Who’s Who in South Sudan, Challenges Facing the New State

With its independence, the newly-formed Republic of South Sudan (South Sudan) became Africa’s sixth largest oil producer and Sub-Saharan Africa’s Second. They received 75 percent of the former state of Sudan’s oil production as their territory holds the majority of producing blocks and the lion’s share of the proved reserves.

CNPC, Petronas and ONGC are the dominant foreign investors in the Sudan and South Sudan oil industry. The minimum stake that the companies hold in any one E&P asset is 40 percent, 30 percent and 24 percent respectively. During their time in Sudan they have formed a strong relationship with the Khartoum government and their state oil company Sudapet. The challenge these companies will now face is forming a good working relationship with the new government without alienating Khartoum. Sinopec is another important player in the new state, but as 6 of its 7 Sudanese assets are in South Sudan, it will not have as many diplomatic issues as its counterparts. The chart below shows the key players in Sudan and South Sudan.

Sudapet has a working relationship with their South Sudan counterpart Nile Petroleum Corp (Nilepet). They have been helping Nilepet train their staff since April 2010. They have stated that they intend to work together on assets in each other’s countries, and as can be seen in the chart above, Sudapet already owns a large number of interests in South Sudanese assets. At present, Nilepet do not have an agreed percentage ownership in any E&P assets in either country. They will receive stakes, but details on this are unlikely to materialise before a new oil revenue sharing agreement between the two countries is finalized.

South Sudan faces many issues as a new state; it is one of the most undeveloped nations in the world. A key issue that affects the future stability of this new nation is the urgent need to negotiate a new oil revenue sharing deal with their northern neighbour the Republic of Sudan (Sudan). The previous deal with the north to share revenues 50:50, which had been in place since the end of civil war in 2005, ended when South Sudan became independent. Sudan is unwilling to let the South become the sole beneficiary of what was a joint resource. This is not unexpected, considering that oil formed 65% of Sudan’s export earnings before South Sudan’s independence, according to the International Monetary Fund.

Sudan controls the one pipeline that runs from the producing fields in central Sudan to the Port of Sudan and as yet the two countries haven’t agreed transit fees. Sudan has proposed a fee of $22.80 per barrel. This is being viewed as a “hostile act” by South Sudan, as at that price, the transit fees would absorb 20 percent of the value of oil sold. South Sudan would like to see a price between 60 cents and $2 per barrel. Sudan also controls the three refineries of the previously united country.

Nilepet has just signed joint venture deal with Glencore International to ensure that they can market their oil in the international arena. In 2009, the company announced that they are to build the Akon refinery in the Warap state at a cost of $2 Billion. They are undertaking this project with joint venture partner Eyat Oilfield Services and plan to have the refinery operational by 2012. They intend to supply the refinery with oil from the Unity fields, a set of fields that CNPC also own a 40 percent interest in.

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