Security boosted at oil fields to raise South Sudan output

JUBA, South Sudan (Bloomberg) -- South Sudan said it boosted security at oil installations and will source electricity from neighboring Sudan to resume output at two fields in efforts to restore production to levels achieved before the country descended into civil war.

The government is also in talks with oil companies including Total SA of France, and Oriental Energy Resources Ltd. of Nigeria to begin exploration in Block B, the country’s largest untapped deposit, Petroleum Minister Ezekiel Lul Gatkuoth said in an interview Monday in the capital, Juba. Other companies, including London-based Tullow Oil Plc and Irving, Texas-based Exxon Mobil Corp., are “seriously interested” in investing in the country, he said.

Oil production in South Sudan plunged by at least a third to about 130,000 bpd since conflict erupted in the East African nation in December 2013. The decline, combined with a drop in prices, has devastated the economy, with annual inflation accelerating to almost 500% and gross domestic product forecast by the International Monetary Fund to contract 6.1% this year after shrinking 13.1% in 2016.

President Salva Kiir deployed security forces to oil installations even after the country stabilized following a flare-up of violence last year, Gatkuoth said. The conflict since 2013 has claimed tens of thousands of lives and forced 3 million people from their homes.

“The president instructed us that even though security is 100 percent, we have to deploy,” he said. “He has instructed the army, the national security and the police to deploy.”

Returning workers

Increased stability and the security deployment encouraged employees of companies including China National Petroleum Corp. Malaysia’s Petroliam National Bhd. and Oil & Natural Gas Corp. of India to return to the country, after they fled the fighting last year, the minister said. The three companies are the main producers of oil in South Sudan.

“During the July crisis last year they left, but came back,” Gatkuoth said “They are ready to resume the production and increase output.”

South Sudan’s government announced plans in 2013 to divide Block B, in which Total held the principal rights since 1984 and in which the Kuwait Foreign Petroleum Exploration Co. held a 25% stake, into three portions -- B1, B2 and B3. The government is discussing plans for Total to explore the first two, and Oriental the third, Gatkuoth said.

Exxon and Tullow declined to comment. Calls to numbers listed on Oriental Energy’s website didn’t connect and e-mails to addresses provided in previous company statements weren’t delivered. Total said by e-mail it has had “discussions with the government, but cannot disclose the nature of these discussions.” In its annual report last year, the company said it’s “negotiating with the authorities with the view to resume exploration activities.” Exxon ended its plans to explore South Sudan with Total in 2014.

Power supplies

South Sudan reached an agreement with Sudan to provide electricity needed to restart oil production at the North field in the northern Ruweng state and the Unity field in Northern Liech state, Gatkuoth said. At operations in Paloch, a “de-bottlenecking” project has begun to increase output, he said, without elaborating.

The government has also revised an agreement with Sudan on the amount it pays to transport its crude exports. South Sudan uses two pipelines that transit Sudan to ship its oil to Port Sudan on the Red Sea. The facilities predate South Sudan’s secession from Sudan in 2011, when the two governments negotiated the fees to be paid for the continued use of the conduits.

Under the old arrangement, which Gatkuoth termed a “bad agreement,” the government paid a fixed $15/bbl to Sudan, regardless of the oil price. The rate will now be flexible, to allow for fluctuations in the cost of crude, he said.

“If the price of the oil is like $30, we pay zero, if it is $40, we pay like $9 or $6, and so on and so forth and if it is above $61, we pay $15, so we have a cushion,” Gatkuoth said.

The minister said that while the government doesn’t have a fixed target for what it wants to boost oil output to, it’s targeting the 300,000 bpd that was being produced before conflict erupted three years ago.

South Sudan’s transitional government, part of a 2015 deal that sought to end the conflict, will conclude in the last quarter of 2018, ushering in elections. President Kiir will seek another term in that vote and is inviting his rebel opponents to participate if they renounce violence, Ateny Wek Ateny, his spokesman, said Wednesday.