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Oil firm's exit: The first crack?

An oil firm has quit Sudan for the second time in as many years. Citing insecurity, the firm's officials stressed that only a comprehensive ceasefire will make it resume operations. But that is unlikely as fighting escalates. Suddenly, the future looks bleak for oil firms.
Matthias Muindi

On January 22, Sweden's Lundin Petroleum announced that it was suspending its operations in Sudan. "This occurrence does not affect the company's long-term plans to develop the Thar Jath Field and further explore the southern Muglad Basin," said the company's statement. "Drilling and seismic operations will resume as soon as conditions allow." It is not known when that will be.

It is also not known who should get the credit for Lundin's second exit in two years: the human rights, church, and relief workers lobby that has been calling for a stoppage of oil exploration until peace reigns in Sudan, or southern rebels who have declared oil installations legitimate military targets. Whatever the case, the suspension of Lundin's operations not only confirms that oil and war in Sudan are interrelated but also could be an indicator that dramatic changes in the country's oil industry are on the way.

Lundin first quit Sudan in May 2000 when rebels attacked the Thar Jath rig located near the Nile River and executed three government employees. Operations didn't recommence until March 2001 after the government and its militia had attacked, burned out, and displaced many thousands of civilians from the area, said relief workers. But apart from safety concerns, noted the workers, Lundin was having problems building an access road from Rubkona, near the oil capital Bentiu, to its site at Thar Jath. They say the firm used the attack as an excuse to pull out of the area and give government troops the space to clear it of suspected rebels and their civilian sympathisers.

The company's journey to Sudan started on February 6, 1997 when one of its subsidiaries, International Petroleum Company (IPC) Lundin Sudan Ltd, signed an agreement with the Sudanese government over Block 5a near Bentiu. Covering about 30,000 sq. km, the Block was reported to have as many as 300 million barrels of what Lundin officials termed as oil of "excellent quality." When drilling started, the Thar Jath 1 well was reported to have achieved a cumulative production rate of 4,260 barrels of oil per day. In May 2001, the company and its partners signed another agreement with Khartoum, giving them Block 5b - measuring 20,119 sq. km - southeast of Block 5a.

However, tens of thousands of people were displaced from their homes and ancestral lands soon after the start of oil exploration in the two blocks. They are now living in various parts of neighbouring Bahr el Ghazal. "The number of displaced currently living in my See runs into many thousands," says Bishop Caesar Mazzolari of the Catholic Diocese of Rumbek. "I welcome any independent observers to visit Yirol, Marial Lou, and Rumbek areas of my jurisdiction and prove me wrong."

According to Julie Flint, a British journalist who has covered Sudan for years, anybody searching for evidence linking oil exploration in Sudan to human rights abuses needs to examine the savage devastation that was unleashed on civilian populations living in the two blocks starting from early 1999. Human rights groups say that the construction of the 75-km all-weather road precipitated some of the worst cases of oil-linked abuses, with government forces and militias attacking, killing, raping, and maiming civilians living near the road.

A report released by Christian Aid last year says that there is not a single hut near the road; only small military garrison towns are visible. The report adds that it cost Lundin US$400,000 per kilometre to build the road. Former Governor of Unity State, Taban Deng Gai says that Lundin also financed an airstrip in Rubkona, the headquarters of the army's 15th Division. Gai says that government bombers use the airstrip.

Lundin officials deny these accusations. However, the firm's decision to opt out is seen by observers as a loud no-confidence vote on the Sudanese military's ability to be a custodian of security. Put another way, Khartoum's expanded military budget (from US$165 million in 1998 to US$327 million last year) does not translate in victory or security for that matter.

Lundin said it was quitting due to chronic insecurity in the oilfields in Sudan's Western Upper Nile region, the epicentre of the country's nascent but volatile oil industry. This is not what Magnus Nordin, Lundin's Investor Relations Manager, said a year ago when he declared, "the company had not noticed directly any conflict." Unconfirmed reports indicate that a few days before Lundin exited, rebel forces had shot down one of its helicopters in the Leer area in Lundin's 20,000 sq. km Block 5b. The injured personnel were immediately whisked away to a hospital in South Africa.

If statements issued by company officials are any indication, the company is not returning soon until Khartoum ensures some form of security. "We are on standby and will reactivate our operations only when a cease-fire or a peace agreement in our area has been implemented," Lundin's President Ian Lundin said on January 30. He added: "We believe our area will be affected positively from the new direction towards comprehensive peace." Lundin's Finance Director Ashley Heppenstall concurs: "We obviously hope Sudan will resume operations quickly. We think there's a lot of value there."

Lundin has expressed the unlikely wish that a ceasefire signed in Switzerland on January 19 between Khartoum and the Sudan Peoples' Liberation Army (SPLA) to cover the central Nuba Mountains be extended to the south so as allow an early resumption to activities. The Nuba Mountains lie in Southern Kordofan Province, which borders Western Upper Nile to the south.

But while the regime will be pressured to carve out a security zone, observers note that Khartoum will go quietly since it knows that the international community is watching. A truce this time will be seen as one carved under duress, incensing hard-liners, while critics will see a rebuff as a declaration of $500 million it earns annually from oil exports. It is not yet known whether other oil firms will follow suit, but Sudan's daily output of 220,000 barrels will most likely dip.

If Khartoum can't compromise with the rebels, the option is to intensify military engagement not only in Lundin's concessionary areas but the whole of Western Upper Nile. The aim will be to attempt to vanquish rebel forces in the area. That is the most likely possibility, as there are no serious negotiations between the warring parties on a cease-fire in the area.

For the SPLA and other critics of the oil firms, the oilfields' closure is a major victory. Critics have pointed out that it is evil to continue explorations during the war. They add that Khartoum is using its share of the oil proceeds to beef up its war chest.

In the meantime, the oil firms claim that their presence does more good than harm through the infrastructure investments they make. Some firms such as Lundin have even started community development projects to improve local roads, water, health, and education. Journalist Flint vehemently dismisses such projects. "It is obscene to talk about a school here and a clinic there when the environment is fundamentally unsafe for southerners," she says. "In the village you can be burned out of your home, in the town, your wife raped, daughter forced into an Islamic school, son conscripted into an Islamic militia."

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