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Syria
Gulfsands - Syria

Syria

Gulfsands is the Operator of the Block 26 Production Sharing Contract ("PSC") and holds a 50% working interest in the PSC along with Sinochem. The Group is not presently involved in any production or exploration activities on Block 26 as force majeure has been declared in respect of the contract following the introduction of EU sanctions against Syria.

The Group has ensured that it remains compliant with all applicable sanctions in relation to Syria and intends to return to production and exploration activities as soon as permitted.

Block 26 covers an area of 5,414 km² in north east Syria and the PSC grants rights to explore, develop and produce hydrocarbons from all depths outside the pre‑existing fields within the area and from the deeper stratigraphic levels below the pre‑existing discovered fields. The final exploration period of the PSC was set to expire in August 2012 when force majeure was declared in December 2011. It is anticipated that an extension in the exploration period can be negotiated with the Syrian authorities to at least replace that period of time which was lost when force majeure was declared.

Under the Group's operatorship, two oil fields of Cretaceous age have been discovered and developed within the PSC area, Khurbet East and Yousefieh.

In addition, two further oil and gas discoveries of Triassic age have been identified beneath the Cretaceous oil producing reservoir in the Khurbet East field and within the Butmah and Kurrachine Dolomite formations. Development approvals for these discoveries were granted in 2011 and 2008 respectively.

Approval for the development of the Khurbet East Triassic age Butmah oil and gas field was granted in December 2011 but as a consequence of compliance with applicable sanctions, the Group is presently unable to progress any activity in respect of this development. However, oil from the Triassic Formations in Khurbet East has already been sampled and found to be lighter than that produced from the Cretaceous Formation, with an API gravity of 34--35°, and it contains a higher gas content. In addition, small amounts of condensate have been recovered from the gas cap in the Butmah Formation. The construction of sour gas sweetening and export facilities at Khurbet East is planned, subject to the lifting of sanctions, to enable commercial production of hydrocarbons both from the Butmah and also from the Triassic Kurrachine Dolomite Formations. Until force majeure was declared, it was expected that the development and production period for operations on the Khurbet East Triassic Butmah Formation would expire in December 2036 although production could, at the Contractor's option, be extended for a further ten years.

Once applicable sanctions permit, it is expected that the force majeure will be withdrawn and these periods of entitlement to undertake development and production activities will be extended by a further period reflective of the period of force majeure.

The development and operation of these fields is being undertaken by Dijla Petroleum Corporation ("DPC"), a joint operating company formed between Gulfsands, Sinochem and the General Petroleum Corporation ("GPC") for this purpose, to which staff of both Gulfsands and GPC have previously been seconded. Since the introduction of EU sanctions on 1 December 2011 that identified GPC as a designated entity and the subsequent declaration of force majeure under the PSC, Gulfsands has had no involvement with the operations of DPC, and Gulfsands staff seconded to DPC have been withdrawn, leaving DPC under the management of GPC secondees.

Sanction compliance

Gulfsands has at all relevant times taken legal advice with respect to its obligations under the sanctions then in place and has liaised regularly with relevant regulators and generally acted cautiously to ensure it remains compliant with all relevant sanctions.

The listing of GPC as a designated entity on 1 December 2011 triggered a review of the Group's relationship with GPC and with DPC and following this review and with effect from 1 December 2011, Gulfsands has:
  • ceased to provide assistance to DPC in the form of seconded staff or indeed have any involvement with the day to day operations of DPC;

  • recused itself from decisions taken by the DPC board;

  • not submitted invoices for the Joint Venture's entitlement share of oil production;

  • exercised strict control over the payment of outstanding supplier invoices to ensure that (a) no payments were made to persons or entities who are included on the list of those subject to the asset freeze, (b) no payment is made for goods or services subject to restrictive measures except after the giving of required notification to the Competent Authority and (c) no payment was made which would constitute a transfer of economic resources to GPC or DPC;

  • ceased (with effect from 18 January 2012, being the date of adoption of EU Regulation 36 / 2012) to enter into new contracts for the procurement of oil and gas related goods or services into Syria, or for associated technical assistance; and

  • also ceased all exploration, as well as production, activity in Syria.

The Group has relocated its offices into modest offices in the centre of Damascus to allow it to retain a place of business in the country to meet its obligations under the PSC. Unfortunately, the protracted nature of the suspension of operations in Syria has also necessitated the review of staffing levels in the country and it is with great regret that the Group has had to release a proportion of its workforce.

The Board is determined to ensure that the Group's activities remain compliant with all relevant sanctions and Management will continue to liaise closely with the relevant regulatory authorities to ensure this objective is achieved while continuing to keep GPC fully informed of the breadth and scope of restrictions on our activities as a result of continuing compliance with applicable sanctions.


Position in 2013
  • Maintained an office presence in Damascus.

  • Block 26 facilities remain safe and secure.

  • Retained technical capabilities through staff redeployment.

  • Continued compliance with applicable sanctions.
 
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