South Africa has signed an agreement to explore oil in South Sudan, which holds the third-largest oil reserves in sub-Saharan Africa.
South Africa's state-owned Strategic Fuel Fund (SFF) will own and operate the lucrative Block B2 in South Sudan and a six-year exploration and production sharing agreement (EPSA) was signed Monday, according to a joint statement from both governments.
This is part of a $1 billion investment that South Africa has promised in the war-torn country's oil sector.
Nilepet, the national oil company of South Sudan, also holds a stake in this block, which is located in Muglad Basin in the central part of the country.
The two countries are also in talks to set up a 60,000 b/d refinery to supply oil products to the local market in South Sudan, as well as neighboring countries, the statement said.
"South Sudan has great potential, yet our country remains vastly under-explored, and we believe the entry of new players like the SFF will lead to new world-class discoveries very soon given the aggressive exploration program and great petroleum viability [of the block]," South Sudan's oil minister Ezekiel Lol Gatkuoth said.
Militancy and tribal strife in South Sudan -- which gained independence from Sudan in 2011 after a bloody civil war -- have largely thwarted hopes of restarting all the country's oil fields, which previously produced over 350,000 b/d.
The South Sudanese petroleum ministry estimates that current production has been around 160,000 b/d and the local operating companies are currently preparing for oil production capacity to increase to 270,000 b/d production by year-end.
South Sudan is keen to woo foreign investors to its energy industry, which contributes over 95% of its income.
Block B was split in to three (B1, B2 and B3) in 2012 and they have seen much interest from foreign partners since the entry of Nigeria's Oranto Petroleum to Block B3 in 2017.
South Sudan put B1/B2 blocks up for grabs last year after long-running talks with French oil major Total and Tullow Oil collapsed in July 2018.
Total had previously estimated the blocks could hold some 800 million barrels of oil in place. But Gatkuoth believes they hold a potential 1.5 billion barrels of recoverable oil.
Gatkuoth told S&P Global Platts earlier this year that China's state-owned China National Petroleum Corp. and its subsidiaries have approached the country in the bidding for Block B.
China dominates South Sudan's oil industry, with state-run CNPC operating the country's Dar Petroleum Operating Company (DPOC) and Greater Petroleum Operating Company (GPOC) consortia, which are producing all of the country's oil.