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IdentifierCreatedClassificationOrigin
07DAMASCUS596 2007-06-13 12:16:00 CONFIDENTIAL Embassy Damascus
Cable title:  

THE SARG OPENS A NEW BID ROUND FOR OIL AND NATURAL

Tags:   ECON EINV ENRG EPET ETRD ETTC PREL SY 
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TO RUEHC/SECSTATE WASHDC PRIORITY 3692
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
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					  C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 000596 

SIPDIS

SIPDIS

NEA/ELA
NSC FOR MARCHESE
TREASURY FOR GLASER/LEBENSON

E.O. 12958: DECL: 06/12/2017
TAGS: ECON EINV ENRG EPET ETRD ETTC PREL SY
SUBJECT: THE SARG OPENS A NEW BID ROUND FOR OIL AND NATURAL
GAS CONCESSIONS

REF: A. STATE 51180


B. 06 DAMASCUS 4161

C. 06 DAMASCUS 1664

Classified By: CDA Michael H. Corbin for reasons 1.5 b/d



1. (SBU) Summary. The SARG opened seven on-shore blocks for
oil and natural gas exploration, but only two have not been
previously offered. Royal Dutch Shell and PetroCanada are
the largest international oil companies (IOC) involved in the
current on-shore round which is set to close on July 12. In
addition, the SARG also announced four off-shore blocks that
it will present formally to IOC's in London in July and will
accept bids for until September 27. The SARG has also
announced plans to build three additional oil refineries by


2012. Refinery projects the SARG claims are currently in the
works include a Chinese 70,000 bpd refinery, a Kuwaiti
140,000 bpd refinery, and a Venezuelan/Iranian/SARG joint
venture to build a third refinery (140,000 bpd). All of
these developments can be seen as part of the SARG,s effort
to reverse its declining oil production and meet burgeoning
demand for oil derivatives. End summary.



2. (SBU) On July 12, bidding will close on seven blocks for
on-shore oil and gas exploration in Syria. Five of the seven
blocks had been offered in previous bid rounds and are
examples of the SARG,s weak tendering process which doesn,t
differentiate between the bids from large, well-known IOCs
and bids from unknown speculators looking to make a quick
profit by winning a concession and then reselling their
interest to a third party. Contacts in the industry have
told us that one of the five blocks reoffered in the current
round had previously been awarded to the regional subsidiary
of a U.S. company, Hunt Oil. The block is being retendered
as Hunt failed to deliver its performance bond, according to
industry contacts.



3. (C) PetroCanada had bid on two blocks in last year,s bid
round but was disappointed when both of its blocks were
awarded to small independents that offered a higher bid but
ultimately were unable to deliver on the commitment they made
(ref C). Both blocks of previous interest to PetroCanada are
being reoffered in this round and PetroCanada managers have
told us they plan to enter a bid on at least one of them in
spite of their previous bad experience. PetroCanada,s
participation in the current bid round can be seen as part of
the company,s expanding presence in Syria which started last
year (ref B, C). This year, PetroCanada has begun expanding
its expat staff to support its exploration and develop
operations after acquiring Marathon Oil,s potentially
lucrative oil and natural gas concession in the central part
of the country at the end of last year (ref B).



4. (C) PetroCanada is also the only IOC that has expressed
interest to us in bidding on the four off-shore blocks
announced on May 17. Unlike PetroCanada, managers from Shell
and Total have commented to us that the off-shore blocks
represent too large of an investment for too limited a
potential return for the blocks to be of any real interest to
them. Managers from both U.S.-based independents still
active in Syria, Improved Petroleum Recovery (IPR) and
Gulfsands Petroleum, have similarly commented to us that the
off-shore blocks hold little interest for them as well.
IPR,s country manager said that in addition to the high
exploration costs associated with the blocks being both deep
water and necessitating drilling deep wells, the same
geological formation that holds promise off Egypt, Israel,
and Lebanon tapers off by the time it reaches Syria so
drilling here is subsequently a bigger gamble for a smaller
potential deposit. Still, managers from British Dove Energy,
which collected the data the SARG is offering to potential
bidders, are much more sanguine and assert the sysmic data
along with the relatively favorable terms offered by the SARG
more than compensate for the large up-front investment an IOC
would have to make to explore and develop the off-shore
blocks. The SARG has announced plans to market the off-shore
blocks to IOCs at a conference in London in June.



5. (C) Outside of the current bid round, the two IOC majors
active in Syria continue to pursue slightly different

DAMASCUS 00000596 002 OF 002


business plans. While Total pursues its interests while
maintaining a low profile, Shell very publicly continues to
actively pursue a range of new investments in Syria.
Shell,s CEO visited Syria June 5 and signed an MOU to
conduct a comprehesive study of Syria's gas sector. Shell
country director, Cambell Kier explained the visit to us as
routine and something his CEO tried to do every few years.
Others in the industry have not been as dismissive and assert
their own CEOs are currently avoiding a visit given Syria's
current bad international press. Shell is not expected to
submit a bid in the current round but will begin exploration
of the two rounds it won in last year's round by the third
quarter, according to Keir. Shell remains focused on
concluding a ten-year renewal of fields it currently holds in
its highly lucrative el-Furat joint venture with the Syrian
Petroleum Company (SPC). Shell is also aggressively
marketing to the Syrians plans it has to transport through
Syria natural gas from wells already drilled but capped in
the Akkas field in Iraq. Earlier this year, Shell presented
its plan for developing the Akkas gas field in Iraq to SPC
managers and SARG officials. Similar to its presentation to
the GOI (ref B), the Shell plan proposed to the SARG includes
natural gas exports from the Iraqi Akkas field either through
the Arab gas pipeline to Turkey or to an LNG facility to be
built on Syria,s Mediterranean coast.



6. (C) Total is not expected to bid in the current round but
is pursuing new investments in Syria. Judging the time to
now be appropriate, Total managers told us that they have a
list of five projects that they have approached the Syrians
on ranging from the modest, a refinery upgrade, to the &very
ambitious.8 Total,s country manager, Hatem Nuseibeh,
declined to name for us his more ambitious plans but did
comment that Total is determined to maintain a presence in
Syria and to do so it requires new projects. Production in
Total,s joint venture with the Syrian Petroleum Company
(SPC) continues to decline significantly and in a couple of
years time would no longer be sufficient to warrant Total,s
current staff size, which is the minimum necessary, according
to Nuseibeh. Nuseibeh felt confident he would be able to
conclude a deal with the Syrians but commented that even SPC
managers admit delay is the most common Syrian business
strategy.



7. (C) In addition to the new bid rounds, the SARG has
announced plans to more than double its current 240,000 bpd
oil refining capacity by 2012. The three projects currently
on the table include a Venezuelan, Iranian, Syrian joint
venture to build a 140,000 bpd refinery near an existing
refinery in the central Syrian city of Homs; a project being
put together and financed by a Kuwaiti investment group
called Noor Financial Company for a 140,000 bpd refinery near
the center of domestic oil production in the eastern
governate of Deir Zour; and a Chinese project to build a
70,000 bpd refinery in the same area. Contacts in the
industry are uniformily dismissive of the first two projects.
The Noor refinery project has been criticized as lacking the
technical expertise and financing to support such a major
undertaking. Nuseibeh from Total, whom the SARG approached a
year and a half ago to build a similar size refinery,
cautioned that the feasibility of the Chinese project should
not be underestimated, however, and opined of the three it
was the only one likely to progress.



8. (C) Comment. Despite the potentially serious economic
consequences associated with Syria's declining oil
production, the SARG is making no concerted effort to bring
new production on-line. There are a number of exploration
efforts on-going that could bring modest amounts of new
production on-line in the next two to three years, but
nothing so far that holds the potential to reverse the trend.
The SARG is likely to hype its newly opened off-shore
sector, but those present in Syria with capacity and
expertise in drilling deep off-shore wells, e.g. Total and
Shell, are totally dismissive of Syria's potential to host a
credible off-shore exploration effort. Unless the SARG
reforms its current inept management of the sector, oil
production in Syria can safely be expected to continue its
gradual decline.
ROEBUCK