PETROCANADA AND SHELL RECOMMIT TO SYRIA

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 001664

SIPDIS

SIPDIS

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

E.O. 12958: DECL: 04/10/2015
TAGS: ECON EINV EPET SY
SUBJECT: PETROCANADA AND SHELL RECOMMIT TO SYRIA

REF: A. 05 DAMASCUS 5788

B. DAMASCUS 196

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


1. (C) Summary. The SARG,s annual exhibition to promote
its oil and gas sector met with modest success. The UK and
Canadian embassies both officially participated in the
exhibition and promoted their companies further involvement
in Syria. Only one US company, IPR, participated in the
exhibition though five were listed on the program.
Representatives from Western companies were unanimous in
commenting that the sense of crisis, which had darkened their
perspective on business in Syria last fall, had lightened
considerably in recent months. The results of Syria,s most
recent bid round are expected later this month with both
PetroCanada and Royal Dutch Shell poised to expand their
presence in the country. End summary.


2. (U) From April 2 through 5, the SARG hosted its fifth
annual oil and gas exhibition. Though the number of
companies participating increased modestly over last year,
259 from 41 countries compared to 249, the increase appeared
largely attributable to larger numbers of companies from
Eastern Europe and Russia. Representatives of companies that
participated this year commented that the level of business
activity within the exhibition, however, fell far short of
the high-water mark of 2003. Both the UK and Canadian
embassies manned booths in the exhibition designed to promote
their companies' greater involvement in Syria. Shell had an
impressive display that won first prize, while Total
conspicuously recycled the same display it used last year.


3. (C) Though conference organizers notified us that five US
companies were scheduled to participate in the exhibition,
only one actually showed up, Improved Petroleum Recovery
(IPR). IPR is a small independent, headquartered in Irving,
Texas with its largest assets in Egypt. The company flew in
its Egyptian-American President and CEO, Dr. M.K. Dabbous,
and other top executives for the exhibition. Dabbous told
the Charge that IPR is continuing to meet its exploration and
investment commitments for its concession in northeastern
Syria. According to the terms of its production sharing
contract, IPR is required to acquire additional seismic data
and drill two wells for a total investment of seven million
dollars within the next two to three years. IPR, which holds
its concession jointly with the Indian company ONGC, is still
evaluating existing data on the concession but plans to
contract for additional seismic later this year. IPR
executives commented that their exploration plans are
hamstrung by both the lack of service companies operating in
Syria and a worldwide shortage of drilling rigs, an
investment delay that didn't seem to upset them.


4. (C) Unlike IPR, Houston-based and London-traded,
Gulfsands Petroleum will start drilling its first well later
this month. Gulfsands executives are optimistic and expect
both the shallow well they will start this month and the
deeper well they will drill in June to tap sizable
reservoirs. Gulfsands arguably holds the most promising
concession in Syria, also in the northeast, and has an
ill-defined business relationship with Rami Makhlouf,
President Asad's first cousin. The company's executives say
it would require very little investment in new infrastructure
to move Gulfsands' oil to market as there already is a
pipeline running through their concession that is owned by
the Syria Petroleum Company (SPC) that has 80,000 bpd of
spare capacity. Visiting Gulfsands COO, John Dorier,
commented to us that the company,s investment in Syria could
rise sharply this year if the first two wells discover the
amount and type of oil expected.


5. (C) Contrasting with their earlier reticence (ref A),
both PetroCanada and Royal Dutch Shell are equally assertive
and are also pursuing new investments. Both Shell and
PetroCanada have entered multiple bids on the latest bid
round and expect to win at least two concessions each later
this month. Shell,s general manager, Campbell Keir, told us
recently that from a business perspective, Shell believes the
crisis in Syria has passed. As a result, Shell is gauging

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the level of its business activity in the country based on
its desire to renegotiate its oil field leases, which start
coming due in 2008 through 2013. According to Keir, the
Syrians have given Shell mixed signals on whether they are
willing to extend the leases ) sometimes hinting Shell has
made enough profit and the joint venture has outlived its
usefulness. Keir readily admits that Shell has done very
well on its investment in Syria and would very much like to
renegotiate an extension. In the meantime, Shell is making
itself useful to the SARG by taking on projects as small as
upgrading the country,s two oil refineries on a profit
sharing contract at no cost to the SARG.


6. (C) PetroCanada,s level of business activity in Syria
has increased markedly since last December, when the
company's board debated the merits of future involvement.
PetroCanada was the largest company to fly in a group of
executives specifically for the exhibition, and the only
group to conduct extensive meetings with a range of SARG
ministers, including Deputy Prime Minister for Economic
Affairs Abdullah Dardari. The PetroCanada executives told us
they were encouraged by what they heard from the Syrians and
expected to begin negotiations for new production sharing
contracts on two new concessions by the end of this month.
In addition, PetroCanada executives expect to soon acquire
Marathon,s central area gas concession (ref B). PetroCanada
general manager, Hisham Yazigi commented to us that his
company is anxious to reinvest some of the profits it
realized earlier this year from the sale of its share of a
joint venture with Shell, and blamed the delay in acquiring
the above gas concession on the unwillingness of Marathon
managers to accommodate SARG "sensitivities."


7. (C) Total general manager, Hatem Nuseibeh, agreed with
Shell and PetroCanada,s assessment that the crisis for
foreign businesses in Syria had passed. According to
Nuseibeh, he was scheduled to leave Syria last fall but was
extended by Paris-based executives who were nervous about the
potential for political instability in the country to
adversely affect Total,s interests. Nuseibeh opined that
now the situation is much different and the Europeans are
anxious to re-engage. From Nuseibeh's perspective, it is
only the French that are holding back on deeper engagement.
Nuseibeh commented that the difference between Total and
Shell is that the French company was still not willing to
pursue new investments in Syria. Nuseibeh said that his
charge from Paris is to maintain a presence in Syria while
avoiding any new short-term commitments. He emphasized that
walking this fine line is not always easy as the SARG is
pushing companies in the oil and gas sector to make new
investments and increase their contribution to developing the
sector.


8. (C) Comment. There has been a noticeable improvement in
the outlook of foreign businessmen active in Syria since last
fall when the country was regularly receiving negative
international press coverage. PetroCanada has arguably moved
the farthest from debating future involvement only four or
five months ago to now being the most aggressive at pursuing
new investment. Nuseibeh attributes PetroCanada's newfound
assertiveness to the significant profit the company realized
from its previous venture with Shell. According to Nuseibeh
and others in the industry, the SARG's terms in the oil and
gas sector are attractive to companies willing to overlook
the issue of political risk. Feeding the re-engagement is a
strong perception in the business community here that
European capitals are now ready to re-engage with the SARG
and, therefore, support new investment. The mood can be
infectious, as a couple of representatives of US companies we
recently talked with expressed some surprise when we shared
our view of the situation and the attendant risks to their
new investment.
SECHE