08ASTANA1974, KAZAKHSTAN: CONOCOPHILLIPS SIGNS MAJOR OFFSHORE DEAL

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Reference ID Created Released Classification Origin
08ASTANA1974 2008-10-06 11:02 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO9221
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHPOD RUEHPW RUEHROV RUEHSR RUEHVK
RUEHYG
DE RUEHTA #1974/01 2801102
ZNR UUUUU ZZH
O 061102Z OCT 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3514
INFO RUCNCIS/CIS COLLECTIVE 0666
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0069
RUEHKO/AMEMBASSY TOKYO 0779
RUEHBS/USEU BRUSSELS
RUEHVEN/USMISSION USOSCE 1953
RUCNDT/USMISSION USUN NEW YORK 1901
RUEHNO/USMISSION USNATO 2238
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0224
RUEKJCS/SECDEF WASHDC 0146
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 02 ASTANA 001974 
 
SIPDIS 
SENSITIVE 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS TO TDA FOR DAN STEIN 
 
E.O. 12958:  N/A 
TAGS: PGOV PREL EPET EINV RS TX KZ
SUBJECT:  KAZAKHSTAN:  CONOCOPHILLIPS SIGNS MAJOR OFFSHORE DEAL 
 
REF: MOSOCW 2855 (NOTAL) 
1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
2.  (SBU) SUMMARY:  On October 5, ConocoPhillips CEO Jim Mulva 
signed a memorandum of understanding with Kazakhstan's national oil 
and gas company, KazMunaiGas (KMG), and Abu Dhabi's Mubadala for the 
exploration and development of the N Block, a very significant 
offshore field 30 kilometers south of Aktau in the Caspian Sea. 
During a meeting with the Ambassador and visiting Caspian Basin 
Energy Diplomacy Coordinator Ambassador Steve Mann following the 
signing ceremony, Mulva requested U.S. assistance with his company's 
negotiations on a production deal with Turkmenistan, discussed 
Russian President Putin's comments at the September 19 CEO summit in 
Sochi, and praised the efforts of Kazakhstani Minister of Energy and 
Mineral Resources Mynbayev to finalize negotiations on Kashagan. 
END SUMMARY. 
 
AT LONG LAST, CONOCO-PHILLIPS SIGNS DEAL TO DEVELOP THE N BLOCK 
 
3.  (SBU) ConocoPhillips CEO Jim Mulva (strictly protect) informed 
the Ambassador and visiting Eurasian Energy Diplomacy Coordinator 
Ambassador Steve Mann on October 5 that his company had signed a 
memorandum of understanding that day with Kazakhstan's national oil 
and gas company, KazMunaiGas (KMG), and Abu Dhabi's Mubadala for the 
exploration and development of the N Block, a very significant 
offshore field 30 kilometers south of Aktau in the Caspian Sea.  The 
contract will be a tax and royalties agreement, rather than a 
production sharing agreement (PSA), since PSAs will no longer be 
used in Kazakhstan in accordance with a new subsoil use law that the 
government will soon submit to parliament.  Per the memorandum of 
understanding, KMG will own 51% of the venture, while ConocoPhillips 
and Mubadala will each own 24.5%.  ConocoPhillips will be the lead 
operator and will have exclusivity on the final negotiations, which 
must be concluded by December 31.  The N Block covers approximately 
8,100 square kilometers, with strong prospects there for both oil 
and gas. 
 
4.  (SBU) ConocoPhillips has served as technical advisor to KMG for 
the N Block since February and has pursued the exploration contract 
for the past six years.  Shell has also aggressively pursued the N 
Block, and at one time was told by President Nazarbayev that they 
would be chosen for the project.  Mulva explained that, in fact, the 
Dutch Ambassador was trying to schedule a meeting with President 
Nazarbayev on October 6 to renew Shell's offer.  Mulva candidly told 
the Ambassadors how ConocoPhillips won the day.  He said that during 
his previous visit to Kazakhstan in June, Prime Minister Massimov 
pulled him aside after a brief formal meeting and said, "the 
solution to the N Block is in Abu Dhabi.  The President and the 
Sheikh want to get something done."  According to Mulva, President 
Nazarbayev and Sheikh Mohamed bin Zayed maintain a close personal 
friendship, and Nazarbayev "loves going down there to play golf once 
or twice a year."  It was clear to Mulva that KMG had been ordered 
by the President to conclude the deal for the N Block quickly and 
together with Abu Dhabi.  "This was a state-to-state deal, pushed 
from the top down," said Mulva. 
 
TURKMENISTAN DEAL STILL STALLED 
 
5.  (SBU) Mulva said that ConocoPhillips has never met with Turkmen 
President Berdimuhamedov and asked for the U.S. government's 
assistance to arrange a meeting and a fair hearing.  Ambassadors 
Hoagland and Mann suggested that Mulva meet in Washington with 
Ambassador Richard Miles, incoming Ashgabat Charge, to brief him on 
the relevant issues.  Mulva said that ConocoPhillips had been "very 
close" to negotiating a deal for the development of offshore blocks 
19, 20 and 21 (the last of which would be developed jointly by 
ConocoPhillips' partner Lukoil, with both partners equally sharing 
the profits from all three blocks) and had had a meeting scheduled 
with Berdimuhamedov, but that was called off at the last minute "at 
the request of the Russian Foreign Ministry."  Mulva said that 
previous efforts to build relationships with mid-level officials in 
the Turkmen government had been hindered by the "heavy handed" 
 
ASTANA 00001974  002 OF 002 
 
1.  (U) Sensitive but unclassified.  Not for public In
ternet. 
 
approach of Lukoil, in which ConocoPhillips holds a 20% stake. 
"That irritates the hell out of people," he said.  According to 
Mulva, former Russian Ambassador to the United States Yuri Ushakov 
understands and appreciates this.  Mulva said that in his 
conversations with Ushakov, it was clear that he recognizes that 
Russia needs to become a more reliable supplier of energy. 
 
PUTIN'S PASSION AT SOCHI SUMMIT 
 
6.  (SBU) Mulva said that on September 19, he had participated in a 
business roundtable with Russian Prime Minister Putin and other 
prominent CEOs in Sochi.  According to Mulva, Putin was especially 
passionate and animated when addressing the Western CEOs present. 
Putin pointed his finger at them and said that Russia has been naive 
for many years in its relations with the West.  Mulva paraphrased 
Putin:  "When you said tear down the Berlin Wall, we tore down the 
Berlin Wall.  When you said give up your satellite countries, we 
gave up the satellite countries.  When you said export your energy 
resources, we exported our energy resources.  What else do you want 
from us?  You just want everything.  You don't ask us what we need 
or understand what we want.  We feel like we've rolled over and been 
taken advantage of."  (NOTE:  See reftel for a different take on 
Putin's comments from Chevron CEO David O'Reilly.  END NOTE.) 
 
MYNBAYEV DRIVES KASHAGAN NEGOTIATIONS FORWARD 
 
7.  (SBU) Mulva also participated this week in the final-stage 
Kashagan negotiations to resolve taxation and operating structure 
issues.  Mulva said that a Kashagan agreement will be signed by 
October 25, thanks largely to the efforts of Minister of Energy and 
Mineral Resources Sauat Mynbayev.  Mulva told the Ambassadors that 
Mynbayev was "personally, directly, heavily involved" in the 
Kashagan negotiations.  "He put hours and hours into this deal," 
said Mulva.  "He's the guy who made this happen."  (NOTE: 
ExxonMobil informed us on October 6 that the Kashagan talks had 
stalled over export and transportation issues.  As a result, their 
senior corporate representatives would be tied up and thus not be 
able to attend the Kazakhstan International Oil and Gas Exhibition 
taking place in Almaty during October 7-10.  END NOTE.) 
 
HOAGLAND

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