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        • Southern Sudan Set to Review Oil Contracts With Overseas Operators

Southern Sudan Set to Review Oil Contracts With Overseas Operators

Following a planned independence referendum for Southern Sudan in January 2011 a review of all oil contracts inked between Khartoum and overseas oil players is set to be implemented. A senior government official announced the potentially transformational effects last week, sending out a warning shot to all the international players in the region.

The presidential affairs minister, Luka Biong Deng, who represents the semi-autonomous Government of Southern Sudan, has raised official concerns over excessive profit taking on the part of the firms operating in the region as the primary motivation for the possible review. The minister also cited environmental damage and a disregard for local communities as reasons for the review.

The potential review stands to have far reaching implications. Because the contracts were signed with the government in Khartoum during the country's civil war, the semi-autonomous local government would have to ensure the terms of the agreements were still appropriate.

Deng, however, has exercised extreme caution to not scare away investment, by also stating that the government of Southern Sudan did not plan on revoking existing deals. The underlying theme is that a newly independent Southern Sudan would simply be eager to assert a higher level of control over its oil industry than currently exists.

In terms of the competitive landscape for operators in a newly annexed Southern Sudan, we may well significant change. Sanctions, which are presently in place against Khartoum, and the high level of risk of operating in the civil war-torn country, have prevented a number of major western oil majors from operating in the region.

The impact has been that Asian firms now dominate the region. China National Petroleum Corporation (CNPC), Malaysia's Petronas and India's Oil and Natural Gas Corporation (ONGC) are the state-run firms dominating Sudan's oil industry. However, this could all change pending the contract reviews.

In the West, the creation of a newly independent Southern Sudan would be seen as opening up an avenue for investment and provide sought after access to Sudan's sizeable oil reserves.

Sudan produced 480,000 barrels per day (bpd) of oil and had 6.7 billion barrels of proven reserves as at the end of 2008, of which about 75% are located in Southern Sudan - according to the BP Statistical Review of World Energy, published in June 2009.