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Shell in Syria

A research paper prepared for IKV Pax Christi
Final version: 13 May 2011
Jan Willem van Gelder Anna van Ojik

Profundo Radarweg 60 1043 NT Amsterdam The Netherlands Tel: +31-20-820 83 20 E-mail: [email protected] Website: www.profundo.nl (English)

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Shell in Syria

1.1    Introduction

Shell has a long history in Syria. It has had a presence in the country since the 1940s and has been a shareholder in Al Furat Petroleum Company (AFPC) for some 25 years.1 In Syria, Shell is only active in the upstream segment of the oil sector.2 The two subsidiaries of Shell active in Syria’s upstream oil sector, Syria Shell Petroleum Development and Shell South Syria Exploration, are discussed in the following paragraphs.

1.2 Syria Shell Petroleum Development

1.2.1 General overview

Shell’s principal operations in Syria are conducted by Shell’s subsidiary Syria Shell Petroleum Development BV (SSPD):

Syria Shell Petroleum Development BV P.O. Box 3663 Damascus Syria

Tel: +963 11 2217220 Fax: +963 11 2217156

The company performs exploration and production activities in Syria and has its statutory seat in The Hague. It is registered at the Dutch company register (Kamer van Koophandel).

In May 2010 Shell announced that the China National Petroleum Corporation (CNPC) has acquired 35% in SSPD.3 Shell and CNPC stated that they will continue to look for attractive investment opportunities in Syria’s upstream industry together. 4

1.2.2 SSPD’s activities in Syria

SSPD undertakes the following activities in Syria:

• SSPD has interests ranging from 62.5% to 66.67%, in three production licences in Syria:5 • Deir-Ez-Zor • Fourth Annex • Ash Sham

Shell’s interests in the licences expire between 2018 and 2024.6 All three contracts are concluded with the Syrian government and the state owned General Petroleum Corporation (GPC; previously Syrian Petroleum Company). The oil fields are operated by Al Furat Petroleum Company, in which SSPD holds a 31.25% interest. SSPD’s partner in the joint ventures is Himalaya Energy Syria B.V. which is a joint venture between the Indian ONGC Videsh and CNPC from China.7

• The three licenses contain about 38 producing oil fields (see Figure 1), which are operated by the consortium Al Furat Petroleum Company (AFPC). SSPD has a 31.25% share in AFPC, the state-owned General Petroleum Corporation holds 50% and Himalaya Energy Syria B.V. holds the other 18.75%. Currently, AFPC produces some 100,000 barrels a day.8

• AFPC also carries out development operations in Syria together with Al Badish Petroleum Company (ABPC), of which AFPC is the exclusive agent. SSPD holds a 33.33% interest in in ABPC.9

• SSPD is also party to a gas utilisation agreement for the collection, processing and sharing of natural gas from designated fields for use in Syrian power generation and other industrial plants. AFPC performs operations under these contracts.10

Figure 1 gives an overview of the oil and gas fields operated by AFPC as at February 2005.

Figure 1. Oil and gas fields operated by AFPC

Shell describes its investment in Syria as among the risk factors and uncertainties affecting the company. As Syria is among the countries against which the US government imposed sanctions, Shell could be subject to sanctions or other penalties in connection with its activities in Syria.11

1.2.3 Production of SSPD

The volumes of oil and gas attributable to SSPD are shown in Table 1. To add up oil and gas production, cubic meters of gas are converted into barrels of oil equivalents.

The numbers in Table 1 reflect 100% of the production attributable to Shell’s subsidiaries. Since 2010, 35% of these figures is attributable to CNPC. As the table shows, both oil and gas production of SSPD have decreased sharply over the last five years. It is also clear that gas production only accounts for a small part of SSPD’s total production.

To get a better picture of the importance of SSPD’s production on the Syrian market, Table 2 compares the total oil production in Syria with the oil production of SSPD.

As Table 2 shows, SSPD’s share in the Syrian oil production decreased from 8 to 6% over the last few years. Table 2 also shows that the total oil production in Syria has decreased considerably between 2005 and 2009.

To assess how important SSPD’s production is for Shell, Table 3 puts the production of SSPD in Syria in perspective with Shell’s total oil production.

As Table 3 shows, between 2005 and 2009 SSPD has accounted for around 2% of Shell’s total oil production.

1.2.4 Financial information

At the end of 2009, SSPD owned total assets worth € 216.8 million. The net profit of SSPD over 2009 amounted to € 124.7 million, compared to € 205.3 million in 2008.12

SSPD pays tax in accordance with Syrian tax law under a rate that represents Syrian Corporation Tax. In 2009 the effective tax rate that SSPD had to pay was 36.3%. Over earnings before tax of € 195.9 million in 2009, SSPD had to pay € 71.2 million tax to the Syrian authorities. In 2008, the company paid € 122.3 million in taxes.13

1.3 Shell South Syria Exploration

Shell South Syria Exploration (SSE) is a 100% Shell subsidiary registered in Bermuda. It has exploration interests in two production-sharing contracts for blocks 13 and 15 in the south of Syria, expiring in 2011 and 2014 respectively. A one-year extension for block 13 has been requested and is pending government approval. Seismic data acquisition was completed in 2008 and exploration drilling commenced in 2010. Shell is the operator with a 70% interest.14

Figure 2 gives an overview of the division of oil fields in Syria. The exploration blocks of SSE are clearly shown in yellow.

1.4 Chemical products

Apart from oil, Shell is also present in the Middle East with an extensive portfolio of chemicals manufacturing, storage, logistics and trading operations based in Saudi Arabia, Dubai, Jordan and Egypt. Shell also sells polyurethane products in Syria. For these products Shell uses third-party bulk storage and blending facilities in Aqaba, Jordan.15

IKV Pax Christi asked Profundo to document Shell’s involvement in Syria. You can read the 19 page report here (with reference sources)

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