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Sudan, South Sudan sign deal to resume oil output from key fields

Highlights

15,000 b/d from Block 5A to come online soon

Two neighbours agree oil cooperation terms

Details agreed on domestic use of South Sudan's crudes

Kampala — Sudan and South Sudan have agreed a draft deal to develop oil cooperation, which includes resuming production from key oil fields, Sudan's ministry of Energy and Minerals said in a statement Sept. 28.

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Under the agreement, production at the Unity and Toma South fields will be prioritized, with 15,000 b/d from Block 5A expected to come online very soon.

Land-locked South Sudan relies on Sudan to export its crude in a pipeline via Khartoum to the Red Sea.

Both the countries, which depend heavily on oil revenues have seen their economies devastated by the coronavirus pandemic, which wrought havoc on oil prices and demand.

Sudan will also help in providing technical support for Blocks 3 and 7 in its southern neighbor.

Sudan domestic use

The deal includes details on the transfer off crude from South Sudan to Sudan for its own domestic use.

Sudan is a key consumer of South Sudanese crude. This crude is processed at the 120,000 b/d Khartoum refinery and it is also used at Sudan's Um-Dabakir thermal power plant, located in Kosti.

Around 30,000 b/d of South Sudanese crude goes to its northern neighbour for its direct use, according to S&P Global Platts estimates. Of this around 10,000 b/d goes to the Khartoum refinery, while the rest goes to the power plant in Kosti.

South Sudan's crude production has averaged 150,000 b/d so far this year, according to estimates by Platts.

South Sudan used to produce 350,000 b/d before the civil war broke out in 2013 but it destroyed most of the oilfields. Since 2018 the country has been trying to reopen the destroyed fields in the hope of returning to pre-war levels of production.

South Sudan is also a member of the OPEC+ coalition, which is currently in the midst of a 7.6 million b/d production cut deal.

South Sudan had committed to cut output to 100,000 b/d for May, June and July, while for August onward, it agreed to produce 106,000 b/d from its reference level of 130,000 b/d

Fees to Sudan

South Sudan also agreed to open a state coordination office for Sudan in Juba to the help oil companies and provide the necessary facilities for the flow of oil equipment in a bid to enhance production.

South Sudan pays Sudan four fees or tariffs for every barrel produced. This includes a transportation fee, a processing fee, a transit fee and the non-commercial tariff which is part of a transitional financial arrangement (TFA).

South Sudan hopes to complete payments to its neighbor under the TFA by 2021, Daniel Chuang, the undersecretary at South Sudan's ministry of petroleum, told S&P Global Platts in an interview in July.

Under the TFA, South Sudan pays Khartoum a tariff of $24.1/b for Dar Blend and $26/b for Nile Blend.

The bulk of this (around $15/b) covers the cost of debt repayment shared by the two nations and the remaining covers transportation of crude to Sudan's largest port, Port Sudan which makes the current production unprofitable.