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Cablegate: Oil Executives Doubt Minister's Claim of 2009

VZCZCXRO8052
PP RUEHBC RUEHBZ RUEHDE RUEHDU RUEHGI RUEHJO RUEHKUK RUEHMA RUEHMR
RUEHPA RUEHRN RUEHROV RUEHTRO
DE RUEHKH #1702/01 3291354
ZNR UUUUU ZZH
P 241354Z NOV 08
FM AMEMBASSY KHARTOUM
TO RUEHC/SECSTATE WASHDC PRIORITY 2390
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNFUR/DARFUR COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE

UNCLAS SECTION 01 OF 02 KHARTOUM 001702

SENSITIVE
SIPDIS

DEPT FOR AF A/S FRAZER, S/E WILLIAMSON, AF/SPG, EEB/ESC/ENR
NSC FOR PITTMAN AND HUDSON
ADDIS ABABA ALSO FOR USAU

E.O. 12958: N/A
TAGS: PGOV PREL ECON ENRG EFIN ASEC KPKO UN AU SU
SUBJECT: OIL EXECUTIVES DOUBT MINISTER'S CLAIM OF 2009
PRODUCTION INCREASE

REF: A. KHARTOUM 1653
B. KHARTOUM 1232

1. (SBU) Summary: In meetings from November 18-20, oil
industry executives told econoff they were doubtful that
Sudan could boost oil production from 500,000 to 600,000
barrels per day in 2009, as claimed recently by Minister of
Energy and Mining Zubeir Al Hassan. While increasing
production in Petrodar's Blocks 3 and 7 might help offset the
serious decline in GNPOC's Blocks 1, 2 and 4, output in
Sudan's other producing blocks remains meager, and there are
no new fields coming online, they said. Representatives of
the WNPOC consortium with the rights to Block 5B in Jonglei
state noted that the prospects for oil discovery there have
diminished significantly after their third attempt to drill
for oil failed. This was in addition to two failed attempts
by the block's other operator, Ascom. The oil executives
said that, on the whole, oil exploration in Sudan remains
inadequate because current players lack the ability or
incentive to invest the sums required (due to both
profitability and security concerns,) a trend that looks set
to continue with the falling price of oil and the recent
abduction and subsequent slaying of Chinese oil workers
(reftel A.) End Summary.

2. (SBU) From November 18-20 econoff met with executives from
several oil firms, including Dr. Yousif Mohamed Ahmed,
President of the Sudapet-affiliated Star Oil Operating
Company and former Vice President at Greater Nile Petroleum
Operating Company (GNPOC); Dr. Alam Al Bagi, Representative
of Lundin Sudan BV; and Ahmed Fadul Jabralla, Technical
Services Manager for White Nile Petroleum Operating Company
(WNPOC).

3. (SBU) Oil industry executives reported that production in
the aging fields in Blocks 1, 2 and 4 producing the preferred
Nile Blend has fallen below 200,000 b/d, from a one time high
of over 325,000 b/d. They attributed this rapid decline to
the failure of GNPOC, the blocks' operator, to undertake the
planning and assessment necessary to optimize the fields'
recovery rate. "These are all national oil companies," said
WNPOC's Ahmed Jabralla. "They don't invest in research and
development like Western firms do." (Note: GNPOC is a
consortium of China's CNPC, Malaysia's Petronas, India's ONGC
Videsh and Sudapet. End Note.) Dr. Al Badi of Lundin added
that while Eastern oil firms were bridging the technology gap
with their Western counterparts, they still lacked
sophistication in reservoir management, planning and
simulation for the optimization of production. He estimated
that Blocks 1,2 and 4 were now pumping 75% water and 25% oil,
a trend which would be very difficult to slow down without
significant investment, which he said was not forthcoming.

4. (SBU) While production in Blocks 1, 2 and 4 is declining,
the oil executives reported that it is increasing in Blocks 3
and 7 operated by Petrodar, a consortium led by China's CNPC
and Malaysia's Petronas. (Note: Blocks 3 and 7 produce the
Dar Blend, which has a higher acidic content and is less
attractive to refiners than Nile Blend. End Note.) Petrodar
is currently pumping around 200,000 b/d, but "they are adding
reserves on an annual basis," said Ahmed Jubralla, who
estimated that production could eventually increase to
300,000 b/d.

5. (SBU) The output in Sudan's other producing oil blocks
remains relatively meager. Block 6 in South Kordofan is
estimated to be producing somewhere between 30,000 to 60,000
b/d, according to the oil executives. Dr. Ahmed of Star Oil,
which is active in the area, noted that insecurity is
becoming prohibitive in the exploration and development of
oil fields in this region, especially in the wake of the
kidnapping and subsequent slaying of several Chinese oil
workers in October 2008 (Ref A). "Only ten percent of
(neighboring) Block 17 is secure," he said. "The government
doesn't respond to our requests for protection."

6. (SBU) Meanwhile, in Block 5A in Unity State, a WNPOC
consortium led by Petronas, is producing approximately 25,000
to 30,000 b/d, but is facing difficulties transporting the
crude out of the block. WNPOC's Ahmed Jubralla explained that
while the consortium built a 170 kilometer pipeline to link
it to GNPOC's pipeline, the quality of the crude produced in
5A is inferior to GNPOC's Nile Blend and GNPOC consequently
has limited WNPOC to just 10 percent of its pipeline

KHARTOUM 00001702 002 OF 002


capacity. "This is an ongoing issue for us because it limits
the marketability of our product," he said. WNPOC is
examining the possibility of tying into Petrodar's pipeline
in Blocks 3 and 7 and has even considered trucking the crude,
he said, but the latter was abandoned due to concerns about
infrastructure and security.

7. (SBU) In Block 5B in Jonglei state, a variant WNPOC
consortium including Sweden's Lundin has seen its third
attempt to drill for oil there result in yet another dry
well. This in addition to two other dry wells dug by Ascom,
the Moldovan operator engaged in a long-running dispute with
WNPOC over rights to the Block. (Note: Ascom is currently in
the process of drilling a third well. End Note.) While
Lundin's Dr. Al Bagi downplayed the negative findings by
saying that "five or six dry wells in an area totaling over
20,000 square kilometers means nothing," WNPOC's Jubralla was
more circumspect. After the failed drilling attempts, "the
block's potential has obviously been downgraded," he said.
"There's still a possibility to find oil in 5B, but it's not
going to be huge."

8. (SBU) Queried by econoff about the prospects for
discovering oil in Block 12A in North Darfur (Ref B), the oil
executives downplayed its significance. Dr. Al Bagi noted
that while oil firms in northwestern Sudan were carrying out
some small-scale seismic work, "geologically, one cannot
expect huge discoveries there." Ahmed Jubralla added that "in
order to conduct adequate exploration up there you need big
money," and the operators of the block "simply don't have
it." (Note: The rights to Block 12A in North Darfur is held
by a consortium of smaller oil firms including Qahtani, Ansan
Sudapet, Dindir Petroleum, Hi Tech and A.A. Inv. The
operators of 12A reportedly signed a memorandum of
understanding with South Africa's PetroSA, who occupies
neighboring Block 14, earlier this year to swap seismic
contracts and share information. End Note).

9. (SBU) Comment: Sudan cannot boost production in any
significant way without new investment in exploration and
development. But the falling price of oil, combined with
rampant insecurity in some important oil producing areas and
an uncertain political future, are likely to preclude such
investment for the time being. This will have a major
negative impact on the economies of both North and South
Sudan, and on the solvency of both the GNU and the GOSS.
Neither government is likely to cut back on defense spending
(at least for arms), so we can expect problems with civil
servant and possibly military salary payments, as well as
transfers to regional governments, while Khartoum and Juba
attempt to address their top priorities. This could have a
significant negative impact on the stability of both
governments, especially the GOSS, as it is almost 100 percent
reliant on oil revenue transfers. Plunging oil revenues, an
arms race, and political instability and rivalries between
the NCP and SPLM (and by factions within each party) could
prove to be a toxic brew for Sudan in 2009. Septel will
report on the anticipated 2009 GNU budget, due to be
examined by Parliament in the coming weeks.
FERNANDEZ

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