Will Gulfsands Petroleum return to work in Syria?
Enab Baladi – Muhammed Fansa
The British Gulfsands Petroleum called for finding an international legal way to reactivate its investments in the oil fields of northeastern Syria, offering a solution to return to work while also solving many of the related problems.
A report published by the Gulfsands on its official website on 9 January states that six years have passed since the company was informed that its fields in “Block No. 26” in northeastern Syria, near the Rmeilan area of al-Hasakah, had been “illegally” restored to production, after the company ceased operations to comply with UK sanctions in August 2011.
Gulfsands Petroleum has come up with a potential solution, which it calls “Project Hope.” Current sanctions, and lack of political agreement, prevent the company and its peers from working in Syria’s oil sector. Project Hope would turn this around and allow it to return to work while also solving many of the related problems, according to the Energy Voice business news site.
“Under the plan, Gulfsands and its peers could return to their blocks with appropriate sanctions and other approvals. Back with operational control, they could improve oilfield practice – reducing the impact on the environment – while also producing oil,” said Energy Voice, adding that the “companies would then sell oil transparently through accredited traders. They would pay revenues into an escrow account or channel them towards internationally acceptable ends. Oil revenues could go to paying for humanitarian aid, for instance. This would reduce donor countries’ aid bill and create a local link between production and benefit.”
Gulfsands CEO John Bell said various local groups – including the Autonomous Administration of North and East Syria (AANES), People’s Defense Unit (YPG), Syrian Democratic Forces (SDF), and Syrian Democratic Council (SDC) – have taken operational control of the fields and are producing “illegally,” the Energy Voice reported.
The company estimates Block 26 has been producing around 20,000 bpd since 2017. As a result, over this period, it has produced more than 41 million barrels of oil illicitly. At an average oil price of $70 per barrel, this has a potential value of around US$2.9 billion, the energy news site added.
The Autonomous Administration of North and East Syria (AANES) responded to the accusations of the British company (Gulfsands) and those of the Chinese Foreign Ministry, of “stealing” Syrian resources, by denying them, considering them to be “political stances.”
The AANES added that most of the oil wells are “destroyed and out of service,” and the rest has “weak” production capacity, and it is being consumed for local needs and for “the Syrian interior.”
Gulfsands said that extracting and selling oil away from regulation and oversight will increase the possibility of corruption and lower prices and that most of the oil revenues benefit “illegal parties,” not the Syrian people.
It also warned that the practices of extracting oil from unsafe and unregulated fields, away from security and environmental standards, will “significantly” damage the environment and will also have a “catastrophic” impact on the health of local communities.
The London-based company is calling for a win-win humanitarian initiative that would enable it and other international oil companies to regain control of their assets. Instead of oil flowing to sanctioned entities and other unauthorized intermediaries, the “Hope” initiative would contribute to transferring revenues from oil sales to a fund controlled by the United Nations.
Some influential countries, including the US and UK, appear to be turning a “blind eye” to the problem, which encourages this illegal trade to continue, John Bell said.
“The United Nations, or a similar neutral party, would have to design and oversee it. We believe we have suggested something that makes sense and meets an urgent need,” Bell added.
“This is not political,” he continued. “We are trying to find an indigenous solution to a humanitarian crisis that has gone on for too long. It is about visibility and transparency, it is time for something to change. This is a solution that could generate billions of dollars of revenue per year – but currently, it is being squandered.”
“There is a clear regional interest in resolving the crisis in Syria, which gives us some cause for optimism,” Bell said.
Mohammad al-Futaih, an Expert in Middle Eastern affairs, told Enab Baladi that there are practically two companies that show serious interest in the oil of the eastern Syria region. They are “Gulfsands,” which has returned to the scene since Russia took control of it, where it actually owns the original contractual rights, and the American company “Delta Crescent Energy,” which obtained a terminated exemption from the administration of former US President Donald Trump.
Al-Futaih ruled out, in the current circumstances, that Gulfsands would obtain Western support that would allow it to return to the region.
He also ruled out that the other American company would succeed in obtaining an exception from the administration of the US President, Joe Biden, due to its relations with the Republican party. The company did not have the consensus of the party.
Al-Futaih linked the return of oil extraction in northeastern Syria by foreign companies to the return of security stability and the clarity of the political situation in the region, which is not on the horizon for the coming years, he said.
Such an initiative needs to be implemented with an exception from the Caesar Act sanctions, as the exemptions from the sanctions announced in May 2022 by the US Treasury for northern Syria allowed for some targeted investments, with the exception of oil extraction in the east of the Euphrates, says the economic and political analyst.
The Biden administration also decided not to extend the exemption from sanctions granted to Delta Crescent Energy for several reasons, the most important of which is the objection of foreign companies that own sovereign rights in the oil fields.
Illicit production in the broader northeast Syria region, including Block 26, is estimated to be 80,000 bpd, Bell said. “Sanctions have been in place for 12 years, and local people are just not seeing the benefits,” he said. “Despite sanctions, this illegal trade is allowed to continue, and revenue is going to local militias.”
Bell said these militias are understood to be selling oil from northeast Syria both to Damascus as well as into Kurdistan, the Energy Voice reported.
“The biggest travesty is that there is little or no benefit going to the Syrian people as the oil is being sold at such a discount that only benefits illicit middlemen. Worryingly, this illegal production is also causing absolutely atrocious pollution to the land, air, and rivers,” he continued. “The environmental pollution is catastrophic,” Bell said, citing research from local NGOs.
Expert al-Futaih disagrees with Bell regarding the benefits, pointing out that the infrastructure of the oil sector in northeastern Syria has been “significantly” damaged and is now in need of “large and technically complex” investments, amounting to billions of dollars.
Al-Futaih added that most of the oil wells need “revival” operations after they were damaged as a result of the “primitive extraction” of oil, explaining that “revival” operations began several years before 2011 because an important part of the Syrian oil wells had “passed their productive peak” and started to retreat, describing the talk about the return of the great oil production momentum as “unrealistic.”
Regarding the revenues that the company talks about, amounting to $20 billion annually, the economic academic described this hypothesis as “impossible.” In addition to considering the price of a barrel to be around $110 in order to achieve the alleged return, the peak of Syrian oil production in the late nineties was about 700 thousand barrels of oil. It decreased in early 2011 to about 340,000 barrels.
Estimates of the British oil company “BP” for the year 2011 indicated that Syria would become an oil importer in 2020, according to consumption and existing reserves at the time. However, the conflict changed the results of these expectations after production decreased significantly, which allowed it to continue until now.
The oil will run out in northeastern Syria within a few years unless there is “new data” resulting from extensive seismic surveys of the entire region, al-Futaih said.
Gulfsands owns a 50% stake in “Block No. 26” in northeastern Syria, as it started its activities in the Syrian oil sector since 2000, and its presence in the oil sector was stipulated, with a 5.7% stake granted to the cousin of the head of the regime, responsible for the family’s economy at the time, Rami Makhlouf, represented by the “Mashreq Investment Fund.”
The British company continued to pay Rami Makhlouf until August 2011, when it announced that it had halted payments in implementation of the British sanctions that were imposed in May of that year, according to a report by the Financial Times in 2011, and that was the beginning of the suspension of the company’s presence in the Syrian oil sector.
The contracts awarded to the British company, which still considers itself entitled to oil extraction contracts from the sites where exploration began during the first decade of the second millennium, have not been canceled.
In February 2019, the company Delta Crescent Energy was founded by three people, the first of whom was the former CEO of the Gulfsands company, John Dorer, and the second, Jim Reese, a former member of the US Special Forces, who has experience in contractual security work.
The last of them is James Kane, a businessman and a major donor to the American Republican party, and later the company tried to enter the sites where the British company operated in Syria through the exception granted to it.
In April 2020, the Trump administration granted an exemption from the sanctions to Delta Crescent Energy to work in the Syrian oil sector a few months before the US presidential elections, but it did not succeed in attracting investments to finance its activities in the region.
By 31 December 2021, the effect of the “exception” granted by the Trump administration expired, and the company no longer had the right to resume its oil activities in Syria.
In May 2021, the majority stake in Gulfsands was sold to Waterford Finance, a company owned by Russian businessman Mikhail Kroupeev. The company became licensed in Britain but is practically under Russian control.
Gulfsands has recently opened an office in Abu Dhabi to be closer to the regional dialogue regarding Syria and is also working on plans to expand operations in the MENA region.
The illegal oil trade is a global issue. The United Nations University’s World Institute for Development Economics Research (WIDER) estimates that illegal oil theft represents 5 to 7 percent of the global market for crude oil.
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