South Sudan Sees $2 Billion in Oil Investments as Only Start

(Bloomberg) -- Recent pledges of $2 billion in investment for South Sudan’s oil may be just the start, with the war-torn nation expecting further agreements in early 2019, its petroleum minister said.

Ezekiel Lul Gatkuoth’s prediction comes as the African nation’s warring sides prepare to form a power-sharing government in the latest bid to end five years of conflict. The country, home to sub-Saharan Africa’s third-largest crude reserves, is banking on the restoration of production facilities and increased output to fund an administration that’s expanding to include top rebel officials.

Last month, a South African government fund pledged to invest $1 billion in oil exploration and the building of a refinery. Petroliam Nasional Bhd of Malaysia has promised to put a further $300 million into its operations, while Oranto Petroleum International Ltd. of Nigeria has wagered $500 million on developing an oil block, and local firm Trinity Energy has pledged $350 million. Gatkuoth said Russian, Spanish and Emirati companies may soon join them.

“I would say early next year we would be having exploration, production and sharing agreements signed to have new players in the oil industry,” he said in an interview in the capital, Juba. “The narrative has changed from South Sudan being in war” to “South Sudan is coming back again.”

Oil and War

Oil, South Sudan’s almost-sole source of government income, has been an integral part of the conflict that may have claimed almost 400,000 lives and caused a regional refugee crisis since it erupted in December 2013. Production fell by at least a third during the war as insurgents targeted facilities, while a drop in global prices fed an economic crisis.

Under a peace deal between President Salva Kiir and rebel leader Riek Machar that was finalized in September, oil again has a leading role. The pact was part-brokered by Sudan, which is suffering from its own economic turmoil and gets vital revenue by exporting the landlocked south’s crude via its pipelines to the Red Sea.

“The peace deal makes the oil investments possible,” said Alex De Waal, executive director of the World Peace Foundation at Tufts University in Massachusetts. “The oil investments should then generate enough money to make the political-market share out of the benefits workable.”

Gatkuoth said South Sudan is targeting oil output of 200,000 barrels per day, from a current 155,000 barrels, after the restarting of the country’s northern Unity field in late December. With further investment, production will increase throughout the year, according to the minister, who said security forces will protect the oil installations and workers while investors will be given unspecified tax-grace periods.

Day and Night

If there’s peace and “you are not providing services to the people, people will be angry,” Gatkuoth said. “So for us we will work day and night for oil to be produced.”

Given the turmoil that’s roiled South Sudan for its seven years as an independent nation and previous problems with oil exploration, it’s unclear whether all the investment will come to fruition, according to Harry Verhoeven, a lecturer at the School of Foreign Service at Georgetown University in Qatar.

All the same, the peace deal “does seem to have increased the appetite of investors for the risky investment destination,” he said. “We’re still talking MoU’s, which are statements of intent, not actual investments, but potentially this could be pretty significant and could allow for much greater production levels and soaring income for the South Sudanese government.”

--With assistance from Paul Burkhardt.

To contact the reporter on this story: Okech Francis in Juba at fokech@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Michael Gunn, Paul Richardson

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