About the Report

This is one of a series of USIP special reports on state building 

in the Republic of South Sudan following its creation on 

July 9, 2011. Each report analyzes a different aspect of the 

state-building challenge in the new country and recommends 

priorities for the government of South Sudan within the sector 

under analysis. This report focuses on South Sudan’s substantial 

oil reserves and how they can be used to build and support the 

new nation. Subsequent reports will focus on gender, youth, 

education, and nationality, among other topics.

About the Author

Jill Shankleman, a former senior fellow at USIP, is a consultant 

with extensive experience of advising the petroleum industry, 

governments, and nongovernmental organizations on the 

social and environmental effects of oil and gas investment in 

emerging countries. Since 2009 her work has included serving 

as a consultant to USIP analyzing various aspects of the oil 

industry in Sudan. She is also a senior scholar at the Woodrow 

Wilson International Center for Scholars, Washington, DC.

2301 Constitution Ave., NW • Washington, DC 20037 • 202.457.1700 • fax 202.429.6063

Special Report 282 July 2011

© 2011 by the United States Institute of Peace. 

All rights reserved.

Jill Shankleman

Oil and State Building in 

South Sudan

New Country, Old Industry 

Summary

•	 Oil started being produced in Sudan in the 1990s and has become the mainstay of the 

economies of the north and south. Most, but not all, of the oilfields are in South Sudan, but 

the export pipelines, Red Sea export terminal, and refineries are in the north. Agreement to 

share control over oil resources and revenues was a central part of the 2005 Comprehensive 

Peace Agreement, but up to the eve of South Sudan’s secession, north and south had not 

resolved how to divide the industry or its revenues.

•	 The Republic of South Sudan starts independence facing huge challenges in using its oil 

wealth to jump-start development in the country, where over 50 percent of its people 

live below the poverty line and over 80 percent are illiterate. Without new investment to 

increase output, or successful exploration that finds additional resources, South Sudan 

faces declining oil production from 2015—too little time under any circumstances to 

diversify the economy and develop alternative sources of government revenue. As the most 

oil-dependent state in the world, the government of South Sudan faces the certainty that 

its income will fluctuate from year to year with global oil prices, a circumstance known to 

make sound macroeconomic management difficult.

•	 The Government of South Sudan (GoSS) should have three priorities for the oil sector. First, 

in the short term, it should focus on developing a detailed understanding of what it now 

owns and what the long-term prospects are for its oil industry. Second, it needs to maximize revenues from the existing industry. Third, it must make the best use of its revenues 

for development. 

•	 Information on the potential for, and barriers to, increasing production and incentivizing 

new exploration is essential to developing a realistic oil industry strategy. This requires 

a technical and economic reserves evaluation study and disclosure of data by the oil 

companies—to which the new government will be entitled as a partner in production sharUnited States Institute of Peace www.usip.org

SPECIAL REPORT

Contents

Background 2

Oil Issues in Secession Negotiations 5

July 2011: The Beginning of the South Sudan Oil Industry 6

Priorities for Oil and State Building 11

Conclusions 16
2

ing contracts. To overcome the problem of revenue fluctuations, the government should 

explore working with donors to use aid to help moderate variations in government income 

and consider the possibility of oil-backed loans, that is, obtaining immediate funds for 

infrastructure to be paid with future oil production. 

•	 To secure new oil investment, South Sudan needs to overcome the toxic reputation 

of Sudan’s oil industry by committing immediately to joining the Extractive Industries 

Transparency Initiative, the international program for oil sector transparency, and allow 

its industry’s environmental and human rights performance to be audited against current 

international standards, developing a remediation program as needed. The government 

also should be ready to consider offering incentive terms to good-quality oil companies to 

secure their investment in enhanced oil recovery and exploration. 

•	 Most important of all, as violent conflict has emerged in some of the oil areas in the 

months preceding independence, South Sudan and the international community must 

ensure security for oil workers and installations so that the new state gets the oil income 

it depends on.

The Republic of South Sudan, born on July 9, 2011, has two almost entirely separate 

economies. The informal sector, in which a large majority of South Sudan’s 8 million to 9 

million citizens live, is dominated by subsistence agriculture. According to a 2009 household 

survey, almost 50 percent of households had not used money at all in the previous week.1

The formal economy, which provides almost all the income of the Government of South 

Sudan (GoSS) as well as a small amount of employment for South Sudanese, is dominated 

by production and export of crude oil and, to a lesser extent, by multilateral, bilateral, and 

nongovernmental organization (NGO) aid. This report sets out the key immediate opportunities and challenges for the new Republic of South Sudan in managing its oil sector and using 

its oil wealth to bridge the gap between its informal and formal economies, consistent with 

South Sudan’s objective to “strengthen the management of petroleum resources in a way 

that contributes fully to economic prosperity and economic development.”2 After summarizing key background information, the report analyzes critical challenges in the oil sector the 

new country will face and offers recommendations for making South Sudan’s oil work in the 

interests of its people, with a focus on the first years of independence.

Background 

Although Sudan is a small player on the global oil stage, oil has been a dominant factor in 

the economics and domestic and international politics of north and south since it was first 

discovered in the late 1970s. Oil wealth contributed to the second phase of Sudan’s civil 

wars, and the sharing of oil revenue was a key component of the 2005 Comprehensive Peace 

Agreement (CPA). It has been a major issue in postreferendum negotiations. 

The international interest in Sudan’s oil has been complicated by the country’s persistent 

unrest and human rights violations. U.S. company Chevron’s plans to establish production 

fields in Sudan were cancelled in the 1980s, largely because of large-scale conflict in the 

oil areas.3 The country emerged as an oil producer a decade later, in 1993, when smaller 

independent oil companies invested in oil exploration and production. Subsequently, Sudan 

was the first country in Africa to receive large-scale Chinese oil investment when the China 

National Petroleum Corporation (CNPC) invested in 1996, followed by the Malaysian-owned 

Petronas and the Indian-owned Oil and Natural Gas Corporation Limited (ONGC), which 

financed development of the current set of oil fields and built the network of pipelines, 

refineries, and export terminals that enabled the sector to grow. From an output of only 

The views expressed in this report do not necessarily 

reflect the views of the United States Institute of Peace, 

which does not advocate specific policy positions.

To request permission to photocopy or reprint materials, 

e-mail: permissions@usip.org

About the Institute

The United States Institute of Peace is an independent, 

nonpartisan institution established and funded by Congress. 

Its goals are to help prevent and resolve violent conflicts, 

promote postconflict peacebuilding, and increase conflict 

management tools, capacity, and intellectual capital worldwide. The Institute does this by empowering others with 

knowledge, skills, and resources, as well as by its direct 

involvement in conflict zones around the globe.

Board of Directors

J. Robinson West (Chair), Chairman, PFC Energy •

George E. Moose (Vice Chairman), Adjunct Professor of 

Practice, The George Washington University • Judy Ansley,

Former Assistant to the President and Deputy Security 

Adviser under President George W. Bush • Anne H. Cahn,

Former Scholar in Residence, American University 

• Chester A. Crocker, James R. Schlesinger Professor of 

Strategic Studies, School of Foreign Service, Georgetown 

University • Kerry Kennedy, President, Robert F. Kennedy 

Center for Justice and Human Rights • Ikram U. Khan,

President, Quality Care Consultants, LLC • Stephen D. Krasner,

Graham H. Stuart Professor of International Relations, 

Stanford University • John A. Lancaster, Former Executive 

Director of the National Council on Independent Living 

• Jeremy A. Rabkin, Professor, George Mason School of Law 

• Judy Van Rest, Executive Vice President, International 

Republican Institute • Nancy Zirkin, Executive Vice 

President, Leadership Conference on Civil Rights

Members Ex Officio

Michael H. Posner, Assistant Secretary of State for 

Democracy, Human Rights, and Labor • James N. Miller, 

Principal Deputy Under Secretary of Defense for Policy •

Ann E. Rondeau, Vice Admiral, U.S. Navy; President, 

National Defense University • Richard H. Solomon, 

President, United States Institute of Peace (nonvoting) 
3

2,000 barrels per day (bpd) in 1993, by 2009 Sudan’s production reached 490,000 bpd.4

Government data show that production was some 3 percent lower in 2010.5 Sudan—north 

and south—holds 0.5 percent of the world’s proven oil reserves and accounts for some 0.6 

percent of world production.6 In global oil terms it lines up by size with Ecuador and Equatorial Guinea as a minor oil producer. However, under U.S. sanctions in place since 1997, U.S. 

companies are not allowed to explore for, produce, or purchase Sudanese oil, and human 

rights activists effectively pressed for Western companies to withdraw from the oil sector 

in the early 2000s.7

Several Sudanese oilfields lie in the border area dividing Sudan and the new Republic of 

South Sudan, and in the months leading up to independence, the north and south negotiated 

the precise division of oil revenue after southern secession. The broad outline of what oil 

resources lie in South Sudan is clear, but the details of how the fields straddling the border 

are to be allocated and managed are not.8 South Sudan has three areas where oil is currently 

being produced (map 1). These areas contain two types of crude oil of differing value, with 

fields on different production trajectories. The first area, blocks 1, 2, and 4—parts of which 

fall on both sides of the border and have not yet been definitively allocated between the 

two countries—yield Nile Blend crude oil and are on a trend of declining output. Nile Blend 

is a good-quality crude, readily traded in international markets at prices comparable to Minas 

Blend, a Malaysian crude with similar attributes.9 The second area, Block 5A, is wholly within 

South Sudan. This field also produces Nile Blend crude, but on a much smaller scale. The third 

main producing area is the concession that contains blocks 3 and 7, which also lie wholly 

in South Sudan. Output from this area is increasing, but the oil produced is the lower-value 

Dar Blend: Waxy and acidic,10 it has a limited market because not all refineries are equipped 

to handle it and because U.S. sanctions prevent sales to refineries in the United States that 

can process it. Therefore Dar Blend sells at a substantial discount on the market; during the 

financial crisis of 2009 this discount reached over 60 percent compared with the benchmark 

Brent crude. Discounts have been falling since and could potentially fall further if U.S. and 

European refineries were to purchase the oil.11 However, the changes in sanctions rules 

issued by the U.S. Treasury in April 2011 maintain restrictions on U.S. trade in oil from South 

Sudan.12 Table 1 describes the production levels, oil transport methods, and shareholders for 

each of these three areas of production.

The dominant players in South Sudan’s oil production sector—CNPC, Petronas, and 

ONCG—are wholly or partly state-owned oil companies that have been on a path of very 

rapid international expansion over the past ten years and are now all major international oil 

companies. Table 2 provides additional information on each of these producers; in addition, 

Total, the French-based international oil company, holds a very large exploration concession 

in South Sudan, though this is currently not being worked. 

Sudanese oil production appears to have reached a plateau, at least as far as current 

fields and production technologies are concerned. According to the World Bank, oil output 

from the north and south is expected to peak in 2012, at around 527,000 bpd, and to decline 

sharply starting in 2015 unless new discoveries are made or recovery factors are increased.13

There is little certainty about the likelihood of new finds in South Sudan14 or the commercial attractiveness of investment in enhanced recovery. The initial results of an assessment 

sponsored by the government of Norway are that there may be large potential for using 

enhanced oil recovery methods to increase output from blocks 1, 2, and 4.15 By contrast, 

reports of an independent reserves audit for ONGC Videsh-OVL, one of the shareholders in 

blocks 3, 7, and 5A, suggest that reserves there may be lower than previously estimated.16

Historically the success rate for oil exploration in Sudan has been high, suggesting good 

potential, though wells drilled in the south (Block 5A) in 2007 and 2008 were dry.17

Sudanese oil production appears 

to have reached a plateau . . . 

According to the World Bank, 

oil output from the north and 

south is expected to peak in 

2012, at around 527,000 bpd, 

and to decline sharply starting 

in 2015 unless new discoveries 

are made or recovery factors 

are increased.
4

Map 1. European Coalition on Oil in Sudan
5

Concession

Production 

(thousands of 

barrels/year) Transport Shareholders*

Greater Nile Petroleum Operating 

Company (GNPOC); part of 

blocks 1, 2, and 4 belong to 

South Sudan (South Sudan’s 

share under negotiation and not 

determined as of May 2011).

Nile blend 

2005: 102,937 

2006: 92,151

2007: 89,649

2008: 74,946

2009: 64,167

2010: 55,000

1,610 km pipeline from the 

production centers to Port 

Sudan for export and to the 

Khartoum refinery

CNPC (40 percent)

Petronas (30 percent)

ONGC Videsh (25 percent)

Sudapet (5 percent)

Petrodar

blocks 3, 7

Dar Blend 

2005: 0

2006: 24,047

2007: 63,764

2008: 71,011

2009: 88,214

2010: 92,694

1,400 km pipeline to Port 

Sudan

CNPC (41 percent)

Petronas (40 percent)

Sudapet (10 percent)

Sinopec (6 percent)

Al-Kharafi (3 percent)

White Nile Petroleum Operating 

Company (WNPOC) 

Block 5A

Nile Blend 

2005: 0

2006: 4,346

2007: 8,586

2008: 8,067

2009: 7,152

2010: 6,102

Link in to GNOPC pipeline Petronas (69 percent)

ONCG (24 percent)

Sudapet (7 percent)

Table 1. South Sudan's Oil Production

*Shareholders prior to South Sudan’s independence. In final negotiations over postreferendum arrangements, shares 

may be changed, especially those of Sudapet.

Source: Energy Information Administration, “Sudan Country Analysis Brief,” November 2010; ECOS, “Sudan’s Oil Industry 

on the Eve of the Referendum”; Republic of Sudan, Ministry of Petroleum, Sudanese Petroleum Corporation, “Statistics for 

Crude Oil and Productions,” http://www.spc.sd/en/statics_crude.php.

Oil Issues in Secession Negotiations

Oil issues were prominent in the negotiations between north and south both before and after 

the referendum of January 2011. The key questions concerned who owned the oil fields straddling the (not yet fully demarcated) north-south border; whether a revenue-sharing formula 

would be retained, and, if not, what price the south would pay to access export pipelines 

and ports in the north; and how state-owned oil assets, including those held by the state oil 

company Sudapet, would be distributed after southern secession. These issues were unresolved 

between the parties at the time of the January referendum, although agreements were made 

about security arrangements in order to ensure that oil would keep flowing.18

In the postreferendum period, as of May 2011, no definitive agreements had been made on 

the division of oil industry assets and revenues between the two new states. Critical unresolved 

questions include how the oil fields in blocks 1, 2, and 4 straddling the border are to be owned 

and operated. Will there be a system of joint north-south ownership for some or all? Will the 

Greater Nile Petroleum Operating Company (GNPOC) consortium (see table 1) continue to operate the fields? How will profits be split? Will there be an independent third party arbitrator to 

resolve disputes? It is not known if the south will be able to secure guaranteed access to northern pipelines for export of its oil. If they do, what fees will be payable to the pipeline owners 

and the north for transit rights? Further, at the time of the referendum in January, articles in 
6

the Wealth Sharing Agreement19 within the CPA that addressed identifying and compensating 

for any social or environmental weaknesses in existing oil contracts, and compensating any 

people whose rights had been violated, had not been implemented. 

Limited progress has been made on other issues. North and south decided jointly in 

March 2011 to move forward on a long-mooted comprehensive accounting for oil-wealth 

sharing during the CPA period through an audit conducted by an international accounting 

company. However, no contract has been awarded, nor has the work started, despite the 

stated intention to have the audit results by July 2011.20 The U.S. government has been 

reviewing the applicability of its sanctions on South Sudan, though U.S. investment in and 

purchase of oil exported from South Sudan through the existing infrastructure—which 

is the only export infrastructure available—remains prohibited unless a special licence is 

issued. That said, unless north-south talks entirely fail to reach agreement on economic 

issues, which could lead to a shutdown of the oil sector, the finances of South Sudan are 

sure to gain a boost with independence because the south gains an expected larger (though 

as yet undetermined) share of oil revenues and because global oil prices likely will be higher 

if the trends in 2011 to date are maintained. The South Sudan budget for 2011 produced 

before the referendum and the rise in oil prices suggest that oil revenues will provide all but 

2 percent of the new country’s $2.3 billion budget.21

July 2011: The Beginning of the South Sudan Oil Industry

The Republic of South Sudan does not have a blank slate on which to determine how to 

manage its oil industry. Long-term contracts have been made with oil companies, infrastructure has been laid down, and patterns of oil revenue management and budgeting were 

established during the period of semi-autonomy under the CPA. The challenge for the new 

state is to determine the need for and scope to make changes in these initial conditions 

in order to realize the development and diversification it needs.22 This section describes 

the initial conditions for the oil industry of the new republic as a prelude to recommending 

policy priorities for the GoSS in its constrained situation. 

Exploration

Much of the area of South Sudan already has been let for oil exploration, and there is potential 

for further exploration within the blocks that are under production. The only areas not yet 

Table 2. Profile of Main Oil Companies Operating in South Sudan

Company Type International presence

China National Petroleum Company 

(CNPC)

Chinese integrated national oil 

company, majority state owned and 

with a stock exchange–listed arm 

(PetroChina) ranked second largest 

in the world (2010).*

Exploration or production in 

twenty-nine countries worldwide. 

Largest shareholder in blocks 1, 2, 

4 and 3, 7.

Petronas Integrated national oil company of 

Malaysia. Part listed on the Kuala 

Lampur stock exchange (Petronas 

Gas, Petronas Chemicals, Petronas 

Dagangan Bhd: downstream 

products).

Exploration or production activities 

in twenty-three countries. Largest 

shareholder in Block 5a, present in 

all South Sudan blocks.

ONGC Videsh (OVL) Indian state oil company; part 

listed on the Bombay stock 

exchange. Ranked twentyfirst-largest listed oil company 

internationally.

Operates in fifteen countries 

internationally.

* “PFC Energy 50,” http://www.pfcenergy.com/pfc50.aspx. Ranking based on market capitalization on December 31, 2010.

The finances of South Sudan 

are sure to gain a boost with 

independence because the south 

gains an expected larger share 

of oil revenues and because 

global oil prices likely will be 

higher if the trends in 2011 to 

date are maintained.
7

marked out are in the far south. However, no significant exploration is currently underway. The 

largest exploration block in South Sudan is Block B, licensed to Total, which has undertaken 

minimal exploration to date.23 The smaller Block 5B is held by the Moldovan company Ascom, 

which has rights until the end of 2012 and has undertaken seismic surveys and some drilling, 

with as yet no success in finding oil, and is reported to have ceased active exploration.24 Block 

Ea is large but not wholly in South Sudan. It was leased in August 2010 to Star Petroleum. No 

information is available on what exploration activity, if any, Star is undertaking.

Pipelines

The oil produced in South Sudan is exported via two main pipelines that run through the 

north to the export terminal at Port Sudan, on the Red Sea. Before the referendum, there 

was much discussion about the prospects for constructing an alternative pipeline that would 

take oil from South Sudan to export through Kenya. However, this would take at least three 

years to design and build—probably much longer—and there are as yet no clear proposals for how to finance it. In the history of international oil and gas pipelines, far more are 

mooted than built, and political will alone cannot create them; there needs to be the oil to 

put in them and a compelling commercial case for investment. The existing export pipelines 

from Sudan were financed and built by the consortia of oil companies producing oil in Sudan. 

There is little economic incentive for these companies or anyone else to finance a multibillion-dollar pipeline unless there is additional oil to export through it. If South Sudan cannot 

get reliable access to the existing export network, then a southern pipeline will be essential. However, this would sharply cut into the government’s oil revenue, whether the state 

finances the pipeline itself or offsets construction costs as part of oil company costs.

Production

South Sudan is expected to honor existing production sharing contracts, so that broadly 

the same consortia will keep operating. Before secession, Sudapet had a share in each oil 

concession. These shares are among the assets to be divided between the two states. In the 

division of assets, Sudapet may lose its shares in the oil fields that are transferred to South 

Sudan, or the Sudapet shares may be divided to provide matching shares for Sudapet and 

Nilepet, the embryonic state oil company South Sudan established during the CPA period. 

The latter would be a positive step, creating a shared interest between the two states in 

the smooth operation of the oil industry. It is also possible that the requirements for the 

oil companies in environmental standards and community development will be expanded, 

as was the case when Total’s exploration concession was renegotiated in 2004,25 and likely 

that the government will seek commitments from the oil companies to invest in training and 

employing South Sudanese nationals.26

Institutions, Policies, and the Legal Framework of the Oil Industry

Under the CPA, the oil sector was managed by the National Petroleum Commission (NPC), 

in which both north and south were represented and which was intended to provide for full 

sharing of information and decision making. In practice, the NPC did not function well. Thus, 

South Sudan begins its independence with limited detailed knowledge of the industry, the 

companies involved, the geology, or the minutiae of the concession contracts wherein lie the 

opportunities for increasing or reducing the state’s share of oil profits.27

The draft transitional constitution of South Sudan28 sets out at a high level the proposed 

arrangements for managing the petroleum sector in the new country (Part 12, Chapter 111). 

It provides for three bodies: a national petroleum council with overall responsibility for 
8

policymaking that approves contracts with oil companies; a ministry responsible for policy 

implementation that represents the government in oil contracts; and a national petroleum 

and gas corporation to be a state company and shareholder in oil and gas contracts (see 

box 1). The draft transitional constitution includes commitments to a number of principles, 

including “using oil revenues to develop other sectors of the economy,” “ensuring transparency and accountability,” accountability for human rights violations and environmental 

degradation caused by petroleum operations, and “creating a secure and healthy investment 

environment.” As outlined, the arrangements are consistent with effective governance of 

the oil industry, but to be effective in practice, much more is needed: The institutions must 

be built; the detailed implementing laws, regulations, and rules agreed; and key omissions 

addressed, notably whether and how revenues are to be shared with producing states and 

areas.29

More specific measures are included in the draft oil policy released in December 2010, 

but this draft has not yet developed into an agreed government policy.30 Important components of the draft policy include references to using World Bank environmental and social 

standards “as a benchmark,” a commitment to seeking membership in the Extractive Industry Transparency Initiative (EITI), the allocation of an undefined percentage of oil revenue 

to the producing states, and promotion of local content—that is, creating opportunities for 

local businesses to provide goods and services to the industry. The draft policy proposes 

that oil companies must have insurance to cover any environmental clean-up responsibilities 

and collaborate with the government to develop infrastructure to enhance the livelihoods 

of people in producing areas. State governments should “ensure that personnel, property 

and facilities of the oil companies are protected.” The draft also suggests that South Sudan 

will continue existing production sharing agreements (PSAs) but review them in light of 

the petroleum policy and require addenda to address any areas of noncompliance. Overall, 

South Sudan’s institutions of governance for the oil sector are embryonic: with a sense of 

direction, but without the capacity or the complete set of policies, laws, and regulations 

it will need. 

Oil Companies

The oil industry in South Sudan, as is the case for many countries, is based on the production-sharing model. PSAs are long-term legal contracts—that is, lasting from twenty to 

Box 1. Oil Sector Institutions in the Draft Transitional Constitution

National Petroleum and Gas Council

•	 Members: relevant national ministers, representatives of oil-producing states, and other institutions as governed 

by law 

•	 Role: policymaking and monitoring of policy implementation; approval of strategies and programs for the sector; 

approval of oil contracts; review of environmental and social effects of existing and future developments

Ministry in charge of petroleum and gas

•	 Negotiate oil contracts

•	 Initiate legislation, rules, and regulations for the sector

•	 Formulate strategies and programs for development of the sector

•	 Develop technical cadres

•	 Ensure all oil projects are subject to environmental and social impact assessment (in consultation with 

affected communities)

•	 Sign contracts with oil companies on behalf of the government and manage the relations of the 

government with oil and gas companies

National Petroleum and Gas Corporation

•	 Participate in the upstream, midstream, and downstream activities of the oil sector on behalf of the 

national government

South Sudan’s institutions of 

governance for the oil sector 

are embryonic: with a sense 

of direction, but without the 

capacity or the complete set of 

policies, laws, and regulations 

it will need.
9

thirty years—between a government and an oil company or consortium of oil companies. 

Under a PSA regime, companies are responsible for financing oil exploration and field development; if such exploration discovers commercially viable amounts of oil, then the company 

and the government share the profits of oil sales under a predetermined formula after all 

the company’s exploration and development costs have been recovered over an agreed 

cost-recovery period. Parallel agreements define how company shares are divided among 

shareholders and government revenues are allocated subnationally.

Under PSAs, governments and companies share responsibility for overall planning of oil 

exploration and production through a series of annual work programs that the company 

proposes and the government evaluates. A key factor driving work plans is the extent 

of reserves in a field; estimates change as a field is operated and additional information 

becomes available. Reserves are a function of geology (oil in place), engineering (feasibility 

and costs of extraction), and economics (whether it makes commercial sense to spend on 

exploiting these resources). The structure of PSAs means that companies seek to optimize 

their returns, such as by maximizing recoverable costs and limiting additional investment 

to circumstances that bring them increased returns. The work plans companies propose are 

to reflect corporate priorities, which are not necessarily the same as those of the government. Company and government interests are not necessarily aligned, for example, over the 

timing of exploration work and production trade-offs between short-term production and 

longer-term management of the oil reservoir. A government party to a PSA always needs to 

have its own independent source of deep technical expertise on which to evaluate company 

work plans and cost claims as well as manage the relationship with companies to allow for 

effective negotiation, leading to joint decision making. 

South Sudan has had limited exposure to managing the government side of PSAs and 

little contact with oil companies; foreign oil companies’ primary relationships have been 

with Khartoum. Until late 2010, when the CNPC opened an office, only Total and Ascom had 

offices in Juba. Before and after the referendum, the government of South Sudan started 

establishing direct links with the oil companies and announced its intention to enter into 

agreements with all oil companies operating in the region before the country’s independence.31 This is an important first step in preparing to take over as the government party 

to PSAs. One agreement has been made with Petronas, but not yet with CNPC or OVL.

Oil Revenues and Government Spending

Under the CPA, the GoSS received 50 percent of revenues from oil produced in the south, 

which accounted for almost all the government’s revenue excepting donor aid. Turbulent oil 

prices meant that GoSS revenues have fluctuated greatly (figure 1), most notably when they 

soared in 2008, then dropped back sharply in 2009.32 In 2009, the GoSS had to operate on 

a budget reduced by one-third from the previous year.33

South Sudan is a postconflict country that requires construction rather than reconstruction. The GoSS faces huge demands to spend on building the social and economic 

infrastructure—schools, hospitals, roads—that the country lacks. Through the CPA period, 

South Sudan was also spending heavily on defence and security. In the three-year spending plan for 2008–11 that the Ministry of Finance and Economic Development presented to 

donors, the government argued that it planned to spend 31 percent of its budget on security 

and rule of law (mostly salaries for armed forces), followed by infrastructure at 23 percent 

(mostly roads), education at 9 percent, transfers to the states at 9 percent, and health at 8 

percent. The GoSS expected oil revenues to cover 77 percent of its spending, and was looking to donors to fill the gap.34 Over the CPA period, salaries took up a progressively larger 

share of government spending.

The government of South 

Sudan started establishing 

direct links with the oil 

companies and announced 

its intention to enter into 

agreements with all oil 

companies operating in the 

region before the country’s 

independence.
10

The spending priorities are reflected in the draft 2011 GoSS budget, which focuses on 

ensuring “a smooth transition to independence”—a main concentration of spending, along 

with stability and improving services. The headline numbers in the draft budget indicate 

that total domestic revenues of 5.7 billion Sudanese pounds (SDG) are expected, consisting 

of SDG 5.6 billion from oil transfers—98 percent of total revenue—and SDG 0.1 billion from 

nonoil sources. The latter includes SDG 40 million from the personal income tax, SDG 54 

million from other GoSS revenues, and SDG 17 million from the GoSS share of national taxes. 

Total expenditures are projected to equal total revenues. Operating costs are SDG 2.1 billion, 

leaving capital expenditures of only SDG 1.2 billion. The Ministry of the Sudan People’s Liberation Army (SPLA) and Veteran Affairs is allocated the largest share, at SDG 1.6 billion, or 

28 percent of the budget. The Ministry of Roads and Transport follows with SDG 0.5 billion, 

and the Ministry of Internal Affairs with SDG 0.4 billion.35

Transparency

There has been little transparency in Sudan’s oil sector. This has been the focus of repeated 

pressure from international NGOs—notably Global Witness36—and the international community. Commitments have been made, notably by the GoSS in its draft petroleum strategy, 

to be transparent about oil revenues and their management. The GoSS also has pledged to 

join the abovementioned EITI, the international standard for checking and disclosing the 

revenues that oil and mining companies pay to governments, and reconciling this with what 

governments receive, in order to promote transparency, accountability, and good governance. Membership can also improve a country’s credit rating and access to debt relief.37

The neighboring Central African Republic is already EITI compliant38 and the Democratic 

Republic of the Congo has started on the path to membership.

The GoSS publishes limited data on its revenues under the Wealth Sharing Agreement.39

No data are published on what income or other taxes the oil companies pay. The production 

sharing agreements under which the oil companies operate in Sudan are not in the public 

domain, nor is the memorandum of understanding that the GoSS signed with Petronas 

in March 2011. The budget of South Sudan that was agreed in March 2011 has not been 

published.

Figure 1. GoSS and Southern State Oil Revenues

Source: Government of South Sudan, Ministry of Finance and Economic Planning, Petroleum Unit, “Summary of 

GoSS + Southern States Including ORSA,” http://www.petrolgoss.net/summary.html.

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009 2010

millions of 

dollars
11

Priorities for Oil and State Building 

Uniquely Difficult Challenges

South Sudan faces uniquely difficult challenges in relation to its oil sector. The government 

depends on oil revenues more than does any other country in the world. At the same time, 

it has an aging oil industry and little time to prepare for managing the oil sector because of 

the prolonged separation negotiations with Sudan, leading to uncertainty about what share 

of the existing industry’s resources, infrastructure, and revenues South Sudan would hold. In 

the run-up to independence, there was violent conflict in some of the oil-producing areas. 

Looking ahead, South Sudan’s oil earnings in relation to its population put the country only 

on the cusp of eligibility for preferential aid as one of the world’s least developed countries, 

even though is highly undeveloped, with 83 percent of the population illiterate and 51 

percent living below the poverty line. 

The country’s challenges are a mix of the urgent and the structural. Urgent issues include 

enabling the oil industry to operate securely (in the run-up to independence, fighting with 

various southern-based militia groups led to halts in oil production40) and concluding negotiations with the NCP on dividing the industry and its infrastructure. Two months before 

independence, negotiations on how the oil industry was to be divided between north and 

south, whether oil produced in South Sudan could be exported using the existing pipelines 

and terminals, and what price would have to be paid to the oil companies and the government of Sudan remained unresolved. The structural issues are those of any new oil state, 

though in an exaggerated form because of the degree of South Sudan’s dependency on and 

the maturity of its oil sector.

The top oil-related task for the GoSS will be to ensure security for oil workers and installations. Typically in oil states, oil companies provide first-line security at their facilities 

through employees or contractors, but the terms of production-sharing agreements mandate 

government forces to provide backup in case of incidents, such as community or labor demonstrations or attacks on pipelines. They are also responsible for security in the wider area. 

Without ensuring security at oil installations so that production can be maintained, the new 

country faces acute economic problems. 

Even assuming South Sudan can create a secure environment for oil production and make 

certain which fields it owns and how it will export oil, it faces the political and economic challenges of natural resource dependency. As mentioned above, with 97 to 98 percent of its domestically generated income from oil, it is the most oil-dependent economy in the world.41 Further, 

unlike neighboring Uganda—also a new oil state—South Sudan starts life with a mature42 oil 

industry potentially on the verge of sharp decline. Unless the projected drop in output from 

2015 is reversed, the new state will have a small number of years in which to use its oil wealth 

to lay the foundations for a nonoil economy. With little experience of running oil policy and 

regulating oil companies, the government needs to jump-start its regulatory capacity.

The challenges demand an integrated approach from the GoSS and its international 

partners—multilateral institutions, donors, and oil companies—to address two overlapping problems. The first is how to use the country’s oil revenues to best achieve broadbased economic development. This task is primarily but not exclusively for the Ministry 

of Finance and Economic Development (or its successor), supported by the International 

Monetary Fund (IMF)43 and multilateral and bilateral donors. The second critical problem is 

how to manage the oil sector to maximize government revenues from existing production 

fields, and to incentivize the investments in oil exploration that might extend the lifespan 

of South Sudan’s oil industry. This is a task primarily for the Ministry of Energy and Mining, 

or its successor ministry, though the Ministry of Finance and security forces also have an 

essential role to play. 

The government depends on oil 

revenues more than does any 

other country in the world.
12

The two problems should be dealt with in parallel. But before they can be addressed, 

in the first hundred days, the government should focus on acquiring and analyzing critical 

information about the industry it has acquired, using this to define its strategic options. 

After that, difficult but vital political decisions on revenue management and maximization 

can be made.

The First Hundred Days

In the first hundred days the critical task for the government is to find out exactly 

what its oil wealth consists of and what its real options are regarding future production, 

new exploration, export pipelines, and refineries. This requires a complex and multidisciplinary analysis, involving a mix of technical, engineering, economic, and legal considerations, and it is essential to developing a sound strategy for oil sector management into 

the future. 

Robust information is needed on two key issues. First is to understand the size of the oil 

reserves in each of the fields in South Sudan, including any that are shared between South 

Sudan and Sudan, as well as the potential for expanding production (e.g., through enhanced 

oil recovery techniques) and the associated costs and timelines of doing so. Second is to 

understand what is needed to trigger serious investment in oil exploration in South Sudan. 

So far, Total—the only strong company with an exploration holding—is inactive; other 

exploration companies are also inactive or not credible, since they do not have a track record 

of successful exploration. The government needs to understand what is holding back exploration and look at how the barriers can be overcome. It needs to look, for example, at 

alternative contractual models with greater incentives for successful exploration and effective penalties if companies do not deliver on the agreed exploration program.

South Sudan needs to follow two routes to getting the information it needs and 

analyzing it to identify its long-term options. It should invite in the oil companies that 

have exploration and production contracts in South Sudan and require them to provide 

information (box 2). At a minimum, the companies should deliver all the information to 

which the government has a right as a signatory to the PSAs; as needed, efforts should 

be made to draw on goodwill and the companies’ need to establish relations with the new 

government to get the required data. Then, within the first month, the government should 

commission a top-rank oil consultancy to provide it with an independent evaluation of 

proven, probable, and possible reserves, options for expanding and extending production, 

and advice on what changes, if any, are needed to the existing PSA regime to achieve this 

(see box 3 on estimating reserves). In parallel, and drawing on independent expert advice, 

the government needs to launch a frank consultation with the oil companies about how 

to catalyze exploration.

Base data Test data

Seismic data Fluid analysis

Well data Reservoir pressure data

Reports (internal and regulatory) Reservoir temperature data

Current development plans Production data: ASCII, OFM, or PEEP

Wellbore schematics interests Economic data

Copies of production-sharing contracts and licenses Geological and reservoir simulation models

Box 2. Data Requirements to Enable a Comprehensive Geological, 

Engineering, and Economic Evaluation

The government needs to 

understand what is holding back 

exploration and look at how the 

barriers can be overcome.
13

Absent new investment, how much oil can South Sudan’s oil industry expect to produce, 

and over what period? Which new investments would increase the volume or timeline of 

production? Who has to do what to realize these changes? Government? Oil companies? Others? What are the options for government to stimulate investment in exploration? At the end 

of an evaluation, and within the first hundred days of independence, the GoSS should have 

the answers to these questions.

Managing South Sudan Revenues

The macroeconomic problems posed by dependence on oil revenues are well understood 

conceptually, though not easy to avoid in practice.44 For a heavily dependent, undeveloped 

country with a small nonoil economy, the main challenge lies in effectively using revenues 

that are predictably volatile from year to year—as a function of changing oil prices and 

variation in oil output—but unpredictable in the degree of volatility. The risk for countries 

in this position is that government earnings are used primarily to pay the fixed costs of 

administration (e.g., salaries, rents), while investment in development infrastructure (e.g., 

schools, hospitals, roads, power) stops and starts inefficiently according to the funds available. In very undeveloped countries, development needs and politics make it difficult and, 

arguably, inadvisable to focus on managing resource revenue fluctuations principally through 

revenue stabilization funds, as is generally proposed for more developed countries.45

The government and its international partners recognize the need to diversify the economy 

and are emphasizing the development of its large, untapped agricultural potential.46 The 

GoSS has been working on policies to create a good investment climate and maximize nonoil 

tax collection. However, the scale of South Sudan’s revenue stabilization and infrastructure 

challenges suggest that extraordinary and innovative measures will also be needed. The GoSS 

and international community should consider implementing two key approaches relating to 

oil revenue management simultaneously. First, a coordinated donor commitment could provide 

budget support to South Sudan in a way that helps stabilize the government’s income, given 

the certainty of fluctuations in its oil revenue. Under this approach, donor funds would be 

released to try to maintain spending on the South Sudan Development Plan (SSDP) that is currently being drafted, and counteract the unavoidable effect of oil price swings. Aid could be 

allocated to South Sudan on independence, with funds placed in an escrow account for release 

when oil revenues fall, so that development programs can be maintained as far as possible. The 

approach is a variant of the multidonor budget support approach that donors have employed in 

a number of countries in recent years (see box 4), and of the donor coordination through the 

Juba Compact and collaborative budget programming47 in place during the CPA period. The 

key difference is that donor budget support would focus explicitly on offsetting the specific 

Types of Reserve 

Proven (P1): those quantities that geological and engineering information indicates with reasonable certainty 

can be recovered in the future from known reservoirs under existing economic and operating conditions; 

probable (P2): those that are not (yet) proven, but which are likely to be exploitable; possible (P3): oil reserves 

that have a significant probability of being commercially exploitable, but which cannot be said to be probable.

Concept

The process whereby an economic analysis is made of a property to arrive at an estimate of a range of net 

present values of the estimated future net revenue resulting from the production of the reserves associated with 

the property. In practical terms, an evaluation includes the independent reserve evaluator’s interpretation of all 

the relevant data that form the basis for the reserve estimates, including well tests, production performance, 

open hole log data, and an economic analysis of the property. 

Box 3. Approaches to the Estimation of Oil Reserves

A coordinated donor 

commitment could provide 

budget support to South Sudan 

in a way that helps stabilize the 

government’s income, given the 

certainty of fluctuations in its 

oil revenue.
14

and certain risk that oil revenue fluctuations present to economic and political resilience until 

alternative sources of revenue (e.g., mining, agriculture) can be developed, rather than on 

realizing predictable donor funding, which is the usual rationale for multidonor budget support programs.48 The mechanisms that would allow this to happen in Sudan are already largely 

in place or could be built up through the Joint Donor Team process and Government/Donor 

Forum, which meets quarterly. 

Second, South Sudan could potentially benefit from oil-backed loans for infrastructure 

development from China or other donors. China already gives infrastructure loans to many 

African countries. In some cases, these are backed by resources, such as oil or copper, so that 

once projects, such as road building, are completed, repayments are made in resources valued 

at current market prices. Although controversial—there are questions as to whether the loan 

terms are transparent or the infrastructure of good quality—such loans can speed up the conversion of oil revenues into development goods, helping ensure that a proportion of revenues 

are spent on infrastructure needed for economic growth.49 Given the need for further investment in the oil sector to enhance recovery from existing fields and conduct new exploration, 

and the lack of interest from other major companies in investing in oil, an oil-backed loan 

could provide incentives to the Chinese oil companies to make further investments, such as in 

enhanced recovery and further exploration. The best chance for South Sudan to get oil-sector 

investment from reputable Western companies, which its leaders want to see come into the 

country, is to have existing investors demonstrate confidence in the country by spending 

exploration dollars there—and then, of course, finding new oil reserves. 

Managing the Oil Sector and Revenue Maximization

In managing the oil sector itself, the immediate priorities for South Sudan’s oil ministry 

are to maximize government receipts from the existing oil fields, create an environment 

in which companies can invest in exploration and enhanced production, and remedy past 

damage. Two short-term steps could enhance government revenue from the existing fields 

within whatever framework is agreed with the north. First is to ensure that South Sudan 

benefits as much as possible from the terms of existing oil production contracts. This step 

requires that the government be an active and expert partner in its PSAs. In particular, the 

government must bring expertise and negotiating strength to its regular meetings with 

companies on work plans and costs, to avoid being the victim of value erosion through 

failing to contain the costs that companies can recover before they split profits with the 

government or accepting production plans that are suboptimal from a government perspective. With the GoSS’s current limited capacity, the best way to achieve this is by buying the 

skills of experienced and hard-headed oil negotiators to work with the government. 

The second step is to try to raise the price received to export lower-grade Dar Blend oil 

by lifting the U.S. sanctions on South Sudan’s oil so that it can be exported to refineries in 

Budget support increasingly has become an important mode of development assistance, receiving growing 

attention from bilateral donors and international financial institutions in the context of a partnership-based 

approach to aid. Reflecting the recommendations of the Paris Declaration (2005) and the Accra Agenda for 

Action (2008), this shift has been motivated, inter alia, by a move away from traditional project support, 

reflecting the concerns of donors, with parallel systems outside the government’s budget framework; greater 

emphasis on building country ownership, systems, and capacity; and a shift from short- to medium-term 

support for reform. Increasing the proportion of funds that are included in the national budget process makes 

donors less prone to micromanage individual programs and allows government to better plan and coordinate 

reform and development.

Source: World Bank and African Development Bank, “Providing Budget Aid in Situations of Fragility: A World BankAfrican Development Bank Common Approach Paper,” Tunis and Washington, DC, February 2011, 5.

Box 4. The General Logic for Donor Budget Support
15

the United States. Widening the market should increase prices for the heavily discounted 

Dar Blend by increasing competition. Under the April 2011 rules, any transaction that might 

benefit the government of Sudan or involve transportation through Sudan requires a license 

from the U.S. Treasury’s Office of Foreign Assets Control (OFAC). Legal commentators on the 

OFAC guidance on sanctions note that U.S. persons interested in conducting business in 

South Sudan will continue to confront significant compliance challenges.50 Clearer signals 

about what might and might not be licensed would help.

Encouraging Exploration 

South Sudan will need to work hard to stimulate the oil exploration it needs over the next 

few years. It has many disadvantages as an oil producer—notably its landlocked position 

and history of civil war—though it also has the benefit that the cost of producing (though 

not of transporting) oil from onshore wells is substantially lower than it is for the deep 

offshore wells, where much new investment globally is being directed. 

The long-term future of South Sudan as an oil producer, and the commercial viability of 

the much-desired alternative export pipeline through Kenya, depends on new exploration 

success. As noted by Sudan People’s Liberation Movement (SPLM) Secretary-General Pagan 

Amum in a speech in March 2011, “If there are more oil finds that will justify building new 

pipelines, then those will be built.”51 Getting new exploration started will not be easy. 

South Sudan acquired a poor reputation as an investment location when, in 2005, a part of 

the Total block was sold to another company over Total’s head, and the company had to go 

to court in London to have its rights asserted.52

Oil exploration companies prospect for oil in the lowest risk–highest return environments 

first. These are typically onshore sites in politically stable countries. South Sudan’s government needs to find ways to demonstrate that it is rational for companies to spend valuable 

capital in exploration in South Sudan, and that they will not face international criticism or 

sanctions. To encourage companies to spend on exploration, the GoSS needs to offer investors attractive fiscal terms, assurances of contract security, physical security for oil industry 

people and property, and guaranteed access to existing pipelines—either as an interim 

measure in the case of large new finds or as a long-term route for smaller volumes. It also 

needs to crack down on the local corruption that adds costs and uncertainty to oil company 

operations.53 To counteract its poor reputation, the GoSS should work with urgency to 

Membership of EITI is a staged process. To start the EITI process, a government must

•	 issue an unequivocal public statement of its intention to implement the EITI;

•	 commit to work with civil society and companies implementing the EITI;

•	 appoint a senior individual to lead on EITI implementation; and 

•	 establish a multistakeholder group to oversee EITI implementation.

The multistakeholder group, in consultation with key EITI stakeholders, should agree and publish a fully costed 

work plan, containing measurable targets and a timetable for implementation and incorporating an assessment 

of capacity constraints. The EITI secretariat and the World Bank administered EITI Trust Fund have resources 

available to help countries implement these steps. 

EITI candidature and compliance follow

•	 candidature: implementation of the work plan to produce EITI reconciliation accounts and independent 

external validation of those accounts; and

•	 compliance: the country meets all of the requirements of membership.

See Extractive Industries Transparency Initiative, “ETIT Rules, 2011 Edition,” EITI International Secretariat, Oslo, 

February 16, 2011, http://eiti.org/files/EITI_Rules_2011.pdf.

Box 5. Key Steps to Joining the EITI

The long-term future of South 

Sudan as an oil producer, and 

the commercial viability of the 

much-desired alternative export 

pipeline through Kenya, depends 

on new exploration success.
16

deliver on its commitment to join EITI, perhaps by becoming an EITI candidate country by 

the first anniversary of its independence in July 2012. As soon as South Sudan’s president 

announces a commitment to join EITI publicly, the EITI secretariat can help initiate the 

process to meet the other four specific requirements for candidacy (box 5).

Remedying Past Damage 

The long-standing allegations of environmental damage and human rights abuses as 

communities were forced out of oilfield areas have not yet been properly evaluated, even 

though the CPA contained a commitment to do so. An environmental audit was undertaken 

on behalf of the GoSS through the Norwegian Oil for Development program, but the results 

have not been published. Community organizations and NGOs report deep community 

grievances and concerns about the damaging local effects of oil production, which create 

security risks for the industry. One key step to addressing the issue of past damage is to 

conduct a thorough environmental and social-impact audit of the oil industry. This should 

evaluate the industry against World Bank and International Finance Corporation (IFC) social 

and environmental standards,54 the de facto international industry standards developed in 

the 2000s. Simply because much of South Sudan’s oil industry was established in the 1990s, 

there will be a need for action to raise standards, and a case can be made that the companies alone should not have to bear the cost of upgrading to meet modern requirements. 

The audit should produce a remediation plan that lays out the actions needed to prevent 

future damage and to remedy or compensate for any damage that it finds. Government, oil 

companies, and donors would need to agree on a partnership basis and timetable on which 

to implement the recommended plan. 

Conclusions: Oil Recommendations for the New State

The following list of recommendations—primarily for the South Sudan government but 

also donors, the oil companies, and the U.S. government—is intended to encompass steps 

that can be taken in the short to medium term to strengthen the southern oil sector and 

help it to benefit the people of South Sudan. Among other steps, the GoSS should consider 

the following:

•	 Providing security for oil workers and oil installations.

•	 Using the first 100 days to get an independent evaluation of South Sudan’s oil reserves and 

the options for increasing and extending production.

•	 Renegotiating PSAs to incentivize investment in increased production and in exploration.

•	 In the meantime, using high-caliber oil industry specialists to support the government in 

negotiations with oil companies to maximize government revenues from the existing PSAs.

•	 Working with the oil companies to identify barriers to exploration and addressing those barriers.

•	 Demonstrating that South Sudan is a reputable oil state by making an immediate commitment to join the EITI and becoming an official candidate country within one year.

•	 Exploring the potential for oil-backed loans to finance the rapid development of the infrastructure needed to develop the agricultural sector.

•	 Collaborating with donors to use their funds to help smooth out the inevitable fluctuations 

in government revenue due to fluctuations in oil prices and production. 

•	 Encouraging the United States to allow oil from South Sudan to be imported to U.S. refineries and remove barriers to U.S. companies investing in the oil sector.
17

Donors should consider the following:

•	 Exploring ways of using donor funds to help smooth out government finance available for 

development spending in the face of certain fluctuation in oil revenues.

•	 Exploring ways of frontloading spending of oil revenues on the priority infrastructure that 

help build the nonoil economy, such as through oil-backed loans. 

The major oil companies active in South Sudan should consider the following:

•	 Actively cooperating with the GoSS by promptly sharing technical and economic information, working together to identify how to increase and extend production, and supporting 

EITI membership.

Notes

1. National Baseline Household Survey 2009, quoted in Southern Sudan Center for Census, Statistics, and Evaluation 

(SSCCSE), “Key Indicators for Southern Sudan,” Government of Southern Sudan, Juba, December 14, 2010, 

http://siteresources.worldbank.org/INTSUDAN/Resources/Key-Indicators-SS.pdf.

2. Government of South Sudan, Draft Petroleum Policy, December 2010, unpublished paper.

3. Bassam Fattouh and Hakim Darbouche, “North African Oil and Foreign Investment in Changing Market 

Conditions,” Energy Policy, vol. 38, no. 2 (2010): 1119–29.

4. BP Statistical Review of World Energy, Historical Workbook, http://www.bp.com/productlanding.do?categoryId=6

929&contentId=7044622.

5. Ministry of Petroleum and Sudanese Petroleum Corporation, “Statistics for Crude Oil and Productions,” Republic of 

Sudan, http://www.spc.sd/en/statics_crude.php.

6. BP, BP Statistical Review of World Energy 2010 (London: BP, 2010), bp.com/statisticalreview. Production and 

reserves figures are for 2009. 

7. The key divestment was in 2003, when Canadian company Talisman sold the 25 percent share it held in the 

GNOPC consortium. See Talisman Energy, Form 6-K, Report of Foreign Issuer, filed May 7, 2003, http://investor.

shareholder.com/tlm/secfiling.cfm?filingID=201283-03-24.

8. One field—Diffra—is in Abyei, the status of which remains disputed in the run-up to independence.

9. Benjamin Leo, “Sudan Debt Dynamics: Status Quo, Southern Secession, Debt Division, and Oil—A Financial 

Framework for the Future,” Center for Global Development, Working Paper no. 233, December 2010, 44. 

10. World Bank Poverty Reduction and Economic Management Unit, Sudan: The Road toward Sustainable and BroadBased Growth (Washington, DC: World Bank, 2009), 58, http://go.worldbank.org/PX5WQB69M0.

11. Leo, “Sudan Debt Dynamics.” 

12. “SSR will prohibit a U.S. company, unless authorized by OFAC, from providing services to the petroleum industry 

in the new state if those services would benefit the Government of Sudan or relate to the petroleum industry 

in Sudan, or from transporting exports of petroleum or petrochemical products through Sudan. Further, should a 

revenue-sharing arrangement between Sudan and the new state result in a situation where the government of 

the new state makes payments to the Government of Sudan from the sale of Southern Sudanese petroleum, U.S. 

persons generally could not engage in transactions involving the oil industry in the new state unless authorized 

by OFAC.” Office of Foreign Assets Control, Sudanese Sanctions Regulation, 31 C.F.R. Part 538, Guidance Regarding 

the Application of the Sudanese Sanctions Regulations to the New State to be Formed by the Secession of 

Southern Sudan, April 12, 2011, http://www.treasury.gov/resource-center/sanctions/Programs/Documents/

sudan_secede_guide.pdf. 

13. World Bank, Sudan, 59–60. 

14. In contrast, new finds have been announced in the north. See Maram Mazen, “Sudan Predicts 17 Percent Increase 

to Northern Oil Production From New Fields,” Bloomberg, May 11, 2011, http://www.bloomberg.com/news/2011-

05-11/sudan-predicts-17-increase-to-northern-oil-production-from-new-fields.html.

15. “‘Based on available data from fields in GNPOC blocks 1, 2, and 4, our screening assessment demonstrates a large 

potential for increased oil production and recovery compared to current plans,’ says Reidar Kristensen, principal 

reservoir engineer in NPD. ‘However, further detailed studies are required to reduce risks related to more advanced 

oil recovery methods and reduce uncertainties in production and cost estimates.’” See Royal Norwegian Embassy 

in Khartoum, “Oil Recovery from Oil Fields in Sudan May Be Substantially Increased,” press release, November 4, 

2010, http://www.norway-sudan.org/News_and_events/Business/Oil-recovery-from-oil-fields-in-Sudan-may-besubstantially-increased/. 

16. Oil and Natural Gas Corporation Limited, “ONGC Announces Updated Management Estimates of Oil and Gas 

Reserves as an Outcome of an Independent Reserves Audit,” February 19, 2011, http://www.ongcindia.com/

def1.asp?fold=headline&file=headline276.txt. The independent estimation of reserves in these blocks that was 

commissioned and published by shareholder ONGC resulted in a reduction in estimated proven, probable, and 

possible reserves in the blocks of almost one third. 

17. World Bank, Sudan, 57, 59. 

18. “Sudan Factions Agree to Preserve Oil Fields,” Commodity Online, December 9, 2010, http://www.commodityonline.com/

news/Sudan-factions-agree-to-preserve-oil-fields-34347-3-1.html. 

19. Comprehensive Peace Agreement, Wealth Sharing Agreement, articles 4.5 and 4.3, http://www.usip.org/

publications/peace-agreements-sudan.

20. Ministry of Oil, Khartoum, e-mail communication with author, March 2011.
18

21. World Bank Poverty Reduction and Economic Management Unit, “Sudan: Country Economic Brief,” World Bank, 

Washington, DC, February 2011, http://siteresources.worldbank.org/INTSUDAN/Resources/Sudan_Economic_

Brief-Feb_2011.pdf.

22. See H.E. David Deng Athorbei, “Government of Southern Sudan 2010 Budget Speech,” Ministry of Finance and 

Economic Planning, Juba, December 14, 2009, http://www.goss-online.org/magnoliaPublic/en/ministries/

Finance/Annual-Budgets/mainColumnParagraphs/0/content_files/file0/2010%20Budget%20Speech.pdf.

23. Total’s published list of global exploration projects for 2011 does not include Sudan. See Total, “2010 Results and 

Outlook,” presentation, February 2011, http://www.total.com/MEDIAS/MEDIAS_INFOS/4042/EN/Total-2010-enresults-outlook-slides.pdf.

24. European Coalition for Oil in Sudan (ECOS), Sudan’s Oil Industry on the Eve of the Referendum (Utrecht: ECOS, 

2010), 10, http://www.ecosonline.org/reports/.

25. Total, “Sudan: Block B,” http://sudan.total.com/our-oil-project/block-b-600081.html.

26. See, e.g., Julius N. Uma, “Envoy: S. Sudan to Respect India’s Oil Deals after Independence,” Sudan Tribune, May 

3, 2011, www.sudantribune.com/Envoy-S-Sudan-to-respect-India-s,38773; Draft Petroleum Policy.

27. PSAs such as those used in Sudan provide for a sharing of profits between government and the producing 

company under a formula set out in the contract. The keys to maximizing the government share are exercising 

tight control over the costs that oil companies are allowed to deduct and ensuring that the work plans of 

operating companies optimize long-term production potential and opportunities to benefit from price peaks.

28. For the full text of the draft constitution, see “Draft Constitution of the Republic of South Sudan Released,” Sudan 

Tribune, April 24, 2011, http://www.sudantribune.com/Draft-constitution-of-the-Republic,38679.

29. Under the CPA, producing areas received 2 percent of the oil revenues generated from that area.

30. See Draft Petroleum Policy.

31. Julius N. Uma, “South Sudan, Malaysia’s Petronas Sign Oil Agreement,” Sudan Tribune, March 13, 2011, http://

www.sudantribune.com/South-Sudan-Malaysia-s-Petronas,38264.

32. GoSS Ministry of Finance and Economic Planning, Petroleum Unit, “Summary of GoSS + Southern States Including 

ORSA,” http://www.petrolgoss.net/summary.html. 

33. ECOS, “Getting Sudan’s Oil Deal Right is Key to Peace,” press release, February 28, 2011, http://www.ecosonline.

org/news/2011/PR_Getting_Sudans_Oil_Deal_Right/.

34. Aggrey Tisa Sabuni, Under Secretary Planning, Ministry of Finance and Economic Planning, Government of South 

Sudan, “Southern Sudan: Financing Requirements & Fiscal Issues,” presentation, http://search.worldbank.org/

all?qterm=Sudan%20financing.

35. World Bank, “Country Economic Brief.”

36. Waakhe Simon Wudu, “5.7 Billion Post-Referendum Budget Unveiled,” Gurtong, February 2, 2011, http://www.

gurtong.net/ECM/Editorial/tabid/124/ctl/ArticleView/mid/519/articleId/4787/57-Billion-Post-ReferendumBudget-Unveiled.aspx.

37. EITI, “International Credit Rating Agency Upgrades Azerbaijan to Investment Grade,” press release, May 28, 2010, 

http://eiti.org/news-events/international-credit-rating-agency-upgrades-azerbaijan-investment-grade.

38. An EITI-compliant country has satisfied all EITI criteria; an EITI candidate has met the initial criteria for 

membership.

39. See Ministry of Finance and Economic Planning, GoSS, www.petrolgoss.net.

40. Jeremy Clark, “South Sudan Clashes Kill 165 in a Week—Army,” Reuters, April 25, 2011, http://in.reuters.com/

article/2011/04/25/idINIndia-56553120110425.

41. South Sudan gets 97 percent of its tax revenue from oil. The IMF classifies countries as oil dependent if more 

than 25 percent of fiscal revenue is from oil. IMF data indicate that only two other countries breach the 90 

percent level: Brunei and Libya at 91 percent and 92 percent, respectively. See Mauricio Villafuerte and Pablo 

Lopez-Murphy, “Fiscal Policy in Oil Producing Countries during the Recent Oil Price Cycle,” Working Paper no. 

10/28, International Monetary Fund, Washington, DC, February 2010. 

42. That is, with fields that have reached the peak of their production or producing fields in declining mode.

43. International Monetary Fund, “IMF Receives Membership Application from South Sudan, Seeks Contributions to 

Technical Assistance Trust Fund to Help New Country,” Press Release no. 11/145, April 20, 2011. The IMF has 

announced that it is seeking donor contributions to a $10.5 million trust fund to provide intense IMF technical 

assistance to the authorities in crucial areas relevant to building the new country’s macroeconomic institutions. 

44. For a general review of the literature, see Frederick van der Ploeg, “Natural Resources: Curse or Blessing?” revised, 

Oxford Centre for the Analysis of Resource Rich Economies (Oxcarre), University of Oxford, June 13, 2010; also 

see IMF, “Managing Natural Resources Topical Trust Fund,” project brief, Washington, DC, November 2010, http://

www.imf.org/external/np/otm/2010/110110.pdf. This sets out the brief for a new fund that the IMF is setting 

up to work with governments of resource-rich countries; the brief explains the logic for this intervention. 

45. Frederick van der Ploeg and Anthony J. Venables, “Harnessing Windfall Revenues: Optimal Policies for ResourceRich Developing Economies,” Oxcarre Research Paper no. 9, University of Oxford, 2008, revised July 2010, http://

www.oxcarre.ox.ac.uk/images/stories/papers/ResearchPapers/oxcarrerp2008.09.pdf.

46. The GoSS increased the budget allocation for agriculture by 50 percent in 2011; see press releases of official 

website of the GoSS, http://www.goss-online.org/magnoliaPublic/en/news.html. The incoming World Bank 

director for South Sudan has reportedly announced that her priority will be to work with the country team to 

prepare a strategy to promote South Sudan’s economic diversification from the oil sector. See “World Bank: South 

Sudan’s Economic Diversification Our Key Priority,” Sudan Tribune, April 3, 2011, www.sudantribune.com/WorldBank-South-Sudan-s-economic,38472.

47. Ministry of Finance and Economic Planning, “Development Partner Guidelines for Drafting Budget Sector Plans, 

2011–2013,” Government of South Sudan, Juba, June 2010, http://www.goss-online.org/magnoliaPublic/en/

ministries/Finance/APP/mainColumnParagraphs/00/content_files/file0/Budget%20Sector%20Plans%20-%20

Guidelines%202010%20FINAL%20-%20Development%20Partners.pdf.

48. World Bank and African Development Bank, “Providing Budget Aid in Situations of Fragility: A World Bank-African 

Development Bank Common Approach Paper,” World Bank, Washington, DC, February 2011, http://go.worldbank.

org/LFU7FDO3E0.
19

49. Jill Shankleman, “Going Global: Chinese Oil and Mining Companies and Management of Resource Wealth,” 

Woodrow Wilson International Center for Scholars, Washington, DC, 2009; Deborah Brautigan, “Africa’s Eastern 

Promise: What the West Can Learn from Chinese Investment in Africa,” Foreign Affairs, January 5, 2010, http://

www.foreignaffairs.com/articles/65916/deborah-brautigam/africa%E2%80%99s-eastern-promise.

50. See, e.g., Sanction Law, “North vs. South: OFAC Not Sanctioning Southern Sudan,” April 13, 2011, http://

sanctionlaw.com/2011/04/13/north-vs-south-ofac-not-sanctioning-southern-sudan/; Steptoe and Johnson, 

“New OFAC Guidance: Sudan Embargo Will Not Apply to the State of Southern Sudan,” April 15, 2011, http://

www.steptoe.com/publications-newsletter-pdf.html/pdf/?item_id=163.

51. H.E. Pagan Amum, secretary-general of the southern ruling party, the Sudan People’s Liberation Movement 

(SPLM), said South Sudan would become a landlocked country once it gains independence later this year. See 

press releases of the GoSS, March 4, 2011. 

52. Total, “Total in Sudan,” http://sudan.total.com/fichiers/mediaLibrary/SOUDAN/publications/PDF_du_site_Total_

au_Soudan_VA.pdf.

53. See also ECOS, “Post-Referendum Arrangements for Sudan’s Oil Industry: How to Separate Siamese Twins,” Utrecht, 

December 2010, 6, http://www.ecosonline.org/reports/2010/%5Eindex.html/Post_Referendum_Arrangements_

for_Sudans_Oil_Industry.pdf.html.

54. Specifically, the International Finance Corporation social and environmental performance standards and World 

Bank environmental health and safety guidelines for onshore oil and gas development.
United States 

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An online edition of this and related 

reports can be found on our Web site 

(www.usip.org), together with additional 

information on the subject.

Of Related Interest

•	 Oil, Profits, and Peace by Jill Shankleman (2007)

•	 Toward a New Republic of Sudan by Jon Temin and Theodore Murphy (Special Report, 

June 2011)

•	 Improving Natural Resource Management in Sudan by Paul J. Sullivan and Natalie Nasrallah 

(Special Report, June 2010)

•	 Secession and Precedent in Sudan and Africa by Jon Temin (Peace Brief, November 2010)

•	 Why Sudan’s Popular Consultation Matters by Jason Gluck (Special Report, November 2010)

•	 Scenarios for Sudan’s Future, Revisited by Jon Temin and Jaïr van der Lijn (Peace Brief, 

August 2010)

•	 Some Assembly Required: Sudan’s Comprehensive Peace Agreement by Timothy Carney 

(November 2007)

•	 Managing Natural Resource Wealth by Jill Shankleman (Special Report, August 2006)