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C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000207 
 
SIPDIS 
 
STATE FOR SCA/CEN; EEB; 
ENERGY FOR EKIMOFF/BURPOE/COHEN 
COMMERCE FOR DSTARKS/EHOUSE 
 
E.O. 12958: DECL: 02/12/2020 
TAGS: EPET ECON PGOV EINV BTIO AJ TX
SUBJECT: TURKMENISTAN: BURIED HILL STILL HOPES TO DRILL IN 
DISPUTED WATER 
 
REF: 09 ASHGABAT 976 
 
Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d). 
 
¶1. (C) SUMMARY: The Cyprus-registered energy company Buried 
Hill hopes to drill in Block 3 of the Caspian by the end of 
¶2010.  The company has completed seismic exploration and a 
required environmental impact study and is awaiting Turkmen 
governmental approval before it begins drilling.  However, 
the area that Buried Hill wants to drill is disputed 
territory with Azerbaijan.  Buried Hill's general manager in 
Ashgabat thought the dispute could be resolved via 
international arbitration.  He stressed the Turkmen 
government's support for arbitration, while acknowledging 
that the government of Azerbaijan would have to consent to 
arbitration.  For now, Buried Hill continues to press 
forward, but it is unlikely the company will receive 
permission to drill from the Turkmen government unless the 
two governments can reach a compromise.  END SUMMARY. 
 
¶2. (C) On February 12, econoff met with the Buried Hill 
general manager and Turkmen citizen Eldar Iskanderov, who 
discussed the international energy company's progress in 
developing Caspian offshore Block 3.  Iskanderov explained 
that the company is officially based in Cyprus as an offshore 
company, but its President, Canadian oilman Roger Haines, 
directs the company from Calgary.  Haines formed the company 
in 2002, and began seriously courting the Government of 
Turkmenistan (GOTX) for an energy deal in 2004.  He added 
that Buried Hill's "stroke of genius" was playing to 
President Berdimuhamedov's love of hosting high-level foreign 
visitors.  Former Canadian Prime Minister Jean Chretien 
arrived in Ashgabat to lobby a deal for the company in 
September 2007.  Three months following Chretien's visit, 
Buried Hill signed an offshore production sharing agreement 
(PSA) with the Government of Turkmenistan (reftel). 
 
A PSA IN DISPUTED WATERS? 
 
¶3. (C) The PSA Buried Hill entered was for hydrocarbon 
exploration and production in the field which the Turkmen 
call "Serdar," located in Block 3.  The Government of 
Azerbaijan (GOA) disputes the Turkmen claim to Serdar, and 
refers to the area as "Kyapaz."  Despite public outcry by the 
GOA against any Turkmen projects in the disputed area in 
2005, the Turkmen decided to sign a PSA with Buried Hill 
anyway.  The Buried Hill general manager did not think that 
the dispute between Azerbaijan and Turkmenistan was a 
showstopper.  Instead, he asserted that Turkmenistan has 
taken steps to peacefully resolve any disputes through 
international arbitration, but to date, has not officially 
filed for arbitration.  He admitted that in order for 
arbitration to commence, Azerbaijan would also have to 
consent to arbitration; something it has not been willing to 
do. 
 
¶4. (C) According to the Buried Hill general manager, the 
company began 3D seismic exploration in Serdar 10 days after 
the company signed its PSA, which showed the company's 
commitment to the project.  Collecting and analyzing the 
seismic data ended in 2008.  He stressed that his company had 
no incidents with Azerbaijani ships or representatives of the 
GOA during the seismic data collection.  He noted that there 
are many Azerbaijani ships in the vicinity of Serdar which 
work in the Azeri Chirag Gunashli (ACG) field, but none of 
them have ever interfered with Buried Hill work in Serdar. 
At the same time, he acknowledged that the GOA would not view 
favorably reports of plans to drill in the disputed area.  He 
cited agreements among Caspian states in which Turkmenistan 
and Azerbaijan reportedly agreed to resolving any disputes in 
 
ASHGABAT 00000207  002 OF 002 
 
 
the Caspian through non-aggressive means.  He opined that the 
two countries would hold to these agreements, and eventually 
resolve the issue through international arbitration or 
possibly through bilateral negotiations. 
 
NEXT STEPS 
 
¶5. (C) The company employs 100 workers in a state-of-the art 
office building near downtown Ashgabat.  The general manager 
has been in his position for six years and felt strongly that 
Buried Hill was committed to future projects in 
Turkmenistan's energy sector.  He added that any future 
projects would have to wait until Block 3 was successfully 
drilled, but was confident that the seismic data show real 
promise for "lots of hydrocarbons."  He stated that his 
company recently submitted its required environmental 
baseline study and is awaiting GOTX approval.  Once approval 
is given, he added, Buried Hill will seek final approval to 
drill one hole in Serdar.  He hoped the GOTX would give 
approval to drill, but admitted they could withhold approval 
until the disputed area is resolved.  Should the GOTX approve 
drilling, he estimated that preparations would take between 6 
and 8 months, thus putting the commencement of drilling near 
the end of 2010.  He thought that drilling would cost the 
company about $312,000 per day. 
 
¶6. (C) COMMENT:  The political implications of actually 
drilling in Block 3 without agreement between Turkmenistan 
and Azerbaijan are likely to keep the PSA at a standstill for 
some time.  Since few see a quick resolution to the disputed 
area, it is unlikely that Buried Hill would be able to 
convince other companies to buy out its PSA, which is the 
company's likely desired end game.  As a result, it seems 
likely that Buried Hill will be busy keeping up hopes and 
appearances for the foreseeable future.  END COMMENT. 
CURRAN