Home | News    Monday 1 December 2003

First Oil From CNPC’s Block 6 To Lift Sudan Production In 2004

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By Middle East Economic Survey

Dec. 01, 2003 — Sudan is set to raise oil production in the coming weeks with the start up from China’s CNPC-operated Block 6 in Western Kordofan, which is due to come on stream at 60,000 b/d rising to 180,000 b/d later, MEES under-stands. This will raise Sudan’s total oil production, currently running at an average of 295,000 b/d, by some 20% to above 350,000 b/d next year. Further on, the planned start-up of production by the CNPC-led consortium in Blocks 3 and 7 in 2005 will bring an initial 170,000 b/d on stream. This will lift national production above 600,000 b/d by the end of that year, rising to 750,000 b/d by the end of 2006 if the planned incremental production at those fields, as well as the Melut Basin project, progresses as planned.

CNPC signed an agreement with Sudan on 28 August to build a new 200,000 b/d, 730km pipeline to carry oil from its Block 6 Melut Basin fields to the Khartoum refinery (MEES, 8 September). It also signed a separate agreement to expand the refinery. CNPC is a shareholder with Sudan Petroleum Corporation (SPC) in the 50,000 b/d Khartoum refinery, which started operating in early 2000 (MEES, 15 May 2000), and agreed to carry out a $340mn expansion of the plant to raise throughput capacity to 100,000 b/d. The rest of the crude will be exported via the existing export pipeline from Port Sudan on the Red Sea. Sudanese oil production is at present domi-nated by the Greater Nile Petroleum Operating Company (GNPOC), which operates the Heglig and Unity fields of Block 1, 2 and 4.

Blocks 3 And 7 To Drive Production Increases From 2005
Sudan’s medium-term production profile will be dominated by the start-up of production from major oil dis-coveries in Blocks 3 and 7 (for a map of Sudan’s exploration blocks, see MEES, 19 August 2002). Plans call for the CNPC-led consortium to start oil production from the blocks at 170,000 b/d in the second half of 2005, with pro-duction rising gradually to up to 300,000 b/d by late 2006 at the earliest. This major development has been made possible by the size of the discoveries. MEES learns from industry sources that the consortium estimates that Blocks 3 and 7 have some 3.5bn barrels of oil in place of which 775mn barrels are proven, which will allow sub-stantial production rates over the lifetime of the fields even at conservative recovery rates. MEES understands that an export pipeline design for the blocks has been finalized and will shortly be put to tender. The blocks are operated by a consortium comprising CNPC (41% - operator), Petronas (40%), Sudapet (8%), Gulf Sudan (6%) and Thani Corporation of the UAE (5%).

The expected sharp increase in oil production over the next few years will reward the strategic commitment of Asian companies, which have been increasing their presence in Sudan over the last two years. The latest corpo-rate action in this respect was the purchase by India’s Oil and Natural Gas Corporation (ONGC) of OMV’s stake in Sudan’s Block 5A and 5B (MEES, 8 September). The acquisition marked the third time in 12 months that Euro-pean and North American oil companies have sold upstream stakes in Sudan to Asian companies. Canada’s Talisman Energy sold its 25% stake in GNPOC to ONGC Videsh in mid-2002 (MEES, 24 June 2002), and Petronas Carigali recently completed the acquisition of 40.375% share in Block 5A from Swedish independent Lundin Pe-troleum (MEES, 30 June). ONGC is also reported to be close to clinching an agreement to build a petroleum products pipeline to allow exports from the Khartoum refinery via the port of al-Khair. The National Iranian Oil Company (NIOC) is also reported to be looking at launching its international operations in Sudan. Work will be carried out through an NIOC-affiliate, Naftiran Intertrade Company (NICO), which owns Petro-Pars and Petro-Iran.

Western oil companies have come under sustained pressure from shareholders and activists to withdraw from Sudan due to the poor human rights record of the Khartoum government. Moreover the lack of security in sev-eral of the southern blocks has made it almost impossible at certain times for oil operations to continue. But re-cent investment moves have not been entirely Asian, with reports that southern Sudan’s Block 2, which borders Chad and the Central African Republic, has been awarded to a consortium comprising Swiss-based Cliveden (37%), High Tech (28%), Sudapet (17%), Khartoum State (10%) and the Heglig Oil Company (8%).

Nakuru Draft Framework

Progress in developing Sudan’s upstream sector is moving ahead along with efforts towards a comprehensive peace deal between the government and the insurgent Sudan People’s Liberation Movement (SPLM). Since the Machakos Protocol governing the framework for talks was agreed in July 2002, MEES learns that the parties and mediators, who met in Nakuru, have met and made substantial progress on wealth sharing issues including (i) land ownership; (ii) natural resource sharing (definition of net oil revenue, the intergovernmental grant frame-work to replace the arguments over north/south percentage shares of oil on existing oil contracts, establishment of a future generation fund and oil revenue stabilization account, establishment of a Fiscal and Financial Alloca-tion and Monitoring Commission/Grants Commission; (iii) banking and finance (single central bank and cur-rency, dual commercial banking); (iv) a basic framework for Foreign Financing and (v) agreement that the par-ties shall establish upon signature of a comprehensive Peace Agreement, a Joint National Transition Team.

The latest Nakuru document, which presents a comprehensive draft peace agreement, has not yet received the green light from the SPLA side, although observers familiar with the talks process expect that a final accord will not be too far away from the proposed text. As regards hydrocarbon resources, the draft agreement stipulates the establishment of a Petroleum Commission - made up of members from both sides - accountable to the Na-tional Assembly, through which all development agreements shall be conducted. Regarding existing oil con-tracts, the SPLA will have access to contracts although these will not be subject to renegotiation. On oil revenue sharing, the draft agreement lays down the mechanics of the sharing mechanism, which after certain deductions, will pay 48% of net income to a putative government of south Sudan, with the remainder going to the Khartoum government (For full details of draft agreement relating to natural resources, see D section). The draft agreement is significant since, if agreed, it will be the first in the region whereby oil-derived revenue is shared between a central government and a potentially autonomous local government.

The peace talks were given support in late October when US Secretary of State Colin Powell visited Naivasha and spoke with both sides in the 20-year conflict, saying that progress was being made to end the conflict. "Both parties have agreed to remain in negotiations and conclude a comprehensive settlement no later than the end of December," Mr Powell said in Kenya on 22 October. The two sides agreed transitional security arrangements for a six-year period in September.

The two sides have also agreed to establish a Commission for Land Ownership to define ownership and how to benefit from natural resources. The presidency will appoint its chairman, supervise its budget and audit its ac-counts. A similar commission will be set up in the south. The subject of land ownership was raised because of problems in this regard, especially in oil and agricultural areas, where property is ill-defined and unregulated. Furthermore, some southerners are asking for compensation because they have been forced to move out of oil-producing areas.

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Kind regards,

The Sudan Tribune editorial team.

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