New Exploration Some Upside For Battered Upstream
BMI View: Advancing plans for exploration of potentially resource-rich acreage in Sudan highlights that although battered, the country's upstream does present some opportunities. Although, we view Sudan's status as a proven hydrocarbons producer with established export links as a natural advantage in the growing race to tap Africa's riches we highlight that country's well proven above-ground risks and competing opportunities elsewhere may leave Sudan unexplored and without the investment necessary to fully exploit its hydrocarbons potential.
Sirocco Energy, formerly known as Agri Energy, is preparing initial exploration work on Block 14 in Sudan. The Australian-based junior acquired a stake in the block in a September 2012 deal with Canada's Statesmen Resources. State-owned Sudapet and Express Petroleum of Nigeria are also partners on the 100,000 square kilometre (sq km) block, which remains underexplored with only around 1,000km of seismic data acquired over the site.
In order to support exploration, Sirocco plans to raise some AUD7mn (US$7.23mn) through an issuance of shares to help fund the company's share of a one-well, three-year exploration campaign that is expected to cost US$12mn in total.
An independent 2012 report from UK consultancy Senergy may support interest in the listing; the assessment concluded that gross unrisked prospective resources at Block 14 may amount to 1.5bn barrels (bbl). The report, admittedly based on limited data, found the acreage to be prospective but concluded, even after acquiring better technical and seismic data, that the odds of a successful commercial strike were just 7-8%. The duster drilled immediately to the north of Block 14 in Egypt was a blow to the region's assumed prospectivity. However hydrocarbons shows from a wildcat well drilled on Block 12A in the Mourdi sub-basin in late-2012 was a more promising development.
The Mourdi and Mesaha basins are also being targeted by Sirocco and according to Senergy the successful discovery of a working hydrocarbons system in either basin would increase Sirocco's odds of success to 30%.
|Exploration Continues But Outlook Is Cautious|
|Sudan & South Sudan Oil Blocks|
Opportunities Come With Risks
New exploration will boost Khartoum's battered upstream sector. Secession led to the lion's share of production being awarded to now-independent South Sudan, leaving Khartoum with a number of fields at - or nearing - maturity. Indeed, significant new investment in exploration campaigns such as the one detailed above will be necessary if Sudan is to stem, let alone increase, output.
Continued international sanctions, which vary by government but in the case of the US continue to prohibit investment in Sudan's oil sector, will remain an impediment to investment and leave Sudan dependent on smaller independent and state-owned firms. These may lack the capital in the case of the former or the expertise in the case of the latter to dramatically improve the outlook for the country's oil sector. Indeed, the fact that Sirocco must issue shares in order to support the drilling of a single well highlights that some smaller players lack access to readily available capital.
From a global perspective, tight credit markets have meant promising acreage has gone unexplored due to the financial constraints on poorly capitalised licence holders. Even if Sirroco's exploration campaign is successful, a 500km pipeline may be necessary to move the oil to the refinery in Khartoum, suggesting an expensive commercialisation effort.
While exploration on Blocks 12A and 14 - alongside new, albeit small volumes from the recently inaugurated Hadida and Al-Barsaia fields - suggests that Sudan holds further riches, the above-ground risks will continue to deter the influx of necessary expertise and funding that would enable Khartoum to fully tap its hydrocarbons potential.
Furthermore, with the assumption that greater hydrocarbons prospects lie to the south, progress on the part of Juba to establish an alternative export route that would free the country from its reliance on pipelines travelling through the north would likely further damage interest in Khartoum's upstream - even interest from traditional Asian national oil companies (NOCs). With a number of increasingly active frontier basins across the African continent, and several located in neighbouring East Africa, Sudan has to worry about more than just competition from its southern neighbour.
We have therefore stuck to a conservative estimate in our combined oil production forecast for Sudan and South Sudan. We expect output to recover to near-pre-crisis volumes in around 2015, but anticipate slow growth beyond this point unless firm data emerges to indicate there are potential new developments that will offset the decline in volumes elsewhere.
|Oil Sector Demands Investment If Output To Grow|
|Sudan Oil Production, Consumption & Net Exports ('000b/d)|