Gulfsands is the operator of the Block 26 Production Sharing Contract ("PSC") with a 50% working interest; the other 50% interest is held by Sinochem. Block 26 covers an area of 5,414 km2. The PSC grants rights to explore, develop and produce from all depths outside the existing field areas and from the deeper stratigraphic levels only within the pre-existing discovered field areas. The final exploration period of the PSC expired in August 2012, but it is anticipated that an extension to this date will be granted once sanctions are lifted.
There are two producing oil fields of Cretaceous age within the PSC area, Khurbet East and Yousefieh. In addition, two further oil and gas discoveries of Triassic age lie beneath the Cretaceous oil producing reservoir in the Khurbet East field, within the Butmah and Kurrachine Dolomite formations, for which development approval has been granted.
The development and operation of these fields has been 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 had been seconded. Since the imposition of sanctions against GPC on 1 December 2011, which led to 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the PSC, Gulfsands has had no involvement with the operations of DPC and Gulfsands staff seconded to DPC have been withdrawn, leaving DPC to be run by its GPC secondees.
The Khurbet East field was discovered in June 2007, and commercial development approval was granted in February 2008 for the Cretaceous Massive Formation and Triassic Kurrachine Dolomite formations. Oil production from the Cretaceous Massive Formation commenced in July 2008. The Yousefieh field was discovered in November 2008, commercial development approval was granted in January 2010, and oil production commenced in April 2010, also from the Cretaceous Massive Formation.
The original discovery well at Yousefieh is located approximately 3 km away from the Early Production Facility ("EPF") at Khurbet East. The development and production period for the Khurbet East Cretaceous Massive and Triassic Kurrachine Dolomite formations expires in February 2033, and that for the Yousefieh field in January 2035, but each may be extended for a further 10 years at the Contractor's option.
The crude oil produced from Khurbet East has an API gravity of approximately 25°, slightly lighter than that of the area benchmark "Syrian Heavy" crude oil. Oil produced from Yousefieh is similar to that from Khurbet East, with an API gravity of 23--24°. Until the declaration of force majeure the oil was transported, via pipeline, to the GPC-operated gathering facilities located some 30 km away at Tel Addas, before being blended with the Syrian Heavy crude oil, and transported to the Mediterranean port of Tartous using GPC's oil handling infrastructure.
Approval for the development of the Khurbet East Triassic Butmah oil and gas field was granted in December 2011 but no work has been done on the required infrastructure due to the imposition of sanctions. Oil from the Triassic formations in Khurbet East has been sampled and has been 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 to enable commercial production of hydrocarbons both from the Butmah and also from the Triassic Kurrachine Dolomite formations. The development and production period for the Khurbet East Triassic Butmah Formation expires in December 2036, but may be extended for a further 10 years at the Contractor's option.
The Company has not been involved with any production related activities since 1 December 2011. We do continue to monitor the performance of the fields and the condition of the surface infrastructure, where possible and safe to do so. Production since 1 December 2011, being the date of imposition of sanctions against GPC, has been estimated in order to produce the following information.
The Khurbet East Cretaceous Massive oil reservoir has produced at levels of up to 24,200 bopd (gross) during 2012 but has been shut in for substantial periods since the imposition of sanctions against the Syrian oil industry. The estimated gross average daily production from the reservoir has been 4,700 bopd during 2012. It is our understanding that the performance of the reservoir has continued to be excellent. Estimated gross production during 2012 was approximately 1.7 million barrels and as at the end of December 2012, it is believed that cumulative production from Khurbet East since inception was approximately 19.3 million barrels.
The gross production from the Yousefieh field during 2012 is estimated at 0.1 million barrels (220 bopd) with peak production of over 3,500 bopd but it is believed that the field has produced for only 46 days during 2012. It is believed that as at the end of December 2012, cumulative production from the Yousefieh field since inception was approximately 1.3 million barrels.
It is believed that production from the Block 26 fields is being constrained as the normal export routes for the oil are not currently available to GPC.
No development drilling was undertaken during 2012.
Work on the central production facility at Khurbet East, contracted to Saipem, was suspended in December 2011 after Saipem declared force majeure under their contract as a result of EU sanctions. The project was still at the design stage, having been delayed already owing to the deteriorating situation in Syria.
In February 2012 the Company announced that it had decided to cease all further exploration in Syria in light of the effect of the EU sanctions and the impact these were having on the procurement of essential goods and services for exploration operations. The final exploration period of the Block 26 PSC expired in August 2012 but it is hoped that an extension to the exploration period can be negotiated with the Syrian authorities to replace that lost due to sanctions.
The only activities of the Company in Syria during 2012 was the completion of the Khurbet East-102 Butmah appraisal well which was spudded in October 2011 on the northern flank of the Khurbet East field. An open hole DST conducted in January 2012 over a 48 m interval in the Butmah section flowed wet gas at a rate of 10.7 mmcfd with a 32/64" choke, with associated 524 bopd of 58° API condensate and with no formation water. The results were interpreted as signifying an oil reservoir with an overlying gas cap which also contains small volumes of condensate. The Kurrachine Dolomite section failed to flow oil in an open hole DST.
In prior years the Company had drilled three wells that remain of interest to joint venture partners, Al Khairat, Wardieh and Twaiba. Additionally, the Company is in possession of a substantial quantity of high quality 3D seismic data over the Block 26 area that, it is hoped, will enable the Company to target further prospects should an extension to the exploration period be granted. The cost of all drilling and seismic acquisition has been written off in full.
The Al Khairat exploration well, located 3.5 km south east of Yousefieh East, which completed drilling and testing in December 2011, found a 29 m net oil column in the Cretaceous Massive Formation. When tested open hole over a 26 m interval with a 2" choke and under nitrogen lift, it flowed 1,826 bopd of 22° API oil. Al Khairat is located outside the Yousefieh field DLA, but no application for commercial development approval has been made because of EU sanctions.
The Wardieh exploration well, which completed drilling and testing in September 2011, targeted a combined structural and stratigraphic trap in formations of Cretaceous age. While drilling, it encountered a zone of live asphaltic hydrocarbons overlying a porous reservoir zone, the combination of which caused the well to be plugged and abandoned for safety reasons within 271 m of its planned total depth. A comprehensive geological and operational review of the well will be completed once sanctions permit.
The Twaiba exploration well, located 7 km north of the Khurbet East field, was drilled during December 2010 to target Cretaceous aged reservoirs. There were significant indications of oil-bearing reservoirs based on oil & gas shows while drilling, whole core recovery, wireline log evaluation and down-hole pressure measurements. Only very high-salinity water and minor amounts of oil were recovered to surface during production testing in January 2011. The well was suspended and Special Core Analysis ("SCAL") was conducted to further assess the well. The results of the SCAL will be interpreted once sanctions permit.
Plans for 2013
Following the declaration of force majeure on its PSC in December 2011 the Group no longer has any involvement in the operation of producing fields, or the development of discoveries, on Block 26, and no longer seconds staff, or supplies technical assistance, to DPC. In February 2012 the Company announced that it had decided to cease all further exploration in Syria in light of the effect of the EU sanctions and the effect these were having on the procurement of essential goods and services for exploration operations.
A core staff remains in Syria engaged, for the time being at least, in conducting internal studies and analysing potential exploration prospects with a view to being in a position to resume exploration activity as and when sanctions are lifted, on the assumption that an extension in the exploration period (which expired in August 2012) can be negotiated with the Syrian authorities to replace that time lost due to the sanctions.