China Poised To Dominate South Sudan’s Oil Industry

A Chinese state oil major that already dominates most of South Sudan’s oil production is poised to play an even larger role in the African country’s efforts to boost its oil output and revenues.

China National Petroleum Corporation (CNPC)—which holds stakes in the two joint venture companies pumping nearly all of South Sudan’s current 165,000 bpd—signed at the end of last month a memorandum of understanding (MoU) with South Sudan’s oil ministry to boost existing production and consider acquisitions of new acreage, South Sudan’s Oil Minister Ezekiel Lol Gatkuoth told S&P Global Platts in an interview last week.

The minister hopes that CNPC could also enter into an exploration and production sharing agreement for two large blocks in central South Sudan, for which a consortium of France’s Total, Africa-focused Tullow Oil, and Kuwait Foreign Petroleum Exploration Company (KUFPEC) failed to reach an agreement with the country after years of negotiations.

At the end of July, South Sudan’s oil ministry said that after more than five years of negotiations, talks were terminated with Total and partners without any deal reached.

“South Sudan needs to move quickly to bring investment to blocks B1 and B2, and after a long period of talks Total has been unable to agree on economic terms and a timeline that work for the country. Without this cornerstone in place, the Ministry of Petroleum cannot continue to negotiate an EPSA with Total. We are keen to discuss the exploration of Blocks B1 and B2 with new parties,” Gatkuoth said.

According to the minister, those blocks could hold as much as 1.5 billion barrels of recoverable oil, while Total has estimated the potential reserves at around 800 million barrels.

Speaking to Platts, Gatkuoth said last week that CNPC would be acquiring new blocks, “possibly” B1 and/or B2. By the end of the year South Sudan will announce the operators of those two blocks, the minister told Platts on the sidelines of the Forum on China-Africa Cooperation (FOCAC) in Beijing.

During this forum, China promised investments in various African countries, and in the week preceding the event, Chinese President Xi Jinping met with almost all African leaders, including with South Sudan’s President Salva Kiir.

“South Sudan is willing to strengthen pragmatic cooperation with China in areas such as political exchanges and energy, and have closer communication and coordination in international and regional affairs,” Kiir said.

Just last month, South Sudan’s president and the leader of the rebel group reached a final ceasefire and power-sharing deal, which rekindled hopes that a more stable operating environment could help South Sudan to increase its oil production.

South Sudan broke from Sudan in 2011 and took with it around 350,000 bpd in oil production. After South Sudan’s secession from Sudan, the two countries have been mutually dependent on oil revenues, because the south has 75 percent of the oil reserves, while the north has the only current transport route for the oil to international markets.

But then civil war in South Sudan broke out in 2013 that further complicated oil production. The oil price crash the following year additionally affected oil income for the ravaged economies of both countries.

In July, South Sudan and Sudan agreed to deploy a joint military force along their border to protect oil fields and pipelines from criminal activity.

In recent weeks, the Toma South oil field has resumed operations after rehabilitation works were carried out, pumping around 20,000 bpd, minister Gatkuoth told Platts.

More rehabilitation work could lead to additional short-term increases in South Sudan’s oil production.

South Sudan is one of OPEC’s non-OPEC partners in the production cut deal, and Gatkuoth wants his country to join OPEC at some point, but noted that such a decision would have to be made by the government.

For the immediate future, South Sudan’s oil industry pins its hopes on longer-lasting peace and stability that could help it rehabilitate damaged oil fields and attract more investments from the Chinese oil majors.

By Tsvetana Paraskova for Oilprice.com