Boston, MA -- (SBWIRE) -- 03/14/2014 -- Although South Sudan avoided another production shut-in only after successful diplomatic efforts, political crisis was again on track to derail the oil sector. At the time of writing, South Sudan was in the midst of a civil war, which had already interrupted production that had been on its way to recovery. While the outcome of the conflict was uncertain, it underscored our caution with regard to both Sudan and South Sudan, where above-ground risks remain extremely elevated. Below ground, a similarly bearish outlook could prove problematic for the plans to construct a pipeline from South Sudan's fields to end its reliance on Khartoum. Similarly, we are less than optimistic over Sudan's push for dramatic production increases, retaining our overall bearish view for the combined oil sectors of Sudan and South Sudan.

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

- In December 2013, a new crisis emerged with South Sudan descending into near civil war. At the time of writing, the outcome of the conflict is difficult to discern, but oil production has already been affected and a resolution does not appear to be imminent. The fighting pits elements of the Sudan People's Liberation Army (SPLA), which remains loyal to current South Sudanese President Kiir, an ethnic Dinka, against a loose coalition of renegades and militia forces, led by his former deputy president Riek Machar, a Nuer, who was dismissed in July.
- BMI witnessed employees of China National Petroleum Corporation forming large queues at Juba's international airport, in order to depart for Beijing, on December 21 2013. On December 24, a flight scheduled to take oil workers from Juba to Malakal, the capital of Upper Nile state, was cancelled, due to fighting. Not only is there the risk that fighting could spread to engulf Upper Nile's oilfields, but the heightened security risk has caused crucial foreign expertise to be withdrawn from South Sudan, which could result in maintenance complications and further shutdowns.
- We estimate combined output averaged 251,000 barrels per day (b/d) for 2013 based on preliminary data from the EIA. While we had expected output to increase to 370,000b/d in 2014 as production fell in line with a gradual recovery in output from South Sudan, the risks are now heavily to the downside as violence takes its toll. Even our original forecast was at risk due to the delays and challenges South Sudan was likely to encounter as it attempted to recover from the shut-in over 2012 (and a near shut-down in late 2013).
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