from the special April 2010 issue on the future of Syria’s oil and gas sector

By John Dagge
Photos Carole al-Farah & Adel Samara

This month the Syrian government will auction off the exploration and production rights to eight blocks located in the north-east, east and south of the country. The auction comes hot on the heels of a recently released master plan for the sector which predicts oil output could fall by as much as 34 percent over the next 15 years. While Syria’s economy is no longer oil dependent – the oil sector accounted for 23 percent of government revenues, 20 percent of exports and 22 percent of GDP in 2008, compared with 51 percent of government revenues, 58 percent of exports and 20 percent of GDP in 2003 – oil and gas remain a key economic resource and managing this decline looms as a crucial challenge.

“Our plan is to have stability in production and to avoid any sharp declines,” Ali Abbas, director general of the General Petroleum Corporation, said.

Oil production

Syria’s crude oil production held steady at 376,920 barrels per day (bpd) last year, on par with the 376,525bpd produced in 2008, figures from the Ministry of Petroleum and Mineral Resources show. Light crude accounted for 40.5 percent of production in 2009, with heavy crude making up the remaining 59.5 percent. Exports of light crude ceased in July last year following the government’s decision to reserve it for use in its own refining system.

Fields operated by the state-owned Syrian Petroleum Company (SPC) yielded 200,783bpd last year, a 2.1 percent increase since 2008. Production from joint ventures between the General Petroleum Corporation (GPC), the government body responsible for coordinating upstream activities, and various foreign firms stood at 170,120bpd, down by 2.42 percent on 2008 production figures. Production at the two largest joint ventures, Al Furat Petroleum Company and Deir ez-Zor Petroleum Company, fell sharply over the year, by 12.9 percent and 6.9 percent respectively. Al Furat is a joint venture between the government and Shell, while Deir ez-Zor Petroleum is a partnership between the government and Total.

In February, the Ministry of Petroleum and Mineral Resources released a master plan for the country’s oil and gas sector, charting its development until 2025. Under the plan, Syria aims to produce around 2bn barrels of oil from 2009 to 2025, an average of 342,465bpd. This represents a 9 percent decline over the next 15 years. The plan anticipates oil production will remain steady at 380,000bpd over the next five years and sets a minimum production quota of 250,000bpd. This worst case scenario production level represents a 34 percent decline on current production – a rate in line with that experienced over the past 15 years when production peaked at 610,000bpd in 1995. Despite this, government officials say they are confident that new exploration, as well as the use of new technology in mature fields, will keep daily production above 250,000bpd.

“I actually feel quite confident that production will not decline as sharply as this,” Abbas said. “In the next twenty years most of Syria’s oil production will be heavy oil from fractured carbonate formations. Until today, recovery from this kind of formation has been difficult. In the future, however, new technology will increase the recovery rate.”

Looking for better terms

All oil and gas production is carried out in cooperation with the GPC and seven joint venture companies presently operate in Syria. While the Production Sharing Agreements (PSAs) differ from company to company, most involve the government taking a 12.5 to 13 percent share of all production revenues, with foreign companies allocated a 30 to 40 percent share for cost recovery.

There has been growing disquiet within the industry regarding the terms and conditions of the PSAs. While the country’s two largest private sector players Shell and Total extended their contracts in late 2008 – Shell for 10 years and Total until 2021 – there have been no new PSAs brokered with a major international oil company since 2005. This, at a time of record high oil prices when firms have been scouring the globe for new opportunities. Last month the Syrian government extended the deadline for international oil companies to bid on contracts to develop seven existing fields, a possible indicator that the tenders have failed to generate much interest.

“When you look at the fiscal terms of the new PSAs in Syria, the ones that started in 2006 and 2007 when the oil price started to hike, today they are not all that attractive, particularly the capping of the price of gas,” Mahdi Sajjad, general manager of Gulfsands Petroleum, said. “We have been urging the government to reconsider this position. If the government wants companies to be aggressive, well it takes two to tango. Let’s make it a win-win.”

The sharpest declines in production in recent years have come from fields jointly operated by the country’s two largest private sector players, Shell and Total. Keeping major firms like these interested in the sector will require some creative thinking by all parties, Ole Myklestad, general manager of Syria Shell Petroleum Development, said.

“We are a big corporation that likes big opportunities,” he said. “Al Furat is getting smaller. We will continue to focus on it and continue to work on it, but it also means we will equally be trying to find other opportunities that make us as much of an important part of the Syrian economy 30 years from now as we are today.”

For Myklestad, the risk the oil sector faces is fragmentation, where the sector is made up of smaller to medium size players which lack the resources of the giants.

“If the big players are not there you may lose a little bit of the quality that has been built into these companies over the years,” he said. “That is a threat, but I think the government recognises it and that is why they saw the added value in extending the licences of Shell and Total.”

Just how closely the government has been listening to private sector concerns will be displayed when it releases the terms of conditions for the exploration and production rights to eight onshore blocks covering some 60,000 square kilometres at this month’s SYROIL exposition.

“Before issuing our tender for exploration at eight new blocks, we are evaluating the previous Production Sharing Agreement model,” Abbas said. “Accordingly, we are trying to create an acceptable and flexible PSA model which will be included in the tender.”
Oil Production 376,920bpd
Proven Oil Reserves 2.4bn barrels
Oil Consumption 256,000bpd
Crude Oil Refining Capacity 242,150bpd
Gas Production 22.3m m³ per day
Proven Natural Gas Reserves 280bn m³
Natual Gas Consumption 16.9 m³ per day

Source: Ministry of Petroleum and Mineral Resources, BP Statistical
Review 2009 and US Energy Information Administration

Enter the dragon

China has aggressively targeted Syria’s oil and gas sector over the past 18 months, part of a global energy policy which saw Beijing spend SYP 1.47trn (USD 32bn) buying natural resource assets abroad last year.

Last August Sinochem, China’s fourth-largest oil company, purchased Emerald Energy which owned a 50 percent stake in Gulfsand’s Block 26 asset. Reports that the Chinese firm is trying to buy out Gulfsand’s stake in the block, which is currently producing around 17,000bpd, have persisted ever since the sale.

China’s largest oil and gas supplier, The China National Petroleum Company (CNPC), has a minority stake in Al Furat which produces some 100,000bpd, more than a quarter of the country’s total output. CNPC also operates the Kebibe field, which produces around 9,000bpd, under a redevelopment contract with the GPC. In September 2008 Sinopec, another state-owned Chinese firm, purchased a stake in fields in the north-east of the country which have a daily production of around 22,000bpd. The deal, which saw the Chinese firm purchase the fields from Canada’s Tanganyika Oil Company for SYP 92bn (USD 2bn), stands as one of the country’s largest ever private-sector business transactions.

Syria’s oil and gas sector has long laboured under a US trade embargo which has seen many major Western oil firms steer clear of the country. Sanctions have also made it difficult to access the most up-to-date equipment, a factor which is particularly important when it comes to developing mature fields. The government hopes Chinese firms can fill the void.

“Technology is not only available in the US,” Omar al-Hamad, director general of the Syrian Petroleum Company, said. “It is available in other countries, from European, Russian and Chinese firms. We can use technology from others.”

Not everyone in the industry is as confident. Just what role China plans to play in the country’s oil and gas sector remains to be seen. If, however, the government is hoping Chinese firms will assist in technology transfer and developing local human resources, a number of industry figures predict it may be left disappointed.

“Whether it [China] wants to impose its technology and know-how, we haven’t seen that yet,” Sajjad said. “China just wants to get there, have a position and know that there is a [oil and gas] supply that they can access.”


Just what energy reserves Syria’s coastal waters contain remains anyone’s guess. That said, the entire eastern Mediterranean region is sparking growing interest from international energy firms.

Sizeable gas reserves have been found in Egypt’s Nile Delta Basin and Mediterranean coastal area over the past 15 years. Likewise, a large gas field off the Gaza coastline was discovered in 1999, enough to provide power to all Palestinians for a decade. More recently, the US firm Noble Energy found gas off the Israeli coast, the second largest find in the world in the past two years. Cyprus will soon auction 12 offshore blocks and Lebanon is in the process of organising an offshore auction as well.

To date, Syria has lagged behind other eastern Mediterranean countries in developing its offshore sector. The country’s first offshore licensing round, which saw four blocks put out to tender in late 2007, failed to generate any serious excitement with only one bid offered by a consortium led by the private British firm Dove Energy.

Despite a lack of interest in the first round, the Syrian government is expected to offer four offshore blocks for tender later in the year. Government officials remain upbeat about the next auction round.

“In the past two years there have been a number of very important exploration advances in the Mediterranean, Egypt, Palestine, Lebanon and Cyprus,” Abbas said. “Any positive results coming from offshore exploration in this region will make our blocks more attractive.”

Yet developing Syria’s offshore is sure to be a long process. The first obstacle is cost. Syria’s offshore is all deepwater and as such a hugely expensive gamble – the cost of renting an offshore oil rig runs at SYP 13.8m (USD 300,000) per day. Raising that kind of cash in a world still licking its wounds from the global financial crisis is no easy task. A recent offshore auction round in Egypt is a case in point, with only four of the seven blocks offered attracting bids.

More crucial over the long term will be how the Syrian government decides to price gas. Egypt has again struggled to come up with an acceptable pricing framework to attract substantial investor interest.

“Syria’s offshore may be worthwhile drilling, but it’s all about finding the right economic framework around it,” Myklestad said. “The Mediterranean has been a mixed success. The cost of a single well is enormous so when you drill it you have to make sure you are doing it in the right place. We have a number of key focus basins around the world and at this point in time Syria is not one of them.”