OMV exit to leave Asian firms dominant in Sudan

By Francois Murphy

LONDON, Aug 21 (Reuters) – Austrian oil firm OMV’s planned sale of its Sudanese assets would make it the third Western firm in a year to sell a stake in war-ravaged Sudan to a state-owned Asian company less vulnerable to human rights pressure.

An Indian government official told Reuters on Tuesday that India’s Oil and Natural Gas Corp ONGC had agreed to buy OMV’s stakes in two Sudanese exploration blocks pending approval from the Indian and Sudanese governments.

OMV declined to comment on the deal but if it is completed, OMV will join Sweden’s Lundin Petroleum AB and Canada’s Talisman Energy Inc in scaling down activities in Sudan following strong criticism from human rights groups.

“Companies like Talisman moved out because they had to bow to political pressure,” one oil industry source said. “Until the political situation in Sudan changes, the major oil companies will not move into Sudan.”

The civil war in Africa’s biggest country erupted in 1983 and largely pits the Islamic government in the north against rebels seeking more autonomy in the mainly Christian or animist south.

For the past year the warring factions have been trying to negotiate an end to the conflict but remain at odds over how to carve up the country’s power and wealth, including oil reserves estimated between 600 million and 1.4 billion barrels.

Human rights groups say that by investing in Sudan’s petroleum resources, oil companies have helped fund the government’s civil war effort in a 20-year conflict that has killed two million people.

But while Western firms have wanted out, state-owned enterprises from emerging economies such as Malaysia, India and China, have been keen to take their place.

Sweden’s Lundin Oil sold its 40 percent stake in block 5A of the Thar Jath oilfield to a unit of Malaysia’s state-owned oil and gas group Petronas [PETR.UL] in April. But the Swedish firm did retain its 24.5 percent share in the adjacent block 5B.

Lundin followed Canada’s Talisman , which sold its 25 percent stake in Sudan’s main oil producer the Greater Nile Oil Project, also to ONGC, in March. China’s CNPC has a 40 percent stake in the project.

After Talisman announced its pullout, the Sudanese government made it clear it preferred companies to invest in oil exploration that were unlikely to bow to criticism from human rights groups.

“We preferred the Indian company because it is government-owned and pressures of non-government organisations on it are less than they are on private companies,” Sudanese Foreign Minister Mustafa Osman Ismail said in November.

Human rights campaigners say government-backed militia have razed villages to create a buffer zone around the country’s oil installations.

“We are talking about many thousands of deaths and hundreds of thousands forcibly displaced,” said Egbert Wesselink, coordinator of the European Coalition on Oil in Sudan, which is composed of several dozen campaigning bodies.

But rights groups say the flight of Western companies is not their aim.

“We never asked the companies to leave Sudan. We asked them to suspend their activities until the conditions are such that they would be able to respect human rights and be a force for the good,” Wesselink said.

Jemera Rone, Sudan researcher at Human Rights Watch, said it would not necessarily make any difference to the overall situation whether Western or Asian companies were running the country’s oil affairs.

“I don’t think human rights conditions are going to deteriorate necessarily because Europeans sell out,” said Jemera Rone, Sudan researcher at Human Rights Watch. “They were not doing anything as far as we could tell to improve human rights.”

But a spokeswoman for Lundin, while stressing its decision to sell block 5A of the Thar Jath field was a financial one, said oil still had a huge role in developing the country.

“Oil, if done properly, can be a means to peace and development in the country”. Lundin spokeswoman Maria Hamilton said. “Our intention is to keep block 5B and start operations as soon as the situation is secure.”

And whether the exploration companies are from East or West the rewards could be huge.

“The potential area for exploration is as large as the North Sea. The exploration is in its infancy. Only a small area has been explored,” an industry source said.

Catriona Boggon, Africa analyst at Wood MacKenzie, said: “Sudan is relatively underexploited at present because of the conflict. The only constraining factor would be pipeline issues, getting oil to the Red Sea.”

Wood MacKenzie estimated Sudanese production at 312,000 barrels per day as of January 1 this year, virtually all of which came from the Greater Nile Oil Project, Boggon said. Production is expected to rise sharply in coming years.