US embassy cable - 05DAMASCUS6015

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