Block B Restart Cautious Optimism For Upstream
BMI View: ExxonMobil and Kufpec are reportedly set to join Total in long-stalled exploration of Block B. The restart of exploration comes as political tensions remain high with South Sudanese oil only slowly returning to market. However , with plans to construct a pipeline link to Kenya advancing, new exploration will be needed to prove up the country's long term potential as reserves fall and the risks to production from the tail end of the forecast period are firmly to the downside.
In a boost to South Sudan's upstream fortunes, Total is reportedly planning joint exploration with ExxonMobil and Kuwait Foreign Petroleum Exploration Company (Kufpec) of the 120,000sq km Block B concession. Although Total has held rights to the Block since 1980, activity on the site has been limited by a poor security situation. 2D seismic surveys on the block were conducted in 1981, with drilling beg i n ning in 1985 and suspended shortly thereafter as the country descended into civil war.
In 2012, a series of reports emerged stating that the newly formed Government of South Sudan (GoSS) was to divide Block B into a further three concession s . Dividing the license was a part of a n effort to bring in new firms and to restart exploration in the area after a prolonged absence of activity. Exxon was cited as a company likely to pick up South Sudanese acreage after the split of Block B . T he entrance of the supermajor would be a significant boost in confidence for the country's upstream.
The proceeds from the sales of the concessions would also have generated sizable revenues for the cash strapped country. GoSS officials in 2012 said the block was 'too big' for a single firm and that Total would be given its first choice of the newly created acreages. However , the new plan for Exxon and Kufpec to partner with Total would allow for a quick restart of exploration at Block B1. Government sources reported a decision had yet to be taken on Block B3, but that Block B2 would likely be given to th is trio of companies.
With reserves set to fall, and a bearish outlook for production from the end of our forecast period where we see increasing downside risks, South Sudan is eager to prove up its oil potential and restore its econom ic output, 98% dependent upon oil revenues . Although the country is thought to be highly prospective given the large swaths of underexplored territory, the production profile of current fields m ay render challenging the task of at tract ing investment into pipelines that would remove Juba's dependence on Khartoum to export its crude .
|Avoiding Declines Requires Rise In Exploration|
|Sudan & South Sudan Oil Production (LHS, '000b/d) And Proven Reserve (RHS, bn bbl)|
Promising exploration results or the sentiment that major international oil companies (IOC's) are committed to firming up the country's resource potential should make it easier for South Sudan to attract financing for the pipeline. The project is likely to cost around US$4bn. Coinciding with news that upstream exploration would soon restart with Exxon, it was reported in local South Sudanese press that Japan's Toyota Company would construct a pipeline from oil fields in South Sudan to Kenya's port of Lamu as part of a larger transport corridor project.
However this news has yet to be confirmed and comes as oil production only slowly come back online following a 16 month halt on the back continued political disputes between Juba and Khartoum. Construction of a pipeline to Kenya, would relieve South Sudan of its dependence on pipelines via the north. This could give operators the needed confidence that production would not be disrupted following deterioration in still fraught Sudan-South Sudan relations.
Yet should the pipeline advance, Juba would likely see it as threat to its revenues given the resulting loss of revenue transit fees which the South pays to the North. This would set up an uneasy period during which Juba would remain dependent upon Khartoum controlled pipelines to reach export markets, suggesting an elevated risk of tensions reaching the point at which supplies are interrupted.