South Sudan oil outlook hinges on shaky peace deal, WoodMac says

JOHANNESBURG (Bloomberg) -- South Sudan’s optimism about restoring oil output to 350,000 bpd depends on the success of a recent peace deal and both are unlikely, according to Wood Mackenzie Ltd.

Crude production fell by about two-thirds to 130,000 bpd as blocks were shut-in during a conflict that erupted in late 2013, after a dispute between President Salva Kiir and his former deputy, Riek Machar. The two sides agreed in August to end fighting that claimed tens of thousands of lives.

“We think that the power-sharing accord agreed in August is unlikely to lead to long-term political stability,” Aislinn Clarke, a WoodMac research analyst for sub-Saharan Africa, said in a report. “We do not see a return to pre-2011 production levels without a more realistic and concrete peace deal between the government and rebels.”

The full extent of damage to field infrastructure as a result of the conflict is unknown, as well as the performance of reservoirs that were closed, she said. China National Petroleum Corp., Oil & Natural Gas Corp. of India and Petronas Bhd of Malaysia are the main operators of South Sudan’s oil blocks.

Cash flow

Two of South Sudan’s production areas yield Nile Blend, a light, sweet crude that could meet demand from Indian and European refiners as Iranian volumes decline. The government, which said last year it wants to restore output to 350,000 bpd, began restoring production in August.

WoodMac expects South Sudan production to increase to more than 170,000 bpd by 2020. Production could reach 230,000 bpd in the same period if a lasting peace is sustained, generating more than $3 billion of revenue for the government, it said.

“After five years of war, both sides are in desperate need of funds and know that oil production is the only way to claw some of this back,” Clarke wrote in the report. “Hard cash flow may be a motivation for peace, but with oil flowing again it could just as easily become an enabler for further conflict.”