08ASTANA65, KAZAKHSTAN: CHEVRON FACES THE SQUEEZE AT TENGHIZ

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Reference ID Created Released Classification Origin
08ASTANA65 2008-01-14 10:54 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0019
PP RUEHWEB

DE RUEHTA #0065/01 0141054
ZNY CCCCC ZZH
P 141054Z JAN 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1484
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0362
RUEHAK/AMEMBASSY ANKARA PRIORITY 2119
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L ASTANA 000065 
 
SIPDIS 
 
SIPDIS 
 
ENERGY FOR EKIMOFF 
COMMERCE FOR HUEPER 
STATE FOR SCA/CEN (M. O'MARA) AND EEB 
 
E.O. 12958: DECL: 01/14/2018 
TAGS: EPET ENRG ECON PREL KZ
SUBJECT: KAZAKHSTAN: CHEVRON FACES THE SQUEEZE AT TENGHIZ 
AND KARACHAGANAK 
 
 
Classified By: AMBASSADOR JOHN ORDWAY FOR REASONS 1.4(B) and (D) 
 
1. (C) Summary:  Chevron executives Guy Hollingsworth and 
James Johnson told the Ambassador on January 11 that 
Chevron is facing "sanctity of contract" issues at its two 
most significant fields in Kazakhstan, Tenghiz and 
Karachaganak.  Earlier in the day, the two had warned Prime 
Minister Masimov that Chevron views as unacceptable new 
fees levied at Karachaganak for permitted (rather than 
actual) emissions and at Tenghiz for sulphur storage. 
Nevertheless, they affirmed that Tenghiz continues to be 
extremely productive (and profitable), and informed the 
Ambassador of plans to build a joint Kazakhstan-Chevron 
pipeline.  End Summary. 
 
2. (C) Guy Hollingsworth, President for Chevron Eurasia, 
Europe and Middle East Exploration and Production, and 
James Johnson, Chevron Eurasia Strategic Business Unit 
Managing Director, told the Ambassador on January 11 that 
Chevron is experiencing "sanctity of contract" problems at 
Tenghiz and Karachaganak.  At Tenghiz, Tenghizchevroil has 
been charged $309 million dollars to store sulfur. 
Tenghizchevroil, they said, has a contractual right to 
store sulfur without cost. 
 
3. (C) The Karachaganak consortium, where Chevron is a non- 
operating partner, is also facing unjustifiable fees, they 
said.  Hollingsworth reported that the consortium developing 
the field has reduced emissions under the operatorship of 
British Gas.  Now, he said, the Kazakhstanis are trying to 
charge the consortium for permitted emissions, rather than 
actual.  The consortium has refused to pay the extra costs. 
The Kazakhstanis have in turn frozen the consortium's bank 
accounts. 
 
4. (C) Prior to speaking with the Ambassador, Johnson and 
Hollingsworth had met with Prime Minister Masimov and told 
him that Chevron is extremely concerned with the situations 
at Karachaganak and Tenghiz.  Chevron can't do business in 
such an enviroment, they warned.  They also told Masimov 
that it is in no one's interest, least of all Kazakhstan's, 
to go to the courts. 
 
5. (C) The $300 million sulfur storage fee, noted 
Hollingsworth, is small pittance for Kazakhstan when 
compared to the country's overall earnings from Tenghiz. 
Hollingsworth estimated that Tenghiz generated $3 billion 
in revenue for Kazakhstan in 2007, to jump to $8 billion by 
the time of first expansion later this year and to $16 
billion 
by final expansion. Hollingsworth and the ambassador agreed 
that most often the extra fees levied on foreign companies at 
places like Tenghiz and Karachaganak are generated by 
regional 
officials, because the money goes to local budgets.  Johnson 
said that actions at Tenghiz indicate that Kazakhstan is 
trying to change the contract for Tenghiz. 
 
6. (C) Hollingsworth informed the Ambassador of plans to 
build a pipeline to deliver Tenghiz crude to the Caspian. 
According to Hollingsworth, Chevron approached Timur 
Kulibayev one year ago with the pipeline idea, motivated by 
increased production at Tenghiz and near-maximized rail 
capacity.  Kulibayev said no on a pipeline, but promised 
to bring Chevron in to the Kazakhstani Caspian Transportation 
System (KCTS).  Chevron, however, has been unable to join 
KCTS. In December, Chevron again raised the pipeline with 
Kulibayev, with Kulibayev this time agreeing.  The pipeline 
will be a joint Chevron-Kazakhstan project, with no other 
partners and Kazakhstan as the builder and operator. Chevron 
will hold 25% and provide some technical assistance during 
the construction phase.  (Comment: In a January 11 meeting 
with Senator Lugar, Prime Minister Masimov confirmed that 
Kazakhstan is in talks with Chevron with about building a 
pipeline. Masimov and the Chevron representatives also 
offered 
a similar message on reports of CPC expansion - both said 
that 
problems still remain. End comment.) 
 
7 (C) Comment: Chevron maintains a very healthy relationship 
with the Government of Kazakhstan. Nevertheless, its problems 
at Karachaganak and Tenghiz demonstrate that even the 
strongest 
ties to Astana do not currently guarantee absolute protection 
 
from arbitrary actions by regional authorities, or by less 
progressive members of the GOK.  Chevron has an enviable 
track 
record of using its long-standing positive relationships, 
coupled by very judicious use of threats to shut down 
production, to resolve its problems.  With the Tenghiz 
revenue 
stream about to explode and the GOK getting 70% of each 
additional dollar in the rise of the price per barrel, there 
should be little stomach in Astana to kill the California 
goose that is laying ever bigger golden eggs for the GOK. 
End Comment. 
ORDWAY

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