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DE RUEHAH #0693/01 1560540
ZNR UUUUU ZZH
P 050540Z JUN 09
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2913
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 02 ASHGABAT 000693 
 
SENSITIVE 
SIPDIS 
 
SCA/CEN; EEB 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: PGOV EPET EINV TX
SUBJECT: TURKMENISTAN: THREE ENERGY OFFICIALS DESCRIBE 
ENERGY DEVELOPMENT PLANS 
 
¶1.  (SBU)  SUMMARY:  The heads of Turkmenistan's Oil and Gas 
Ministry and Gas and Oil Concerns met with SE/EE 
Morningstar's delegation, and shared their understanding and 
interpretation of Turkmenistan's energy development strategy. 
 The group reiterated the government's intention to use 
foreign energy service companies to develop onshore fields in 
a piecemeal fashion rather than employ an integrated 
approach.  The agency heads were receptive to the idea of 
company proposals that contain financially beneficial 
provisions outside of production sharing, and shared a few 
examples they had recently considered.  It will be up to 
private companies to develop new types of service and 
service-risk agreements that will make their operations here 
more profitable.  Government representatives are not going to 
show them the way.  END SUMMARY. 
 
YOLOTAN--SHORT TERM INVESTMENT? 
 
¶2.  (SBU)  On May 29, the SE/EE Morningstar delegation met 
with the heads of Turkmenistan's Oil and Gas Ministry, State 
Gas Concern, and State Oil Concern to get their take on 
sectoral development and the potential for a larger foreign 
company role.  Oil and Gas Minister Annaguly Deryayev said 
that the Turkmen government views the onshore investment 
period as very short-term, leading it to use service 
companies instead of major energy companies to develop 
onshore resources.  He assessed that $8-12 billion in 
investment would be required to develop South Yolotan. 
(NOTE:  Although he provided no further information regarding 
the investment figure, the number may be the government's 
assessment of the amount of investment that will be required 
to raise South Yolotan's production to 20 bcm per year, which 
has been stated as a near-term goal to fulfill Turkmenistan's 
obligation to deliver 17 bcm per year to the future 
Turkmen-China pipeline.  END NOTE.) 
 
EXPOUNDING ON NEAR-TERM GOALS 
 
¶3.  (SBU)  Turkmen State Gas Concern Chief Baymurat 
Hojamuhammedov said his Concern was looking for service 
companies and investment.  He noted that they expected 3-4 
years of investment returns.  Foreign service companies, he 
said, had the technology needed for onshore development, and 
the Concern was currently negotiating with a range of 
companies.  He also noted that his Concern was playing an 
active role in helping Turkmenistan to realize its export 
pipeline diversification policy (but he did not expand). 
Turkmen State Oil Concern Chief Orazdurdy Hajymuradov said 
his Concern was responsible for producing oil only onshore. 
The Oil Concern was focusing its work with foreign service 
companies on boosting production at existing wells, to 
include refurbishment and modernization of well structures. 
 
EXPLORING ALTERNATIVE AGREEMENT STRUCTURES 
 
¶4.  (SBU)  The delegation asked the trio if there was 
interest in mutually beneficial deals with major energy 
companies that were based on service, were long-term, and 
perhaps involved joint operations.  Perhaps such deals could 
transition further down the road to include the companies 
receiving royalties on the production or favorable tax 
conditions, but would not involve any production sharing. 
Would such offers be of interest to Turkmenistan? 
Hojamuhammedov said the description sounded most like a 
risk-service agreement.  He noted that the Gas Concern had 
been interested in a deal with the British-based BG Group 
along these lines, but only the State Agency for the 
Management and Use of Hydrocarbons has the necessary 
authority to negotiate such a deal.  He said that the Concern 
 
ASHGABAT 00000693  002 OF 002 
 
 
had considered other proposals that did not include 
production sharing.  By example, he said the Concern had 
considered a deal with Shell to process sulfur at one point, 
and Chevron was now in talks with the Concern. 
 
¶5.  (SBU)  Hojamuhammedov said that he welcomes foreign 
companies to come and propose unconventional deals.  The 
U.S.-based company, MI Swaco Drilling is in negotiations with 
the Gas Concern now to develop a joint service company, and 
another similar proposal is in consideration to develop a 
joint gas processing facility.  Hojamuhammedov indicated that 
Turkmenistan has an overall strategy for developing the 
sector, but that the strategy will be realized through 
different companies fulfilling specific tasks.  He added that 
the Turkmen Gas Concern had hired the British consulting firm 
Gaffney, Cline and Associates to advise the Concern on its 
approach to gas development. 
 
¶6.  (SBU)  COMMENT:  The meeting underscored the government's 
determination to develop onshore resources using only service 
companies.  It does appear that the country's energy agencies 
are reviewing and considering a wide variety of creative 
project proposals that fall outside of the narrow parameters 
of typical service or service-risk agreements.  Agency heads 
are not, however, going to provide companies with guidance on 
the elements of an agreement that would provide additional 
benefit for companies and yet still be acceptable to the 
government.  It seems that foreign companies will have to 
take the initiative to propose mutually acceptable 
alternatives.  END COMMENT. 
 
¶7.  (U)  Special Envoy Morningstar cleared this cable. 
MILES