VZCZCXRO8052
PP RUEHBC RUEHBZ RUEHDE RUEHDU RUEHGI RUEHJO RUEHKUK RUEHMA RUEHMR
RUEHPA RUEHRN RUEHROV RUEHTRO
DE RUEHKH #1702/01 3291354
ZNR UUUUU ZZH
P 241354Z NOV 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 2390
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNFUR/DARFUR COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 02 KHARTOUM 001702 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF A/S FRAZER, S/E WILLIAMSON, AF/SPG, EEB/ESC/ENR 
NSC FOR PITTMAN AND HUDSON 
ADDIS ABABA ALSO FOR USAU 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON ENRG EFIN ASEC KPKO UN AU SU
SUBJECT: OIL EXECUTIVES DOUBT MINISTER'S CLAIM OF 2009 
PRODUCTION INCREASE 
 
REF: A. KHARTOUM 1653 
     ¶B. KHARTOUM 1232 
 
¶1. (SBU) Summary: In meetings from November 18-20, oil 
industry executives told econoff they were doubtful that 
Sudan could boost oil production from 500,000 to 600,000 
barrels per day in 2009, as claimed recently by Minister of 
Energy and Mining Zubeir Al Hassan.  While increasing 
production in Petrodar's Blocks 3 and 7 might help offset the 
serious decline in GNPOC's Blocks 1, 2 and 4, output in 
Sudan's other producing blocks remains meager, and there are 
no new fields coming online, they said.  Representatives of 
the WNPOC consortium with the rights to Block 5B in Jonglei 
state noted that the prospects for oil discovery there have 
diminished significantly after their third attempt to drill 
for oil failed.  This was in addition to two failed attempts 
by the block's other operator, Ascom.  The oil executives 
said that, on the whole, oil exploration in Sudan remains 
inadequate because current players lack the ability or 
incentive to invest the sums required (due to both 
profitability and security concerns,) a trend that looks set 
to continue with the falling price of oil and the recent 
abduction and subsequent slaying of Chinese oil workers 
(reftel A.) End Summary. 
 
¶2. (SBU) From November 18-20 econoff met with executives from 
several oil firms, including Dr. Yousif Mohamed Ahmed, 
President of the Sudapet-affiliated Star Oil Operating 
Company and former Vice President at Greater Nile Petroleum 
Operating Company (GNPOC); Dr. Alam Al Bagi, Representative 
of Lundin Sudan BV; and Ahmed Fadul Jabralla, Technical 
Services Manager for White Nile Petroleum Operating Company 
(WNPOC). 
 
¶3. (SBU) Oil industry executives reported that production in 
the aging fields in Blocks 1, 2 and 4 producing the preferred 
Nile Blend has fallen below 200,000 b/d, from a one time high 
of over 325,000 b/d. They attributed this rapid decline to 
the failure of GNPOC, the blocks' operator, to undertake the 
planning and assessment necessary to optimize the fields' 
recovery rate. "These are all national oil companies," said 
WNPOC's Ahmed Jabralla. "They don't invest in research and 
development like Western firms do." (Note: GNPOC is a 
consortium of China's CNPC, Malaysia's Petronas, India's ONGC 
Videsh and Sudapet. End Note.) Dr. Al Badi of Lundin added 
that while Eastern oil firms were bridging the technology gap 
with their Western counterparts, they still lacked 
sophistication in reservoir management, planning and 
simulation for the optimization of production. He estimated 
that Blocks 1,2 and 4 were now pumping 75% water and 25% oil, 
a trend which would be very difficult to slow down without 
significant investment, which he said was not forthcoming. 
 
¶4. (SBU) While production in Blocks 1, 2 and 4 is declining, 
the oil executives reported that it is increasing in Blocks 3 
and 7 operated by Petrodar, a consortium led by China's CNPC 
and Malaysia's Petronas. (Note: Blocks 3 and 7 produce the 
Dar Blend, which has a higher acidic content and is less 
attractive to refiners than Nile Blend. End Note.) Petrodar 
is currently pumping around 200,000 b/d, but "they are adding 
reserves on an annual basis," said Ahmed Jubralla, who 
estimated that production could eventually increase to 
300,000 b/d. 
 
¶5. (SBU) The output in Sudan's other producing oil blocks 
remains relatively meager. Block 6 in South Kordofan is 
estimated to be producing somewhere between 30,000 to 60,000 
b/d, according to the oil executives. Dr. Ahmed of Star Oil, 
which is active in the area, noted that insecurity is 
becoming prohibitive in the exploration and development of 
oil fields in this region, especially in the wake of the 
kidnapping and subsequent slaying of several Chinese oil 
workers in October 2008 (Ref A). "Only ten percent of 
(neighboring) Block 17 is secure," he said. "The government 
doesn't respond to our requests for protection." 
 
¶6. (SBU) Meanwhile, in Block 5A in Unity State, a WNPOC 
consortium led by Petronas, is producing approximately 25,000 
to 30,000 b/d, but is facing difficulties transporting the 
crude out of the block. WNPOC's Ahmed Jubralla explained that 
while the consortium built a 170 kilometer pipeline to link 
it to GNPOC's pipeline, the quality of the crude produced in 
5A is inferior to GNPOC's Nile Blend and GNPOC consequently 
has limited WNPOC to just 10 percent  of its pipeline 
 
KHARTOUM 00001702  002 OF 002 
 
 
capacity. "This is an ongoing issue for us because it limits 
the marketability of our product," he said. WNPOC is 
examining the possibility of tying into Petrodar's pipeline 
in Blocks 3 and 7 and has even considered trucking the crude, 
he said, but the latter was abandoned due to concerns about 
infrastructure and security. 
 
¶7. (SBU) In Block 5B in Jonglei state, a variant WNPOC 
consortium including Sweden's Lundin has seen its third 
attempt to drill for oil there result in yet another dry 
well. This in addition to two other dry wells dug by Ascom, 
the Moldovan operator engaged in a long-running dispute with 
WNPOC over rights to the Block.  (Note: Ascom is currently in 
the process of drilling a third well. End Note.) While 
Lundin's Dr. Al Bagi downplayed the negative findings by 
saying that "five or six dry wells in an area totaling over 
20,000 square kilometers means nothing," WNPOC's Jubralla was 
more circumspect. After the failed drilling attempts, "the 
block's potential has obviously been downgraded," he said. 
"There's still a possibility to find oil in 5B, but it's not 
going to be huge." 
 
¶8. (SBU) Queried by econoff about the prospects for 
discovering oil in Block 12A in North Darfur (Ref B), the oil 
executives downplayed its significance. Dr. Al Bagi noted 
that while oil firms in northwestern Sudan were carrying out 
some small-scale seismic work, "geologically, one cannot 
expect huge discoveries there." Ahmed Jubralla added that "in 
order to conduct adequate exploration up there you need big 
money," and the operators of the block "simply don't have 
it." (Note: The rights to Block 12A in North Darfur is held 
by a consortium of smaller oil firms including Qahtani, Ansan 
Sudapet, Dindir Petroleum, Hi Tech and A.A. Inv. The 
operators of 12A reportedly signed a memorandum of 
understanding with South Africa's PetroSA, who occupies 
neighboring Block 14, earlier this year to swap seismic 
contracts and share information. End Note). 
 
¶9. (SBU) Comment: Sudan cannot boost production in any 
significant way without new investment in exploration and 
development.  But the falling price of oil, combined with 
rampant insecurity in some important oil producing areas and 
an uncertain political future, are likely to preclude such 
investment for the time being.  This will have a major 
negative impact on the economies of both North and South 
Sudan, and on the solvency of both the GNU and the GOSS. 
Neither government is likely to cut back on defense spending 
(at least for arms), so we can expect problems with civil 
servant and possibly military salary payments, as well as 
transfers to regional governments, while Khartoum and Juba 
attempt to address their top priorities.  This could have a 
significant negative impact on the stability of both 
governments, especially the GOSS, as it is almost 100 percent 
reliant on oil revenue transfers. Plunging oil revenues, an 
arms race, and political instability and rivalries between 
the NCP and SPLM (and by factions within each party) could 
prove to be a toxic brew for Sudan in 2009.  Septel will 
report on  the anticipated 2009 GNU budget, due to be 
examined by Parliament in the coming weeks. 
FERNANDEZ