Diplomacy with West Fuels Hopes for Syrian Oil Revival

DAMASCUS (THE WALL STREET JOURNAL via Dow Jones Newswires), Sept. 14, 2009

Oil-industry executives in Syria anticipate a surge of interest by international petroleum companies amid a recent thaw in the country's diplomatic relations with the West.

Syria has never been a huge oil producer, with output peaking in the late 1990s at close to 600,000 barrels a day, then dwindling to below 400,000 today. That is just a trickle for giants such as Exxon Mobil Corp. and BP PLC, which are watching for openings in super-producer Iraq next door.

Still, Syria's location on the Mediterranean and its relatively unexplored geology make it a potentially profitable frontier for smaller, international companies. Mtanios Habib, a former Syrian oil minister, says the country holds significant potential, including oil-sands reserves on the Jordanian border. He says 40% of Syria's land hasn't been explored.

The country's near-pariah status in recent years kept out most companies. Now, improved relations with Washington and other Western capitals, along with recent oil discoveries, are fueling hope that foreign companies might help to revive the industry.

In August, Gulfsands Petroleum PLC of London began production of 16,000 barrels a day at one of its recent discoveries, at the Khurbet East field, in northeast Syria. The company says it expects to ramp up production to 35,000 barrels a day by the end of next year.

"In terms of Syria being finished, we've proved otherwise," says Mahdi Sajjad, Gulfsands' co-founder and general manager.

Gulfsands bet big on Syria when most other companies shied away. The company made its Khurbet East find in 2007. That year, it entered a strategic partnership with Cham Holding, controlled by tycoon Rami Makhlouf, a cousin of Syrian President Bashar Assad and a target of recent U.S. sanctions.

In November 2008, Gulfsands made a second discovery in the northeast. Executives say they believe that find could hold commercially extractable reserves of 12 million barrels.

Syria needs the foreign know-how. Oil accounted for 17% of government revenue in 2007, according to the International Monetary Fund. But short-term Syrian forecasts predict steep declines -- as much as 25,000 barrels a day of lost production each year -- if new fields aren't found or extraction technology isn't improved.

Since 2000, Damascus has opened up swathes of the country to exploration by foreigners, and Chinese, Indian and Russian companies have entered the market.

The state Syrian Petroleum Co. has a longstanding joint venture with a unit of Royal Dutch Shell PLC, India's Oil & Natural Gas Corp. and China National Petroleum Co.

U.S. economic sanctions, imposed in recent years because of Syria's support of militant groups Hezbollah and Hamas, impede any meaningful oil-industry work by U.S. companies.

This summer, however, the Obama administration said it would make it easier for Syria to import items such as aircraft parts and other technology. Washington also has agreed to reinstate its U.S. ambassador.

Meanwhile, European nations, including France, have warmed to Damascus after Syria appeared to support political detente among Lebanon's squabbling factions.

"Under the current sanctions in place in Syria, it would be close to impossible to have any American oil company work in that country," said Ray Irani, chairman and chief executive of Occidental Petroleum Corp. "If the political situation changes, that would be a different story."

Wael Tabbaa, chairman of Petro Services, a privately run Syrian oil-services company, says Western companies could be drawn into Syria if sanctions are eased.

"There are still 400,000 barrels per day, and that's still a lot of work," Mr. Tabbaa said.


Copyright (c) 2009 Dow Jones & Company, Inc.