SARG ATTRACTS NEW INVESTMENT IN ITS OIL AND GAS

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 006015

SIPDIS

NEA/ELA
NSC FOR ABRAMS/DORAN/POUNDS
TREASURY FOR GLASER/LEBENSON
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 11/16/2015
TAGS: ECON EINV EPET SY
SUBJECT: SARG ATTRACTS NEW INVESTMENT IN ITS OIL AND GAS
SECTORS

REF: DAMASCUS 5788

Classified By: CDA: Stephen Seche for Reasons 1.5 b/d


1. (C) Summary. Last week, the SARG opened for bidding,
nine new blocks for oil and gas exploration. Though interest
has been high, most industry contacts discount the majority
of potential bidders as speculators attracted by the current
high selling price of oil. Multinational companies already
present in Syria are halfheartedly pursuing bids to gauge the
extent to which the SARG is willing to go to attract new
investment, while continuing to watch carefully how Syria,s
current standoff with the international community plays out.
All non-US companies want to keep their hats in the ring in
order to be positioned for when the SARG eventually offers
areas of greater interest and potential. Any significant new
development in the sector will await a change in SARG policy,
which currently reserves for its state-owned company all
areas of greatest potential. End summary.


2. (U) On November 7 and 8, the SARG offered nine new blocks
for oil and gas exploration (reftel). Approximately 30
international companies participated in a two-day symposium
that was conducted by Dubai-based, IBC Gulf Conferences,
under the sponsorship of the Syrian Ministry of Petroleum.
Most of the participating companies were minors from areas as
diverse as China, the Gulf, Russia, and Europe. Three
companies: Gulf Sands Petroleum, IPR Mediterranean
Exploration, and Midway International were referred to during
the symposium as US companies, though all describe themselves
as Europe-based. The largest companies participating were
Royal Dutch Shell, Total, and PetroCanada.


3. (U) Dr. Ibrahim Haddad, Minister of Oil and Mineral
Resources, set the tone for the symposium by opening with
remarks that focused on the injustice of Israel,s continued
occupation of the Golan Heights and a protracted condemnation
of the Mehlis investigation. Haddad described the
investigation as a direct assault by the international
community on Syria,s &national dignity and respect.8
Haddad went on to comment that Syria has a long history of
political and social stability that makes it an attractive
venue for business. He ended his speech by assuring the
audience that the SARG would be implementing meaningful
economic reforms and invited the attending companies to
invest in Syria.


4. (SBU) Haddad was followed by Ahmad Mualla, director
general of the state-owned Syrian Petroleum Company (SPC),
who restricted his remarks to the oil and gas sector and the
potential of the nine new blocks for oil and gas exploration
and production. According to Mualla, current oil production
in Syria stands at 425,000 bp/d, which he broke down as
193,000 bp/d by SPC, 180,000 bp/d from Al Furat Petroleum
Company (AFPC - a joint venture between SPC, Shell, and
PetroCanada),35,000 bp/d from Total,s joint venture with
SPC (DEZPC),17,000 bp/d of gas condensates by a
joint-venture between Conoco-Phillips, Total, and the Syrian
Gas Company. (Note. Mualla,s production numbers differ
slightly from our own which put total current production at
415,000bp/d and dropping. End note.) Mualla commented that
SPC had concluded new production sharing contracts (PSC) with
seven companies in the last three years and plans to conclude
two more before the end of the year. Mualla specified
December 20 as the closing date for bids and promised a SARG
decision by early in the new year.


5. (C) The level of interest in the nine new blocks seems
inversely proportional to the size of the company. The two
majors, Shell and Total, are lukewarm at best. Managers from
both commented to us that their companies have profited from
their presence in Syria and are interested in remaining in
the country, but need to identify new opportunities to
maintain their presence as production is declining in their
respective areas. Both doubt that the new blocks offered by
the SARG represent the type of business opportunity that they
are looking for. Shell is slightly more positive about the
chances the company will submit a bid, but the political
situation concerns both greatly. Campbell Keir, general
manager for Shell, said his company is contemplating a bid on
two blocks that border Iraq but commented to us that the
geology of the area is complex and rated any successful
bidder,s chances of finding a recoverable resource in the
area at no more than ten percent. If Shell did succeed,
however, Campbell estimated the returns to be potentially
significant given the amount of oil Shell geologists believe
to be in the area.


6. (C) Total is even less likely to participate in this
round of bidding. Total,s managing director, Hatem Nuseibeh
told us that the prospects are too small and the competition
from minors is too great for Total to be seriously interested
in participating. Nuseibeh commented that Total, like Shell,
is committed to remaining in Syria but the company has its
eyes on bigger fish. Total geologists estimate that Syria
had 20 billion barrels of oil reserves of which four billion
have already been extracted. Nuseibeh estimates that less
than one billion of what remains is in areas currently open
to international companies. The remaining reserves are under
SPC control. Gaining access to these reserves is Total,s
long-term objective.


7. (C) PetroCanada managers are more sanguine and affirm to
us that they plan to submit at least one bid if the political
situation does not deteriorate further before bids are due.
Representatives from smaller, less-known companies are more
aggressively pursuing the opportunities offered by the SARG.
The business plans of most do not go beyond identifying an
oil-bearing structure with some promise that could then be
sold to a larger company with more resources. Some of the
companies involved in the symposium have no prior experience
in the oil and gas sectors. Midway, referred to in the
symposium as a US company, has no resident representative and
is actually owned by a Dubai-based, real estate company -
Tiger Group - in which Rami Makhlouf, President Asad,s first
cousin, has a controlling interest.


8. (C) Comment. Though Syria has significant untapped oil
reserves, our industry contacts are unanimous in complaining
that the state-owned SPC controls the lion,s share. All
equally agree that exploiting those reserves is beyond SPC,s
institutional capabilities. Until the SARG decides to
restructure the sector and open up SPC,s areas to
joint-ventures with majors, like it currently has in other
areas with Shell and Total, the sector will not reverse its
current downward slide. As reported in reftel, there are
areas currently under exploration that could bring new oil
production on-line within three years but that will only slow
an otherwise precipitous decline in the country,s oil
exports.
SECHE