Boston, MA -- (SBWIRE) -- 06/02/2014 -- The escalation of violence in South Sudan has led to severe disruptions to the country's oil output. Heavy fighting in Upper Nile and Unity States has led to the shut-in of production at the Thar Jath, Mala and Unity oil fields and reduced output from Palogue, Fal and Adar Yale. The fighting has derailed the country's fragile production recovery, adding further downside pressure to its bearish long-term production outlook. With the government claiming loose control of the major oil fields, output could start to revive within the quarter. However, given the fractured and volatile nature of the conflict and the heavy rebel presence in the oil-producing states, we anticipate more lasting production outages.

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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, fighting erupted between two factions within South Sudan's Presidential Guard; one in support of President Salva Kiir, and the other in support of former Deputy President Riek Machar. The violence rapidly escalated, reopening the deep, internecine divisions of the independence war. Attempts at mediation have failed and ethnic violence is spiralling, raising the threat of a protracted civil conflict.
- Fighting rapidly spilled-over into the oil-producing states of Upper Nile and Unity. Production at Unity has been suspended since December, and output from Upper Nile substantially reduced. Although the government is claiming control of all the major oil fields, a heavy rebel presence in both states is continuing to disrupt supply routes. The evacuation of foreign workers has also left few technicians in place that are capable of maintaining production.
- In 2013, we estimate that production averaged 253,000 barrels per day (b/d) for Sudan and South Sudan. However, at 344,000b/d, output in the final quarter was significantly higher, as production recovered in the wake of a 14 month shut-in. In line with this trend, we had forecast output of around 370,000b/d for 2014; however, in light of the current conflict, we have downgraded this to 240,000b/d. We are forecasting a recovery in 2015, with output peaking in 2017 at around 417,000b/d. We then see production fall into gradual decline, reaching 366,000b/d by 2023.
- However, our forecast assumes a de-escalation of the fighting over the coming quarters, which allows for normalisation of the oil sector. As such, and given the complex and fractured nature of the conflict, its deep history and its regional implications, we believe that the risks to our forecast lie firmly to the downside.

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