Syria Signs 10-Year PSC Extension Agreements With Shell And Total

Last week the Syrian government signed 10-year extension agreements for its licensing agreements/production sharing contracts (PSC) with two major companies, Shell and Total, which have been operating in Syria for many years. The extension of these agreements comes at a crucial time for Syria which is trying hard to arrest the decline in its oil production, by seeking to attract more international oil companies to invest in its oil and gas industry. Oil production fell to 380,000 b/d in 2007 from a peak of 600,000 b/d in 1995. The government has opened up a number of onshore and offshore blocks hoping that new investments will eventually stop this decline in oil output.

Shell And Syria

The Syrian Ministry of Petroleum and Mineral Resources and the Syrian Petroleum Company (SPC) on 3 September signed with Syria Shell Petroleum Development (SSPD) an agreement for a 10-year extension of their PSC, which was first signed in the early 1980s. The extension of the agreement was approved on 5 August by the Syrian Council of Ministers, along with another license agreement/PSC with the French company Total. According to a Shell press release issued on 3 September, the approval covers 38 development license agreements operated by the Al-Furat Petroleum Company (AFPC), which is owned by SPC (50%), SSPD (33.3%) and the ONGC/CNPC joint venture Himalaya Energy (16.7%). AFPC was established in 1985 to carry out the development and production of oil and gas discovered from exploration activities in the Dair al-Zour PSC area. The first major discovery was made in 1984 in the Thayyem field, with other oil discoveries being made in the area over the next three years. 

AFPC is looking to maximize ultimate recovery in all fields including the smaller fields and to reduce costs, the press release said, adding that Shell, through AFPC, has been operating in Syria for over 23 years, providing support for technology transfer, and natural and human resources development locally. Country Chairman for SSPD Ole Myklestad said: We are delighted to be given the opportunity to continue to work with national companies to develop the local energy sector and to further the continued success of AFPC. 

Commenting on the extension of the agreement, the Syrian Minister of Petroleum Sufian 'Alaw said recent studies have shown that additional reserves are present in the AFPC acreage, and that these would require technical know-how and expertise of the type that is available to Shell. He also revealed that under the extension, the government has secured improved terms in revenue sharing by setting a ceiling to the oil and gas price. Also Shell has agreed to make available a grant of $30mn over a 10-year period for social development in the areas of the AFPC operations, together with another grant of $4mn to help in upgrading Syrias refineries. Mr 'Alaw added that Shell agreed to bear the cost of experimental projects until such time as they become economically viable. According to a press release issued by the Ministry of Petroleum, the extension deal with Shell in fact covers three existing contracts which are due to expire during the period 25 December 2008 and 31 December 2017.

AFPCs crude production peaked at 400,000 b/d in 1994, but has since fallen to 180,000 b/d in 2005 and around 140,000 b/d in 2007. Output from AFPC in the first quarter of the year was estimated at 120,000 b/d, according to Mr 'Alaw (MEES , 14 April).  

Total And Syria

Syria and Total on 4 September also signed three oil and gas agreements which are intended to strengthen the French groups long-term presence in the country, a Total press release said. The agreements were signed on the second day of President Nicolas Sarkozys two-day state visit to Syria which began on 3 September.

The first agreement renews the Dair al-Zour oil license, which is wholly owned by Total and jointly operated by Total and SPC as the Dair al-Zour Petroleum Company. The license was extended for 10 years to 2021 and will enable Total to prolong and optimize production from the Jafra, Qahar and Attala fields. The second agreement covers the enhancing of output from the Tabiyeh gas and condensate field so as to increase gas deliveries to the domestic market from the Dair al-Zour plant. Total said that this would help it develop its activities in the Syrian gas industry.  The third agreement was a memorandum of understanding between Total, SPC and the Syrian Gas Company (SGC) to set up a strategic partnership, that will allow for the development of joint projects between the three companies.

Expressing his satisfaction with these deals, Totals CEO Christophe de Margerie said they pave the way for increased cooperation between Total and Syria and bolster our operations in partnership with the national oil companies of this country.

Total has been present in Syria since 1988 and operates the Dair al-Zour license through the Dair al-Zour Petroleum Company, a 50/50 joint venture between SPC and Total. According to the press release, Totals operated production in Syria amounted to 29,000 b/d in 2007.  In 2005 the companys production in Syria averaged 35,000 b/d (MEES , 14 November 2005).

According to Syrian official sources, the extension of the agreement with Total also includes improved terms in revenue sharing by setting a ceiling to the oil and gas price, similar to the extension with Shell. Also Syria will receive from Total an unspecified allowance from the extension as a contribution for social development.

Prior to the extension of the Shell and Total licenses, SPCs Managing Director, 'Umar al-Hamad said that the presence of foreign companies like Shell and Total in Syria has positive effects for two reasons. First, these two would help to attract other companies to come to Syria and undertake exploration and development activities in the country; and second they provide a source of international technical know-how and expertise. Mr Hamad also revealed that SPC was currently negotiating with a number of companies for five onshore blocks and that one offer for an offshore block from one company was under study. At the same time SPC was reassessing the potential for some blocks which were included in previous licensing rounds, but failed to attract any interest.

According to Mr Hamad, SPC in the first half of 2008 produced 35.7mn barrels (196,154 b/d) of crude, up 1.89% on the corresponding period of 2007, and 2.8 bcm (15.3mn cmd) of gas. The company produced an average 195,516 b/d of oil in the first quarter of 2008 (MEES , 19 May).

Copyright MEES 2008.