Former South African President Thabo Mbeki, acting as African Union mediator, announced the oil deal early on Saturday after late night talks in Ethiopia. The recently-divided countries came close to full scale war this April, with the disputed Heglig oil fields the epicenter of the tension.

"The parties have agreed on all of the financial arrangements regarding oil, so that's done," Mbeki told reporters after the talks. Mbeki said South Sudanese oil production and export - only possible via Sudanese pipelines - would resume.

"The oil will be flowing," he said, without specifying when. Mbeki also did not offer details about the transportation and processing prices involved, with both sides far apart on transit fees in the run-up to the talks.

South Sudan's last public offer was to pay $9.10 (7.35 euros) and $7.26 per barrel to export through two Sudanese pipelines, alongside a $3.2 billion compensation fee for the oil reserves lost by Sudan when South Sudan was declared an independent country last year.

Sudan, meanwhile, had drastically lowered its desired price for oil transportation recently, suggesting a flat fee of $15 per barrel, having long held out for $36 per barrel. A barrel of Brent Crude oil currently trades at around $109.

South Sudan shut down its oil production in January, severely impacting on its own economy and on its northern neighbor.

Border demarcation still disputed

South Sudan received roughly two-thirds of Sudanese oil reserves when it split from Khartoum, but Sudan retained control of pipelines and processing facilities in the region.

The two countries continue to dispute their ill-defined borders, having gone ahead with the split before reaching a consensus on territorial issues as well as oil transit prices. African Union mediators have been trying to draw up a demilitarized buffer zone between the two countries, a move seen as the first step towards a border deal.

South Sudan's top negotiator Pagan Amum had called on an independent arbitration body to set the border, also accusing Sudan of maintaining a police force in the disputed Abyei border region, after the UN had asked both sides to withdraw all their forces.

Mbeki said that Sudan's President Omar al-Bashir and his southern counterpart Salva Kiir would meet next month to talk about the area.

"We have informed [the AU] that there has been agreement between the parties that the matter of the final status of Abyei will be addressed at the next summit meeting of the presidents," Mbeki said Saturday.

US Secretary of State Hillary Clinton met Salva Kiir in Juba on Friday, urging the new neighbors to reach an accord and warning that despite their recent division, they "remain inextricably linked."

Sudan was rocked by over two decades of civil war until 2005, with over 2 million casualties. Southern independence, sealed after a referendum, was a part of the peace accord.

msh/av (AFP, Reuters)