VZCZCXRO6833
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #3529/01 2000801
ZNR UUUUU ZZH
P 190801Z JUL 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 2191
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 4264
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MOSCOW 003529 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND GARVERICK, 
OES MIOTKE AND COVINGTON, EAP YAMAMOTO, AND EEB SAEGER 
DOE FOR HARBERT, HEGBORG, EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR MCKIBBEN 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIA ENERGY: OIL COMPANY EXECS TELL U/S JEFFREY 
WE SHOULD BE NICE TO RUSSIA 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) Summary:  During a lunch meeting with U/S Jeffrey, 
local representatives of Chevron, ExxonMobil, and 
ConocoPhillips told us that the best way to engage Russia and 
enhance global energy security is to focus on positive 
dialogue geared towards helping Russia improve its oil and 
gas investment climate.  They said Russia is about to embark 
on a new era of oil and gas development in areas (East 
Siberia and Arctic regions) that cannot be exploited without 
Western technologies and expertise.  They lamented Russia's 
political posturing, lack of business instincts, corruption, 
and underdeveloped human capital, but suggested that these 
problems should not stand in the way of increased 
cooperation.  End summary. 
 
-------------------------------------------- 
"SHORT-TERMISM" AND PRIDE HINDER DEVELOPMENT 
-------------------------------------------- 
 
¶2. (SBU) Representatives from the three major American oil 
companies in Russia told U/S Jeffrey that a "very sensitive" 
Russia is seeking recognition of its new status and power in 
the world.  Russia feels it is being talked to, not listened 
to.  They agreed that in some sectors, the value of open 
markets and competition has been recognized and has resulted 
in spectacular development.  In others, such as energy, 
unfortunately, Russia's policy is centered on control.  They 
said Russians suffer from "short-termism" and an aversion to 
risk that hinders the long-term, risk-management strategy 
needed to develop the oil and gas sector. 
 
¶3. (SBU) One company head said that having taken over the oil 
and gas sector and seeking a model other than the American 
one, the Russians now don't know what to do.  The tax 
structure is overly burdensome, preventing needed investments 
in new fields.  However, this situation will likely reverse 
itself as oil production stagnates and/or falls.  According 
to the representatives, we can help Russia develop a better 
investment climate and redirect its tremendous talent pool, 
but we need to do so without sounding especially preachy. 
 
---------------------------------- 
NEW ERA OF OIL AND GAS DEVELOPMENT 
---------------------------------- 
 
¶4. (SBU) Having exploited the "easy" oil from Western 
Siberia, Russia now must explore and develop much more 
complex fields in Eastern Siberia and the Arctic -- an 
endeavor which, according to these experts and others, Russia 
cannot successfully undertake without Western technologies 
and expertise. 
 
¶5. (SBU) All three representatives described the 
inefficiencies they encounter in Russia.  These are due to a 
lack of risk-management expertise as well as a managerial 
class educated and trained in Soviet times, completely 
sheltered from international business practices and 
capitalism.  For example, a Russian refinery is 3-4 times the 
size of a U.S. one, due to concerns that result in unneeded 
spacing between complexes because the Russians expect part of 
the refinery to explode sooner or later.  Another example 
given was Lukoil's West Qurma project in which Lukoil plans 
to drill 500 wells with the same expected result as an 
American company could obtain with 70.  One representative 
said a local partner's measure of results included "meters of 
well drilled" -- a seemingly Soviet objective unrelated to 
results, but often still codified in licenses issued. 
 
---------------------------------- 
"MOST WORKERS OVER 4O ARE USELESS" 
---------------------------------- 
 
¶6. (SBU) One company representative bluntly said that most of 
his Russian workers over the age forty, unless they have 
spent significant time abroad or previously worked for an 
international company, are of little value.  Their mindset 
and work practices, resulting from training and education in 
 
MOSCOW 00003529  002 OF 002 
 
 
the Soviet period, are nearly impossible to change.  One 
company has two adjacent projects with two different local 
partners.  In one, 15 years of cooperation have yielded some 
of the best results the company enjoys globally.  In the 
newer venture, due to the workforce having been unexposed to 
international best practices, the results are among the 
company's worst globally. 
 
--------------------------------- 
THE USG TONE NEEDS TO BE POSITIVE 
--------------------------------- 
 
¶7. (SBU) Acknowledging all of Russia's shortcomings, from 
political posturing to corruption, the executives were 
unanimous and clear in their interest that the USG approach 
Russia in a positive manner.  Asserting that threats and 
lectures only backfire, they suggested the USG try to help 
Russia improve its investment climate by seizing on the 
potential of Russia and avoiding unnecessary confrontation. 
 
This cable has been cleared by U/S Jeffrey. 
BURNS