Boston, MA -- (SBWIRE) -- 07/19/2013 -- After a long delay following the agreement of a formal deal in August 2012, South Sudan has finally restarted production. The lag time between the landmark deal and the actual resumption of activities underscores the enduring tensions between Juba and Khartoum. Political risks remain high, and oil flows from South Sudan remain uncertain. The long-term outlook for South Sudan is better than that of Sudan, with more prospective acreage and more interest from international companies; however, even here we see the risks heavily weighted to the downside. Maturing fields in both the north and south pose downside to our current forecast, which projects minimal growth in supply following a return to pre-crisis output levels.

The main trends and developments we highlight for Sudan and South Sudan's oil and gas sectors are:

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- Our view that border and security issues could again interrupt the flow of South Sudan's oil to market played out, with border disputes leading to an escalation in tensions and rhetoric that has now delayed the restart of oil output. While we continue to expect a slow return of South Sudanese oil to markets following the restart of production in April, the risks remain clearly to the downside.
- Damage to production facilities and fields, a shortage of industry labour and the impact of the abrupt stoppage of production are among the challenges South Sudan will face in restarting output. Production remains behind previously announced schedules, and we estimate output will average around 190,000b/d in 2013. By 2014, we expect output to reach 410,000b/d.
- We continue to view South Sudan as more prospective than Sudan, although we highlight there may be sizable untapped reserves in the Red Sea, where Khartoum has been pushing operators to accelerate their exploration activities. However Juba's efforts to split existing concessions into smaller blocks in order to offer more acreage for exploration could see activity pick up.
- Critical to unleashing South Sudan's more substantial hydrocarbons potential will be more reliable export routes, upon which future upstream investment will depend. Plans for a pipeline linkage with Kenya remain under consideration and pose long-term upside risk to the country's oil sector. Indeed, recent statements that South Sudan would consider using trucks to bypass the lack of pipelines fail to account for both the country's yawning infrastructure deficit, and the fact that such an option would be unlikely to support the export of significant volumes. The use of rail has also been proposed as an alternative.
- However, in the near-to-medium term there is cause for concern regarding the production profile for fields in South Sudan, which may themselves begin to decline. This could leave combined output for Sudan and South Sudan in a downward trend toward the tail end of our forecast period.

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