Juba - South Sudan hopes to sell several unexplored oil blocks for $1 billion in coming months, a finance official said, giving a potential lifeline for the African country's hobbled economy. South Sudan has been hit hard by its decision to turn off its oil wells in a row with neighbouring Sudan over export fees a year ago, a move that triggered a deep recession and a shortage of foreign exchange.
Officials have been scrambling to replace oil revenues which made up 98 percent of state income. South Sudan and Sudan agreed in September to resume oil flows, but have been unable to secure their disputed border, a precondition for Sudan to allow exports from the South through its territory.
The government has finalised the sale of several oil concessions worth between $200 million and $300 million each, Deputy Finance Minister Marial Awou Yol told Reuters in an interview, though he declined to identify the buyers or the location of the blocks.
An oil industry insider said at least one deal had been signed for $250 millions with a Nigerian company, without giving details. The money should arrive in the next couple of months, Yol added, easing a 2.7 billion South Sudanese pound (SPSS) budget deficit, or around $640 million based on black market prices.
“We have divided some areas into new blocks and assigned some blocks to be explored by three or four international state oil companies from Africa, eastern countries and the West,” he said. The oil ministry could not be reached immediately for comment.
One analyst said the deals, if signed, would probably involve future payments in the form of production-sharing agreements, under which the state would have the right to sell some of the output from successful wells.
“It's not implausible but it's not a deal until its signed,” said oil expert Jill Shankelman. “Typically nobody knows how much is paid for signature bonuses anyway. Most deals aren't public.”
South Sudan has previously said it intends to break up the vast Block B, which has been controlled by France's Total since 1980. Total suspended exploration in the block, located in Jonglei state, in 1985 because of escalating insecurity during the civil war.
An oil source told Reuters in September the government wants to bring in US firm Exxon Mobil and Kuwait's Kufpec to explore the block. Both companies have declined comment. Total has said it wants to resume exploration.
South Sudan has been stepping up oil exploration as existing fields were overpumped in the run-up to independence from Sudan in July 2011. The biggest challenges for any investor are a lack of mapping and data, as well as widespread tribal violence, especially in Jonglei state where much of Block B is.
Block B, covering half the size of Britain, potentially contains “important commercial quantities,” according to a study by the European Coalition on Oil in Sudan, an umbrella of non-governmental organisations.
South Sudan plans to build an alternative pipeline, either to Lamu port in Kenya or Djibouti via Ethiopia, but some analysts are sceptical as construction through rough and violent territory would be a major challenge.
On Tuesday, the government said it had signed a deal with German engineering firm ILF to conduct a feasibility study for both routes. Yol said Bank of South Sudan, the country's central bank, sold 1 billion SSP of treasury bills to domestic investors in the last quarter of 2012 to raise money for the government.
South Sudan's government also borrowed 350 million SSP from the central bank to help pay salaries in December, he said. South Sudan's economy contracted 54 percent in 2012, according to estimates by the International Monetary Fund, one of the largest economic shocks in history.
Yol also said the government was still in talks to secure oil-backed loans from China National Petroleum Corp (CNPC) and Malaysia's Petronas, South Sudan's main oil consortium partners.
“If we can get $1.5 to $2 billion (from oil block sales and loans) that can give us some breathing space,” Yol said.
Oil-backed loans could be risky for a new country with nascent legislation, said Dana Wilkins, analyst at transparency campaign group Global Witness.
It is important that the government publishes the terms of the loans so that people are aware of the obligations on their future oil production, she said. - Reuters