DECEMBER OIL REVENUES PLUNGE ON FALLING PRICES;

C O N F I D E N T I A L SECTION 01 OF 02 KHARTOUM 000231 SIPDIS DEPARTMENT FOR A A/S CARTER, AF/SPG, EEB/ESC/ENR NSC FOR CHUDSON ADDIS ABABA FOR USAU E.O. 12958: DECL: 02/22/2019 TAGS: ASEC ECON EFIN ENRG KPKO PGOV PREL UN AU SU SUBJECT: DECEMBER OIL REVENUES PLUNGE ON FALLING PRICES; VIABILITY OF DAR BLEND THREATENED REF: 08 KHARTOUM 1702 Classified By: CDA Alberto M. Fernandez, for reasons 1.4 (b) and (d) ¶1. (C) Summary: On February 15 the Joint Committee on Oil Accounts announced that GOS oil revenues for December totaled $274.38 million, down from $347.79 million in November and $608.76 million in October as the global financial crisis sent oil prices plummeting. The price of the heavily acidic Dar blend has fallen so low that it may cease to be commercially viable, although rumors that production of Dar has stopped are untrue, according to oil industry sources. Production in December dipped slightly to 457,232 b/d, but Sudan's long term prospects appear more negative, as a forecast obtained by econoff (purported to be official) shows Sudan's oil production peaking in 2009 at 553,600 b/d and declining steadily thereafter all the way to 213,700 b/d in ¶2019. The sharpest decline is forecast to be in the production of the prized Nile Blend, which is predicted to fall below 100,000 b/d in 2013 and ultimately to 43,300 in ¶2019. Dar Blend is forecast to reach 300,00 b/d in 2010-11 and decline at a rate of about 25,000 b/d per year, falling to 105,000 in 2019. In other developments, a representative of Lundin, the only Western oil company currently active in Sudan, told econoff his firm is highly likely to exit Block 5B once the exploration period is over following successive negative drilling results. End Summary. ¶2. (SBU) On February 15 the Joint Committee on Oil Accounts announced that GOS oil revenues for December totaled $274.38 million, down from $347.79 million in November and $608.76 million in October as the global financial crisis sent oil prices plummeting. (Note: the average export price of Nile and Dar blend fell to $36.32 and $12.64, respectively, according to documents reviewed by econoff from the Ministry of Finance and National Economy. End Note.) The Government of National Unity (GNU) share of December revenues was $134.87 million, while the Government of South Sudan (GOSS) received $118.87 million. $16.87 million went to the Abyei Development Fund and the remainder was distributed among the oil producing states of Upper Nile, Unity, South Kordofan and Warrap, as well as allocations to the Ngok Dinka and Misseriya Arab tribes in Abyei and neighboring Kordofan. PRODUCTION TRENDS -------------- ¶3. (SBU) According to documents from the Ministry of Finance and National Economy, total oil production in December fell slightly to 457,232 b/d, compared to 496,953 b/d the previous month. Production in GNPOC's Blocks 1,2 and 4 has continued its slow decline from a one-time peak of 325,000 b/d to 188,406 b/d in December, while production from WNPOC's Block 5A and Petro-Energy's Block 6 were 20,538 b/d and 40,581 b/d, respectively. The majority of production continues to come from the Dar blend in Petrodar's Blocks 3 and 7, which in December produced 207,707 b/d. Production of Dar looks poised for an increase of about 30,000 b/d when the new Qamari field comes online in March, as announced by the director of exploration and the Ministry of Energy and Mining Azhari Abdullah in January. ¶4. (SBU) The plunge in oil prices, however, has recently threatened the viability of the Dar, which is heavily discounted--typically by between $20 and $30 to Dated Brent--because of its highly acidic content. In recent months, rumors were circulating in South Sudan that production of Dar had actually stopped (GOSS President Salva Kiir told CDA this on January 15). Several oil industry sources told econoff that this rumor was untrue, however. Norwegian Petroleum Envoy Anders Hannevik told econoff on February 8 that rumors Petrodar had stopped pumping Dar Blend were false, although he cautioned that "the price is so low that they might need to consider it." Others told econoff that halting production was not feasible from an operational perspective. Ahmed Jabralla, Technical Services Manager at White Nile Petroleum Operating Company (WNPOC) told econoff that the heavy crude would likely congeal in and clog the pipeline were it to stop flowing. "It would take a tremendous amount of money and effort to get it going again," he said. LONG TERM PROSPECTS -------------- ¶5. (C) Econoff obtained a document (sent to RAO via email) purported to be an official long-term production forecast for all of Sudan's oil producing blocks. (Note: econoff shared KHARTOUM 00000231 002 OF 002 the document with Norwegian Petroleum Envoy Hannevik, who said that while the document is dated, the figures shown were in the ballpark of the latest estimates. End Note.) The forecast shows Sudan's oil production peaking in 2009 at 553,600 b/d and declining steadily thereafter all the way to 213,700 b/d in 2019. The sharpest decline is forecast to be in the production of the prized Nile Blend, which is predicted to fall below 100,000 b/d in 2013 and ultimately, to 43,300 in 2019. Dar Blend is forecast to reach 300,00 b/d in 2010-11 and decline at a rate of about 25,000 b/d per year, falling to 105,000 in 2019. Production in Petro-Energy's Block 6 is forecast to increase from 40,000 b/d to 60,000 b/d in 2011 and remains unchanged after that, while production in WNPOC's Block 5A is forecasted to dwindle to a negligible 5,400 b/d in 2019. OTHER DEVELOPMENTS: BLOCKS 5B, 14 -------------- ¶6. (C) On February 10 econoff met with Dr. Alam Abdel Bagi, representative of Lundin Sudan BV, the only Western oil company currently active in Sudan. On February 5, Lundin announced it was selling its subsidiaries Lundin East Africa BV and Lundin Kenya BV (with concessions in Ethiopia, Kenya and Somalia) to Vancouver-based Africa Oil Corporation. Abdel Bagi told econoff that the Lundin family holds a stake in Africa Oil, and characterized the transaction as an "internal deal" to separate Lundin's speculative holdings from its productive ones in Europe. Lundin's stake in Sudan's Block 5B was not included in the transaction, he said, but noted that discussions were ongoing about what to do with the block when the exploration period ends. Following three unsuccessful drilling attempts (in addition to two failed attempts by the block's other operator, Ascom),Abdel Bagi said he thought it 90% likely that Lundin will pull out of Block 5B. ¶7. (C) Lundin still holds the right to Block 16 in the disputed Hala'ib triangle, but political tensions between Egypt and Sudan preclude any exploration attempts there for the foreseeable future, he said. Abdel Bagi also noted that he had recently returned from a trip to Block 14 on the border with Libya, where PetroSA of South Africa has carried out some promising seismic work. He said the block is now being marketed to a number of firms (hence his visit), although the PetroSA, the original concession holder, is trying to get it back. In attempt to do so, he said, they have obtained the backing of Shaher Abid Al Haq, a Yemeni businessman of somewhat dubious repute, COMMENT -------------- ¶8. (C) Plummeting prices and slowly declining production mean that Sudan's ability to depend on oil is waning, not just for the 2009 budget but for years to come. Khartoum has appeared to handle the current crisis better than Juba, which is almost 100 percent dependent on oil revenue transfers and seems intent on cobbling together loans rather than implementing much-needed fiscal austerity measures. Even if prices rebound, it remains Sudan's misfortune that a greater share of production is poised to come from the less desirable Dar blend, of which China remains the only buyer. Economic diversification is therefore a necessity; the North has made some progress toward this with agricultural schemes (though the profitability of these projects remains to be seen) but the South will have real trouble diversifying, given its almost non-existent infrastructure, as it is competing with well developed mechanized agricultural production in Kenya and Uganda. FERNANDEZ