Syria and its foreign interests

Feb 02, 2006 01:00 AM

There was good news for Syria on the Tigris -- along with some controversy, as a spat between global economic giants took the limelight.
While the Texas-based Gulfsands Petroleum was celebrating its shares rising on news of a new Syrian structure boosting its overall reserves significantly, the US, India and China were at loggerheads over an older field, which has just taken on some new partners.

The Gulfsands oil and gas explorer announced January 30 that an independent study of the Tigris structure on Block 26 in Syria by Ryder Scott had yielded some fine results. The study concluded that if the structure was primarily a natural gas accumulation, then the company's probable, possible and prospective reserves would stand at 722 mm barrels of oil equivalent. If the structure was primarily an oil accumulation, the total would be 563 mm boe.

The company now plans to commence drilling four wells on Block 26 in August. This comes after Gulfsands had previously drilled six wells on the block, with three of them finding potentially commercial hydrocarbon accumulations.
The Tigris structure is the largest within Block 26, and is found beneath the Souedieh Field, the largest of its type in Syria. This field has estimated reserves of some 2 bn barrels, with around 1.3 bn barrels produced so far. The Tigris structure is in the north-east of the Souedieh field, with the block also containing the productive Rumailan, Hamzeh and Karatchok fields.

However, it has been the al-Furat field that has been grabbing headlines recently -- though not for new discoveries or boosted production, but for its role in global power politics.
Last December, the international subsidiary of India's Oil and Natural Gas Corporation (ONGC), OVL, and the China National Petroleum Corporation (CNPC), teamed up to purchase from Petro-Canada a 37.5 % stake in Syria's al-Furat oil and gas fields. The stake cost them some $ 573 mm, giving the Indians and Chinese a share in these mature deposits, which have proven reserves of 300 mm boe.

The field is operated by the al-Furat Petroleum Company, whose assets are operated by Shell. Al-Furat Petroleum was jointly owned in turn by the Syrian Petroleum Company, Syria Shell Petroleum Development and Petro-Canada. Under the December deal, the ONGC and CNPC bought Petro-Canada's 37.5 % interest in the Deir ez-Zour block, a 33.3 % interest in the Ash-Sham block, and a 36.0 % interest in a field Gas Utilization Agreement.
This would give the Indian and Chinese partnership access to about 58,000 barrels of oil equivalent per day from Syria. Petro-Canada, it has been widely reported, was happy to sell their stake, as it represented less than 4 % of the company's total earnings and had been in rapid decline since a peak of 106,300 bpd three years ago.

Market watchers had also held this fall in output as a major contributor to a 12 % drop in Petro-Canada's share prices last year. At the same time, the company was reportedly unhappy with the fiscal terms imposed by the Syrian government.
So, the deal was done. What happened then, however, seems a matter of some conjecture, but highlights some growing frictions within the oil and gas industry -- both globally and over Syria.

On January 28, it was reported that the US had made a diplomatic demarche to the Ministry of External Affairs in New Delhi strongly opposing such investments in Syrian resources. According to documents, the US administration was attempting to pressure India to drop the deal on account of outstanding UN resolutions calling for Syrian co-operation in the inquiry into the assassination of former Lebanese Prime Minister Rafik Hariri. Washington considered the Indo-Chinese deal in contradiction with efforts to isolate Syria and further warned against foreign direct investment (FDI) flows to the country, as these would only be exploited.
ONGC responded rapidly. The following day, the company issued a statement saying that the deal with Petro-Canada did not represent any new FDI, as the ONGC-CNPC partnership had merely bought existing equity from the Canadians.

The Canadian firm had already invested in Syria and we are taking over their stake, ONGC Chairman and Managing Director Subir Raha told before asking: “What were [the US] doing when Petro-Canada made that investment? They have been telling us not to do business with Damascus, but have they stopped US companies from investing in Syria?”
Whatever the case, the dispute was indicative of growing sensitivities in the global energy market. The al-Furat deal was the first time Indian and Chinese companies had made a joint attempt to acquire oil property overseas. The ONGC and CNPC -- both state companies -- are sharing the former Petro-Canada equity on a 50:50 basis.

This outburst of co-operation stands in marked contrast to previous competition too. In Central Asia, West Africa and Latin America the two have fought pitched corporate battles, with particularly bruising encounters being that over another Canadian firm, Petro-Kazakhstan, and over EnCana's Ecuadorian assets.
Perhaps this co-operation -- rather than a concern over Syria -- was more the source of Washington's objections, many analysts in Damascus concluded. At the same time, the question over why the Indians and Chinese might want to buy into a declining field remains, though Chinese experience with oil recovery technologies, boosting extraction in its own declining deposits, such as those at Dagang and Daqing, may be relevant here.

At the same time, both the Indian and Chinese state oil corporations are pursuing a strategy of purchasing oil equity globally, preferring stakes in fields to purchasing oil off the global spot markets.
In the middle of all this, meanwhile, stands Syria. With declining reserves, foreign expertise and investment is more than welcome. Exploration for new deposits, such as that undertaken by Gulfsands, is vital if Syria is not to see itself saddled with a burgeoning oil and gas import bill in the years ahead -- as is foreign investment, of whatever nationality.

Source: Oxford Business Group
Alexander's Commentary

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