Sudan Oil Sector's Background

Exploration in Sudan began in the mid-1970s. Chevron drilled several successful wells in Abyei in the early 1980s, beginning with Taiyib-1 in 1981. Chevron pulled out in 1984, after an attack on its installations by the SPLA, and Sudan did not have the technical or financial resources to develop its own resources.


Serious investment began in the mid-1990s. In 1996, Canadian independent Arakis Energy began developing the Heglig, Unity, and surrounding oilfields - in Blocks 1/2/4 - then estimated to contain recoverable reserves of 600m to 1.2 bn barrels. Arakis entered into a JV with several other firms called the Greater Nile Petroleum Operating Co. (GNPOC) in order to raise money for the 1,590-km Greater Nile Oil Pipeline from the fields to the Suakim crude oil terminal near Port Sudan. The pipeline passes through the middle of Abyei's main oil producing area.


Since it was found in 1979, crude oil has been a growing factor in politics and governance in Sudan. When production first came on stream in 1999, it revived Khartoum's ability to wage war against the SPLM and its army (SPLA) in the south and ushered in external money stimulating rapid growth in an economy under US sanctions since 1997. Sudan's oil reserves are said to have shot up from 800m barrels in the 1990s to nearly 6.4 bn barrels following major discoveries, mainly in the south.


Oil was one of the top factors behind the CPA, signed on Jan. 9, 2005. Though the CPA was only one of several core issues negotiated in Naivasha, Kenya, the 50% share of southern oil money which the GoSS now receives accounts for nearly all its revenue. A drop in that income in March 2007 caused huge problems for the GoSS and the SPLM/SPLA to meet salary demands. National income sources in Sudan are more diversified. But exports of crude oil and fuels remain Sudan's largest source of foreign currency, allowing Khartoum's ruling Islamist NCP to wage its wars in Darfur, Abyei or elsewhere and buy off challengers as it pursues divide and rule tactics throughout the country.


Meeting in Khartoum on Oct. 18, 2007, one week after the GoSS suspended its association with national unity cabinet, Bashir and his First VP Kiir failed to bring the disaffected GoSS back despite an Oct. 17 reshuffle made to address their concerns. But the meeting did result in a pledge to continue implementing the CPA and Kiir agreed to remain first VP. Things dragged on until late December 2007, when Bashir and Kiir finally agreed on a new unity cabinet. Bashir on Feb. 14, 2008, reshuffled 12 northern ministers' positions. Al-Zubeir Ahmad al-Hassan, finance minister until then, was given Sudan's energy post. Bashir moved Awad Ahmad al-Jaz, who had held the energy post for many years, to the finance ministry.


The SPLM continued to accuse Khartoum of multiple breaches to the CPA, including not sharing the country's oil wealth as agreed, not pulling Army troops out of southern Sudan, and remilitarising Abyei and other contested border zones where the main oil reserves are located (see down18SudanOct29-07).


The centrality of oil in Sudan's economy means that changes must be made at the national level if they are to take hold. The National Petroleum Commission (NPC), the joint NCP-SPLM oversight body created under the CPA, which finally got off the ground after more than a year of procedural roadblocks, is the top decision maker for the petroleum sector and one of the most important places to start.


The petroleum sector in Sudan, including that of the GoSS, is not transparent and is controlled by the NPC. Corruption in the north is rampant, though the layers of NCP-affiliated firms and security agencies thriving on state resources make it appear relatively subtle. Corruption is an equally worrying problem in the south - within the GoSS - where it is a lot more visible. But the GoSS is waking up to the threat posed by the vice. The entire Ministry of Finance staff of the GoSS including the minister was in 2007 sacked and an anti-corruption commission was established.


The SPLM is still largely shut out of the oil sector, reliant on calculations and figures delivered by the NCP-dominated finance and energy ministries. Given Abyei's unique political status, defining its oil resources is vital to better understand the actions and calculations of the parties, as well as avoid conflict and finding possible solutions (see chronology in Gas Market Trends).


In January 2005, after the signing of the CPA, IOCs including Total, Marathon Oil of the US, and the state-owned Kuwait Foreign Petroleum Exploration Co. (KUFPEC) renewed their exploration rights to Block B in the south. But because of the US sanctions, Marathon in 2007 sold its stake in this venture. Total in late 2007 resumed work on that tract, now called Block Ba, to start oil production by end-2010.


Total is the first large non-state IOC to signal its return to Sudan. But the cautious strategy crafted by the French major, which has to engage with US pensions funds, underscores the complexity of producing oil in countries under US sanctions.


After Venezuela, Russia, Iran and other states, Sudan is the latest example of how major IOCs are caught between rising global tensions and the need to supply the world's energy demand. Total's return in 2007, followed a June decision by the NPC confirming rights on Block B. A part of the 118,000 sq km block, thought to contain significant oil reserves, had been claimed by tiny UK firm White Nile Ltd. Total explored Block B in the 1980s before war made operations impossible.


White Nile later was given a tract in that area, carved out by the NPC, in an EPSA signed with the GoSS. On Jan. 16, 2008, White Nile got an EPSA in southern Ethiopia to explore and develop a 29,465 sq km block in the Omo and Chew Bahir areas, considered to be rich in petroleum.


E&P for Sudan's oil wealth has been controversial. International organisations have accused Khartoum of financing human rights abuses with oil money, including mass displacement of civilians near the oilfields. Factional fighting in the south and rebel attacks on oil infrastructure have kept oil E&P from reaching full potential.


Some US pension funds are voluntarily barring investment in firms operating in Sudan when they are not satisfied with their impact on the country's human rights. That is what California Public Employees' Retirement System (CalPERS) did with nine firms in 2006 while deciding to retain shares with others operating in Sudan and committed to human rights. Jean-Francois Lassalle, Vice President for Public Affairs at Total's E&P unit, in September 2007 said it was in talks with US pension funds, including CalPERS, on the human rights aspects of the major's return to Sudan. CalPERS in August said it owned 5.6m of Total shares then valued at $436.5m. Lassalle said Total was emphasising its operations were in south Sudan. He said Total was explaining to funds its plans for the region's development, adding: "Investment is needed if one does not want south Sudan to find itself at risk of war. This is the only way to avoid a future war".


The GoSS in late 2007 offered Block E, which stretches over three states and runs next to other concessions already contracted out. All three states have since been involved in this. The private Spanish firm H-Oil, had begun negotiations for this block with the SPLM before the CPA was signed.


Sudan's crude oil production was only able to reach significant levels after completion of the first crude oil export pipeline from central Sudan to the Red Sea in 1999. By then GNPOC had brought in Chinese, Indian and Malaysian IOCs, which provided most of the engineering, equipment and construction for the fields' facilities and the pipeline, as well as 70% of the line's supplies - with Arakis eventually having left the group. In September 1999, the first cargo of the Nile Blend, a light/sweet grade, left the terminal. After 1999, Sudan's production took off. A level of 181,000 b/d was achieved in 2000, with steady increases in all the fields of the concession until 2003, when ouput was about 262,000 b/d. During that time, production began at fields in Block 4, a large portion of which is in Abyei.


By 2003, a major part of Sudan's oil production was coming from Abyei. Since then, production at most of the fields in the concession has begun to decline, including all the fields within Abyei. A few new fields came online in other parts of GNPOC's concession, stemming the overall decline; and, more importantly, additional fields and infrastructure (including new pipelines and refineries) began to come on stream in other parts of Sudan starting in 2003.


By end-2006, crude oil output from fields in the Melut Basin's Blocks 3/7 operated by the Petrodar JV, as well as Blocks 5-A and 6, represented about half the country's production of 500,000 b/d. But Abyei's oil output is declining, and the area's importance to Sudan's oil sector has also fallen as most of its fields are depleting. To counter these problems, there is horizontal drilling, indicating the fields are already at the tertiary recovery stage. But Block 4's oilfields have enabled GNPOC to maintain a capacity of more than 265,000 b/d, which Khartoum hopes will eventually rise to 350,000 b/d. This stream produces the Nile Blend. But GNPOC is struggling to maintain a 250,000 b/d production level.

Sudan's electric power sector has a capacity of less than 1,000 MW. China is having a 1,250 MW hydro-power plant built at the giant Merowe Dam project in the south, which should be ready later in 2008 to raise power output by 150% eventually. There should be additional power plants in Sudan as several parts of the vast country have had no electricity.


The state-owned National Electricity Corp (NEC) is responsible for power generation, transmission and distribution in Sudan. NEC transmits electricity through two inter-connected electrical networks, the Blue Nile Grid and the Western Grid, which cover a small portion of the country. Regions not covered by the grid rely on small diesel-fired generators. Only 30% of the population currently has access to state electricity, but Khartoum hopes to increase that figure to 90% in the coming years.


Blocks 1/2/4: Although GNPOC first built the pipeline with throughput of 150,000 b/d, it has since been increased to 300,000 b/d, while maximum capacity is 450,000 b/d. In January 2007, combined production from Blocks 1/2/4 was 260,000 b/d. GNPOC is operated by China National Petroleum Corp (CNPC) with 40%, in partnership with Petronas of Malaysia (30%), Oil and Natural Gas Corp (ONGC) of India (25%) and the northern government's Sudapet (5%).


GNPOC's Nile Blend is a popular crude mostly exported to China. But a part of this blend is being used by Sudan's oil refining sector. Sudan has four refineries, with a total capacity of 142,000 b/d. Sudan's main refineries are located in Khartoum and Port Sudan. Sudan's total refining capacity in 2009 should reach 242,000 b/d.


In July 2006, CNPC announced completion of the Khartoum refinery expansion, which doubled its capacity to 100,000 b/d. The Khartoum refinery processes the Nile Blend, which has a low sulphur content and high fuel-yield. The expansion has alleviated the short supply of fuels available in Sudan, while giving the country some additional export capacity. The Port Sudan refinery near the Red Sea has a 21,700 b/d capacity.


Blocks 3/7 Of Petrodar: In June 2004, Petrodar, a JV of CNPC (41%), Petronas (40%), Sudapet (8%), Gulf Oil Petroleum (6%), and the al-Thani Corp (5%) awarded a $239m contract to Ranhill International of Malaysia and Sudan's Petroneeds Services Int'l for development work on Blocks 3 and 7 in the Melut Basin. The blocks have Adar Yale and Palogue oilfields, with estimated recoverable reserves of 460m barrels. In January 2007, Blocks 3 and 7 produced 170,000 b/d of Dar Blend - a heavy/sweet but acidic grade. The fields may exceed 200,000 b/d if North-South peace is restored.


In November 2005, CNPC brought online the Petrodar pipeline linking the two blocks to Port Sudan. The pipeline in early 2007 had a throughput of 150,000 b/d. But now it has a capacity of 500,000 b/d. The system includes a 300,000 b/d central processing facility at al-Jabalayan and production facilities at Palogue. The pipeline enables Blocks 3/7 and other oil producing areas to export their heavy/sweet and acidic crudes. Khartoum in 2007 hoped output from these fields could reach up to 400,000 b/d, but there have been delays in reaching such a target.


In September 2005, a contract was give for Petronas to have a new 100,000 b/d refinery built at Port Sudan. The refinery is to process the Dar Blend, which has high-acid content and is found in Melut basin. The refinery will have a capacity of 100,000 b/d and should be operational in 2009. Petronas is joined by the Sudanese Ministry of Energy and Mining in a 50:50 partnership in this project.


Block 6: In November 2004, CNPC brought online its Fula field on Block 6 at the rate of 10,000 b/d. Current output capacity on the block is 40,000 b/d, but is expected to eventually reach 80,000 b/d.


CNPC has built a pipeline which links the Fula field to the Khartoum refinery.


Block 5-A: In April 2005, the government signed an agreement with Western Nile Petroleum Operating Co. (WNPOC) for development of Thar Jath and Mala oilfields on Block 5-A in the Muglad Basin - the main oil area in Sudan. First oil from the block came online in June 2006 at 38,000 b/d. In March 2007, the field was producing 38,000 b/d, while full capacity was 60,000 b/d. Crude oil flows through a 110-mile pipeline to Port Sudan.


WNPOC is a consortium of Petronas (68.875%, operator), ONGC (23.125%) and Sudapet (8%). After charges by HRW of fuelling fighting in southern Sudan, Lundin Petroleum AB of Sweden in June 2003 sold its 40% share in Block 5-A to Petronas for $142.5m.


Block 5-B: WNPOC on Feb. 7, 2008, began drilling operations in Block 5-B in the Muglad Basin. Block 5-B, partly in the swampy Jonglei state, is said to contain 2 bn barrels of oil. Exploration well Nyal-1 on the western flank of the basin is in the "dry land" of the block where several prospects have been identified by 2D seismic data. Nyal-1, with a planned depth of 2,100m, will target Upper/Lower Cretaceous Fms - highly productive in other Muglad fields. The gross recoverable oil in the Nyal prospect is estimated at 176m barrels. Preparations for the start of the "swamp" area drilling campaign with the first exploration well Wan Machar-1 are in progress.


The EPSA for Block 5-B was signed on May 2, 2001, with Petronas (39%), Lundin (24,5%), ONGC Videsh Ltd (OVL - 23,5%) and Sudapet (13%). Now ownership in this JV is to change as WNPOC has accepted an order by the NPC to give 10% to the Southern Sudan Oil Co. (Nilepet) to be set on a pro rata basis from the partners' shares, plus a yet to be specified share to Ascom Group of Moldova. Block 5-B covers an area of 20,119 sq km.


Gravity and seismic interpretation show the Muglad Rift Basin extends into Blocks 5-A and 5-B and the structural trends in that area is similar to the rest of the basin where over 1 bn barrels of recoverable oil have been discovered to date.


Petronas on Jan. 18, got permission from the GoSS to begin exploration in block 5-B, after agreeing to let Ascom Group keep part of the concession. The GoSS Minister for Industry and Mining John Luk then said: "Petronas from tomorrow will move into the location 5-B". Luk, a member of the NPC, told the WNPOC member firms: "We have a committee to assess... They will come up with Ascom's investment so that is taken into consideration when determining that share... It was a compromise between the two levels of government (state and national) that Ascom will join the consortium. Ascom will be a part of you, whatever". Luk said all petroleum companies should work more closely with the GoSS, adding: "They must have presence in [GoSS's capital] Juba and in the state capitals...for all the companies but starting with WNPOC".


During decades of civil war in Sudan's south, oil contracts signed by Khartoum were declared void by the SPLM, which entered deals with smaller firms like Ascom and White Nile Ltd to begin exploration in its areas. After the 2005 CPA, the NPC mediated the conflicts of interest and in July 2007 agreed that WNPOC could keep its share in Block 5-B provided it allowed Ascom, already working in that area, a share in the venture.


The French drilling services provider Dietswell Engineering on Jan. 8, 2008, announced it had won a WNPOC contract to drill the first exploration wells in Block 5-B. It said it expected to generate a monthly revenue of $1m (684,000) from the contract. At the end of November 2007, the French company delivered its light-weight land drilling rig RCR1200, entirely designed and developed by Dietswell. The initial investment in the equipment amounted to 11m ($16.1m). The firm said it had already "exercised a first option contract giving visibility until October 2008".


Blocks 8 & Ba: ONGC Videsh Ltd (OVL) has recently got 30% in the 65,856-sq km Block 8 in the Blue Nile basin, north-east of Melut Basin on the border with Ethiopiea, from Petronas which until then had 77% in the tract. The other partners in Block 8 are Sudapet (15%) and High Tech Group (8%). OVL has also got 32.5% from Marathon in Block Ba where Total is the operator.


The state-owned ONGC is India's biggest E&P group, with OVL being its external arm. In November 2007, Indian Petroleum Minister Murli Deora said OVL was intending to spend more in Sudan's E&P opportunities. OVL had acquired the stakes of Austria's OMV in Block 5-A and 5-B for $115m.


Block B in the south, at 118,000 sq km, is three-quarters the size of Tunisia. Oil reserves in this frontier area have been estimated at 6 bn barrels. NPC in May 2007 told Total its EPSA - awarded by Khartoum before civil war forced the suspension of the company's activities in the early 1980s - was still valid. But later in the year the NPC carved a smaller tract out of Block B and gave that to the UK firm White Nile. Total's tract was then called Block Ba.


With Total and OVL each holding 32.5%, Kuwait's KUFPEC has since increased its share in Block Ba to 25% and Nilepet has the remaining 10%. Total in late 2007 contracted a specialised firm to remove mines from the acreage in co-operation with the UN. Total said that, in 2008, it will 1,500 km of 2D seismic data and drill two wells. In 2009, it intends to drill three-four more wells and collect further 2D and 3D seismic data, in addition to drilling appraisal wells, depending on the success of exploration. A Total spokesman in June 2007 was quoted as saying: "We could actually be producing [crude oil] by the end of 2010". But the whole of Block B is also claimed by a private US investment group.


Dindir Petroleum Int'l (DPI), the largest oilfield services company in Sudan, in November 2006 said it had signed an EPSA with the Khartoum Ministry of Energy and Mining for a 200,000 sq km block in the north-west of the country.


DPI then said it had 15% in the block and, along with five un-named partners, was to invest a minimum of $43m over six years, shoot 3,000 km of 2D seismic surveys and drill four wells.


Offshore Block 13: A tract in the Red Sea, Block 13 is being explored by CNPC under a 20-year EPSA signed on June 26, 2007. Its partners are the Indonesian state-owned PT Pertamina (15%), Sudapet, the Sudanese firm Addendir Int'l Petroleum, and two Nigerians: Express for Oil & Gas and Africa Energy.


The JV was committed to complete exploration work within six years in two three-year phases. Sudan is among Beijing's key oil suppliers. In the first five months of 2007, Sudanese crude oil cargoes sent to China totalled 4.7m tons - a five-fold increase over the corresponding period in 2006. Much of that was in the form of equity oil from fields CNPC has developed. China Petrochemical Corp (Sinopec) also has a presence in Sudan through a stake in Blocks 3/7 in eastern Sudan. The main crude oil offtaker in Sudan is CNPC, China's largest oil company by any measure and the parent of Hong Kong-listed PetroChina.