VZCZCXRO2618
PP RUEHGI RUEHMA RUEHROV
DE RUEHKH #0367/01 0721215
ZNR UUUUU ZZH
P 121215Z MAR 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 0178
INFO RUCNFUR/DARFUR COLLECTIVE

UNCLAS SECTION 01 OF 03 KHARTOUM 000367 
 
SIPDIS 
 
DEPT FOR AF/SPG, AF S/E WILLIAMSON 
DEPT PLS PASS USAID FOR AFR, AND ALSO PASS USAID 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958:  N/A 
TAGS: PREL PGOV PHUM ECON EFIN ENRG EPET SU
SUBJECT: POSITIVES AND NEGATIVES IN SUDAN'S OIL INDUSTRY 
 
REF: A) 07 KHARTOUM 1719 
B) KHARTOUM 227 
C) KHARTOUM 313 
D) KHARTOUM 241 
 
¶1.  (U)  SUMMARY:  In separate meetings with econoff the week of 
March 9, oil industry insiders, former government officials, and 
petroleum experts appeared positive about the political and economic 
prospects of the Sudanese oil industry:  the Norwegian Petroleum 
Envoy to Sudan stated that he is "optimistic" about  the possibility 
of post-2011 oil revenue sharing; representatives of the only 
European oil company in Sudan appeared confident that their 
exploratory drilling will soon yield results; Misseriya tribal 
leaders admitted that oil should not be a factor in the Abyei 
conflict; and multiple sources praised the leadership of the former 
Minister of Energy and Mining, Awad Al-Jaz.  This optimism was 
tempered by continued allegations of corruption, claims of the 
industry's negative environmental impact, and complaints of the 
reckless approach of many operators currently working in Sudan's oil 
industry.  END SUMMARY. 
 
+ : NORWEGIAN OPTIMISM 
---------------------- 
¶2.  (SBU)  On March 9, the Norwegian Petroleum Envoy, Anders 
Hannevik, stated that he continues to meet with NCP and SPLM 
leaders, urging both sides to consider post-2011 oil revenue sharing 
options (reftel A&B).  Hannevik stated that he met multiple times 
with influential NCP advisor Sayyed Al-Khateeb and that he is 
scheduled to meet this week with Government of South Sudan Vice 
President Riek Machar.  "I am more optimistic now than I have been 
in a long time that a deal on post-2011 oil revenue sharing might be 
possible," stated Hannevik.   Hannevik stated that the Norwegian's 
earlier conflict with the Ministry of Energy and Mining "has been 
mostly smoothed over" and that their access to the ministry has 
increased.  (On a separate matter, Hannevik also hesitated about 
Norway's participation in a proposed UK-US-Norway technical-level 
meeting on oil revenue sharing.) 
 
+   "ABYEI SHOULD NOT BE ABOUT OIL" 
----------------------------------- 
¶3.  (SBU)  Also on March 9, General Manager of Nilean Petroleum 
Services and family member of the Misseriya's tribal leadership, 
Hayder Nimir (see bio note in para 13) stated that oil is not a 
factor for the Misseriya and "Abyei should not be about oil." 
(Comment:  In contrast to earlier meetings between his family and 
CDA Fernandez, where many of Nimir's relatives exaggerated the 
amount and importance of oil in the region (reftel C), Hayder Nimir 
appeared objective, balanced, and informed about oil. End Comment.) 
"Having oil in Abyei is like planting a palm tree in your own yard," 
stated Nimir, "as the tree grows so tall, it only gives shade to 
your neighbor."  Nimir agreed that oil production in Abyei is 
declining, claiming that only 2% of what is pumped out of the ground 
is oil (with the remaining 98% as waste water.)  Nimir stated that 
oil companies are starting to pump a heavier, poorer-quality oil 
from Abyei that requires special pipes and handling before being 
blended with lighter, sweeter crudes at the central processing 
facilities. 
 
+   DRILLING ON BLOCK 5B UNDERWAY 
--------------------------------- 
¶4.  (SBU)  The contractual disputes over block 5b have been resolved 
and drilling results are promising, stated Dr. Alam Bagi, the only 
permanent representative of Lundin in Sudan.  (Note:  Lundin, the 
only European oil company in Sudan, works along with its partners 
Petronas, ONGC, Sudapet, and NilePet, in block 5b using the White 
Nile Petroleum company as an operator. End Note.)   According to 
Bagi the dispute with Ascom will soon be resolved, as a committee of 
Petronas, Lundin, and ONGC  will meet to evaluate Ascom's claims for 
compensation. 
 
¶5.  (SBU)  Bagi stated that he is hopeful that drilling on the Wan 
Machar-1 well (formerly Umm Dandalo) will soon commence and that 
earlier studies show it has a great of potential.  (Note:  According 
to Bagi, Lundin first started work on less promising wells such as 
Nyal 1 because the relations with the State Governor and local 
communities in those regions helped facilitate their work.  Bagi 
stated that successfully finding oil at the Nyal 1 was "a long shot" 
and that the Wan Machar-1 well is more important to the company.  On 
March 13, the Sudan Tribune reported that Swedish oil explorer, 
Lundin Petroleum, said today it will abandon the Nyal-1 well in 
Sudan's oil Muglad Basin in Block 5B.  The well is the first of four 
wells to be drilled in Block 5B during 2008. End Note). 
 
+   LEADERSHIP 
-------------- 
¶6.  (SBU) In separate meetings both Lundin's Bagi and the former 
Minister of Finance, Abd Al-Rahim Hamdi, told econoff that the 
administration of the oil sector and the government's finances will 
continue to improve with the exchange of leadership between the 
 
KHARTOUM 00000367  002 OF 003 
 
 
Ministry of Finance and the Ministry of Energy and Mining. 
According to Hamdi, Awad Al-Jaz transformed the Ministry of Energy 
and Mining into a modern, functional bureaucracy and that not much 
will be required from its new minister, Zubair Al-Hassan.  According 
to Hamdi, Al-Jaz will now "clean up the Ministry of Finance as he 
did with the Ministry of Energy and Mining."  Lundin's Bagi also 
exhibited great praise for Awad Al-Jaz.  Bagi stated that during a 
recent social function for Khartoum's elite, he told President Omar 
Al-Bashir to his face, "If you had two or three people like Awad 
Al-Jaz, you could really relax."  According to Bagi, President 
Bashir responded, "I know."  (Note: Which is no doubt why President 
Bashir transferred Al-Jaz to the Finance Ministry - to clean up the 
mess left by Al-Hassan, reported reftel D. End note.) 
 
-   CORRUPTION 
-------------- 
¶7.  (SBU)  According to Misseriya leader Hayder Nimir, the oil 
industry has varying degrees of corruption at multiple levels, with 
widespread dishonesty in petroleum service contracts and the pricing 
of oil, especially from Blocks 3 and 7.  "People can make millions 
just off of the issuing of contracts," stated Nimir.  Although the 
GoSS and many southerners always demand more transparency in the oil 
industry, Hayder alleged that "the Southerners are the real kings of 
corruption." 
 
¶8.  (SBU)  Lundin's Bagi also stated that corruption pervades the 
Sudanese oil industry.  According to Bagi, there is corruption at 
the lower levels of the industry, especially with many of the 
Chinese service companies.  Although the senior leadership of the 
Government of South Sudan recognizes the importance of resolving 
contractual disputes, stated Bagi, there are prominent personalities 
within the government who are likely corrupt.  Bagi stated that one 
of the main reasons for Kuol Manyang's appointment as governor of 
Jonglei State was to confront companies and individuals who have 
complicated oil operations.  "It is likely that Manyang was 
appointed to that position just to stand up to Riek Machar," stated 
Bagi.   Bagi said that the consortium in Block 5b (of which Lundin 
is a part) will be stronger without Ascom, as "it was a dirty 
company" with "questionable ties" to some individuals in the GoSS. 
 
 
-   ENVIRONMENT 
--------------- 
¶9.  (SBU)  In addition to not financially benefiting the people of 
his region, Hayder Nimir complained that the oil industry has 
damaged Abyei's environment.  "Oil companies do not honor the 
regulations," said Nimir.  According to Nimir, oil companies have 
leaked drilling fluids and other hazardous chemicals that have 
resulted in dead cattle, poisoned water, and damaged land.  The 
Norwegian Petroleum Envoy stated that although he only has anecdotal 
evidence of the oil industry's negative environmental impact, there 
is cause for concern.  He stated that in April a Norwegian 
environmental assessment team will come to Sudan for one month and 
that a report should be completed by May.  Due to the vast size of 
Sudan's oil producing areas and the limited nature of this 
assessment, "we will only partially know what is going on," said 
Hannevik. 
 
-   FLY-BY-NIGHT OPERATORS 
-------------------------- 
¶10.  (SBU)  Lundin's Bagi also expressed concern that many of the 
companies operating in Sudan are smaller companies unable to invest 
in large-scale exploration.  He stated that without Chevron's 
investments (and particularly their seismic studies) Lundin would 
not currently be at the stage of drilling.  "We did not conduct any 
seismic studies, relying totally on the data we received from 
Chevron.  Without Chevron these areas would never have been 
discovered," stated Bagi.  According to Bagi, there are some blocks 
in Sudan (such as Block 12A in northwest Sudan along the Libyan and 
Chadian border) where "we have no idea what is going on there, 
because smaller companies do not have the money or the foreign ones 
from China or India are not willing to spend on exploration." 
 
¶11.  (SBU)  The Norwegian Petroleum Envoy agreed that without the 
presence of large, western multi-national companies, long term 
development and Sudan's environment may suffer.  According to 
Hannevik, many of the companies operating in Sudan have less regard 
for environmental standards, the longevity of wells and fields, and 
their own reputations than big multi-national western companies. 
Hannevik stated that many of Sudan's current operators do not have 
access to the latest technology that would yield the cleanest, most 
efficient, and most sustainable results. 
 
COMMENT 
------- 
¶12. (SBU) The voice of balance and reason from the Misseriya 
leadership was reassuring, especially as many parties with a stake 
in the region falsely assume that Abyei has great reserves of oil. 
(Norwegian, ICG, and other independent studies have shown that 
 
KHARTOUM 00000367  003 OF 003 
 
 
Abyei's oil reserves are quickly declining and new fields have not 
been discovered.)  Hyder Nimir should be supported to provide a more 
objective analysis of Abyei's petroleum to his family members and 
the greater public.  Although many players in Sudan's oil industry 
tempered their optimism with a focus on corruption, the environment, 
and reckless oil companies, there were other complaints which 
warrant further investigation.  Contacts also criticized the lack of 
GOSS involvement in the industry ("to the point of almost being 
non-existent," as Hannevik stated,) difficulties in establishing the 
GoSS state oil company Nilepet, and dysfunctional national 
government institutions such as the National Petroleum Commission. 
The comments about long-term environmental impact and lack of 
capacity and professionalism among the oil companies operating in 
Sudan are vexing, and demonstrate a clear downside to the current 
U.S. sanctions regime. 
 
BIO NOTE 
-------- 
¶13.  (U)  Hyder Nimir hails from a prominent Misseriya family that 
traditionally has led this important Arab tribe.  Hyder earned a 
degree in geology from the University of Khartoum, and later worked 
for the Ministry of Energy and Mining.  He was removed from this 
position in 1989 when the National Islamic Front came to power.  He 
later moved to Saudi Arabia to work in the petroleum industry for 
most of the nineties.  He returned to Sudan to work for Petrodar, 
the operator of blocks 3 and 7, until he started his own oil 
services company several years later. 
 
FERNANDEZ