20110917
Reuters
WASHINGTON (Reuters) - The United States is drawing up new guidelines to permit U.S. oil companies to operate in South Sudan without running afoul of U.S. sanctions that apply to Khartoum, a U.S. official said on Friday.

Princeton Lyman, the U.S. special representative for Sudan, said the Treasury Department would soon clarify how companies may apply for U.S. licenses to enter the oil business, saying it was a priority for the U.S. government and for South Sudan.

"I'm sure we're going to open that door, but the rules of the game are still being worked out and that is very frustrating to the South because they want American oil companies there," Lyman told a trade briefing in Washington.

"There is a task force working on it and they will, God willing, have something soon."

The United States imposed a series of sanctions on Sudan in 1997, accusing the government of human rights abuses and supporting terrorism, and tightened the restrictions further in 2006 over the separate conflict in Sudan's Darfur region.

When South Sudan declared independence from the north in July, the United States said it was no longer covered by the existing sanctions regime.

But since the two countries' oil industries are so interconnected, it has been impossible for U.S. oil companies to get a piece of the market now dominated by Chinese, Indian and Malaysian companies.

Sanctions drove out Chevron Corp, Marathon Oil Corp and other Western companies, but industry sources say many are keeping their options open about reviving investments in the oil-rich African country. China National Petroleum Corp, Malaysia's Petronas and India's Oil and Natural Gas Corp are among the oil firms now operating in South Sudan.

Lyman said the United States could not quickly remove the sanctions, which would require congressional approval.

But he said the Treasury Department would define new criteria for licensing oil deals that would provide only "incidental" benefits to the North, making some deals with South Sudan possible.

OIL AND OTHER DISPUTES

The South took 75 percent of the country's 500,000 barrels a day of oil production but depends on the North to use its pipeline, port and refineries to sell oil. Experts say southern plans to connect to a pipeline in Kenya are years away.

Both sides have been unable to agree yet on how to divide oil revenues that are the lifeblood for both economies, one of a series of outstanding disputes that cloud their relationship despite the South's peaceful secession.

Khartoum has voiced disappointment the United States has not moved on pledges to drop sanctions against it as a reward for allowing the secession to take place.

But Lyman said no U.S. move would be possible until the outstanding issues are resolved and violence stops in South Kordofan and Blue Nile states, two border states where fighting broke out between Khartoum's troops and rebels aligned with South Sudan.

Lyman said U.S. companies could provide valuable know-how and improved technologies to South Sudan's oil sector to extend the life of wells that some experts say risk sharp production declines within the next five years.

But he warned that U.S. interest in South Sudan's oil opportunities was tempered by serious concerns over corruption and transparency, saying the new leaders in Juba had yet to act on pledges to put monitoring institutions in place.

"If they don't meet that challenge, its going to be a big problem for everybody," Lyman said.