VZCZCXRO1612
PP RUEHIK
DE RUEHAH #0017/01 0061133
ZNR UUUUU ZZH
P 061133Z JAN 10
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 4015
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 6080
RUEHBJ/AMEMBASSY BEIJING 3773
RUEHKO/AMEMBASSY TOKYO 3632
RUEHIT/AMCONSUL ISTANBUL 4322
RUCNDT/USMISSION USUN NEW YORK 1379
RHMCSUU/CDR USCENTCOM MACDILL AFB FL
RUEHVEN/USMISSION USOSCE 4258
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 02 ASHGABAT 000017 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/CEN; EEB; NEA/IR 
ENERGY FOR EKIMOFF/BURPOE/COHEN 
COMMERCE FOR EHOUSE/DSTARKS 
 
E.O. 12958: N/A 
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN: SOUTH YOLOTEN AND FOUR SERVICE 
CONTRACTS 
 
REF: 09 ASHAGABAT 1481 
 
ASHGABAT 00000017  001.2 OF 002 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY: On December 29, 2009, Turkmenistan's state- 
owned gas company Turkmengaz signed four servicing contracts 
with foreign companies totaling $9.7 billion for the 
development of phase one of the South Yoloten gas field. 
According to the contracts, the companies will drill for gas 
and build gas treatment facilities with the hope of processing 
up to 30 bcm of gas. No large western companies received any 
of the recently-awarded service contracts.  The Turkmen 
Government plans to finance the contracts through a loan 
provided by the Chinese Development bank and through 
Turkmengaz revenues.  Reportedly, the projects are due to be 
completed in 2014, and most of resulting gas is earmarked for 
China.  END SUMMARY. 
 
¶3.  (SBU) UAE-based Petrofac International (UAE) LLC, a 
branch of the New Jersey-registered Petrofac Limited, was 
awarded a $3.98 billion contract to build a gas processing 
plant with a capacity of 10 bcm per year, collection pipelines 
and other infrastructure.  Chinese National Petroleum 
Corporation's (CNPC) Chuanqing Drilling Engineering Company 
won a $3.13 billion contract for drilling and building ground 
facilities to sustain production of 10 bcm of gas per year.  A 
consortium of LG International Corporation and Hyundai 
Engineering Co. Ltd (both South Korean companies) received a 
$1.48 billion contract to build a gas processing plant with a 
capacity of up to 10 bcm of gas per year.  UAE-based Gulf Oil 
and Gas FZE won a $1.15 billion contract to drill wells for 
production of 20 bcm of gas annually. 
 
¶4.  (SBU) To date, it is unclear which portion of the $9.7 
billion in service contracts to the five companies will be 
paid through loans from the Chinese and which portion will be 
covered by Turkmengaz funds.  The Chinese Government provided 
a $4 billion loan to Turkmengaz in June 2009.  Also, 
unofficial information has circulated in Ashgabat that the 
Chinese Government will provide the Turkmen Government with an 
additional loan in the amount of nearly $5 billion.  GOTX 
officials alluded to this additional loan in November 2009 
(reftel).  Given that the GOTX was without gas revenues from 
Russia for nine months in 2009, the loans, which can be paid 
back with in-kind gas payments, would be timely. 
 
¶5.  (SBU) Except for the CNPC subsidiary, the other contract 
winners are energy sector service providers.  Gulf Oil and Gas 
FZE has only implemented one project in its history, a 
facility in Turkmenistan designed to separate natural gas 
(associated gas) from oil in the process of oil production. 
The joint Korean venture has reportedly has little experience 
building gas processing plants, but both LG and Hyundai are 
actively pursuing business opportunities in several sectors of 
the Turkmen economy. 
 
¶6.  (SBU) According to a Ministry of Oil and Gas official, the 
main criteria for the selection of contractors for these 
projects were low bids and the companies' preparedness to meet 
target production levels by the end of 2014.  The official 
opined that the gas production facilities, built according to 
these contracts, will mostly be dedicated to exporting gas to 
China.  He also noted that these four contracts make up the 
first phase of South Yoloten development and that the second 
phase is unlikely to start sooner than five-six years from now 
because there will not be sufficient export demand during that 
period of time to justify faster expansion.  The Government's 
previous plan was to bring the first phase production rate to 
 
ASHGABAT 00000017  002.2 OF 002 
 
 
40 bcm of gas per year, but the current weak demand for gas in 
the international market seem to have forced the Turkmen 
Government to decrease its target production volume for the 
first phase to 30 bcm per year. 
 
¶7.  (SBU) COMMENT: The announcement that the GOTX will develop 
phase one of its potentially lucrative South Yoloten field by 
means of service contracts with foreign companies is 
consistent with the GOTX's policy to develop its "low hanging 
fruit" in onshore gas fields with service contracts.  Some 
international oil companies (IOC) have interpreted the 
announcement to mean that the GOTX will never enter production 
service agreements (PSA) for onshore developments. 
Nevertheless, in order to develop subsalt 
hydrocarbon resources that are harder to exploit, it is 
plausible that the GOTX may offer production 
sharing conditions to IOCs, even if the GOTX insists on 
avoiding the term PSA.  Or they may give service providers 
a shot at the subsalt as well.  END COMMENT. 
 
CURRAN