VZCZCXRO2086
OO RUEHROV RUEHTRO
DE RUEHKH #0763/01 1691053
ZNR UUUUU ZZH
O 181053Z JUN 09
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3956
INFO RUCNIAD/IGAD COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RHMFISS/CJTF HOA

UNCLAS SECTION 01 OF 02 KHARTOUM 000763 
 
DEPT FOR SE GRATION, S/USSES, AF A/S CARSON, AF/E 
NSC FOR MGAVIN 
DEPT PLS PASS USAID FOR AFR/SUDAN 
ADDIS ABABA ALSO FOR USAU 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG PGOV PREL KPKO ASEC UN AU SU
SUBJECT: OIL: DAR BLEND GETS SWEETER, MORE ABUNDANT WHILE NILE BLEND 
CONTINUES TO DECLINE 
 
REF: A) KHARTOUM 727 
B) KHARTOUM 231 
C) 08 KHARTOUM 1702 
 
¶1. (SBU) Summary:  GOS oil revenues for the month of April totalled 
$158.76 million, up from $157.26 million in March, according to 
figures released last week by the Ministry of Finance and National 
Economy.  Though prices and production both rose in April, the 
resulting revenue increase was curbed by adjustments to the 
production split between the government and oil companies.  The 
highly acidic (and steeply  discounted) Dar Blend found in Blocks 3 
and 7 drove production increases.  But State Minister for Energy and 
Mining Angelina Teny told econoff on June 16 that newer fields in 
these blocks are producing alighter, less acidic crude, making Dar 
more attractive to refiners.  She also outlined plans to reverse 
declining production of the superior Nile Blend from ageing fields 
in Blocks 1, 2 and 4, including new exploration, the commissioning 
of a technical study to enhance recovery.  She also noted the need 
for  outreach to state and local authorities aimed at reducing the 
number of work stoppages due to what she claimed was  their 
interference in the oil sector.  End Summary. 
 
¶2. (SBU) GOS oil revenues for the month of April totaled $158.76 
million, up from $157.26 million in March and $107.48 million in 
February, according to figures released last week by the Ministry of 
Finance and National Economy. Rising prices played their part, as 
the average export price per barrel in April for Nile and Dar blends 
was $40.74 and $37.09, respectively, up from $35.09 and $27.75 in 
March. Oil production increased as well, to 437,000 barrels per day 
(b/d), up from 410,000 b/d in March.  The revenue increase was 
curbed, however, by changes in the production split between the 
government and oil companies, which is subject to periodic 
adjustments.  The Government of South Sudan's (GOSS) share of April 
revenues was $51.596 million, down slightly from $54.504 million in 
March (Note: Under the Comprehensive Peace Agreement, the GOSS 
receives one half of revenues from oil produced in the south, minus 
various deductions.  End Note.) 
 
BLOCKS 3 AND 7: DAR GETS SWEETER 
-------------------------------- 
¶3. (SBU) Increased production was once again driven by a boost in 
production 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 is heavily discounted due to its 
acidity.  When oil prices fell dramatically in the latter half of 
2008, the price of Dar fell below $10 a barrel, threatening its 
economic viability.  It has since rebounded.  End Note). 
Production of Dar in Blocks 3 and 7 was 238,000 b/d in April, up 
from 208,000 b/d in March. 
 
¶4. (SBU) During a June 16 meeting, State Minister for Energy and 
Mining Angelina Teny told econoff that the newer fields in Blocks 3 
and 7 were producing a lighter, less acidic crude which has reduced 
Dar's overall discount to Brent Blend; the average export price for 
Dar in April was $37.09, compared to $50.18 for International Brent. 
(Note: though still discounted by over 25 percent to Brent, the gap 
has narrowed substantially since December, when Dar was discounted 
by over 50 percent.  End Note.)  The emergence of the lighter crude 
prompted the Ministry to consider selling two varieties of Dar, 
according to Teny, but this would require new infrastructure.  "It 
would be a costly, long-term project," she said. 
 
BLOCKS 1, 2 AND 4: STRUGGLING TO STEM THE DECLINE 
--------------------------------------------- --- 
¶5. (SBU) Production of the preferred Nile blend, meanwhile, 
continues to decline in Blocks 1, 2 and 4 operated by the Greater 
Nile Petroleum Operating Company (GNPOC), a consortium led by 
China's CNPC, Malaysia's Petronas and India's ONGC. From a one-time 
peak of 325,000 b/d, these blocks produced only 179,000 b/d in 
April, down from 181,000 b/d in March. Teny told econoff that 
several steps are being taken to reverse the steady decline, 
including ongoing seismic exploration in previously untouched areas 
of the blocks.  The results to date have been very promising, she 
said, but she cautioned that production was two to four years away. 
The Ministry has also commissioned a technical study by Norway to 
enhance recovery in the blocks' ageing fields, she said.  "We're 
hoping to bring production back above 200,000 b/d eventually," she 
observed,  adding that she hoped increases would be evident by the 
end of 2009. 
 
¶6. (SBU) In addition to new exploration and recovery efforts, the 
Ministry is hoping to boost oil output in Blocks 1,2 and 4 by 
reducing the number of work stoppages due to what Teny said was 
 
KHARTOUM 00000763  002 OF 002 
 
 
state and local interference, especially in Unity State and Southern 
Kordofan.  Teny noted that local officials there routinely put up 
bureaucratic and physical barriers (e.g. road closures) in disputes 
with oil companies over compensation, resulting in production 
stoppages. They are also hindering new exploration by demanding 
outrageous compensation fees for land, she said. Teny herself has 
traveled to both states  to meet with local authorities.  She 
reported that she had urging the latter  to act responsibly and use 
dispute resolution mechanisms in the CPA rather than taking actions 
that halt production.  She emphasized to authorities that such 
stoppages necessitate GOS payment of standby fees to oil companies 
for their idle rigs. "Ultimately, it's the [GOS and state 
governments] who lose out," she said. 
 
BLOCKS 5A AND 5B: NO GOOD NEWS 
------------------------------ 
¶7. (SBU) Production in Block 5A, operated by White Nile Petroleum 
Operating Co. (WNPOC), remains steady at a meager 20,000 b/d. WNPOC, 
a consortium led by Petronas and ONGC, is prevented from producing 
more oil due to pipeline constraints.  Although a pipeline connects 
its Thar Jath and Mala fields to the GNPOC pipeline destined for 
Port Sudan, WNPOC can make only limited useage  of this  pipeline 
due to the inferior quality of WNPOC 
S  crude.  Teny told econoff that the Ministry has commissioned a 
study on alternative means of transporting crude out of Block 5A. 
One option currently being examined is connecting to the GNPOC 
pipeline further North at Fula, where it has greater capacity. 
 
¶8. (SBU) Teny expressed disappointment in ONGC of India's recent 
decision to relinquish its interest in Block 5B, where it held a 
23.5 percent stake in the WNPOC Consortium operating the block. ONGC 
is the second company to exit the block after Sweden's Lundin, the 
last remaining Western oil company in Sudan, pulled out of 5B 
earlier this year following three unsuccessful drilling attempts. 
These come in addition to three dry wells drilled by Ascom, the 
Moldovan operator engaged in a long-running dispute with WNPOC over 
rights to the Block.  Despite these setbacks, Teny is optimistic 
about  5B's prospects.  "I'm convinced someone will make a fortune 
there," she said. 
 
SUDAN'S STATE OIL COMPANIES FLOUNDERING 
--------------------------------------- 
¶9. (SBU) Teny also expressed disappointment that after nearly 12 
years in existence, the State-owned oilfirm Sudapet is still 
overly-reliant on foreign firms in the various consortia where it 
holds minority stakes.  "Sudapet should be engaged in its own 
operations by now," she said.  Instead, the company suffers from 
poor management and is extremely opaque.  "You cannot tell where its 
revenues go," she said, though she speculated they were directed 
towards the state security apparatus.  Despite its failures, Sudapet 
is still light years ahead of Nilepet, the fledgling Southern 
Sudanese state oil company. "Nilepet exists only as a management 
team and a board. It has zero technical capacity," she said. She 
lamented that the GOSS has apparently  chosen to emulate Sudapet by 
appointing the GOSS Minister of Energy and Mining to chair Nilepet's 
board.  "Sudapet is a poor model to imitate because it doesn't 
work," she said. 
 
COMMENT 
------- 
¶10. (SBU) The discovery of lighter, less acidic Dar is a stroke of 
good fortune for the GOS, but it continues to be overshadowed by 
decreasing production of the higher-priced Nile Blend.  If new 
production in Blocks 1, 2 and 4 comes online in the next few years, 
it could help offset the decline of ageing fields, which may be 
irreparably damaged.  Local authorities' interference in southern 
Sudan's oil sector, meanwhile, bodes ill for the South's ability to 
attract future investment post-2011, as does its pitiful 
infrastructure and increasingly bloody tribal clashes.  It is no 
surprise therefore that Block B, the largest  in the South, remains 
unexplored.  Given the outbreaks of violence in Jonglei and Lakes 
States where B Block is located, it seems unlikely that the 
concession holder, France's Total, will begin exploration anytime 
soon. 
 
ASQUINO