In what’s being described as the largest shake-up of South Sudan’s oil concessions since the country became independent in July 2011, the massive Block B — which had largely been held by French oil company Total — will be split into three. Total will keep one block while U.S.-based ExxonMobil and Kuwaiti oil company Kufpec will reportedly get the other two.
Since 1980, Total had owned rights to the Block B oil concession through a deal they had struck with the government of Sudan. Operations were suspended in 1985 due to the deteriorating security situation as civil war raged between the North and South Sudan. However, Total retained rights to the block through an annual $1 million renewal fee.
The company began to get pressure to resume operations following the signing of the 2005 Comprehensive Peace Agreement that ended the civil war. In recent years, the government of South Sudan increasingly expressed impatience with the lack of development in Block B. Total said recommencement of exploration was dependent on preconditions including security guarantees for operations on the ground. Jonglei state, where Total’s concession is located, has experienced a high level of inter-tribal violence and insecurity since 2009.
The announcement that South Sudan will split the concession is important for several reasons:
- It’s the culmination of years of tension between South Sudan and Total over the company’s refusal to resume exploration due to insecurity. Total had fought against efforts to divide the concession, but it remains to be seen if there is any legal ground for the company to challenge the split.
- To break up the concession, South Sudan had to break the agreement Total had made with the government of Sudan. Despite pre-independence assurances by South Sudan that it would honor existing oil contracts, the country has been pressuring oil companies to redraw agreements. This is the strongest assertion yet by South Sudan of its right to renegotiate deals made under the old regime.
- The biggest news is the possibility of ExxonMobil, the world’s biggest oil corporation, moving into South Sudan. In 2011, the U.S. government amended its sanctions to allow oil-related investment in South Sudan, despite the fact that all oil exports still need to be transported through Sudan’s oil infrastructure. ExxonMobil would be the first American oil producer to operate in Sudan or South Sudan since Marathon Oil Corporation withdrew following the imposition of U.S. sanctions in 1997.
Tensions over oil continue between Sudan and South Sudan despite a recently signed provisional deal. If carried out, the agreement, among other things, would end the standoff where the government of Sudan was accused of stealing the South’s oil resulting in South Sudan shutting down all oil production in January 2012. Given the reliance on oil revenue, the shutdown now threatens to destabilize the economies of both countries. The deal and the breaking up of block B suggests South Sudan is looking past the current impasse toward its long-term oil future.