06ASTANA, KAZAKHSTAN: EXXONMOBIL UPDATES AMBASSADOR ON CPC

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Reference ID Created Released Classification Origin
06ASTANA 2006-10-19 06:43 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO7344
PP RUEHDBU
DE RUEHTA #0204/02 2920643
ZNY CCCCC ZZH
P 190643Z OCT 06 ZDK(TAO)
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7333
INFO RUCNCIS/CIS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 02 OF 02 ASTANA 00 
 
SIPDIS 
0204 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 10/18/2015 
TAGS: ENRG EPET KZ PGOV PREL
SUBJECT: KAZAKHSTAN: EXXONMOBIL UPDATES AMBASSADOR ON CPC 
PIPELINE, KCTS PROJECT 
 
 
*********************** 
* Missing Section 001 * 
*********************** 
 
 
ASTANA 00000000  002 OF 002 
 
 
CPC Negotiations: New Governance Proposal on Table 
--------------------------------------------- ----- 
 
5. (C) Willis informed the Ambassador that a recent, new 
proposal on CPC corporate governance held some promise for 
unblocking the long-stalled expansion negotiations (Ref B). 
The proposal would arrange voting rights to ensure that the 
GOR did not have the ability to change the structure of the 
venture over the objections of the non-governmental 
shareholders.  However, he said, before moving forward 
ExxonMobil needed assurances that the proposal had high-level 
Russian backing, and was not merely the creation of the 
working level team.  If ExxonMobil received a signal however, 
that high-level Russian decision-makers backed the 
compromise, the company would "engage and go forward," with 
the remaining economic issues unlikely to present a serious 
obstacle to agreement. 
 
6. (C) Willis assured the Ambassador that, on the issue of 
governance, at least, the major CPC partners were in sync. 
Willis explained that, of all the CPC partners, British 
Petroleum (BP -- with only a 2.5% share) was most ready to 
give in to Russia's demands, because BP was seeking to sell 
its share of both CPC and TengizChevroil (5%, held as a joint 
venture with Lukoil) and wanted a CPC deal in order to 
enhance the value of its holdings. 
 
ExxonMobil Not Interested in Bosphorus Bypass 
--------------------------------------------- 
 
7. (C) Continuing the conversation about CPC expansion 
negotiations, Willis told the Ambassador that ExxonMobil 
had no interest in participating in any Bosphorus bypass 
project, including Burgos-Alexandropolis.  "We just can't see 
the economics," he said, suggesting that any company which 
joined the project would pay an additional $1 per barrel of 
oil to ship crude to the Black sea, while those which did not 
sign up would "just sail through the Bosphorus, waving."  The 
Ambassador suggested that $1 per barrel seemed like a very 
reasonable "insurance premium" against the possibility that 
an accident or terrorist act might close the Bosphorus. 
Willis disagreed, replying that ExxonMobil "doesn't assess 
the risk as that great." 
 
8. (C) Comment:  We find it interesting that ExxonMobil is 
preparing to assert itself in KCTS negotiations -- both 
within the HGA process and, potentially, by leading 
negotiations between the Kazakhstan-based producers and the 
BTC Co. -- after playing only a passive role in the 
recently-completed BTC IGA negotiations.  ExxonMobil, at 
least, seems to have seized on the future Eskene-Kuryk 
pipeline as a lower-cost way to ship second generation Tengiz 
production to market than the railroad-based route currently 
being negotiated and constructed (Ref C).  Whether the HGA 
negotiations proceed rapidly enough to make KCTS a 
cost-saving alternative for Tengiz may depend on whether KMG 
-- as a Tengiz partner -- buys into ExxonMobil's (and, 
presumably, Chevron's) vision, and whether the Tengiz parties 
can impose their sense of urgency on other negotiating 
parties more habituated to the (receding) deadline of 
Kashagan's first production.  End Comment. 
ORDWAY

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