chevron Country Manager John Connor also expressed 
satisfaction at passage of the long awaited new petroleum law.  He 
stated that the Energy Minister was very eager for companies to 
 
ANKARA 00000187  002.2 OF 002 
 
 
announce discoveries in the runup to the election.  Chevron has 
experienced great difficulty in gaining access to its Silopi license 
in the Cudi Mountains in the southeast near Iraq.  After finally 
gaining approval to commence seismic work last spring, after a few 
months work, the company suffered the death of a local employee from 
a PKK-related IED.  The company ceased operations there, but still 
completed its work requirement under its license when partner 
Perenco drilled a small dry well on the safer side of Silopi.  Given 
the Ministry's eagerness to facilitate exploration and to not admit 
defeat from the PKK threat, local partner TPAO will recommence 
seismic work in the mountains next spring.  Having acquired Unocal's 
interests, Chevron is now a partner in BTC and was a passive partner 
in the BP-operated deep-water exploration in the eastern Black Sea, 
which unfortunately did not achieve successful results. 
 
¶6.  (SBU) Other small American companies are active in exploration 
in Turkey, including Aladin and Terralliance.  Terralliance has just 
opened an office in Ankara to support its operations. 
 
-------------- 
GAZING AT IRAQ 
-------------- 
 
¶7.  (SBU)  Even as the new law encourages more domestic oil and gas 
exploration (many Turks dream that Turkey floats on an unfound sea 
of oil), Turkish, American, and other companies are casting a 
longing eye at developments across the border in Iraq, where 
progress is reported on its new Hydrocarbon Law.  Along with 
Norwegian DNO, Turkish companies Genel Enerji and Petoil (which has 
farmed out interests to American partners Prime and Calibre) have 
signed licenses with the KRG and have announced discoveries.  In a 
recent meeting with the Embassy, Petoil said that the two Turkish 
companies had tacit GOT approval to establish a foothold in northern 
Iraq, whereas state companies do not yet have a green light from the 
GOT.  Egress for potential oil production in northern Iraq is still 
unclear.  The logical option of unused capacity in the Kirkuk-Ceyhan 
pipeline will likely have to await approval by both Baghdad and 
Ankara.  Larger companies like Chevron are awaiting clarity that 
will presumably come with passage of the new hydrocarbon law. 
Chevron is interested in the geology across the border from its 
Silopi license. 
WILSON