The South African government on Monday signed an oil production agreement with South Sudan, signalling intent to pump money into Juba’s nascent petroleum industry that has almost stalled over conflict.
The deal known as the Exploration and Production Sharing Agreement (EPSA) will see Pretoria’s state-owned Strategic Fuel Fund (SFF) granted permission to explore oil in an area known as Block B2, which is in the wide oilfields of the Muglad basin that straddles both Sudan and South Sudan.
The exploration is to take about six years and SFF will enter a joint venture with local petro company Nilepet for aerial exploration, seismic tests as well as drill wells when oil is found.
Last year, South Africa’s Department of Energy pledged to invest $1 billion into South Sudan’s petroleum industry, with the aim of securing affordable energy supplies for South Africa.
The countries are now in talks to set up a 60,000 barrel per day refinery to supply oil products to the local market in South Sudan, as well as to secure exports to Ethiopia and other neighbouring countries.
The B2 area includes productive parts of the Muglad Basin and is part of the 120,000 kilometre square block Block B which was split into three in 2012.
There has been much interest in South Sudan’s Block B acreages since the entry of Oranto Petroleum to Block B3 in 2017.
Much of South Sudan’s oil and gas blocks are yet to be fully explored and resources assessed.
South Sudan has the third-largest oil reserves in sub-Saharan Africa, estimated at 3.5 billion barrels, with just 30 percent of the country explored.
The deal, coming at a time South Sudan is facing uncertainty over the transitional government of national unity, protected the social pillars of oil production.
The South African firm will be required to train local people for oil production and management, give back to hosting communities and ensure local women benefit from their work.
A dispatch from Juba issued after the signing ceremony celebrated the agreement as one way to foster stability for a country that hasn’t known peace since independence in July 2011.
“We expect to discover more oil and help us boost our economy,” said Petroleum Minister Ezekiel Lol Gatkuoth who signed the agreement with South Africa's Energy Minister Jeff Radebe.
“The SFF’s commitment can help us raise production levels which have fallen recently.”
South Sudan’s oil production peaked to 350,000 barrels per day but dipped to under 150,000 as conflict forced producers to abandon wells.
Mr Radebe said the deal would strengthen energy security for South Africa.
“We are bullish about this strategic opportunity into Block B2. It provides South Africa with a chance to further strengthen its energy security while entering one of the top three most lucrative onshore oil and gas markets in Africa. Investment is key to guaranteeing the economic progress of South Sudan,” Mr. Rabede said
As officials prepare for a transitional government, the local Petroleum ministry says it expects the production to rise from 270,000 barrels per day.
The products are often exported in crude form through the pipeline to Sudan.
According to the deal’s legal advisors Centurion, the arrangement means South Sudan could be involved in exploring more oil fields.
“The potential discoveries can be quickly and cheaply tied into existing infrastructure,” said NJ Ayuk, CEO of Centurion Law Group.
“South Sudan’s ability to attract, retain, and leverage energy investment is key for an inclusive and sustainable economic growth,” Mr Ayuk, also Executive Chairman of continental lobby African Energy Chamber said in a dispatch on Monday.