Home | News    Friday 25 February 2005

FOCUS: Total faces minefield as it heads back to Sudan

By David Gauthier-Villars and Simeon Kerr

PARIS, Feb 25, 2005 (Dow Jones) — Total SA (TOT) reopened an outpost in Sudan earlier this month, twenty years after leaving the African country ravaged by a civil war.

The French oil major hopes to build on a recent peace agreement between the north and south regions of Sudan to resume exploration work on a promising block, as large as Greece. Total aims to send employees and contractors to the field as soon as it has received guarantees that the area is safe and mine-sweeping operations have been completed.

But a diplomatic minefield may create new danger for Total’s effort in Sudan.

The acreage, known as Block B, is in the south, where representatives of a soon-to-be-formed government are saying there aren’t satisfied with Total’s behavior. To make matters worse for the French company, the provisional southern Sudanese government says part of the permit is now in the hands of White Nile Ltd. (WNL.LN), the upstart firm of former British cricket player Phil Edmonds.

It’s difficult to assess the strengh of White Nile’s rights for the British company has yet to disclose details of its deal. However, Samson Kwaje, a spokesman for the Sudanese People’s Liberation Army said the south has allocated most of block B to White Nile, not to Total.

Total says its permit for Block B is valid. "Our legal situation is clear," said Total spokesman Jean-Francois Lassalle.

The gathering showdown between the French oil company and the embryonic southern Sudanese authority could strain the peace agreement signed by the Arab-Muslim dominated Karthoum government and the mainly black African Christian and animist south in January.

That is because the peace agreement calls for a joint development by the north and south of oil resources in Sudan, one of the last frontier for big oil companies. The country expects to increase its production to 500,000 barrels per day in the coming years from 345,000 b/d as of mid-2004.

Peace is fragile in Sudan as the country is plagued by prolonged ethnic conflicts in the western region of Darfur.

Yet, Total dispatched a permanent representative to Khartoum at the start of the month, asking him to prepare the ground for a possible full-fledged return.

The French company set foot in Sudan in 1980 when it was awarded a permit to explore the vast Block B. Total shot 1,600 kilometers of seismic survey but had to leave the country in 1984 because of the outbreak of violence between the north and the Sudanese People’s Liberation Army of the south.

Total exercised clauses in the contract equivalent to force majeure to call for a "stoppage period." Year after year, the French company paid a small fee to the Khartoum government to perpetuate its rights on Block B.

Lassalle says Total’s decision to suspend work should be interpreted as a sign that the French company chose not to side with the north nor the south.

However, in early 2004, when Total realized that a peace agreement was in sight, it approached Karthoum authorities in the north to revive its long-dormant permit.

Together with its partners in Block B - Marathon Oil Corp. (MRO) and Kuwait Petroleum Corp. (KPT.YY) - Total signed addendum to the original contract in December 2004 to put it in accordance with modern-day economics.

Under the revised contract, Total can resume work when all parties deem that the area is safe.

Total was eager to revive its 25-year old permit before the signature of the January peace settlement because a key clause in the agreement says oil contracts signed before Jan. 9 won’t be subject to re-negotiation.

"We also needed to take into account that a pipeline that was yet to be built at the time, has now been laid," Lassalle said.

Most of Sudan’s oil comes from Block 1 and Block 2, facing each other across the border that separates the north and south. A 1,500 kilometer pipeline runs north from these blocks up to Port Sudan, on the Red Sea.

White Nile has said it has a 60% stake in Block Ba, which covers more than half of Total’s acreage in an area extending across several southern states, including the interim administrative capital of the South Sudan government in Rumbek.

Kwaje, the SPLM spokesman, said the White Nile agreement takes precedence over any Total permit because it was signed in August 2004, before Total’s December revised contract.

Kwaje wouldn’t confirm details of the financial arrangement with White Nile, whose shares are suspended on London’s AIM board pending further information on this deal after a thirteen-fold rise last week.

However, Kwaje said Total made efforts to revive its 1980 agreement when it saw that it had been outpaced by the British firm. But Total countered that it had learned about White Nile’s existence only this week, from media reports.

Total can expect to receive support from the northern government. "White Nile’s deal goes against the letter and spirit of the peace agreement," said Abdulrahman Elkhalifa, a Khartoum University legal professor who helped the government draft the peace agreement.