Juba Targets Higher Output, Splits Total Block
BMI View : Juba has confirmed that the resumption of oil production will be slower than expected . It plans to ramp-up output to a minimum of 300,000b/d if an agreement can be reached to settle outstanding border and securi ty disputes with Khartoum . This reinforces our view that damage to oilfields, a lack of specialist workers, and diplomatic pitfalls would hamper the revival of South Sudan ' s oil industry in the short term. Over the long-term, however, Juba has clearly indicated that it is intent on encouraging further exploration by splitting Block B into three separate licences. Indeed, we could see further contract revisions and new licensing rounds announced in due course, as Juba attempts to boost reserves and production.
Juba has indicated that oil output will hit a ' minimum ' of 300,000 barrels of oil a day (b/d) by mid-2013. The news confirms that damage to oilfields along the disputed border with Sudan could delay the country ' s return to full volumes. South Sudan produced approximately 350,000b/d at the end of 2011 before Juba shut-down operations at it oilfields in response to a transit fee dispute with Khartoum.
The two countries reached an interim deal that could resolve that dispute in August 2012 ( see our online service, August 7, 'Security Question Leaves New Oil Deal In Limbo ' ). It remains subject to a broader security and border agreement - with African Union (AU) talks ongoing. The parties face a U.N. Security Council deadline of September 22 to reach a deal or risk sanctions.
Long Road To Recovery
South Sudan's Undersecretary of Petroleum and Mining, Macar Aciek Ader, said oil could be flowing from the Upper Nile by year-end but operations in Unity state would take longer to resume. He told Reuters: 'For northern Upper Nile, it may not take long because according to the information we got from the field, not much damage has been done. Hopefully it will be by the end of the year.' He added, 'as for...Unity state, there was too much damage in Heglig area, so that... may take time, up to the middle of next year.'
Ader ' s statement confirms our view that South Sudan will face serious obstacles as it seeks to revive its oil and gas industry ( see our online service, August 28, ' Cautious Optimism For Oil Production'). Our forecasts already anticipate a slower-than-expected resumption of production due to field damage, a shortage of specialist workers, and possible pitfalls in ongoing border and security negotiations with Khartoum. We therefore expect combined Sudanese and South Sudanese output to hit 280,000b/d in 2013, rising to 455,000b/d in 2014, and 520,000b/d by 2016.
|Sudanese And South Sudanese Oil Production, Consumption And Net Exports ('000b/d)|
The Great Divide
Perhaps with one eye on boosting long-term output, Juba has also announced that it will split up a concession known as Block B, which covers much of the lawless eastern state of Jonglai, into three separate licences. The exploration rights to Block B, which were granted before South Sudanese independence, were held by Total and Kufpec. South Sudan's Deputy Minister for Petroleum and Mining, Elizabeth James Bol, told Reuters that the oil major had challenged the split but new legislation meant that the government was not bound by past agreements and had the right to review its licences.
According to an unnamed oil industry source, Total and Kufpec will each retain a slice of Block B with ExxonMobil taking the third licence. The source said the final deal was not signed yet, but would be finished 'as soon as possible'. He gave no financial details. South Sudan's Information Minister Barnaba Marial Benjamin revealed that Total would definitely retain one block but did not confirm the identities of the other licence holders. He told Reuters: 'The other two will be put on tender ... It's going to happen soon.'
Total suspended exploration on Block B back in 1985 after the resumption of Sudan's civil war. Despite a peace deal in 2005, operations have remained in limbo. The oil major did say in February 2012 that it would resume exploration 'soon' but Juba is clearly keen to speed things up by introducing new players. Whether this will actually result in more exploration activity across the lawless region remains to be seen, but it clearly signals Juba's intent to boost long-term reserves and production. As a result, we could see further contract revisions and new licensing rounds announced in due course.