خفايا بيع النفط السوداني

Legislative and Contractual Framework for Oil Exploration and Production in Sudan

by Dr. Howayda Hassan Fawzi

1-Introduction:-

The export of the first shipment of Sudanese oil on August 30, 1999 came almost two decades since Chevron Oil Company made its major discoveries of oil in the Southern Sudan. The discovery of oil came at a time when economic development in Sudan was at its peak. The economic potential of Sudan was highlighted by a report of the Food and Agriculture Organisation (FAO), depicting Sudan as the potential "Breadbasket of the World". Sudan will have to achieve this by cultivating 60 million feddans of unexploited arable lands to produce sugar, wheat and textiles. Investors from Arab oil- producing countries were invited to invest their accumulating oil revenues. That trend was triggered by the 1973 Israeli-Arab war, and gained such momentum after the FAO's anticipatory report that Arab investors realised the necessity to do so in an Arab country. Large-scale development activities were underway when Chevron announced its discovery of oil in the south of Sudan. This gave new impetus to the developments' programmes, and raised the hopes of Nimeri's Government for a better economy.

Such hopes, however, were soon fell on the stony reality of economic crisis. There were several reasons for Sudan's economic setback. Most prominent among these was the rise of oil prices in the 1970s. This had the direct effect of substantially increasing Sudan's fuel bill to meet energy demands in industrial and agricultural projects, and an indirect one reflected in the drain of Sudan's most qualified professionals, skilled workers and manual labourers who were too frustrated by the deterioration of the economy to resist the temptation of incomes in the Gulf states. The fuel bill, as table 1 below shows, constituted a systematic source of drain on Sudan's foreign exchange earned from exports. This situation became worse when Sudan was unable to raise new loans to pay its foreign debts; this had a direct impact on the industrial and agricultural production and consequently reduced the amount of foreign exchange. In its turn, this resulted in a severe balance of payment deficit which is still plaguing the Sudanese economy.

Hence, the Government realised that development of Sudan's oil discoveries was the only recourse left to pay back its foreign debts and improve its economy. The Government and Chevron Oil Company started, therefore, to consider their plans of how best to utilize Sudan's oil, once production started. The two parties realised that the original Production Sharing Agreement, concluded in 1975, was not satisfactory and could not fulfil their aspirations. The Government and Chevron agreed in 1983 to amend the original agreement to meet the objectives of their new plans. The amendments provided, inter alia, for the construction of a pipeline to export oil to Port Sudan. This plan replaced the original proposal for construction of a refinery in the south. The idea of exporting crude oil via Port Sudan, however, has not been tolerated by the people from the south who suffered most from the economic crisis; and in a counter measure to the central government's plans, the rebels attacked a Chevron camp in the south and killed three of Chevron's staff in February 1984.

Thus, oil discovery in Sudan became a political issue and was one of the factors behind the on-going civil war in the south. The failure of Nimeri's Government, as well as all the Governments which succeeded it, to end hostilities in the south has had a very negative effect on the oil activities in Sudan. The fuel bill was a major problem despite the considerable efforts by successive governments to impose various policies of rationing fuel. Some of these policies, however, have aggravated and led to increasing shortages in fuel rations.

The current Government, which came to power in 1989, has thus experienced a severe energy crisis and shortages of fuel and electricity. Considerable domestic unrest was built up as a result of these problems. The Government became aware that the only way to extricate itself from shackles of this crisis was by improving the conditions of investment in order to attract foreign investors to search for more oil in Sudan, and also to develop the oil fields discovered in the west and the offshore gas reserves discovered in the Red Sea in the east of the country. Although initially there have been considerable efforts to promote the oil industry, these efforts seem to have suffered from several shortcomings.

The first shortcoming relates to the fact that many of these efforts were undertaken as part of a programme to improve the investment conditions in general. Oil industry is a high risk sector, it poses new problems and authorities lack expertise. It thus requires a separate consideration. Secondly, there has been no comprehensive legal analysis or assessment of the regime, whether by reference to contracts or to the petroleum law, which regulates oil exploration in Sudan. Thirdly, although there has been some academic discussion along these lines by scholars, this discussion was unfocussed and heavily influenced by the optimistic conditions and concepts of international oil industry in the early seventies. Now the industry is undergoing enormous changes, mostly because of the low prices of oil in the 1990s which forced oil companies to focus on cost-cutting and mergers rather than production growth. This has a direct effect on reducing the availability of funds for exploration, which in turn influenced the investment decision-making. After two years of strong prices, oil companies, without jeopardizing these cost-cutting efforts, are increasing their budgets for exploration and production. The present-day exploration and development terms have to reflect the market realities.

In this paper an attempt is made to explore avenues relating to overcoming these, and many other shortcomings. It endeavours to ascertain, inter alia, the actual role and impact of the terms which define the legal and commercial relationship for exploration, development and production of oil, between an investor and the Government of Sudan. This will be done by surveying the contractual provisions of previous contracts and those of the main law, and considering their legal implications.

In conclusion, the importance and vital significance of oil to the Sudanese economy attracted the writer to this subject in the first place. Tempted by the fact that the oil industry in Sudan is in its infancy, and feeling that this subject has not received sufficient attention, it was deemed useful to examine and re-evaluate the legal relationship between Sudan and the oil companies. It is hoped that this paper will be able to identify the problems of oil investment in Sudan, to analyse these problems and help to anticipate the future.

2- The Historical Development of Sudan Law on Production of Oil:-

In outlining the historical development of the laws on production of oil in Sudan, three distinct phases can be observed. Each period is characterised by certain trends which shape the course of petroleum industry in this country. The first phase traces the history of basic petroleum legislation in Sudan and the oil activities undertaken under these legislation. The second phase reviews the contractual setting emerges as confidence in oil potential rises. And the final period examines the taxation terms and the implications which they may have on the exploration operations.

By understanding how laws on production of oil have been developed, this will, necessarily, serve as background to understand some of the specific legal problems dealt with in detail.

2.1. Enactment of Basic Petroleum Legislation:-

The Sudan history of enactment of a separate petroleum legislation is a comparatively recent one. However, the first attempt to pass a legislative framework to regulate searching for all minerals, including oil, was instigated by a concern over the question of the proprietary rights to minerals in the ground. It was decreed by the British during the colonial period when Sudan was governed by both Britain and Egypt in 1899. By vesting the ownership of all minerals, including oil, in Sudan in the condominium government, it was suggested that the two states where trying to "avoid conflicting claims as to which of the two ruling states owned the minerals in the colony, and at the same time to prevent settlement by Egyptian and British subjects attracted by the possibility of acquiring freehold title to in situ resources".

Thus, in Sudan the history of a separate legislation regulating the petroleum activities began after independence in 1956. That was in the form of the Petroleum Resources Development Act 1958, and its regulations which were promulgated in 1959. From 1959 to 1972, several licences were granted by the Government to oil companies including Agip, General Exploration Company of California, Digna, Continental Oil Company, Shell and BP. The work carried out under these licences was, however, unsuccessful. These licences were terminated either upon expiration or by being surrendered to the Government.

In 1972, the Petroleum Resources Development Act 1958 was repealed by the Petroleum Resources Act which has been the basic petroleum legislation since then. The 1972 Act, like its predecessor, starts by vesting in the state all proprietary interests in petroleum, together with the exclusive right of exploration and production.

Interests in petroleum resources in Sudan are granted, therefore, under statutory authority. The authority empowers the appropriate bodies to grant such interests in two forms of contractual arrangements; licences and leases, in accordance with the relevant legislation and any regulations promulgated thereunder, and separate forms of petroleum agreements, such as the production sharing agreements.

Thus, the Petroleum Resources Act 1972 vests the power to grant licences and leases, subject to the approval of the Council of Ministers, in the Board of Petroleum and Mining Affairs (BPMA). Before granting licences or leases the Minister of Energy and Mining is required by s.24(1) to make regulations prescribing certain licensing procedures. In considering the application for licences and leases the BPMA must take into consideration, in addition to the terms of the relevant regulations, the statutory guidelines set out in detail to help determine the eligibility of applicants.

Apart from the licence and lease forms, the Sudan Government has statutory authority to enter into different kinds of petroleum agreements. Special reference is given to such kind of agreements which provide for the sharing of production between the Government and the other contracting party. Thus s.25 provides:-

"...the Minister may, on the recommendation of the Board and after obtaining the consent of the Council of Ministers, enter into any agreement for the exploration, development and utilization of petroleum. Such agreements shall provide for the sharing of production between the Government and the other contracting party in accordance with the terms, covenants and conditions embodied in such agreements or shall provide for the exploration, development and utilization of petroleum in any other manner agreed upon..."

According to this Act, the Minister's power to enter into different forms of oil agreement is conditional upon obtaining the recommendation of the Board, and the consent of the Council of Ministers. The Act makes no reference to the procedure or the criteria necessary for the grant of these agreements.

After enacting its main petroleum legislation, the Government in Sudan granted licenses to search for petroleum both onshore and offshore. In Sudan, no separate system of licensing for offshore areas exists despite the fact that most of the Sudanese licenses granted under the first petroleum legislation, the 1958 Act, were offshore licences.

2.2. The Contractual Setting:-

In Sudan, as mentioned above, this right to conduct petroleum operations can be granted by virtue of a production-sharing agreement, or a two-stage system of a licence and a lease. The Energy Minister is to prescribe the licensing procedures by issuing regulations which are expected to regulate the licences and leases forms and not, as we shall see, the production-sharing agreements.

The holders of these forms are entitled to different rights. For example, a licence under the two-stage system, confers on the licensee the following rights:-

"(a) the exclusive right of exploration,

(b) the right, upon discovery within the licence area, to the grant of one or more leases within such area in accordance with the conditions prescribed in this Act and the regulations made therein."

Thus, a licence in Sudan does not authorize its holder to recover petroleum. The licensee has only a statutory right in case of discovery, to apply for and obtain a lease. The licence work obligations are specified in detail in the standard form of the licence which is set out in schedule 2 of the Petroleum Resources Regulations of 1973. The licensee has to carry out these obligations with due diligence, failure to fulfil them entitles the Government to terminate the licence.

The lease in Sudan, furthermore, is to be negotiated on individual basis, and its terms are specified at the time of the agreement. The important terms, however, are specifically mentioned in the 1972 Act, such as the maximum duration of the lease; the size of the lease area; the rent and tax rates. The Petroleum Resources Act of 1972 is, unfortunately, silent about the actual rights conferred by the lease. However, in light of the fact that it is an offence under the Act to undertake or attempt to undertake petroleum production without a lease, one may suggest that the lessee is eventually given the exclusive right of exploration and production. Also, in Sudan a mining lease and a petroleum lease are rather indistinguishable. A mining lease confers on the lessee the right to dig for minerals, coupled with a grant to carry them away. It is exclusive in the sense that no other person is entitled to conduct such activities in the lease area. It does not, therefore, concern with the legal right to exclusive possession of the land itself.

In Sudan, these elements make the mining and petroleum lease, similar to the English licenses, akin to the profit a prendre. Under a profit a prendre concept, minerals becomes the property of the licensee upon recovery. The licensee does not own minerals in situ, which in this case is owned by the state. The title, as stated before, passes upon reduction into possession. The point of this reduction in petroleum is said to be at "wellhead", or sometimes earlier than that point. Concentration, therefore, will be on the lease, rather than the licence, in Sudan being the form which entitles its holder to recover petroleum.

The agreements which can be concluded by the Sudan Government by virtue of s.25 of the 1972 Act do, however, specify the rights and obligations of the two parties in considerable detail. All production- sharing agreements which have been concluded by the Government were, similar to the leases, negotiated on individual basis. They were similar in format with variations regarding duration, royalties, taxes, work programmes and expenditure. The most distinguished feature of these agreements is the fact that the rights and obligations of the parties may prevail even over the provisions of the Act in the event of inconsistency between the provisions of the agreements and those of the Act. Thus each production-sharing agreement in Sudan stands on its own.

In its effort to develop the oil industry that has long been hampered by the civil war, lack of finance, and United States hostility which blocks badly needed debt relief and rescheduling, the current Government of Sudan has managed to conclude several exploration and Production Sharing Agreements with oil companies of diverse nationalities. The results of the new exploration were very promising and confirm the high prospectivity of the areas. The outcome of the development of the old fields made Sudan oil production run at about 200,000 bpd and account for 16 to 17 percent of GDP. Oil exports represents now more than 70% of total exports. This helped Sudan to achieve in 2000 its first trade balance surplus in its modern history, when exports exceeded import by $200 million.

2.2.3 Taxation of Petroleum Agreements

The taxation system plays the key role in the profitability of oil investment. It is usually drawn up with the primary objective of allocating economic benefits to the host country and the oil company. If not appropriate, it is likely to have a distorting influence to decision-making process relating to investment and production of oil resources. In particular, it could contribute negatively to slowing down the pace of development, inhibit exploitation of new areas, or development of marginal or frontier areas. It may also cause a premature abandonment or shutdown of fields.

Designing an optimal taxation system is consequently an important and difficult task, because it has to accommodate the host government's interest in collecting early immediate revenues, as well as future revenues in the case of commercial discovery on the one hand, and the oil companies' interests in securing a rate of return on their investment on the other hand. An optimal system also has to be flexible in adjusting itself to the highly uncertain elements involved in calculating the economic rent, such as fluctuations of output, prices and costs. This is essentially why oil companies favour devices which target profits rather than gross revenues.

In structuring their tax systems, host governments have employed different devices in order to capture a "reasonable" share of the expected "economic rent" of petroleum exploitation. These devices have been incorporated in three stages namely; pre-production, production, and payments based on net income. The devices used in the pre-production include surface rental fees and various kinds of bonuses. Although the amounts of rental fees are generally small, bonuses tend to be large and are considered by some oil companies as one of the factors which inhibit investment. The negative effect of bonuses comes from the fact that they are not related to profits and are paid long before production commences. Thus it has been stated that:

"Oil companies are looking for oil and profits, consequently, they prefer to put their money into research and exploration, not governments coffers to ease the balance of payments problem requirement to bring funds into the country"

Thus, pre-production payments, though they are likely to add in a small way towards companies' interest in rapid recovery, they do not have such a significant effect on the exploration and development decisions as payments during production, and those based on net income.

In Sudan, various conventional devices for taxation have been employed by the Government. These devices depend on whether the right for exploitation is given under the licensing system of the Petroleum Resources Act 1972, or under a Production- Sharing system. The taxation package under the former consists of surface rental fees, royalty and a state-participation or Income Tax option. Under the latter it is various kinds of bonuses, a production-sharing and income tax.

Under Sudan petroleum laws the licence's and lease's surface rents have been fixed, surprisingly, since 1958. They were stipulated for originally in the Petroleum Resources Development Act 1958 before being included in the present Act of 1972. They are very low. The Sudanese licensee is required to pay LS 500 upon the grant. Also required is a payment of a surface rent of LS 10 in respect of each 100 sq. km. or part thereof, for each of the first 4 years of the term of the licence, and of LS 200 for each year during which the term is extended. Under a lease, however, the payment takes the form of an annual rent payable in advance. It is of LS 60 in respect of each sq. km. or part thereof.

The small amount of fees has highlighted another major problem associated with the use of local currency in developing countries. Macro mismanagement policies of distorted exchange rates and un-controllable inflation are likely, furthermore, to diminish any value arising from these fees. Thus, instead of being fixed, the rate of the fees would generate a reasonable income to the government if negotiated on a case-by-case basis, and were increased each time a licence or lease is renewed.

As far as royalty is concerned, it is fixed at a rate of 12½% of the well-head value of all crude oil and gas produced from the leased area. The main risk of a flat royalty like this, is the possibility of invoking a situation where it exceeds the profits, hence making the cost exceed the revenues. This could result in rendering oil fields non-profitable, and therefore leading to a premature abandonment of the field. Marginal fields and less profitable fields are at risk of paying royalties. That is why the UK abolished royalties so as to encourage more exploration and development of smaller and marginal fields.

A solution which could be offered to make the Sudanese royalty rate less regressive and hence a more efficient instrument, is the sliding scale system according to which the rate of royalty increases in accordance with output. Critics of this solution regard it as being an improper measure because it is still linked to production rather than to value. In other words, if oil prices fall, or costs increase, high production will not necessarily mean that the field is profitable. Another problem associated with the sliding scale measure, is the difficulty in designing a proper chart for the rates of production and royalty, which would help avoid the situations of what is known as the "notch" problem.

In order to avoid the shortcomings of the sliding scale formula, oil companies in some countries like Canada, are given an opportunity to recoup a certain rate of return on their investment, before a progressive incremental scale of royalty is paid. The weakness of this solution is that it is most unlikely to be accepted by a developing country (Sudan for example), which is all the more keen to acquire early revenue from its oil resources.

A further intricacy regarding royalty, especially under the Sudanese Act, is that no allusion has been made to the process or procedure by which royalty oil at the well-head would be evaluated. This would bring with it a major problem of taxation, i.e. determining the real value of oil production, costs and many other issues arising out of the internationally integrated operations of oil companies.

In addition to royalty, a lessee company in Sudan is required by the Petroleum Resources Act 1972 to pay a corporate tax at the rate of 50% of net profits. This requirement will take place only if the Government decides not to undertake its option of participation in the share-capital of the company. Thus, under s.11 of the 1972 Act, the Government reserves for itself the right to participate in the share-capital of the lessee company in case of a commercial discovery of up to 50%.

Under the production-sharing system, on the other hand, the taxation devices are various kinds of bonuses, a production-sharing, and income tax. As pointed out earlier, various kinds of bonuses must have been introduced to offset the small amount of fees paid under the main Petroleum Act.

Thus, once production starts, the Government and contractors are entitled to take and dispose separately of their shares of oil production. This right, which gives the contractor a direct ownership of its share, was very important for the US companies, such as Chevron and Sun Oil, because it enabled them to avoid first anti-trust issues which militate against joint marketing, and secondly the US tax regime which will treat a joint venture as an "association taxable as a corporation."

However, before distribution of oil, the contractor recovers all his costs and expenses relating to the petroleum operations, out of an amount of petroleum equal in value to maximum of 30% (under the Chevron, Sun Oil and Panoco agreements) or 35% (as in the Total agreement) annually of all crude oil production in the contract area. This amount of oil is referred to as "cost oil". The costs and expenses include all operating expenses, exploration expenditure which is recoverable at the rate of 20% (under the Chevron, Sun Oil and Panoco agreements) or 25% as in the Total agreement.

In order to protect the Sudan Government in pricing, the cost oil is valued at the weighted f.o.b. price, realised on sales to non- affiliated companies. If the costs and expenses in any year exceed the value of all petroleum produced in that year, the excess may be carried forward until fully recovered.

After deducting the cost oil, the balance of crude oil, generally known as "profit oil", is taken and disposed of separately by the Government and the Contractor in certain proportions, when a certain level of production is attained.

A corporate tax is, furthermore, payable under the Production- Sharing Contracts. The contractors were required to pay to the Government income taxes out of their share of oil production. The payment of this tax is of vital importance for companies from the USA, the UK, France and Japan for tax purposes. These countries impose income tax upon the world-wide trading profits of their contractors, and in order to prevent a double taxation on income earned outside their countries, allows tax paid to host governments, in which such income is earned, to be credited against their tax.

In Sudan the income tax law had been one of the laws which were changed by the Government in 1984 in order to bring them into conformity with Islamic Law. A new law, entitled the Zakat and Taxation Act 1984, was enacted and came into force as of the 26th of September 1984. The implementation of that Act was made subject to regulations passed thereafter, and contained significant amendments to the Act. Had it not been for these amendments, the Act would have had a damaging effect on oil operations in Sudan. Special attention has been given to the effect of two sections under the Act. Under the first section a new tax called the Development and Investment Tax (introduced under s.59) may be imposed at the discretion of the President at the rate of 10% on Sudanese, foreign or joint capital invested in Sudan. Under the second section (s. 63(c)) no exemption from the payment of Zakat or tax should be given to any person. The subsequent amendments, however, stated that these sections had been inconsistent with the state policy of encouragement of investment, and they were consequently abolished. The Government subjected oil operations to the provisions of the Encouragement of Investment Act.

This change has resulted in a significant reduction in the rate of corporation tax, otherwise imposed on companies. Furthermore, under all Production-Sharing Contracts a safeguard against higher taxes was included. It ensured that if, at any time in the future, the government changes the tax rate, and that change results in a rate greater than 60% of the net profits, then the parties shall agree to adjust their share of oil profits to ensure that the net income is the same, prior to the imposition of the new tax rate. The most important result of the Sudanese Government's prompt response to need for change, has been its ability to reflect the true spirit of partnership. Irrespective of whether or not the response has been for its own benefit, it is an indication of the Sudanese Government's flexibility in adjusting itself to the highly uncertain elements involved in calculating tax.

3. Recent Incentives for Petroleum Exploration

In its efforts to attract capital and technology, Sudan has passed recently its latest Encouragement of Investment Act 1999. The aim of this Act, like its predecessors, is to assist in encouraging investment in projects which contribute to the plans of the development, and national and foreign projects, whether initiated by the public sector, private sector, cooperative sector or mixed sector. The 1999 Act expressly guarantees non-discrimination by prohibiting distinctions between these projects in granting privileges and guarantees.

The Act provides for a wide range of privileges and facilities which can be granted to investors. They differ according to the nature of the project, strategic or non strategic or, federal or state. They include a total or partial exemption from business profits tax or custom duties, allotment of land necessary for the project, grant of credit ceilings and special rates of depreciation of assets.

To serve these ends, s.17 of the 1999 Act provides for the guarantee against nationalisation, confiscation, expropriation or sequestration of investors' projects and capitals. Different rules apply for each case. Thus, while the guarantees against nationalisation and confiscation of investors' projects are made in absolute terms, sequestration of capital requires an order of a competent court. Also no expropriation of an investor's property is guaranteed except for the public good, by virtue of a law and upon payment of just compensation.

Furthermore, s.17(c) & (d) guarantee for foreigners repatriation of capital in case of non execution of the project, liquidation, disposal of the project, partially or wholly in any form, in the currency in which the capital was imported, provided that all obligations due to the Government are paid.

In case of disputes relating to investment, the 1999 Act requires disputes to be submitted to arbitration. The provisions of the Unified Convention of Investment of Arab Capitals in Arab Countries 1980, Convention on the Settlement of Investment Disputes between Arab Countries 1974, Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965, Convention for Economic, Technical, and Commercial Cooperation between Countries of the Islamic Conference Organisation 1977, and any other Convention to which Sudan is a party, are to apply to the legal dispute.

4. Concluding Remarks

This article shows how the oil sector has revitalized the stagnating economy of Sudan. In just one year, oil exports made Sudan achieve its first trade balance surplus in its modern history.

In our endeavour to investigate the legal and contractual framework for oil exploration and production in Sudan, three phases were traced during its historical development. The history began with the enactment of Sudan petroleum legislation which established the country's right to ownership of oil resources in the ground, and its rights to regulate exploration and exploitation of these resources by others. Meanwhile, the second and the third phases of background began when the oil industry was developing elsewhere as a result of a substantial rise in oil consumption worldwide. That development took many forms, the most important ones were an increase of oil companies engaged in oil operations, an increase of competition for oil concessions and the producing countries demands for higher financial returns and effective participation in the petroleum operations. The state participation in Sudan has basically concentrated on the adoption of modern forms of petroleum agreements such as the Production Sharing Agreement (PSA), which enabled the countries to involve in exploitation of their resources. Those policies were prompted by the activist role of governments in the economic surge of the 1970s.

The above investigation has highlighted the fact that Sudan framework is obsolete and out of touch with political and ideological concept of the international oil industry tenets. The adoption of various PSA has managed to reduce this disadvantage. This is so because each PSA stands on its own; defines the rights and obligations of each party; and takes into account the prevailing economic conditions and circumstances. However, Sudan is experiencing a rapid oil development and the framework will become of increasing relevance in the future so as to reflect clearly the government policy for the reform of the oil sector. The difficulty of amending the terms of the old laws emphasizes the problem of inflexibility of laws in responding quickly to market conditions.

Sudan will be confronted in the future with problems similar to those faced by other producing countries. The ability to overcome these problems will depend very much on having a clear legislative and foreign investment policies which create a climate of investor confidence, and lay the foundations for trust and equitable distribution of benefits. The Government must make sure that the regulatory regime is simple, clear, and, most important of all, contain the main general principles in the legislation itself, and make them subject to regulation. This will ensure flexibility and enable the government to be adjustable and respond quickly enough to market conditions. Simplification of licensing procedures, and introduction of competition and transparency is bound to bring immediate benefits. The strategy of Sudan to adopt a new investment law with lucrative incentives is a step in the right direction. But the main immediate challenge for Sudan is political stability which is closely linked to economic prosperity and development of the country.

Dr. Howayda Hassan Fawzi
Legal Consultant
National Centre for Legal Consultants
Fujairah
United Arab Emirates

The list below shows the currently Licensed Blocks for Exploration & Production activities (Concession Map):

Block 1, 2 & 4:
The shareholders of these blocks are CNPC (40%), Petronas (30%), (ONGC) (25%) and Sudapet (5%). These companies singed Exploration and Production Sharing Agreement (EPSA) in 1996 and formed a joint company Greater Nile Petroleum Operating Company (GNPOC). GNPOC has developed the fields discovered by Chevron, discovered new fields and built a crude oil pipeline from Heglieg to Port Sudan route

* (L = 1610 KM., Diameter = 28 Inch, Max. CAP. = 450000 BBLS/DAY). GNPOC started producing and exporting oil in 1999 with an initial capacity of 230 k bbl/day.
* GNPOC started producing 50,000 barrel of oil per day in the year 1999. The first shipment of the crude oil started from Port Sudan in August 30th of that year. By July, 2004, the average production rate reached around 290,000 barrel of oil per day.

Block 3 & 7:
The shareholders are the China National Petroleum Company CNPC (41%), Petronas (40%), Sudapet (8%), Sinopec (6%) and Thani (5%); together they singed Exploration and Production Sharing Agreement (EPSA) in 2000 and formed a joint operating company named (Petrodar). The production is expected to start by the end of the year 2005 with a capacity of 200,000 barrel/ day. A pipeline of a length of 1,370 kilometres, a diameter of 32 inches and initial capacity of 250,000 a maximum capacity of 500,000 barrels/day is under construction and is expected by the 2nd half of 2005.

Block 5A:
The shareholders are Petronas (68.875%), ONGC (24.125%) and Sudapet (7%), together they singed Exploration and Production Sharing Agreement (EPSA) in 1996 and formed a joint operating company named (WNPOC) A production of 40,000 barrels/day from this block is expected by the mid of 2005. A pipeline will tie in with that of block 1, 2 & 4.

Block 5B:
The shareholders are Petronas (41%), Lundin (24.5%), ONGC (23.5%) and Sudapet (11%), They formed an operating company known as (WNPOC).

Block 6:
The shareholders are the China National Petroleum Company CNPC (95%) and SUDAPET (5%). They signed a joint operating agreement in 1995 and amended 2002 and formed an operating company known as (CNPCIS). CNPCIS has a constructed a pipeline from Fula to Khartoum with a length of 720 Km, a diameter of 24 inches and a maximum capacity of 200,000 bbl/day. The production has already commenced with a capacity of 12,000 barrel/ day. The first shipment reached Khartoum on Aug, 25th, 2004.

Block 8:
The shareholders are Petronas (77%), Sudapet (15%), and Hi Tech (8%), They signed a joint operating agreement in 2003 and formed a joint operating company named (WNPOC). The previous operator is Chevron. They started their seismic operation on July 2004.

Block 9:
The shareholders are the Pakistani Zaver Petroleum Co. LTD. (85%), Sudapet (15%), They signed a joint operating agreement in 2003 and formed a joint operating company named (SUDAPAK). They started their seismic operation on May 2004.

Block B:
The shareholders are Total Exploration (32.5%), Marathon Petroleum (32.5%), Kuwait Foreign Petroleum Exploration Co. (25%) and GPC (10%), together they singed Exploration and Production Sharing Agreement (EPSA) in 1980, they started operation since that time by conducted 1650 km of 2D seismic and they stopped their operation 1981 due to the civil war in the south. Total (operator) is now negotiating the Government to amend this agreement in order to be consistant with the current agreements. They will resume their operation Jan. 2005.

Block C:
The shareholders are Cliveden (37%), Hi Tech (28%), Sudapet (17%), Khartoum State (10%), and Heglieg (8%). A joint operating agreement was signed in October 2003 and the operating company (APCO) emerged. The previous operating company, Chevron acquired 3,000 kilometres of seismic lines and drilled two exploratory wells accordingly. A comprehensive seismic programme is prepared by APCO in the dry season of 2004.

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