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Multinational effort and tale of dedication

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The writer.

Turning Sudan into an oil exporter

When I first set foot in Khartoum in 1997, I was amazed at the beauty of the landscape. The most dramatic scene was watching the merging of the two rivers, the White Nile and the Blue Nile.

The contrast between the waters of the two major tributaries of the Nile is striking, a sight you will never forget. The Nile is not only the longest river in Africa, it has historically been considered the longest in the whole world, and also as the father of African rivers.

Ever since that first visit, I always have had a fascination with the Sudan, an amazing country.

The second thing I noted back then was the fact that the Sudan was the largest and most geographically diverse states in Africa. With a total area of 2.5 million square kilometres, Sudan was then more than one quarter the size of the United States (US).

The Sudan has a varied landscape comprising desert-savannah floodplain-swamp-rainforest terrain, and is drained by the Nile with her amazing tributaries which converge at Khartoum, and then flows northwards all the way to Egypt before emptying into the Mediterranean.

If you were a raindrop falling at the source of the Blue Nile at Lake Tana and flowing in the river till Khartoum you would have journeyed approximately 1,450 km through Ethiopia and Sudan.

From there to the Mediterranean Sea would take you another 5, 200 km. Along the way you would have intermingled with other raindrops and journeyed a long journey together. Only to start the journey all over again upon reaching the sea.

Sudan is an amazing country. The estimated 45.2 million people (2021) are even more varied than its terrain and landscape. The majority of the population live in the northern part called Sudan with the balance of estimated 11.4 million living in the South Sudan.

The population is divided into 19 major ethnic groups and some 600 subgroups who speak more than one hundred languages and dialects. By some projection, Sudan is estimated to reach 100 million people by 2064, a potential major country of the future.

Turning to the story of oil in Sudan, it took a lot of efforts and twists and turns to realise Sudan’s potential. The exploration for petroleum in Sudan began in the early 1960s focused mainly in the offshore areas in the Red Sea.

It was in 1974, coincidentally the year when Petronas was set up, that things started to move in earnest. The Sudanese government granted the Chevron Oil Company (US) large oil concessions in the southern part of Sudan.

It was Chevron who discovered and named the prolific Muglad and Melut basins in the south. Chevron drilled for and found oil near Bentiu town in 1978 in Block 1, Upper Nile province and discovered what became known as the “Unity” oilfield.

Chevron’s initial success was followed with the discovery of the Heglig field, in Block 2. But after spending some US$1 billion on exploration, Chevron was not able to recover it costs. This was because, just 10 years after starting activities in Sudan, Chevron was forced to suspend activities in southern Sudan in 1984 due to a rebel attack that killed three of their expatriate oil workers and because of other security concerns.

The instability and resulting unrests were not conducive to large scale investments. In 1989, a new Sudanese Islamist-military government took power, and it was determined to develop Sudan’s oil potential. Eventually, Chevron had to sell off its concession rights and exited the country.

After the US company left, the French came calling in the form of Total, which acquired various oil concessions around 1980. Total too were forced to suspend onshore exploration activities for security concerns.

Total however retained its rights, including to Block 5, which, at 120,000 square kilometres, is larger than the size of Blocks 1, 2, 4, 5A, and 5B combined, which turned out to be prolific oil producing areas in later years.

In 1993, the Canadian independent company Arakis Energy acquired the portion of Chevron’s concession north of Bentiu, namely Blocks 1, 2, and 4. In 1996, Arakis saw some limited success in bringing eight wells on stream in the Heglig field and trucking low levels of crude oil to a small refinery at El Obeid in Northern Kordofan for domestic consumption.

Although Arakis had been working proven oilfields in Sudan since 1992, by mid-1998 it had relatively little to show for it. One more victim of the tough and demanding environment in the Sudan. Up till this stage, the Sudanese oil industry remained in a backward and rudimentary form, producing only for local consumption.

The country still imported most of its petroleum needs. The dream of Sudan as being an oil exporter was still a mirage, the challenge to making it happen was too much for an independent oil company to carry.

It was only in 1996 that things took a turn for the better. In need of cash for its project, Arakis sold 75 percent of its interest to three other companies, with which it formed a consortium called the Greater Nile Petroleum Operating Corporation (GNPOC).

GNPOC comprised two major state-owned oil companies, namely the China National Petroleum Company (CNPC) and Petronas Carigali Overseas Sudan Berhad (PCOSB), a subsidiary of Petroliam Nasional Berhad, the national petroleum corporation of Malaysia and the newly incorporated Sudan state-owned oil enterprise Sudapet Limited.

CNPC, PCOSB and Sudapet would own 40 percent, 30 percent, and 5 percent of the project, respectively. The balance was held by Arakis as a non-operating partner.

With the combined strengths of CNPC and Petronas, they were able to put up project financing until mid-1998 before the project was able to generate its own cash flow.

My presence in Khartoum in 1997 was in my capacity as the Petronas lawyer to negotiate and finalise the terms of the EPSA (Exploration and Production Sharing Agreement) for Blocks 1, 2, and 4 in Sudan.

By 1998, the consortium was refreshed by the infusion of a new partner in the form of Canada’s largest independent oil and gas producer, Talisman Energy Inc who joined the consortium by acquiring Arakis and Arakis’ main asset, the Sudan project.

Through that acquisition, Talisman Energy joined the GNPOC consortium of CNPC, PCOSB and Sudapet Ltd. Arakis dropped out of the picture by being absorbed by Talisman.

One year after Talisman joined the group, the consortium boosted the development of the Heglig and Unity fields in Blocks 1 and 2, finished a 1,540-kilometer pipeline to the Red Sea, where a brand new marine terminal for oil super tankers was built for the export the first crude oil from Sudan.

This international consortium transformed Sudan from a net hydrocarbon importer into an exporter of crude oil and was believed at that time to be a potential member of the Organisation of Petroleum Exporting Countries (Opec), the cartel of oil-exporting countries.

In August 1999, the first oil for export earned the Sudanese government US$ 2.2 million. As the saying goes, the rest is history. Much more was to come. It is estimated that, over the life of the Heglig and Unity fields alone, the government of Sudan would have earned more than US$2 billion to $3 billion, depending on the international price of oil.

The success of the efforts in Sudan has benefited the country and put Sudan on the world map of energy producers. By 1999 reserves in Blocks 1 and 2 were discovered to be much larger than previously thought — 403.6 million barrels in 1998 and an increase to 528 million barrels in reserves in 1999.

In 2002, a breakthrough in exploration on Block 4 indicated that there might be an additional 160-240 million barrels of oil in the GNPOC concession. By April 2002, it was estimated that current proven plus probable ultimate recovery of the GNPOC concession would be one billion barrels of crude oil.

Therefore, from just 150,000 barrels per day of oil pumped by GNPOC in 1999 (annualised), production increased to 230,000 barrels per day (b/d) by year end 2001. Actual output for 2002 reached 240,000 b/d.

GNPOC’s successful production in Blocks 1 and 2 and the completion of pipeline facilities in GNPOC’s Blocks helped unlocked the true potential of the oil industry in the Sudan. Without the pipeline, the oilfields in Block 5A would have remained as Chevron left them, undeveloped. Sudan would be deprived of the revenue earned from its petroleum resources.

Petronas has remained faithful to the cause of realising the true potential of the Sudan in the oil industry, helping the country to harness its natural resources in the form of oil and gas deposits.

With the other equally committed players in the industry including companies like CNPC, Talisman, Sudapet, Chevron, OMV, Lundin, IPC, ONGC Videsh and others they have all joined hands like raindrops merging in the Nile making the long journey together to reach the Mediterranean, the sea of middle Earth.

The spirit and dedication behind all the efforts, financial resources, technology and man-hours expended to turn the Sudan from an oil importing country into a substantial oil exporter has been all worth it.

It’s like living up to the metaphor of the merging of the Blue and White Niles to form the mighty Nile River, the longest and certainly the most symbolic of rivers in the world.

Note: The writer was a Lawyer for Petronas in 1980s-2000s and was actively involved in the globalisation of Petronas’ business starting in 1990.

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