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«Human Rights Watch Brussels London New York Washington, D.C. Copyright © 2003 by Human Rights Watch. All rights reserved. Printed in the United ...»

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John Garang, the leader of the main rebel force, the SPLM/A calls for a “united, secular Sudan.” The human rights catastrophe in Sudan’s oilfields cannot be seen in isolation from the larger conflict between the ruling riverain Arabized and Muslim elite and the vast economically, politically, and socially marginalized sections of the population, west and east, north and south. It is difficult to overstate the historical differences and special distrust that divide the south from the northern or ruling elite. The south has been starved of development resources, its economy one of pastoral and agricultural subsistence, its children uneducated, and health clinics almost nonexistent. Without doubt it is one of the most underdeveloped regions in the entire world. Sudan has enjoyed democracy only sporadically, and even then southerners have been in the minority in a country where respect for minority rights and cultural diversity is decidedly lacking.

Therefore, when oil was discovered in the south in 1978, control over it became a hot issue. Leaders of the autonomous Southern Region protested the northern-dominated central government’s plans to locate the pipeline through the north, to build a refinery in the north and, they feared, to divert all profits

–  –  –

and jobs away from the south to the north. This is exactly what has come to pass by means of the debilitating and never-ending war in the south (1983 – present).

Oil in Sudan: The Corporate Holdings The large oil reserves in Sudan, which are located almost entirely in the southern third of the country, make it potentially a producer in the Brunei/Colombia range. It is not considered a potential megaproducer on the level of Saudi Arabia or Iraq.2 But, if properly managed, its oil resources could be a godsend to a country as poor as Sudan, where the annual per capita gross domestic product is an estimated U.S. $ 424.

The main area of oil exploration and production in Sudan to date, the Muglad Basin, stretches southeast down across the midsection of the country, from El Muglad in Western Kordofan through Bentiu and Western Upper Nile, known by the government as Unity (al Wihda) State, to Juba on the White Nile and Eastern Equatoria.3 The Western Upper Nile/Unity State area was traditionally the homeland of the Nuer people. Oil exploitation in southern Sudan began north of Bentiu, in Western Upper Nile/Unity State—in Blocks 1, 2, and the southernmost parts of Block 4, the sites of Unity and Heglig oilfields. (See Map B.) The oil 2 Saudi Arabia has 261 billion barrels of oil in reserves, Iraq 112.5 billion barrels. The U.S. has 21 billion barrels, the U.K. has 5.2 billion, and Canada has 4.9 billion. Sub-Saharan African countries rank 11th in the world (Nigeria, 22.5 billion barrels) and 17th (Angola, 5.4 billion). Libya is 8th in the world with 29.9 billion barrels, and Algeria, ranked 14th, has 9.2 billion barrels of oil reserves.

Petronas, “Oil & Gas Reserves Ranking” (as at 1 January 2000), http://www.Petronas.com.my/internet/Business.nsf/dbcf3db8a4c05acbc825671c0017634c/ (accessed June 19, 2002). Congo Brazzaville has 1.5 billion barrels, and Brunei has 1.4 billion barrels of proved reserves. Energy Information Administration, U.S.

Department of Energy, “World Crude Oil and Natural Gas Reserves” (as at January 1, 2001), http://www.eia.doe.gov/emeu/iea/table81.html (accessed June 26, 2002). Sudan’s oil ministry estimated that it had 1.2 billion barrels of oil reserves, but this is not proven reserves. “Sudanese Oil Reserves Surpass 1 Billion Barrels,” Xinhua, Khartoum, May 3, 1999.

Proven reserves are 643.6 thousand barrels as of the end of 2002 for the principal producing fields in Blocks 1, 2, and 4. Talisman Energy, 2002 Annual Report, p. 64. See the glossary for definitions of probable and proved reserves.

3 The Melut Basin (including Blocks 3 and 7), running north and south of Malakal, west to the Muglad Basin, and east to the Ethiopian border, remains less developed than the Muglad Basin and is not covered in this report.

45Human Rights Watch

history and development of Block 5A, which is a continuation of the Muglad Basin to the south east of Blocks 1 and 4, has been controlled by the developments in these blocks. Blocks 1, 2, and 4 total nearly 19,500 square miles (50,500 square kilometers or 12.5 million acres). 4 Block 5A totals 8,076 square miles (20,917 square kilometers or 5.2 million acres), and Block 5B totals 7,768 square miles (20,119 square kilometers or 5 million acres).5 Petroleum exploration in Sudan began in the early 1960s. Activity was originally concentrated offshore in the Red Sea. In 1974, two years after the peace accord that ended the first civil war (1955-72), the Sudanese government granted the Chevron Oil Company (U.S.) large oil concessions in Sudan. Chevron discovered and named the Muglad and Melut basins. It drilled for and found oil near Bentiu town in

1978. The government named the oilfield “Unity.” It was located in Block 1, inside Upper Nile province, part of the autonomous Southern Region. Soon after, Chevron discovered the Heglig field, in Block 2.

Chevron spent about U.S. $ 1 billion on exploration but never recovered it costs. It suspended activities in southern Sudan in 1984 due to a rebel attack that killed three expatriate oil workers and other security concerns. The French firm Total, which acquired various oil concessions around 1980, also suspended its onshore exploration activities, but retained its rights, including to Block 5, which, at 120,000 square kilometers, is larger than the size of Blocks 1, 2, 4, 5A, and 5B combined.





The Islamist-military government that took power in 1989 was determined to develop Sudan’s oil potential. It forced Chevron to sell its concession and sub-divided it into smaller exploration blocks. In 1993 Canadian independent Arakis Energy acquired the portion of Chevron's concession north of the town of Bentiu, namely Blocks 1, 2, and 4. In June 1996, Arakis brought eight wells on stream in the 4 Talisman Energy, powerpoint presentation, Center for Strategic and International Studies (CSIS), Washington, D.C., April 2002.

Talisman provided the figures of 19,500 square miles and 12.5 million acres, from which the square kilometers were calculated. See http://www.csis.org/africa/index.htm (accessed October 30, 2002).

5 Lundin Petroleum website, http://www.Lundin-petroleum.com/eng/sudan5a.shtml, http://www.Lundinpetroleum.com/eng/sudan5b.shtml (accessed June 26, 2002). The concessions vary in size over time based on arrangements with the government of Sudan to give back undeveloped areas. Lundin provided the figures for Blocks 5A and 5B in square kilometers, from which the square miles and acreage were calculated. Together Blocks 1, 2, 4, 5A, and 5B total some 35,344 square miles;

91,536 square kilometers; or 22.7 million acres.

–  –  –

Heglig field, subsequently trucking low levels of crude oil to a small refinery at El Obeid in Northern Kordofan for domestic consumption.

On December 6, 1996, in need of cash for the project, Arakis sold 75 percent of its interest to three other companies, with which it formed a consortium called the Greater Nile Petroleum Operating Corporation (GNPOC), whose value Arakis put at approximately U.S. $ 1 billion. Arakis was to be the operational partner. The three other companies were state-owned: the China National Petroleum Company (CNPC), Petronas Carigali Overseas Sudan Berhad (a subsidiary of Petronas Nasional Berhad, the national petroleum corporation of Malaysia), and Sudan’s state-owned oil enterprise Sudapet Limited.

They would own 40 percent, 30 percent, and 5 percent of the project, respectively. CNPC and Petronas put up project financing until mid-1998.

Although Arakis had been working proven oilfields in Sudan since 1992, by mid-1998 it had relatively little to show for it. The Sudanese oil industry remained in rudimentary form, producing only for local consumption. The country still imported most of its petroleum needs.

On October 8, 1998, Canada’s largest independent oil and gas producer, Talisman Energy Inc.,6 acquired Arakis and Arakis’ main asset, the Sudan project. Talisman, with its superior technology and experience, brought major improvements for the benefit of the war-stressed and cash-poor Sudanese government. It took only one year after Talisman joined the consortium to boost development of the Heglig and Unity fields in Blocks 1 and 2, to finish a 1,540-kilometer (1,000-mile) pipeline to the Red Sea, to build a new marine terminal for oil supertankers, and to pump and export the first crude oil from Sudan. This project transformed Sudan from a net hydrocarbon importer into a potential member of the Organization of Petroleum Exporting Countries (OPEC), the cartel of oil-exporting countries. In August 1999, the first oil for export earned the Sudanese government U.S. $ 2.2 million in one shot. Much more was to come.

Talisman estimated that, over the life of the Heglig and Unity fields alone, the government of Sudan 6 Talisman Energy was operating in Sudan through its wholly-owned Netherlands subsidiary, Talisman (Greater Nile) B.V.

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would earn approximately Canadian $ 3 billion to $ 5 billion (more than U.S. $ 2 billion to $ 3 billion), depending on the international price of oil.7 Because of Talisman’s successful exploration, by 1999 reserves in Blocks 1 and 2 were discovered to be much larger than previously thought—403.6 million barrels in 1998 and an increase to 528 million barrels in reserves in 1999. 8 In 2002, a breakthrough in exploration on Block 4 indicated that there might be an additional 160-240 million barrels of oil in the GNPOC concession.9 By April 2002, it was estimated that current proven plus probable ultimate recovery of the GNPOC concession would be one billion barrels of crude oil.10 From 150,000 barrels per day of oil pumped by GNPOC in 1999 (annualized), production increased to 230,000 barrels per day (b/d) by year end 2001.11 Actual output for 2002 reached 240,000 b/d.12 Talisman’s projections indicate a peak production from the GNPOC blocks at 250,000 b/d in 2005 and the sharp and continual decline in production to 40,000 b/d in 2020.13 This projected decline in production meant that the government needed to bring new blocks on line, in order to maintain at least a steady flow of oil revenue.

7 J.W. Buckee, “Talisman in Sudan,” Globe and Mail (Toronto), Calgary, October 21, 1999. See Talisman Energy, “Sudan—The Greater Nile Oil Project. Background Paper,” December 1998, p.6.

8 Proved gross reserves according to Talisman were, for the years ending December 31, 1998: 403.6 million barrels; 1999: 528 million barrels; 2000: 562.8 million barrels; and 2001: 625.2 million barrels. Based on Talisman Energy 2001 Annual Report, p. 57.

9 “Talisman Makes Sudan Discovery,” The Oil Daily (New York), May 3, 2002.

10 Talisman Energy, CSIS presentation, April 2002.

11 Talisman Energy, excerpt from 2001 Annual Report, p. 13.

12 This figure is calculated from Talisman’s share of 60,000 b/d in 2002. Talisman Energy, 2002 Annual Report, p. 21.

13 Talisman Energy, CSIS presentation, April 2002, http://www.csis.org/africa/0208_SudanPFCSum.pdf (accessed August 21, 2003).

48Summary

On October 30, 2002, Talisman announced that it had agreed to sell its Sudan interests to ONGC Videsh Limited, a subsidiary of Oil and Natural Gas Corporation Limited, India’s national oil company, for a net return on investment of 30 percent. International human rights pressure greatly contributed to the pressure for Talisman to leave Sudan. Chief Executive Officer (CEO) Jim Buckee said, “Talisman’s shares continue to be discounted based on perceived political risk in-country and in North America to a degree that was unacceptable for 12 percent of our production.”14 The disastrous human rights developments in Block 5A from 1999 onward were related to GNPOC’s successful production in Blocks 1 and 2 and the approaching completion of pipeline facilities in GNPOC’s Blocks. Without the pipeline, the oilfields in Block 5A would have remained as Chevron left them, undeveloped, attracting little military attention. Block 5A was an area the government had long ago conceded to the rebels, as of no strategic interest and having a particularly difficult, swampy environment; but with the GNPOC pipeline completed only a short distance away, it became economically feasible, gained strategic importance, and became a military priority for the government.

On February 6, 1997, the International Petroleum Company (IPC), a wholly-owned subsidiary of Lundin Oil AB, signed an exploration and production-sharing agreement with the Sudanese government, granting IPC (referred to here as Lundin, the name of the Swedish family controlling IPC) rights to Block 5A, adjacent to and south-southeast of Block 1. IPC (or Lundin), the lead partner, held 40.375 percent of the concession, and the Malaysian state oil company Petronas held 28.5 percent; OMV (Sudan Block 5A) Exploration GmbH, owned by OMV AG, one of Austria’s largest listed industrial companies, held 26.125 percent; and Sudapet held 5 percent. Lundin also owned 10 percent of Arakis’ stock.15 (In 2000 Lundin and OMV also acquired a 24.5 percent interest each in Block 5B.) Lundin estimated there 14 Talisman press release, “Talisman to Sell Sudan Assets For C1.2 billion," Calgary, October 30, 2002, http://micro.newswire.ca/releases/October2002/30/c6739.html (accessed October 30, 2002).

15 Due to corporate restructuring, the owner of the Lundin interest in Block 5A became Lundin Petroleum (also “Lundin”).

–  –  –

were 115 million barrels in reserve in Block 5A, but nothing has been produced so far from the concession.16 Lundin’s explorations in Block 5A were suspended twice due to insecurity, last in January 2002. On March 27, 2003, Lundin announced the resumption of activities.17 In June 2003, Lundin sold out its interest in Block 5A to Petronas, while retaining its interest in Block 5B.18 A few months later, in September 2003, OMV agreed to sell its interests in both blocks to ONGC Videsh Limited of India.



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