PETRONAS sues South Sudan for blocking sale of oil and gas assets worth $1.25 billion

(Bloomberg) — A subsidiary of Malaysian oil and gas giant Petroliam Nasional Bhd. (PETRONAS) has sued South Sudan for allegedly blocking a $1.25 billion sale of its assets and taking over the company instead.

Earlier this month, state-owned Nile Petroleum Corp. took control of PETRONAS’ oil fields and assets – effectively taking ownership of the Malaysian group’s investments – and announced that it would look for a new partner to ensure the continuation of operations.

“Petronas International Corp. has initiated arbitration proceedings at the International Centre for Settlement of Investment Disputes to divest its operations in the Republic of South Sudan,” the company said in response to a request for comment. Due to the ongoing arbitration proceedings at the World Bank agency, it declined to comment further.

Officials at South Sudan’s Petroleum Ministry did not respond to several requests for comment.

PETRONAS announced its exit from the country on August 8, after around three decades of operations in the country, dating back to before South Sudan declared independence in 2011. PETRONAS has been in talks with UK-based oil and gas company Savannah Energy Plc to acquire its assets.

Disregard for lawsThe Malaysian company has been scaling back investments as costs continue to mount from a broken pipeline that carries two-thirds of South Sudan’s crude oil through neighboring Sudan, which has been at war for more than a year. The conflict has caused damage to one of two pipelines after a shortage of diesel to dilute the crude caused the line to rupture.

In a letter to PETRONAS executives on August 5, Chol Deng Thon Abel, permanent secretary at the Petroleum Ministry, claimed the company had violated the country’s laws by failing to conduct an environmental assessment and pay compensation. The letter, seen by Bloomberg, also accused PETRONAS of giving South Sudan an ultimatum to name a company to buy its assets.

PETRONAS denied any such demand and called the government’s conduct “arbitrary, unreasonable and unlawful,” Azahari Shuid, a senior general manager at the Malaysian company, said in response to the government’s letter.

PETRONAS began oil production in the region in 1997 as part of a consortium led by Swedish company Lundin Oil AB.