White Nile- Total wrote to claim South Sudan block

By Benoit Faucon and Jackie Range

LONDON, May 19, 2005 (Dow Jones) — French oil major Total SA (TOT) has written to White Nile Ltd (WNL.LN) to claim the exclusive right on a block awarded to the U.K. oil minnow by South Sudan, the small company said in a circular published Thursday.

Headquarters of the oil group Total in the western Paris suburb of La Defense..

White Nile said “there is a possibility that Total may take legal proceedings” against it, its 50% shareholder, state-owned Nile Petroleum Co., or the autonomous government of South Sudan.

The company said on Feb. 16 it had an agreement with the Sudanese People’s Liberation Movement, or SPLM, for a 60% stake in Block Ba. The block represents more than half the huge Block B claimed by a consortium consisting of Total SA (TOT), Marathon Oil (MRO) and Kuwait Petroleum Corp. (KPT.YY).

Thursday, White Nile published a circular, which effectively allows it to resume trading its shares on May 23 after three months of suspension.

A Total spokesman maintained that its company’s contract, signed in 1980 and renewed in December last year, was valid.

The deal is “in line with the peace agreement” signed in January by the SPLM, he said.

He added all options are being considered, including legal action or the development of a relationship with South Sudan.

In its document, White Nile reiterated its right to the block, based on legal advice.

The company argues that the future National Petroleum Commission, which will be in charge of deciding on oil contracts, is likely to approve the deal. It says the South will dominate in the institution and a decision will be based on a majority vote, not unanimity.

In a note attached to the circular, White Nile’s counsel, Maurice Mendelson, a lawyer with Blackstone Chambers, said that some interpretation of the NPC’s rules, which he doesn’t agree with, could imply unanimity is required.

Furthermore, it doubts that the commission would have authority over deals prior to its constitution.

As a result, the company says it hasn’t made any provision for possible legal proceedings.

In a separate note, White Nile’s exploration adviser, Exploration Consultants Ltd, said: “Total acquired aeromagnetic and seismic data in Block B but no drilling has taken place.”

White Nile also says Exploration Consultants will be remunerated on a success fee based on the minnow’s market capitalization.

“The consideration payable to ECL by the company includes a monthly retainer fee and a success fee of GBP100,000 to be paid when the market value of the company reaches GBP750 million and GBP200,000 when (it) reaches GBP1.5 billion,” it said in the circular.

Analysts who spoke on condition of anonymity said the link between fees and share price could create a conflict of interest.

But a White Nile spokesman said ECL, which operates with many customers across the region, wouldn’t risk its reputation by overcooking the numbers.

The company also said in its circular that it will attain an “annual internal rate of return of a minimum of 40% and that, if such internal rate of return is not achieved by the company, the parties will re-negotiate” the terms of the license agreement.

“It’s a fairly attractive rate of return but it’s normal to trade on political risk exposure,” an analyst said.