South Sudan govt hopes to pump oil in three years
By Simeon Kerr
NAIROBI, Mar 24, 2005 (Dow Jones) — Southern Sudan’s government-in-waiting hopes to start pumping oil from its oil-rich swamps in as little as three years, a top official said Wednesday.
Costello Garang, foreign commissioner for the Sudanese People’s Liberation Movement, says the soon-to-be-formed civil administration of South Sudan has signed just one joint-venture contract – with London’s White Nile (WNL.LN) – but it’s in talks with several other companies over oil contracts.
“In three years time we hope to be producing oil,” Garang told Dow Jones Newswires in an interview.
White Nile will tender out seismic survey work in three to four weeks’ time, said Andrew Groves, one of its main investors. The company, which is establishing an office in Rumbek now, has already carried out an aerial survey of the block.
White Nile will also start planning a $1.4 billion, 1,400-kilometer pipeline linking the oil-rich stake called Block Ba to the Indian Ocean north of Mombasa once seismic studies and exploration provide assessments of the South’s oil for export, Garang said. For now, all export pipelines run through the north to the Red Sea.
White Nile, founded by former English cricketer Phil Edmonds and mining investor Andrew Groves, along with other financial backers, is the only firm with rights to explore in Block Ba, a 67,000-kilometer tract within Block B, an area the size of Greece. A consortium of Total, Marathon and Kuwait Petroleum Corp. also claim all of Block B.
Total, along with partners Marathon and Kuwait Petroleum Corp., says it is confident it will regain access to the stake, which it abandoned in 1984 after an employee was killed in civil-war related violence.
Total executives say the central government is the only authorized body to grant oil concessions and that the provisional government of South Sudan wasn’t a legal entity when it signed with White Nile.
Garang disagrees: “Total can cling to whatever (reasons) they like. We will cling to the oil, because it is ours.”
White Nile says it wil go ahead with exploration regardless of the objections of Khartoum. The exploration will go forward before Total can establish whether it has retained its rights despite abandoning its stake 20 years ago because of the violence, Groves says. Total revived its agreement with Khartoum on 21 December 2004, but it failed to consult fully with the Southern authorities, eventually “running to Khartoum,”Garang asserts.
He says the South will continue its joint venture with White Nile and dismissed Total’s assertions that it has rights to the stake. In a reverse takeover as early as next week, Nile Petroleum Corp., South Sudan’s state-owned oil company, will assume a 50% stake in White Nile by taking 155 million shares in the firm. The original investors in White Nile will hold the other 50%.
According to Garang, White Nile will have a 60% stake in Block Ba, with Nile Petroleum Corp. holding the remaining 40%, though it has the option to reinvest that portion of the concession into White Nile.
Shares in the oil company rose 13-fold a few days after its Feb. 10 listing on the Alternative Investment Market, on speculation that it had a South Sudanese deal. Only a portion of the shares were on sale, pushing the price up more. White Nile suspended trading, awaiting further information on the deal.
Garang said the South Sudanese stake, which will amount to around $300 million once the shares are reopened for trading, in about two weeks. The money will be used to fund infrastructure in the Southern Sudan , a region shattered by the Civil War. The primary focus will be on schools and hospitals, as well as on building a EURO 3.5 billion-regional train network linking Juba in South Sudan with Kenya and Uganda.
In the longer term, Groves says the estimated 5 billion barrels of oil available in Block Ba could translate into a potential market capitalization of $7 billion to $8 billion, half of which will go to the new government in Rumbek, which will be formed after the drafting of a new constitution.
“That’s $4 billion to South Sudan before oil is pumped, and then there is a share in the oil revenues as well,” he said.
The government of South Sudan and White Nile are negotiating the details of the license agreement for developing the oil in Block Ba, hoping to finalize financial terms within a month.
Garang said the government is negotiating with Planitis, an Austin, Texas-based company, but doesn’t have a contract. A document reviewed by Dow Jones suggests the firm won rights to Block Bb in February.
“That isn’t finalized,” he said.
Garang said his colleagues are talking to many firms and individuals, including several from Arab countries such as Dubai, Bahrain and Qatar, as well as to Chinese firms.
“Nowadays, there’s noone who doesn’t talk to us,” Garang said.
He said all firms are welcome to invest in the South, including those from Arab countries, states that have significant financial and energy interests with the government of Khartoum. A Dubai official confirmed that the emirate’s government recently met South Sudan representatives and would explore business opportunities in South Sudan during a trip there in May.
Garang said all areas under the SPLM’s control, around 90% of the South, will be controlled by the government, including 5b, a non-producing area north of the huge Block B, currently held by Petronas and Lundin Petroleum.
The South may award Block C, an unexplored stake promised to a Swiss company that runs from Northern Bahr al-Ghazal to Southern Darfur, as well as other undefined concessions across the South, including areas on the border with Ethiopia, Kenya, Uganda, Congo, and the Central African Republic.
White Nile has contracted UK-based Exploration Consultants Ltd. to carry out a survey of Block Ba, with initial estimates saying the block is highly prospective, containing up to 5 billion bbl of crude. ECL, which has done exploratory work in areas of Sudan near Block B, will subcontract out the development work.
Garang says the dispute between it and Total could be heard by the National Petroleum Commission, a body to be set up through the peace process to review existing oil contracts and issue new contracts. The petroleum commission will be made up of equal number of permanent representatives from the north and the South, but concessions in the South will also have local representatives on the commission, tipping the voting balance to the South in Block B. The case could also go to the constitutional court being set up in the South.
The comprehensive peace agreement signed in January 2005 says all existing oil contracts will be respected. White Nile and the Southern government say the formation of the Nile Petroleum Corp. in August 2004 and the finalization of the White Nile deal in February 2005 make the White Nile deal an existing contractTotal also says its December 2004 agreement with Khartoum should be respected.
Whatever the legal arguments, however, the South argues that Block B lies within its territory and has the right to chart its own destiny.
“During 21 years of war, Khartoum took our oil, they bought guns with our oil to kill us, 2 million people died in the South,” he said.
Over the six-year interim period of the peace agreement, which will divide powers between the central government and the regional government in Rumbek, 50% of oil revenues in the South will be shared with the north. “We’re taking a conciliatory approach – we will respect all areas under government control that are producing, such as Bentui field – but all areas under our control shouldn’t be given without consulting us,” he said.
But Garang warned that the South may vote for independence at the end of the six-year interim period of the peace agreement, throwing into doubt any contract signed between Khartoum and the firms now operating in Sudan , such as China National Petroleum Corp., ONGC-Videsh and Petronas.
Most of the blocks producing Sudan ‘s current output of 350,000 b/d are located in the South, he says.
The government of South Sudan will want to review the agreements between these firms and Khartoum, a right which is contained within the peace agreement.
“If there is separation, these areas are in Southern Sudan and they will have to come to us as the central government will no longer exist there,” he said.