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The Sudan on Edge

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The Two Sudans Collide Again Because of Oil

April 17th 2012

Sudan oil

News that forces of the nascent Government of South Sudan have occupied the Heglig Oil Field operated by the Government of the Sudan in its South Kordofan region is but the most recent chapter in a sad history that stretches back for more than a quarter-century.

Approached rationally, the distribution of oil wealth might have worked miracles in uniting the two Sudans whose fissiparous political and cultural tendencies were quite apparent even prior to its achieving independence in 1956.  Predictably, the Sudanese Muslim majority that held power in Khartoum reacted selfishly, assuming a proprietary interest in the resource and giving short shrift to Southern claims.

Jaafar Numayri, President of the Sudan from 1969-1985, dealt the oil card to create divisions among Sudan's southern politicians, and in doing so he also expanded the growing breech between North and South. For most Muslims of the North, especially the politically powerful riverine Arabs, an impoverished Southern Sudan -- which comprised Bahr al-Ghazal, Upper Nile and Equatoria provinces -- really wasn't worth bothering about. Sudan had already suffered through one civil war (1955-1972), and the battle to maintain national cohesiveness was expensive; it would not have been worth the effort had it not been for the fact that had they been allowed to secede the Southern provinces could then tap the Upper Nile water resource which was crucial to Sudan and Egypt.

Beginning in the nineteen seventies the Chevron Oil company spent nearly $1 billion to define its holdings; thereafter, Chevron and other oil companies would expend another $1 billion in exploration and development. The Sudan oil scene attracted strange corporations and a passel of incredible characters as slick as the crude oil they pursued. Wheeler dealers who have played a card include the formerly rich and famous like Adnan Kasshoggi and Rowland "Tiny" Roland, and others not so famous but who had their moment in the sun and then disappeared into the shadows of time.

Unfortunately for the history of the Sudan, Chevron's initial strikes occurred in southern Sudan. Their first was made at a site located north of Bentiu, and Bentiu just happened to be located in Upper Nile region, one of the three provinces of the Southern Sudan whose boundaries were determined in 1972 following a decade of civil war. Nearby, in Northern Sudan, the Chevron drilling program at Abu Gabra and Sharaf in the South Kordofan region -- whose location appertained to the North -- was not as fortunate. Even though it drilled 28 wells Chevron discovered only small traces of oil in the northern sector of the so-called "Baqqara basin". In 1990 it would finally relinquish a 60,000 sq. kilometer section of the Basin's Muglad block that included the Abu Gabra and Sharaf sites.

North of Bentiu, Chevron next devoted energy to the development of its Unity/Talih field, and it spudded a score of appraisal wells. In doing so, it began to explore in and around Heglig, a site located 50 kilometers north of the Unity find. Exploratory work began there in 1979 and the very promising Heglig #1 discovery well was spudded in 1982. Following that success seven of eight wells drilled showed promise and Heglig #1 and "other small size accumulations around the main structure" were considered even more promising than the Unity find. The Unity field was then delineated and a score of appraisal wells were spud.

Even then it was impossible to discern from the limited information that the government and Chevron made available if the Heglig find was located in Upper Nile region, Southern Sudan, or actually was found in Abyei District, South Kordofan. Abyei had been an extremely contentious site ever since the end of the Civil War, and in the 1972 Peace Agreement that followed the District was to hold a plebiscite to decide whether to join the North or South. Numayri never held the plebiscite, and the territorial issue has been allowed to fester to this date.

From the beginning, it was always possible that the Heglig oil field overlapped the boundary that was agreed to in the 1972 Peace Agreement that ended the first civil war between North and South. Unfortunately, the oilfields would very soon play an important part in setting North and South at each other's throats.

When the second civil war erupted between North and South in 1983, it was assumed that the field Chevron had discovered around Bentiu undeniably belonged to the South. However, farther to the north, the Muglad Block was centered on a South Kordofan village inhabited by Arab Misseriya (a cattle nomad tribe) who ranged their cattle from the northern margin of the flowing savannah that stretched from Muglad south to the Bahr al-Arab River. In modern terminology, Muglad is located within a "transition zone" that straddles northern (Arab) and southern (African) Sudan. It was the meeting place and mixing ground of Arabs and Nilotes that was located between the dry Sahilian zone to the north and the seasonally inundated Bahr al-Arab River lands to the south. Muglad itself was a "Northern" village historically renowned for its warrior Arabs. They had led the attack on Southern villages during the 19th century when slaving expeditions depopulated the Dinka and Nuer villages located south of the Bahr al-Arab River.

Under the twentieth century Anglo-Egyptian Condominium slaving was halted, and Baqqara Arabs like the Humr Misseriya of Muglad were partially sedentarized. Their seasonal cattle migrations were strictly regulated and the possibility of conflict with the Nilotes to the South was greatly reduced. But old enmities died hard. And they were revived with a vengeance following the independence of the Sudan in 1950.

To the east of Muglad and Bentiu, and 650 kilometers south of Khartoum, Chevron next had luck at its Melut concession. While testing a large faulted anticline in 1982 it discovered good oil traces at wells located just east of the Upper Nile River and south of Melut town. (The find was located in Upper Nile province and clearly in southern Sudan.) It seemed that the time was at hand for both Chevron and the Government to reap the benefits from not one but three fields. Chevron had spent a considerable fortune in its search for oil and it seemed poised to quickly recover its investment.

Then the second civil war intervened, and no place along the border between North and South seemed safe. Eventually, tired of the internecine fighting that actually was initiated at Bentiu village, and faced with kidnappings of its personnel and the prospect of a civil war without end, Chevron decided to relinquish its concession. When it departed the Sudan only a few thousand barrels of oil had been lifted; still, a huge pool of oil -- estimated by some to be in excess of two billion barrels of crude -- awaited the completion of oilfield infrastructure and the construction of a pipeline to the Red Sea.

As the second civil war pitting north and south wended its ugly way from 1983 through 1989, and the whole of Southern Sudan became a battlefield, Sudanese took cold comfort in the belief that their country was potentially the richest in the Horn of Africa. The fact that the nation had difficulty achieving self-sufficiency in essential commodities was a reality hard to tolerate; but in the north it was assumed that all problems would be resolved if only oil production could be initiated. A bright future was promised by the military leadership that lead the Islamist revolution of 30 June 1989 and expelled a civilian government that was seeking peace with the South. The Islamist and riverain Arab government was determined to continue the war against the south, but it decided to reinvigorate the search for petroleum in the former Chevron concession. In June 1992 Chevron refused to invest further in Sudan and was reported to have sold its production and exploration rights to its 42 million acre concession for $125 million. The purchasers were a Sudanese business group with ties to Hassan al-Turabi and to the Muslim Brotherhood. With Chevron finally out of the way, the Islamist government approved the sub-division of the former Chevron concession into smaller exploration blocks.

With one of the world's oil giants out of the picture it was left to the State Petroleum Corporation of Canada to demonstrate an interest in reviving work in the Heglig field. State Petroleum itself was a midget among oil midgets. Lutfur Rahman Khan, founder and Chairman of the Board and Chief Executive Officer was a little-known Pakistani whose associates were known to have a Muslim Brotherhood background. He had founded State Petroleum in Canada in November 1991. Soon after, Khan and his negotiating team contacted Turabi in Khartoum, and together they sold the Sudan Petroleum Affairs Board on the proposition that State Petroleum could finance operations in the Heglig concession area. State also agreed to sign a production-sharing contract that seemed to be of particular interest to government officials.

Thus, on 29 August 1993 the miniscule Canadian-based oil company miraculously secured a 12.2 million acre concession for the development of the Greater Heglig, Unity, and Kaikang fields in Chevron's former Block 5A. State Petroleum Corporation thus assumed control over 34 wells capable of production in two distinct oilfields, and State was expected to build on an estimated 300 million barrels of recoverable reserves. (Most importantly, State assumed possession of Chevron's impressive seismic database.) State would received 70% of production revenues until its initial investment was recouped. Thereafter, revenues would be evenly split between the company and the Government.

State, which had little expertise in large-scale oil field development could have turned to one of the larger oil giants for support. Forced to raise money if it were to explore and exploit the Muglad Basin field, State turned to the virtually unknown Arakis Energy Corporation of Canada for help in financing the Sudan project. Arakis had no "downstream" marketing or "upstream" refining capability. Most importantly, it had no operational oil field and thus had no real "bottom line". Traditionally, Arakis stockholders had little more than hope to hold on to. The original State-Arakis tie was mysterious to begin with until it was learned that the wealthy Lundin family of Sweden held a minority interest (8%) in Arakis. The Lundins were shrewd and frugal businessmen who played the petroleum field expertly.

The Arakis play did not last long, although it was responsible for the drilling of successful wells in the Heglig play. The El Toor 62a discovery well located some 40 kilometers southeast of the Greater Heglig oilfield at the eastern edge of the Muglad Basin, from which it was expected that 72 million barrels could be recovered, opened new possibilities. It also brought the company very close to the boundary between North and South Sudan.

Arakis simply could not obtain the capital needed to do the drilling demanded by the Khartoum government. Private oil companies were very hesitant to invest in the Sudan, especially in a region along the "transition zone" where security at the oil field itself could only be maintained by the presence of a large government military force. When the Arakis effort to involve Saudi money failed, the jig was up. In August 1996 Khartoum announced that the government had signed an exploration and development agreement with Qatar Petroleum Company to develop oil fields in Upper Nile. And once Qatar was in, the state-run oil companies of Malaysia and China would soon follow. Others that sought to use their friendship with the military government in power included Russia, Iran, and India.

By early 1997 the direction to be taken by Khartoum to implement its petroleum policy was clear. A $1 billion Sino-Malaysia-Canada agreement had helped bankroll a nearly bankrupt state, and it promised to more than double its hard currency reserves by 2000. It would also provide the funds Khartoum needed to continue its increasingly expensive war with the South.

In response, faced by the growing petroleum menace the Southern Sudanese rebels advanced into the North's Eastern province in a forlorn effort to block the 1,000 mile pipeline under construction from the oil fields to Port Sudan. The pipeline itself was expected to service an initial output of 150,000 barrels per day by 2000. At that rate, the Al-Muglad concession itself would reach annual revenues of US$1 billion, or about one-tenth of Sudan's GDP. Then, as reports of new finds filtered into Khartoum, it seemed there was no limit to the benefits that the North would accrue. Indeed, since 2000, there have been even more discoveries. Today, the Sudan may not be one of the world's major exporters, but its resource does impact greatly the domestic economy, and the export itself is of significance, especially to China.

A cursory examination of oilfield maps, and attempts to locate the recent Southern Sudan "incursion" indicate that a true evaluation of the event must await more precise information. However, existing petroleum maps indicate that the Mugland field resource belongs to the North and the Bentiu field to the South.

Clearly, following the creation of Southern Sudan, the youthful nation was expected to benefit from its major resource, the Bentiu field, and its connection to the Red Sea pipeline. Likewise, the Melut field located to the east, and which has a spur that connects to the pipeline, is also found within the South. Thus, this unexpected "invasion" of what the North considers its only major producing oil field threatens the tenuous peace that presently exists between North and South. Searching for a rationale that would explain the action, it seems to be found in the South's belief that the funds derived from petroleum exports that must pass through Port Sudan have not been divided correctly (or honestly). Believing it has been shortchanged, the South had already begun to consider the construction of an alternative pipeline whose resource would cross Uganda and be exported from Kenya.

How this present situation plays out is now anyone's guess, but given the tragic history of the Sudan, this situation cries out for international arbitration. Immediately.

J. Millard Burr, a Fellow at the Economic Warfare Institute, authored with Robert Collins, Alms for Jihad, Revolutionary Sudan and many other publications, and is a former State Department official. This article is adapted from Economic Warfare Institute.

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