From: <a href="http://www.aftenposten.no/spesial/wikileaksdokumenter/article3958602.ece">Aftenposten</a><br>
Date: 24/09/2007

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C O N F I D E N T I A L 
SECTION 01 OF 02 MOSCOW 004691
SIPDIS
SIPDIS
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT 
DOE FOR HARBERT, HEGBORG, EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR MCKIBBEN
E.O. 12958:
DECL: 05/21/2017 
TAGS: EPET, ENRG, ECON, PREL, RS 
SUBJECT: CHEVRON RUSSIA PRESIDENT ON CPC BREAKTHROUGH, 
COMPANY,S PLANS IN RUSSIA, TURKMENISTAN
REF: A. MOSCOW 4669 B. MOSCOW 509

MOSCOW 00004691 001.2 OF 002

Classified By: Econ MC Eric Schultz for Reasons 1.4 (b/d)

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SUMMARY 
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1. (C)
Chevron Russia President Ian MacDonald told us August 20 that
Caspian Pipeline Consortium (CPC) shareholders agreed a day
earlier to new financial terms that would make the pipeline
profitable in 2008 and pave the way for long-sought CPC
expansion. MacDonald said expansion would be dependent on
construction of the Burgas-Alexandropolous Pipeline (BAP), but
he was hopeful agreements would be reached on both projects.
He also said Chevron is hoping to develop oil and gas fields
in Turkmenistan and is pursuing a JV with Gazpromneft,
Gazprom,s oil subsidiary. End Summary.

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CPC
BREAKTHROUGH 
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2. (C)
MacDonald told us August 20 that after years of stalled
negotiations (ref B) to alter the financial position of the
CPC, the recent shareholders meeting in Astana over the
previous two days had resulted in a reduction in the interest
rate on the CPC´s $5.5 billion (and growing) debt from 12.66%
to 6% and a temporary tariff increase from $31 to $38 per ton.

3. (C)
MacDonald said these two changes would improve CPC´s finances
by nearly $600 million per year -- turning a current loss of
approximately $240 million per year into a profit of
approximately $340 million in the first year. This would allow
CPC to begin to pay down its debt, to pay royalties to
shareholders (including the GOR), and to pay taxes to the GOR
on the new profits.

4. (C)
MacDonald said ExxonMobil had been the shareholder preventing
an earlier deal of this sort. They had been reluctant to alter
the original contract, both because ExxonMobil is also facing
pressure to renegotiate its Sakhalin 1 project (ref A) and
because it wanted to maintain its reputation for insisting on
contract sanctity.

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CPC
EXPANSION 
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5. (C)
According to MacDonald, the deal should set the stage for
CPC,s long-delayed expansion. The Russian government had
previously blocked expansion of the CPC (the only oil pipeline
in Russia not controlled by state-owned monopoly Transneft),
complaining that it mainly shipped Kazakh oil and was not
sufficiently profitable to Russia, concerns which the new
arrangements went a long way to alleviating. MacDonald added
that the interest rate and tariff reductions would expire
after one year if the GOR and the government of Kazakhstan do
not reach agreement on CPC expansion.

6. (C)
McDonald added that CPC expansion was, however, still
dependent on agreement on the BAP. Chevron strongly supports
the BAP, which would bypass the Bosporous and transport
Russian and Kazakh oil through Bulgaria and on to consumers.
MacDonald said Chevron´s interest in CPC had always been
expanding the pipeline to ship the growing volumes of oil from
its Tengiz field in Kazakhstan, which, according to MacDonald,
is set to double production. He expressed optimism that by
2014 the CPC would be carrying up to 68 million tons of oil
per year (up from the current 33), that it would be debt-free,
and that it would be "making a fortune" for its owners.

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TURKMENISTAN 
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7. (C)
MacDonald said he had just returned from a trip to Ashgabat,
where he had been positively received by Deputy

MOSCOW 00004691 002.2 OF 002

Prime Minister Tagiev and the Executive Director of the State
Agency for the Management and Use of Hydrocarbons, Bairamurat
Muradov. He said Chevron was negotiating a lease on an office
in Ashgabat, which it intended to staff with an expat. The
company was interested in developing the off-shore Serdar oil
field, which lies in disputed waters. Chevron hoped its
involvement could resolve the dispute and lead to a production
sharing arrangement between Turkmenistan and Azerbaijan.

8. (C)
MacDonald said the company was also interested in developing
gas deposits in Turkmenistan,s vast Amu Darya Basin.
Turkmenistan had been impressed with Chevron,s technology and
was interested in working with Chevron to develop the gas
fields but remained wary of Russian reaction to its partnering
with an American firm. He said Turkmenistan had the potential
to meet its contractual commitments to Russia and China and
pursue a third export route to the West. MacDonald said in his
view, developing upstream capacity in Turkmenistan would
inevitably lead to new export pipelines rather than the
reverse.

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GAZPROM 
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9. (C)
MacDonald called Gazprom a problem, describing it as an
unstable company run by politicians. Rosneft and Lukoil by
contrast are run by competent technocrats. He said Gazprom´s
proposal to major international companies to join in the
development of the giant Shtokman gas field had been
completely unattractive, which is why Chevron decided in May
that it would not participate. A company would have to
&amp;sink billions into a Shtokman, hoping they won´t screw
you in the revenue phase."

10. (C)
MacDonald added, however, that Chevron is in the closing phase
of negotiations on a JV with Gazpromneft (Gazprom´s oil
subsidiary) to develop some small fields. He said Chevron´s
initial investment would only be in the $200-300 million
range, not much to lose if things went south, and that if all
went as planned, production revenues would ramp up quickly.

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COMMENT 
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11. (C)
The CPC breakthrough is potentially very good news. CPC
expansion should bring more Kazakh and Russian oil to the
market. It will also further entangle Russia in global energy
markets through a mutually advantageous and profitable
venture. Since BAP expansion is a condition of CPC expansion,
the deal on the CPC should add pressure on BAP parties to move
forward quickly. In Turkmenistan, Chevron is one of many firms
looking to plant roots and it remains to be seen whether it
can broker an agreement on Serdar or gain a foothold in the
gas sector. End Comment.

Russell 
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