CNPC Braces for Change in Sudan's Oil Fields

A recent referendum in Southern Sudan laid the foundation for a new nation and officially ended a 50-year civil war. But it also left major oil companies with assets in the region, including China National Petroleum Corp. (CNPC), in a state of uncertainty.

That's because Southern Sudan, whose independence from its northern parent Sudan is slated to be officially declared July 9, is home to most of the splitting nation's oil reserves, while most oil refineries and shipping facilities are located in the north.

Foreign oil companies operating for years in Sudan, including CNPC, soon will have to sign new contracts with southern as well as northern governments. Experts say the process may stir rivalries and bog down over clashing interests.

Oil has long been at the center of controversy in Sudan. Revenues from oil extraction and exports were supposed to be evenly divided between northern and southern parts of the country as a condition of a peace treaty signed in 2005, but southerners have claimed the north took more than its fair share of the wealth.

CNPC is among the companies most concerned about the comping changes. It was the first Chinese oil company in Sudan, and its operations there are now the largest part of its foreign oil business.

Chinese oil companies currently control about 40 percent of Sudan's oil assets. And nearly 60 percent of the oil they pump is exported to China.

A company manager said CNPC has four, upstream oil projects and is involved in three downstream projects in the north, including a refinery, a petrochemical plant and petrochemical trade business. A 1,500-kilometer pipeline and another stretching more than 1,300 kilometers link the company's numerous wells to northern processing plants.

Complicating the forecast for CNPC is the fact that many of its oil fields straddle the border between north and south – a border which has yet to be clearly defined.

CNPC and the rest of the foreign oil companies would like to continue operating under existing contracts. But they know more than business considerations are involved:Negotiations for new contracts are likely to be influenced by a variety of factors including the final border lines, how oil and water resources will be divided, how oil companies will be represented, whether Southern Sudan will have its own oil pipelines, how debts will be handled, and government tax rules. 

Another concern is that, following independence, China's interest in the Sudanese oil industry may be challenged by the United Startes as well as European and Asian countries.

Zhang Chun, an associate research fellow at the Asia and Africa Research Center, Shanghai Institutes for International Studies, recently wrote that the United States, the most important supporter of Southern Sudan, is likely to speed up expansion in oil industry in the region.

European oil companies are expected to side with the new nation quickly as well. India, Malaysia and Singapore also control oilfield stakes in Southern Sudan, while the Japanese are currently engaged in talks with the emerging government about building an an oil pipeline to the port of Lamu in Kenya.

One insider said CNPC and other Chinese oil companies face a dilemma over whether to participate in building the pipeline to Kenya. Those that do would be competing against exisiting Chinese oil interests in northern Sudan – and possibly upset longtime friends in the northern government as well.