Sudan Rejects Sharing Oil Revenue With SPLA

VOL. XLV

No 20

20 May 2002

SUDAN

Sudan Rejects Sharing Oil Revenue With SPLA

The Sudanese Government has rejected a draft US proposal that it should share oil revenue with the rebel Sudan People’s Liberation Army (SPLA). “The petroleum is a national wealth owned by the Sudanese people and cannot be the object of compromise,” First Vice President 'Ali Othman Taha said in response to US press reports that President George W. Bush’s special envoy for Sudan, Sen John Danforth, had proposed in a draft report to the White House that some form of oil revenue sharing should be part of a peaceful solution to the civil war that has pitted the Khartoum government against southern insurgents for the last 19 years. “No enduring settlement to Sudan’s war can be achieved unless the oil dimension is effectively addressed,” Mr Danforth wrote in his draft report (see excerpt below). “It should be possible to find a monetary formula for sharing oil revenue between the central government and the people of the south who could use it for the purpose of economic development.” The proposal on oil revenue sharing is unprecedented at this level in the Middle East and could have implications for other civil/internal conflicts in the region where on the one hand, ethnic groups are in opposition to central government and on the other, oil export revenues are a main source of state revenue.

Fighting between government forces and rebels in and around the southern oil producing regions forced Lundin Petroleum to suspend operations on Block 5A in January (MEES, 28 January). In its latest interim financial statement, Lundin stressed that it remained committed to its Sudanese exploration operations, where it said “the potential for large oil discoveries is among the highest anywhere.” Lundin has a 40.375% interest in Block 5A and 24.5% interest in Block 5B and has booked net proven and probable oil reserves of 60mn barrels on Block 5A. “The ongoing peace effort has made some good progress recently and we are still aiming to re-start operations next dry season, starting in December,” Lundin President and chief executive officer Ian Lundin said in a statement.

Meanwhile Canada’s Talisman Energy, a 25% shareholder in the Greater Nile Petroleum Operating Company (GNPOC), announced that 1Q production from its Muglad Basin operations has raised its equity production by 17% year-on-year to 58,608 b/d. Overall GNPOC production of Nile Blend crude oil is now running at an average 240,000 b/d, rising to 250,000 b/d during the second half of the year. However, Talisman continues to come under pressure over its Sudanese operations, with Canadian church groups among those that have recently demanded that the company withdraw from Sudan. Talisman executives have responded to this pressure in recent months by letting it be known that the company would do so if offered the right price. On 1 May, chief executive Jim Buckee said the company was talking to some half-dozen interested parties, among them India’s Oil and Natural Gas Corp. He refused to put a value on the stake, but said that it was worth in excess of industry valuations of $650mn.

Sudanese officials in 2001 set optimistic targets for oil production of 450,000 b/d by 2005, but MEES understands that current unrest in and around producing areas, combined with a more realistic timetable for development projects, means that GNPOC production from the Muglad Basin is likely to lift output there to a maximum of 300,000 b/d in the coming two years. There are currently six producing blocks in Sudan, with the bulk coming from the Heglig and Unity fields in blocks 1, 2 and 4, with 2,000 b/d production from Block 6 and 5,000 b/d from the Melut Basin fields in Blocks 3 and 7 (MEES, 8 October 2001). The GNPOC group comprises the China National Petroleum Corporation (40% - operator), Petronas Carigali (30%), Talisman (25%) and Sudan National Petroleum Company (5%).

Sudan, Ethiopia Demarcate Border, Agree On Oil And Power Links

Sudan and Ethiopia signed an agreement on 11 May demarcating their common border, Al-Hayat reported on 12 May. Furthermore, the two countries agreed to link their power grids and Sudan agreed to allow Ethiopia to use Port Sudan for all its import and export requirements and to supply Addis Ababa with crude oil.

Senator Danforth’s Report

Below is the section of Sen. Danforth’s report dealing specifically with oil. The full report can be found at: http://www.whitehouse.gov/news/releases/2002/05/20020514-11.html

Both the discovery of significant oil reserves, especially in the south, and the advent of serious production in 1999 have reshaped Sudan’s civil war. (Sudan has proven oil reserves of over one billion barrels and prospects of an additional one to four billion barrels.) No enduring settlement to Sudan’s war can be achieved unless the oil dimension is effectively addressed. The SPLM regards oil as a southern endowment that the government has forcibly exploited to finance a war strategy that relies increasingly on expensive, highly lethal weapons. For its part, the government regards oil fields as vulnerable, strategic assets, which it seeks to defend preemptively through attacks upon southern insurgents and their alleged civilian supporters. The recent reconciliation between John Garang and Riak Machar, and Garang’s statements on impending attacks by the SPLA, are seen by the Sudanese Government as a serious Nuer-Dinka threat to the oil fields, justifying a military response including attacks on civilians.

Any peace process should address the oil issue in order to resolve a major cause of conflict and to serve as the basis for a just peace. The fair allocation of oil resources could be the key to working out broader political issues if it were possible to find a monetary formula for sharing oil revenue between the central government and the people of the south. It might be possible to find some formula acceptable to both the SPLM and the GOS for cessation of the current conflict over the oil fields before a final peace agreement.

International oil companies and foreign investors capable of making the investment needed to realize Sudan’s oil potential are more likely to venture into Sudan if there is peace and political stability than in current circumstances. That fact should serve as a powerful incentive for the Sudanese Government and the SPLM to reach agreement. Any such arrangements will, however, require extensive discussion and analysis and will require reliable mechanisms with international monitoring to guarantee the integrity of whatever revenue-sharing formula is agreed upon.

Since shortly after my appointment as Special Envoy, I have urged our government to draw upon experts in various departments to develop our best thinking on how the distribution of oil revenues might further the cause of peace in Sudan. Some promising work is being done by non-governmental organizations to assemble a profile of Sudan’s oil sector and explore revenue-sharing options. I continue to believe that such a work product would be valuable for consideration in a peace process.