When an audit confirmed in October that Turkmenistan boasted one of the world's largest natural-gas fields, Western oilmen sniffed the chance of a once-in-a-lifetime mega-deal with a country that finally seemed to be opening up to the world. They've been badly disappointed.
Though its new president has declared the country "open for business," authorities say Turkmenistan will develop its vast onshore resources itself. The majors will be limited to exploring for oil in the Caspian Sea, where the risks are higher and the possible rewards fewer.
Oil executives haven't given up hope yet. Turkmenistan desperately needs technical expertise and cash, a commodity that is increasingly tight amid the global credit crunch and plunging energy prices.
Yet the obstacles to doing business in such a closed state remain formidable. The new president, Gurbanguly Berdymukhamedov, may be more palatable than his eccentric predecessor, who kept the country cut off from the outside world for two decades. He has trotted the globe since coming to power last year and wooed foreign investors.
But deals have been few and far between. Projects that would change the global energy equation, such as a long-debated pipeline across the Caspian Sea that could bring Turkmenistan's gas to European markets, are still in the realm of speculation.
"We're getting to the point where we need to move into detailed negotiations on commercial opportunities," says Steven Mann, the U.S. Caspian energy envoy and a former U.S. ambassador to Turkmenistan. "The task is to turn interest into action."
Yet oil companies, faced with diminishing opportunities elsewhere and desperate to book new reserves, are still flocking here. Chevron Corp. has opened an office in Ashgabat, the capital, and BP PLC is following suit. An oil-and-gas conference in Ashgabat in November was so well-attended that some delegates had to camp out in hostels 40 miles outside the city because all the downtown hotels were full.
The star of the conference was South Yolotan, the super-giant onshore gas field recently audited by British consultancy Gaffney, Cline & Associates, or GCA, and found to be potentially the fourth-largest in the world.
South Yolotan would be a huge prize for the majors. But the Turkmen authorities stressed they would offer only service contracts -- not the production-sharing agreements energy companies crave, which allow them to book reserves and receive a share of future output.
"Service contracts are just not what we do," said one Western oil executive in Ashgabat. "We don't want a job. We want a relationship."
Turkmenistan might need more help from the majors than it plans. Jim Gillett, GCA's head of business development, says South Yolotan is deep, at high pressure, and under a thick layer of hard-to-penetrate salt. It also has extremely high concentrations of lethal hydrogen sulfide and carbon dioxide. "Make no mistake -- these are not easy wells to drill," he told the conference. "With world-class size come world-class challenges."
Turkmen authorities declined to comment for this article.
One big company has made it around the bar on foreign firms working onshore. China National Petroleum Corp. was able to get a production-sharing agreement to develop a big gas deposit on the right bank of the Amu Darya River because CNPC is also building a pipeline to take the gas directly from Turkmenistan to China.
Yet a lot more foreign investment will be needed if Turkmenistan is to hit its ambitious targets for growth. The country produced about 70 billion cubic meters of natural gas last year, most of which was exported north to Russia. Over the past few years it has signed big gas export deals with Russia, China and Iran, and will have to pump a lot more if it is to fulfill those commitments.
"In simple terms, it will be necessary for the Turkmen system to double its existing production over the coming years," said GCA's Mr. Gillett.
Barred from the onshore fields, some companies are looking offshore. Thirty-two license blocks are on offer in the Turkmen sector of the Caspian Sea, and the authorities say more than 60 companies have expressed an interest in working there.
The process of awarding licenses is confusingly opaque, however. There are also political hurdles to overcome. BP would like to develop an offshore oil field called Serdar, which lies conveniently close to other fields it operates on the Azerbaijani side of the Caspian. But Serdar is claimed by both Azerbaijan and Turkmenistan and drilling is unlikely until their territorial dispute is resolved.
Some tiny companies have been able to do deals, such as Dragon Oil PLC, partly owned by the government of Dubai. Diplomats say Turkmenistan sees such minnows as easier to control than the majors.
"The midsized companies are less threatening," says Kal Sandhu, country manager for Wintershall AG, which operates a joint venture in the Caspian. "We work with them, not on top of them."