THE RISKS AND OPPORTUNITIES CREATED BY PETRONAS DIVESTMENT IN SOUTH SUDAN'S OIL AND GAS INDUSTRY.

INTRODUCTION:

The global oil and gas industry is characterized by dynamic investment life cycles encompassing entry, operation, and exit phases for international companies. PETRONAS, Malaysia's national oil and gas giant, recently announced its divestment from South Sudan, sparking discussions on the implications for both the company and the nation.

International Companies INVEST LIFE CYCLE:

To understand the impact of PETRONAS' divestment, it is essential to first understand the international companies' investment life cycle in the oil and gas industry. The investment life cycle can be broken down into three stages: entry, operation, and exit. The entry stage involves international companies seeking investment opportunities in a country's oil and gas sector. This can be through bidding for exploration licenses or entering into joint ventures with local companies. In the operating stage, companies invest in exploration, development, and production activities to extract oil and gas resources. Finally, in the exit stage, companies divest their assets and operations in a country due to various reasons, such as reaching the end of their contract, strategic reasons, facing economic challenges, market conditions, technological advancements, or geopolitical dynamics.

PETRONAS' BACKGROUND AND ROLE IN SOUTH SUDAN:

Before the separation of North and South Sudan in 2011, PETRONAS had ventured into Sudan in 1996 and was present in four JOCs: PETRODAR (blocks 3 and 7), GNPOC (blocks 1, 2, and 4), WNPOC (blocks 5A, 5B, and 8), and RESPOC (block 15). PETRONAS continues to operate in Sudan through GNPOC (Block 2AE and Block 4N) and the PDOC pipeline.

PETRONAS is present in South Sudan through the three Joint Operating Companies (JOCs) with various partners, namely Dar Petroleum Operating Company (DPOC), which operated in blocks 3E and 7E; Greater Pioneer Operating Company (GPOC), which operated in blocks 1A, 2A, and 4S; and Sudd Petroleum Operating Company (SPOC), which operated in block 5A.

This investment was part of PETRONAS' strategy to expand its operations in Africa and diversify its portfolio beyond its home country, Malaysia. As a result of this investment, PETRONAS became one of the largest players in the country's oil and gas industry, owning 30%, 40%, and 67.875% stakes in three joint operating companies (JOCs): Greater Pioneer Operating Company (GPOC), Dar Petroleum Operating Company (DPOC), and Sudd Petroleum Operating Company (SPOC), respectively.

Geologically, GPOC and SPOC concessions are located right at the center of the Muglad Basin, which is a large and extensive rift basin that was formed relating to the Central African Shear Zone (CASZ) system. It covers an area of approximately 120,000 square kilometers across Sudan and South Sudan. On the other hand, DPOC concessions are located right in the middle of the Melut Basin. Both basins formed a prolific and mature petroleum system where close to 2.0 BSTB of oil have been discovered from the Late Cretaceous and Early Tertiary clastic play in Muglad and Melut Basin, respectively.

OPPORTUNITIES FOR DIVESTMENT

The divestment of PETRONAS' assets in South Sudan has been a significant development in the country's oil and gas sector recently. With the company being a major partner in the JOCs, this move has raised concerns about the impact on the industry's operations and the country's economy. However, it also presents opportunities for South Sudan's oil and gas industry.

For PETRONAS, this move offers a chance to optimize its portfolio, reallocate resources strategically, and pursue new ventures.

South Sudan, on the other hand, gains an opportunity to attract fresh investments, diversify its oil and gas sector, and foster technological advancements through collaborations with new partners. One of the primary opportunities for South Sudan in PETRONAS' divestment is the potential for new investors to enter the market. With PETRONAS' exit, there will be opportunities for other international companies to invest in the country's oil and gas sector. This can bring in new technologies, expertise, and capital to further develop the industry. Additionally, it can also lead to increased competition in the market, which can ultimately benefit the country and its citizens through better terms and conditions. Moreover, the divestment can also pave the way for local companies such as NILEPET to play a more significant role in the industry. With PETRONAS' exit, there will be a vacuum that local companies can fill by partnering with new international investors or acquiring a stake in the JOCs. This will not only boost the local economy but also help in developing indigenous capabilities and expertise in the oil and gas sector. With PETRONAS' exit, there will be a vacuum that the existing international companies, such as China National Petroleum Corporation, CNCP, Oil and Natural Gas Corporation Limited (ONGC), and Sinopet, can fill by acquiring some stakes in the JOCs.

Finally, the divestment can serve as a catalyst for local capacity building, as South Sudanese companies and individuals may have the opportunity to acquire the assets and skills previously held by PETRONAS. This transfer of knowledge and ownership can contribute to the long-term sustainability of the industry.

RISKS IN DIVESTMENT:

However, along with these opportunities, there are also risks associated with PETRONAS' divestment in South Sudan. One of the main concerns is the impact on production levels and revenues for the country. As one of the largest investors, PETRONAS' exit may lead to a decline in production levels, resulting in lower revenues for South Sudan. This could have a significant impact on the country's economy, which heavily relies on oil exports.

Moreover, with PETRONAS' exit, South Sudan may also face challenges in finding a suitable replacement with similar expertise and capabilities. This could lead to delays in operations and hinder the development of the industry, ultimately affecting the country's economic growth. The withdrawal of PETRONAS may lead to a decline in production and export capacity, impacting the country's revenue generation. Additionally, the loss of PETRONAS' technical expertise and financial resources could hinder the development of the industry, especially if South Sudan lacks the necessary capabilities to fill the void. Negotiations with incoming investors carry risks related to contractual agreements, regulatory compliance, and geopolitical stability. Furthermore, divestment may create uncertainty among other international investors, potentially deterring future investments in the country.

OPTIONS FOR SOUTH SUDAN

At this point of divestment, South Sudan has limited options to navigate and maintain its oil and gas industry's stability.

One option is for the government to buy back PETRONAS' assets and retain full control of the JOCs. However, this would require significant financial resources, which may not be feasible for the country at the moment.

The second option is to attract new international investors by offering attractive terms and conditions. This could potentially bring in more capital and expertise to continue the operations smoothly. However, given the current economic and political instability in South Sudan, this may prove to be a challenging task.

Third option: The government should actively seek new partnerships with reputable international companies, attracting investment and expertise to sustain production levels.

Fourth option: South Sudan should prioritize the development of local talent and capabilities, investing in education and training programs to build a skilled workforce capable of managing the industry independently.

Lastly, the government should establish transparent and investor-friendly policies, ensuring a stable and predictable business environment that encourages long-term investments.

In light of these challenges, it is crucial for South Sudan to take immediate action and implement the best international practices in its oil and gas industry. This includes appointing individuals with the right skills and experience to navigate through these difficult times and propel the industry to its glory. It is also essential for the government to establish transparent and accountable policies to attract new investments and ensure the effective management of its resources.

In conclusion, Petronas' divestment from South Sudan's oil and gas industry has significant implications for both parties. While it presents opportunities for new investors and local companies, it also brings risks for production levels and revenues. At this point, it is crucial for South Sudan to take proactive measures to attract new investments, implement best practices, and appoint capable individuals to ensure a stable and sustainable oil and gas sector. With proper management, South Sudan can overcome the challenges posed by PETRONAS' divestment and continue on its path towards economic growth.