Gulfsands is the operator of the Block 26 PSC and holds a 50% working interest in the Production Sharing Contract (“PSC”) along with Sinochem (50% working interest). 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 remaining when force majeure was declared. Rights to the benefits of production from discovered fields last for a minimum of 25 years from the date of development approval with extension of a further 10 years thereafter available at the partners’ option.
Under the Group’s operatorship, two oil fields containing reservoirs of Cretaceous age have been discovered and developed within the PSC area, Khurbet East (2008) and Yousefieh (2010). During 2011 combined production from these fields reached a level of just under 25,000 barrels of oil per day (“bopd”) before the impact of EU sanctions resulted in the curtailing of production levels. In addition, two further oil and gas discoveries with reservoirs of Triassic age have been identified beneath the Cretaceous aged oil producing reservoir in the Khurbet East field and within the Kurrachine and Butmah Dolomite formations. Development approvals for these discoveries were granted in 2008 and 2011 respectively. A further oil discovery was made late in 2011 by Gulfsands in the Cretaceous aged reservoirs at the Al Khairat exploration well, this discovery awaits further evaluation and development work.
The operation of these fields during the production phase is undertaken by Dijla Petroleum Corporation (“DPC”), a joint operating company formed between Gulfsands, Sinochem and General Petroleum Corporation (“GPC”) for this purpose, to which staff of both Gulfsands and GPC had previously been seconded. Since the introduction of EU sanctions on 1 December 2011 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.
Gulfsands has taken extensive legal advice with respect to its obligations under the sanctions in place at the time and has liaised regularly with relevant regulators and generally acted cautiously to ensure it remains compliant with all relevant sanctions. The Board is determined to ensure that the Group’s activities remain compliant 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 to comply with applicable sanctions.