Oil in South: Rows over rights to explore and develop plays hit confidence - Blocking progress with acreage disputes

By Upstream staff <mailto:editorial@upstreamonline.com>
Subject: An excellent article in Upstream (hardcopy) of April 21st
describing the oil situation in South Sudan

Date: Fri, 28 Apr 2006 14:27:33 -0400

Resolution of the debacle surrounding the allocation of Block B by
successive regimes has been seen as the litmus test of the Government
of South Sudan's (Goss) ability to restore oil industry confidence.

Four companies appear to have signed separate deals at different times
purporting to secure exclusive rights to the same acreage and the
sabre-rattling has now reached fever pitch.

Goss Industry & Mines Minister, Albino Akol Akol, told a CWC conference in
Nairobi last month that he hoped the results of current talks on a
compromise deal would allay fears.

Total was awarded the block in 1982 for 20 years by Khartoum, but the
Sudan People's Liberation Movement/Sudan People's Liberation Army
(SPLM/SPLA) never recognized the North's jurisdiction and reallocated
it to White Nile before last year's Comprehensive Peace Agreement (CPA) came into force.

Total claimed force majeure in 1984 but has not formally reactivated
the license and has privately indicated that it has no desire to relinquish.

The French major re-signed the deal with Khartoum shortly before the
CPA took effect and has since been trying to bring Goss President Salva
Kiir on board.

Total and White Nile are locked in a battle over the title in a UK High
Court, which controversially accepted jurisdiction but deferred
judgment at its first hearing on 27 February.

That ruling is imminent and there are fears that a clear verdict would
encourage the parties to dig in and avoid a settlement.

Threatening both parties, including the Chinese National Petroleum
Company-operated PetroDar concession farther east in blocks 3 and 7 is
the South Sudan Defence Force (SSDF), the military arm of the South
Sudan United Democratic Alliance (SSUDA), which has undergone a
leadership reshuffle as internal factions opposed to the CPA regrouped.

The SSUDA signed away the South's mineral potential to a Hong Kong
investment vehicle, formerly Lexim Pillar and now dubbed the Jarch
Management Group (JMG), run by Saville Lau.

JMG also signed a deal to secure an expanded version of Block B and oil
acreage beyond.

JMG should not be confused with an associated but separate New
York-based investment vehicle, Jarch Capital, owned and chaired by Phil
Heilberg, which signed far-reaching oil and commodity concessions in
2004, just one year after clinching its own exploration rights to Block B.

The block's ethnic mix presents a microcosm of the potential for
conflict in the wider South and presents a challenge to the companies
and diverse political factions vying for ascendancy.

The Dinka tribe dominate swathes of blocks Ba and Bb, with Nuer
pocketed throughout and minority Murle settlements in the east.

The less numerous Shilluk and the Azande, South Sudan's third largest
ethnic group, are also in evidence to the east along with smaller

These tend to get caught up in the political machinations of the Dinka,
who dominate the Goss, and the Nuer, who are identified with the
heavily armed SSUDA/ SSDF, which dallied with the Khartoum government
in the final years of the civil war.

Talks over pipeline rights of way between the SSDF and Khartoum's
Energy Minister Angelina Teny, former SSDF leader Riek Machar Teny's
first wife broke down in February, prompting Jarch to baulk at the
apparent "violation of representations and warranties" issued by the
SPLA/ SPLM to guarantee the safety of its operations.

Heilberg claims key figures in the SPLA and SPLM knew of and backed his
deal, including the late Colonel John Garang and his wife Rebecca,
currently the South's Minister of Transport, along with White Nile
board member Lual Deng, who is also Minister of Finance in Khartoum's
Government of National Unity (GNU) and Goss vice president Riek Machar.

SSDF vice president David de Chand says failure to allow the Jarch
deal, including the specific exploration license awarded in February,
to move forward would lead to armed defense "of the rights of the Nuer
nation in the great oil and gas fields of the Great Upper Nile region",
which it claims to control.

De Chand says the SSDF is discussing a full declaration of independence
in the territory it claims. "We've told the SPLA/ SPLM to keep off our
oilfields and any breach could provoke a bad situation such as we have
seen in the Niger Delta," he says.

Meanwhile, only JMG and Jarch is authorized to enter talks with
investors, and plans to carry out exploration and production activity
around Nasir, in Akobo and near Ayod are already advanced, says de Chand.

Heilberg says Jarch Capital is currently exploring legal action against
Goss its contract is governed by the laws of New York State and will
demand $10 billion in damages, of which 10% would be donated to the
people of South Sudan.

With strong local connections, White Nile is forging ahead. Its chief
operations officer Phil Ward is married to the late Garang's niece. The
company has been at pains to repudiate de Chand's claim that it is an
investment vehicle for the Garang family and a means for the SPLM to
tap oil revenue, irrespective of the party's fortunes in future elections.


Threats of civil war keep African nation on edge and ratchet up
nervousness in the region's oil sector: Sudan feeling rising tension

by Barry Morgan

EFFORTS by the Sudan People's Liberation Army (SPLA) to disarm rival militia in the Jonglei province escalated last week in the wake of claims by the South Sudan United Defence Alliance (SSUDA) that its military wing, the South Sudan Defence Force (SSDF), aimed to clear all "foreign elements" out of the oil patch.

The renewed instability in South Sudan could spread throughout the Horn
of Africa and worsen the already deteriorating security situation in
Darfur, Chad and the Central African Republic.

All exploration and production is jeopardized if the SSDF really means
to trigger a "bloody civil war similar to Angola in the aftermath of
independence from Portugal". But how real is this threat?

Under the so-called Comprehensive Peace Agreement signed nine months
ago to halt Africa's longest-running civil conflict, the ethnic
Dinka-dominated SPLA, on behalf of the Juba-based Government of South
Sudan, undertook to disarm all militia, notably the Nuer-dominated SSDF
from sensitive positions around the oilfields. However, since then serious fighting has broken out between the erstwhile allies.

The local SSDF militia Jiesh in Boor this week claimed it had taken four towns in the Greater Upper Nile, including Poktab, where the SPLA is headquartered, and that it had routed Juba's forces in Nasir, Ulang and Central Upper Nile provinces.

The groups specifically blame United Nations special envoy Jan Pronk and special advisor Francis Deng for pushing them to the brink of war. Some argue all the sabre-rattling amounts to little more than factional repositioning before a referendum on independence and that a deal can still be done. At stake is tribal influence in the political regime emerging to handle the south's affairs and the consequent allocation of oil revenues.

The propaganda battle is now intensifying on all sides, raising fears for new oil investment and the harassment of companies not contracted to the SSDF.

UK explorer White Nile is preparing to carry out seismic on Block Ba, an area also claimed by US investor Jarch Capital and Hong Kong-based Jarch Management Group, backed by the SSDF.

Jarch Capital chairman Phil Heilberg is "doubtful that White Nile will be conducting any activity since the area is now controlled by the SSDF."
However, White Nile's chief operations officer Phil Ward said this cannot be true. "The disarmament process has not impacted our block at all, although there have been problems in Duk, farther north."

Moldovan minnow Ascom, which operates nearby Block 5b south of Ayot,
had to evacuate its base camp for one day last week but said personnel
have returned. Both Ascom and White Nile plan to sink debut wells this year.

SSUDA deputy president David de Chand said war is certain if Khartoum
does not stop transferring 50% of "our oil revenue to the tribal government in Juba" and if the international community fails to suspend payment of $4.5 billion pledged in aid to the government of South Sudan.

De Chand blames US development agency USAID for marginalising Nuer groups and camouflaging what he alleges is the "genocidal and ethnic cleansing" policy of the SPLA, warning it to evacuate Malakal, the capital of Upper Nile, "before it is too late".

With the situation in Darfur fast deteriorating and South Sudan peace agreement sponsors Norway, Italy, the US and UK up to their necks in a
strategy that has singularly failed to deliver the peace, observers wonder if decisive UN intervention, canvassed by some elements within the SPLA, is feasible or even desirable.

Practically all the region's conflicts are rooted in inadequate recognition of tribal sensitivities and historic title to land and resources. As recent events clearly demonstrate, such nationalistic sentiments can neither be ignored nor entirely suppressed.

Simply shoring up the writ of preferred power elites to achieve a cosmetic consensus will leave core grievances without redress, embittering future generations.

The international community claims to be investing in peace. Swayed by
the realpolitik of oil, the emphasis has traditionally been on holding the fort while papering over cracks in a post-colonial settlement that should have been dismantled at the first opportunity.

Already, the SSDF is murmuring the same mantras on confederal self-determination and community resource control as uttered elsewhere on the continent, in Chad and the Niger Delta.

A more confederal system that devolves power and revenue where possible
will have a better chance of securing broader support and encouraging
stability in the south. Surely such a different approach is worth





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