Bottom Line: Following a long-awaited agreement with Sudan that has South Sudan ready to continue oil production, other developments bode well for South Sudan output, including the integration of rebel groups into the army and promising talks with Sudan that could resolve a dispute over ownership of assets belonging to former state oil company Sudapet.
Analysis: As of last week, some 3,000 rebels of the South Sudan Liberation Movement (SSLM) surrendered and agreed to an amnesty deal that would integrate them into the South Sudan army, heralding an end to a long-running insurgency that has continued to plague oil production in the prolific north (Unity State) of the newly independent country. The SSLM was being supported by Khartoum, in Sudan, and it is not insignificant that they have now reportedly crossed the border into South Sudan and surrendered. Their strongholds were, after all, some key oil fields in Unity State.
Another key factor impeding South Sudan’s output progress has been a dispute with Sudan over the assets of Sudapet. On Monday, South Sudanese officials met with their Sudanese counterparts in Uganda to discuss a resolution to this dispute that could sort out this asset ownership. Sudan wants $2 million in compensation for Sudapet assets lost to South Sudan, which gained 75% of Sudan’s oil production in the divorce. It is also demanding compensation for damage to oil facilities that were occupied in skirmishes in April 2012 by South Sudan.
Recommendation: There have been many stops and starts in peace talks between Sudan and South Sudan, but this time around we see real forward movement. It is key that the SSLM have surrendered and accepted an amnesty deal. Also indicative of this positive trend was a visit earlier in April by Sudanese President Omar Hassan al-Bashir to South Sudan—his first ever visit since July 2011 when South Sudan gained its independence from Khartoum. Talks were about jump-starting economic relations and cross-border trade. Regarding Sudapet, talks will be tough, but we think we are at the stage now in which both sides will be willing to compromise on trend with recent developments.