SYRIA - Exploration & Background.

There has been little exploration in recent years. No significant oil or gas discoveries were made in 1999 and 1998. The latest major find was made in July 1999. The discovery well, Kishma 101, tested 5,000 b/d of light oil and 7.1 MCF/day of gas. Spudded on May 19, the well was targeting a Paleozoic objective at a depth of 3,000 metres. The well is about 100 km south-east of Deir Ez Zor and just 2 km south-east of the Kishma 1 discovery which was made in 1995 by Dublin-based Tullow Oil.

The only earlier find was made in September 1997 by SPC which announced on Oct. 1 a "major gas field" in Palmyra area in eastern Syria. The national company, exploring a block abandoned by Marathon of the US, found the field at a depth of 2,400 metres (7,920 feet) about 80 km south-east of Palmyra. SPC then said this was the largest gas field in Syria. Later Syrian Prime Minister Mahmoud Al Zohbi told a Beirut business conference that the field, Abi Rabah, had a production potential of 1-2 MCM/day (about 35-70 MCF/day). Zohbi said this was to help Syria shift to gas for the operation of its power plants and oil refineries. The field's reserves were not disclosed.

For years, some government official had said Syria's proven gas reserves were as big as 600 BCM, a figure picked up and published by the World Bank. But most foreign oil companies operating in Syria had contested that estimate and had speculated that the actual proven reserves were less than 200 BCM.

After a long period of stagnation, exploration in Syria was to pick up following the appointment of Mohammed Maher Jamal as oil minister in mid-1996. Decision makers under his predecessor, Nader Nabulsi who was dismissed (see Part 4), had imposed very tough terms discouraging the foreign companies. But there has been no significant improvement to the E&P regime since Jamal became minister. Even now, exploration and drilling only cover about 36% of the planned areas. Only two E&P deals were signed in mid-1998, and in late 1998 Tullow Oil abandoned its Syrian operations.

Exploration for oil in Syria began in 1889, when the country was part of the Ottoman empire, but the results were negative. It was resumed for a brief period in the 1920s, with Syria under the French mandate. In 1930, the BP-led Iraq Petroleum Co. (IPC), granted a 75-year concession, began an exploration programme. IPC stopped all work during World War II and in 1951 relinquished the concession, having failed to make any commercial discovery. In 1955, exploration was taken by J W Marshall of the US, who acquired a licence for a block in north-eastern Syria and in 1956 found oil at Karatchok. A few months later, Societe des Petroles Concordia got a block in the same area and, before end-1956, discovered the Suwaidiyah giant about 15 km south of Karatchok. Marshall subsequently sold shares in its concession to Atlantic Refining and Portsmouth Steel of the US and drilled four additional wells.

However, Syria at the time was in the middle of a nationalist movement opposed to Western "colonialism", "imperialism" and the "Western oil monopolies". The movement was led by Nasser of Egypt who had campaigned against Western oil companies, nationalised the Suez Canal and fought a war simultaneously against Britain, France and Israel. So in 1963, before the two companies could complete development of these fields, the Damascus government revoked their exploration rights.

A year earlier, the government had brought in Soviet rigs and upstream experts who found the Rumailan oilfield. In 1964 it created the Syrian General Petroleum Co. (SGPC) to take over the two foreign companies' operations. The two fields began producing oil in May 1968, with the SGPC controlling the sector and rejecting the idea of giving equity to foreign companies. It was thought that Soviet help would make Syria a big oil exporter, with the country ruled by the Baath Party.

Many coups and counter-coups had occurred in Syria since independence from the French in 1943. Bloody events and socialist tendencies made it the most unstable country in this part of the Middle East. In 1970, the military wing of the Baath Party staged a coup under Gen. Hafez Al Assad and put the Baath civilian leadership in jail. Calling itself a corrective movement, the new Baathist regime sought to improve its image.

The government began to restructure the oil sector in 1973. It split the SGPC into five operating companies, all state-owned and attached to the Ministry of Petroleum and Mineral Resources: (1) The Syrian Petroleum Co. (SPC) responsible for all upstream operations; (2) the Syrian Company for Oil Transport (SCOT) operating the country's domestic pipeline network, which carried crude oil from the fields in the north-east to the coastal refineries and the Tartus and Banias oil terminals; (3) the Syrian Company for the Storage and Distribution of Petroleum Products (Mahruqat), in charge of marketing and distribution within the country; (4) the Homs Oil Refinery Co.; and (5) the Banias Oil Refining Co.

In 1974 the government issued new rules to encourage foreign companies to operate in Syria. By then, Syrian officials had realised that without Western technology they could not achieve targets set with Soviet help since the early 1960s. With an area of 25,000 sq km reserved for the SPC, another 50,000 sq km in blocks were offered to foreign companies under service contracts.

On its acreage, the SPC had a major oilfield, Jibeissah, found earlier, coming on stream in May 1975. In 1975-77, it discovered three more fields: Tishrin, Habari and Salhieh, as well as Al Hol which was a gas field.

The first service contract was signed in 1974 with Rompetrol, Romania's state company. Several such contracts were signed in 1975-80, with emphasis on Communist East European companies. Some of them relinquished their blocks, either totally or partially, after failing to find oil in commercial quantity. One Western JV headed by the Syrian American Oil Co. (Samoco) and including Deminex of West Germany, for a 15,750 sq km block in the Deir Ez Zor region, broke up and Samoco withdrew in 1982. But Deminex retained the licence, and Pecten of the US and its parent Shell took over Samoco's 65% holding in 1983. With Pecten as operator, the new partnership was to make major oil discoveries.

The PSA Approach: By then, the government had agreed to give foreign firms better incentives. A model production sharing agreement (PSA) was worked out with assistance from Egypt's EGPC. Deminex had insisted on this and, upon a promise from Damascus, had managed to attract the Shell group.

Pecten discoveries led to a 50-50 venture, Al Furat Petroleum Co. (AFPC) with the SPC holding 50% and the rest held by Deminex, Shell and Pecten. The discoveries included Al Thayyem, found in 1984 and brought on stream in September 1986, which made Syria a major producer of light/sweet oil (see profile in Part 2).

The PSA approach turned out to be far behind that of Egypt, with EGPC having since updated its terms, improved incentives to foreign partners and introduced new formulae encouraging the development of gas. By end-1995, one Western oil company had placed Syria at the very bottom of its list of more than 100 E&P countries. Only small, cosmetic improvements to the PSA approach have been made since then.

The foreign partners in Al Furat were satisfied because they were lucky with premium discoveries. For its part, the Damascus government occasionally gave in to some of their demands because a withdrawal from Syria by a giant like Shell could seriously damage the country's reputation. In turn, Al Furat's successes attracted other foreign companies to Syria, but most of them were not lucky. Of the 12 exploration licences granted to foreign companies under PSA terms in 1987-1990, six had been relinquished by end-1993. Those leaving included BP, Enron, Arco British, Neste Oy, Repsol and Total. Marathon stayed on but it could not develop its gas discoveries in Palmyra because the government did not accept its plan, and it stopped exploring in that area. SPC took up exploration in the block abandoned by Marathon and found a gas field at the end of September 1997.

British Petroleum had the 3,300-sq km Al Jazira tract, Block 2, in the north where it found no commercial oil and withdrew in late 1991. Enron Oil Syria, awarded a licence in March 1988 for a 3,200-sq km tract in the Deir Ez Zor region, decided in April 1992 to leave after completing a three-month seismic programme and drilling seven dry wells. Tricentrol of the UK, later taken over by Arco British, with Norsk Hydro got a licence in April 1987 for the 3,800-sq km Abdel Aziz tract, and left in May 1992 after a negative seismic programme and one dry well. In late 1991 Arco also farmed into the 9,952-sq km Palmyra acreage awarded to Marathon in December 1988, but after drilling five dry wells between November 1991 and December 1992, both gave up the licence in Jan. 1993.

A group led by Neste Oy, given the 4,500-sq km Rasafa acreage, Block 5, in February 1989, pulled out in late 1992 after drilling three wells. A group of Repsol and Cepsa of Spain and Petrogal of Portugal, got a licence in November 1989 for the 3,132-sq km Al Andalus acreage in central Syria, and left in January 1993 after seismic surveys and two wells. Total, awarded a licence in June 1987 for the 9,330-sq km Al Bishri block north of Deir Ez Zor, left at end-1993 - although it was producing oil at Wadi Aabeid from mid-1992. Three companies had farmed into Total's acreage: Lasmo, 20% in 1988, Petrofina, 20% in May 1989 and Inpex of Japan, 9% in October 1990. After completing 2,300 km of seismic profiles in 1988-89, Total struck oil with its second wildcat, WAB-1, at Wadi Aabeid in January 1990, yielding a cumulative flow of 2,500 b/d of heavy oil. Before embarking on the development of Wadi Aabeid, Total had prolonged production tests, with output trucked to SPC's facilities at Suwaidiyah. But, unable to raise production over 3,500 b/d, the group decided to relinquish the licence.

Two exploration rights were subsequently converted into development licences, one for Al Furat's oilfields operated by Pecten and the other for Elf Aquitaine's Attala North discoveries at Deir Ez Zor (see Part 2).

Occidental (Oxy) came to Syria in February 1988, when it signed an E&P accord with SPC for an 11,525 sq km Bosra block, near Damascus. Its wholly-owned subsidiary, Damascus Petroleum Co., became the operator with a 40% share and group leader. Its other partners were Canadian Oxy (40%), Hydroil of Norway (15%) and Wilhelmsen Oil and Gas (5%). The block stretched from the Damascus area to the Jordanian border. The group was to spend $36m, drill six wells within six years, and pay a $1m signature bonus. Production bonuses were to rise to $10m on an output average of 200,000 b/d. The royalty was 13% and cost recovery was 25%. The production split was 75-87.5% of the output for SPC. In the event of a commercial discovery, a joint operating venture was to be formed under the name Bosra Petroleum Co., owned 50% by the SPC. The JV embarked on seismic surveys on the acreage in Nov. 1988. After shooting 800 km of lines in the first half of 1989, the company spudded its first wildcat early in 1990, but this was a dry hole and the group subsequently relinquished the block.

In December 1990 Oxy's Damascus Petroleum got a 6,880 sq km Al Nabk block, immediately to the north of Bosra. It was to spend $43.5m, shoot 2,300 km of seismic lines and drill 11 wells over seven years, with 1,000 km of seismic to be completed and 4 wells to be drilled during the initial three-year period. The terms included sliding royalties of 14-16% and cost recovery of 25%, falling to 20% when output exceeded 50,000 b/d. The production split gave SPC 81-88%, with gas counted in terms of barrels of oil equivalent. No signature bonus was paid, but Oxy had to pay production bonuses of $2.5m to $9m. The production period was 25 years, renewable once for five years in the case of oil and for two five-year periods in the case of gas. It was agreed that, in the event of a commercial find, a 50-50 JV was to be formed called Al Nabk Oil and Gas Co. In August 1991 Damascus Petroleum farmed out a 25% interest to Yukong of South Korea. Later it began exploration with new seismic data and geological field mapping. The first exploration well, Al Nabk-1, was spudded in August 1992 but was stopped dry at a depth of 9,515 feet. Additional drilling did not yield commercial results and the group relinquished the block in 1994.

Tullow Oil of Ireland and four partners got the East Ash Sham acreage in April 1992. This was a 2,700 sq km area consisting of two blocks east and south of Ash Sham which had been relinquished by the Shell-Deminex group. The group was to spend $26.9m, with Tullow Oil to shoot 800 km of seismic lines and drill nine wells over six years. In the event of a commercial discovery, an operating company owned 50% by the SPC was to be formed under the name of Al Khabour Petroleum Co. The terms included a sliding royalty of 14-16% and cost recovery of 25%, falling to 20% for an output of over 50,000 b/d. The production split gave SPC 81-90%, with gas counted in terms of barrels of oil equivalent. No signature bonus was paid. But the group had to pay production bonuses of $1m to $12.5m. Tullow drilled its first wildcat, Al Rawdah 1, in May 1993 but stopped it dry at a depth of 9,500 feet two months later. Two wells drilled subsequently were stopped dry as well. Its 4th and final well for the first phase of its exploration, completed in early 1995, yielded about 4,800 b/d of 46[degree sign] API oil and 6.4 MCF/day of gas through a 3/4-inch choke. The field, called Kishma-1, was developed and officially inaugurated in November 1997 with production averaging 12,000 b/d. Tullow, as operator with a 24% share, had the following partners: Clyde Petroleum (27%), Pict Petroleum (19%) and Seafield Resources (10%) of the UK, and the Malaysian state NOC Petronas Carigali (20%). The production period was 25 years, as in the case of other E&P deals. But in 1998 production fell to less than 2,000 b/d and later in that year Tullow abandoned its Syrian operations.

Unocal of California first got a 4,900-sq km acreage in March 1989. This covered the Al Hasakah area, including parts of Blocks 1 and 3, north of the Euphrates. The agreement provided for the drilling of three wells during the initial three-year period. Unocal completed its drilling commitments in early 1992 and decided not to renew its licence, because the results were not encouraging. In June 1992 Unocal acquired the 3,688-sq km Tal Abyad acreage, Block 3, on the Turkish border. It was to spend $33m and drill nine wells over a seven-year period. But the three wells it drilled were stopped dry and in 1994 the company relinquished the block.