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Exploration Setbacks Compound Sudan problems

With Sudan’s vital oil revenues plummeting in the first quarter, and the country’s political woes showing no signs of abating, exploration success would have provided a rare cause for optimism. New discoveries are sorely needed, to help shore up the country’s declining output. Instead, two blocks have been abandoned by their international operators so far this year, and efforts to begin work on Total’s Block B in south Sudan appear to be going nowhere, with the partners unable to find a replacement for US firm Marathon.

The two Western oil firms that have exited Sudan this year, South Africa’s PetroSA and Sweden’s Lundin Petroleum, both cited the poor exploration potential of their acreage. However, security incidents on PetroSA’s exploration permit in North Sudan contributed to its decision to leave Sudan. The departure of the two companies also comes against a backdrop of troubling political developments. These include the indictment of President 'Umar al-Bashir by the International Criminal Court (ICC) in March, on charges of war crimes and crimes against humanity and the ongoing violence in Darfur (MEES , 9 March 2009).

Adding to Sudan’s uncertain future, the long-delayed census, whose success is considered a prerequisite for the general elections now due to be held in February 2010, were finally published on 21 May. But the results indicated that the population of South Sudan accounts for just 21.1% of the total population, much lower than previously thought, and were strongly contested by the President of South Sudan, Salva Kiir. 

Security Concerns

More immediate concerns face the oil companies operating in Sudan. “We had a few security incidents,” said PetroSA official Riaz Sarvan, commenting on the company’s decision to leave Block 14, where it had an 80% interest. “Whether they were rebels or just bandits [attacking] the contractor working on the block, that contributed. But the point is we moved on. It was too much of a rank exploration block.” Block 14 covers a vast area – around 250,000 sq km – along Sudan’s border with Libya and Egypt. Mr Sarvan confirmed that the contractor affected was BGP, the geophysical services arm of state-owned Chinese oil firm CNPC. BGP was hired by PetroSA to acquire 1,200 line km of 2D seismic data on the block in 2007 and 2008. Last October, five Chinese oil workers, all employees of CNPC, were killed in South Kordofan (MEES , 3 November 2008).

Separately, the White Nile Petroleum Operating Company (WNPOC) consortium that operated Block 5B decided to relinquish the concession after drilling three dry wells last year, and with the first exploration period coming to an end. “The decision was taken not to enter the second exploration phase…based purely on technical and geological factors,” Lundin spokeswoman Maria Hamilton said. “It is an enormous block, and definitely there could be more potential. But we think the source rock is more to the north, where they have existing production.” The partners in the consortium were Malaysia’s Petronas (39%), Lundin (24.5%), India’s ONGC (23.5%) and Sudapet (13%). 

The poor exploration results that led the WNPOC consortium to relinquish Block 5B are particularly disappointing for Lundin, which has been involved in Sudan since the mid-1990s and sold its stake in neighboring Block 5A to Petronas in 2003. Block 5A, which Petronas operates in partnership with ONGC and Sudpet, came on stream in 2006 and currently produces around 20,000 b/d. According to sources at Sudapet, the swampy topography on Block 5B increased the logistics and cost of the drilling program there, which eventually ran to more than $200mn.

‘Nothing New’

Another concession that attracted much attention from western oil firms in the past is the Total-operated Block B, in the Jonglei Basin, where, despite a government ruling two years ago supporting Total’s rights to the concession, exploration activities have yet to begin. The stumbling block in this case is finding a company to replace US firm Marathon, which was forced to sell its 32.5% share last year because of renewed US sanctions (MEES , 5 May 2008). “There’s nothing new. We haven’t resumed operations in the field,” says company spokesman Philippe Gateau. “I don’t know at all the reason for the delay, just that we want everyone to agree on the new partner.”

The French firm’s difficulty in finding a new partner may reflect Sudan’s wider difficulties in attracting international investment, due to its political and economic isolation. Clearly this has for the most part prevented Western companies from doing business there, but does not appear to have affected the activities of Asian and especially Chinese companies operating in Sudan. But as International Crisis Group pointed out in a report published shortly after the ICC issued its arrest warrant in March, the country’s already limited economic partners may be increasingly wary of dealing with a country headed by a president accused of war crimes (MEES , 9 March 2009).

Oil Revenues Dry Up, But Production Set To Rise

In parallel with the sorely disappointing exploration results to date, Sudan’s revenues have plunged this year, owing to the collapse in oil prices and the slide in production, from over 510,000 b/d in November to around 450,000 b/d in March. This has put severe pressure on the Government’s finances, especially in the south, which depends on oil remittances for more than 95% of its total earnings. According to the Ministry of Finance, the Government of South Sudan (GoSS) earned just $127mn in oil revenues in the first quarter of this year, down from $541.6mn the previous quarter.  

It is not all bad news however for Sudan’s oil sector. Sudapet sources say that since March, Dar Blend production has risen to more than 270,000 b/d, from around 210,000 b/d, as the Gumry field has come on-stream. This would more than offset the decline at Sudan’s other main oil fields that together produce Nile Blend, which averaged 227,400 b/d last year and fell to just over 200,000 b/d in the first quarter of 2009.

Meanwhile, rumors that the deteriorating security situation in central Sudan, where Nile Blend is produced and where the Chinese oil workers were killed last year, might prompt CNPC to scale back its investments there appear to be unfounded (MEES , 3 November).

The Chairman of Sudapet Salah Wahbi told MEES that a highly qualified team is now carrying out studies to reduce the water cut and stabilize the production of oil from Blocks 1, 2 and 4. He also said that a project (Phase 3) is currently being implemented at CNPC’s Block 6, which will raise production from the Fula field by around 20,000 b/d to 60,000 b/d in the next one-and-a-half to two years. Mr Wahbi explained that there were discussions currently taking place about sending some of the light oil from the Fula field to the Nile Blend export pipeline to improve the quality of the crude being exported and boost volumes. At the moment, all the oil from Block 6 is transported via a 730km pipeline to the refinery in Khartoum. 

On the exploration front, Mr Wahbi said that since PetroSA had assigned its 80% interest in Block 14 to Sudapet, the block was being re-offered through an open bidding procedure, with more than seven companies having applied, and the exploration license due to be awarded “in the coming weeks.” Also, MEES understands that the partners operating Block 15 in the Red Sea, which is known to have some gas potential, are currently finalizing the drilling contract and plan to spud a wildcat exploration well in the 3Q09 (MEES , 7 April 2008).

Sudan’s Oil Production (‘000 B/D) And Revenues ($Mn)

Source : Ministry Of Finance.

* After fees and 2% state allocation.

© Copyright MEES 2009

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