South Sudanese policemen and soldiers stand guard. Picture: REUTERS
South Sudanese policemen and soldiers stand guard. Picture: REUTERS

Juba — South Sudan said it boosted security at oil installations and will source electricity from neighbouring Sudan to resume output at two fields in efforts to restore production to levels achieved before the country descended into civil war.

The government was also in talks with oil companies, including Total of France and Oriental Energy Resources of Nigeria, to begin exploration in Block B, the country’s largest untapped deposit, Petroleum minister Ezekiel Lul Gatkuoth said in an interview on Monday in the capital, Juba. Other companies, including London-based Tullow Oil and Exxon Mobil, were "seriously interested" in investing in the country, he said.

Oil production in South Sudan plunged by at least a third to about 130,000 barrels a day 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 GDP forecast by the IMF to contract 6.1% this year after shrinking 13.1% last year.

President Salva Kiir deployed security forces to oil installations even after the country stabilised 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%, 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, Malaysia’s Petroliam National and Oil and Natural Gas 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 Kuwait Foreign Petroleum Exploration held a 25% stake, into three portions — B1, B2 and B3. The government was discussing plans for Total to explore the first two, and Oriental the third, Gatkuoth said.

Total and Exxon did not immediately respond to e-mailed requests for comment, while Tullow declined to comment. Calls to numbers listed on Oriental Energy’s website did not connect and e-mails to addresses provided in previous company statements were not delivered. Total said in its annual report last year that it was "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 had 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 a barrel to Sudan, regardless of the oil price. The rate would 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 did not have a fixed target for what it wanted to boost oil output to, it was targeting the 300,000 that was being produced before conflict erupted three years ago.

Bloomberg

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