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The Look-After-No.1 Drill
It made for unusual headlines. When Canadian oil firm Talisman sold its stake in a Sudanese drilling operation to ONGC late last month, it wasn't just a business story. The news was splashed on front pages across Canada. A coalition of human rights activists crowed victory; forcing Talisman out of war-torn Sudan was one of the biggest corporate victories since the divestment campaigns during apartheid in South Africa, they said. Now those same campaigners are preparing to make ONGC their new target.
On paper, the Talisman sale was a standard business deal: the Calgary-based company sold its 25 per cent stake in the Greater Nile Petroleum Operating Company (in which the state oil companies of Malaysia, China and Sudan are also partners) to ONGC for $748 million. Talisman made $340 million, a 30 per cent return on its four-year-old investment in Sudan, and India got a share in a booming oil development that promises a steady supply, removed from shaky West Asian and spot markets. "The purchase of the Sudanese assets will give India much-needed oil security," petroleum minister Ram Naik said, announcing the acquisition.
But as Talisman's bitter CEO James Buckee could have told his Indian buyers, the Sudanese operation brings more than just the promise of plentiful cheap oil.
The root of the problem is the civil war that has haunted Sudan for almost half a century—the longest-running conflict in Africa. The current phase of the war has dragged on for 19 years, left two million people dead (most of them civilians from the south, where the Greater Nile oilfields are situated) and another 1.5 million people displaced or homeless. The war pits an Islamic fundamentalist regime in Khartoum, with ties to Arab North Africa, against the tribal people of the south, black Africans who practice Christianity and traditional animist religions. The two groups were bundled together by colonial mapmakers and the south has fought for its independence since. But while religion and self-determination are the ostensible causes of the conflict, the war has as much to do with the gold, uranium and, in particular, the vast oil reserves in southern Sudan.
Talisman bought into the project in 1998, attracted by the huge proven and potential reserves. Canadian expertise helped build a 1,600-mile pipeline connecting the oilfields to the Red Sea and the Greater Nile project's production doubled. But Talisman soon had a PR problem. Investigations by the Canadian government, the UN and numerous human rights organisations concluded that the oil drilling exacerbates the war by giving the Sudanese government $1 million a day in revenues with which to wage war on the impoverished south. Investigators said the practice of slave-trading (selling captured southerners as slaves in the north) was ongoing; that oil-built infrastructure like airfields were being used by Khartoum to wage war on the Dinka and Nuer tribespeople who lived on the oilfields.
Those kinds of headlines are hard on a stock's price. Talisman soon found itself facing a "Sudan discount", as its shares were valued nearly 25 per cent below their worth. An unlikely coalition of human rights organisations (everyone from conservative Christian groups such as World Vision to radical labour groups such as the Steelworkers Humanity Fund) made Talisman a major target. They bought into the firm, used shareholder meetings to ask questions about the displaced people and brought freed slaves to join pickets outside board meetings. Before long, major funds were dumping Talisman shares.
Talisman insisted it was a force for good in Sudan, tempering the government's extremism, digging wells and building schools and clinics in the south. But even as Buckee talked about "constructive engagement", the government in Khartoum put paid to the PR effort with bombing attacks on southern schools, clinics and food relief distribution points.And Talisman's moral high ground was sharply undermined last March when plaintiffs in a US lawsuit against the firm released a document they said made clear Talisman was getting the government to clear civilians from land near its oilwells.
The document, a government directive, was labelled "Secret" and "Very Urgent"; it was a message from Khartoum to "Petroleum Security, Heglig" (the main Talisman worksite), asking that a series of military actions be carried out in the area "in accordance with the directive of the minister of energy and mines and fulfilling the request of the Canadian company to ensure the security and well-being of employees and company property". The army was to undertake "cleaning-up" operations in a series of villages and "eliminate" Heglig village and another nearby. Two days later, government forces launched a new offensive in the region, using armoured personnel carriers and helicopter gunships in bombing raids. The two villages were destroyed and there was a 50 per cent decline in civilian population in the area.
Talisman angrily refuted those charges. "We can emphatically say that the suggestions in the alleged memo run contrary to everything that Talisman practices and believes in Sudan," spokesman Barry Nelson said, when the company was given a copy of the document by the plaintiffs. But Talisman consistently refused to divulge the nature of its security agreements with Khartoum. "We don't discuss security matters for obvious reasons," said Nelson.
None of that helped the stock price. And in the end, it wasn't worth it; an obviously bitter Buckee announced the sale on October 23. Talisman tried to spin the sale as good news: they had a good buyer, they had more than earned back their investment, oil prices are high. But there was no downplaying the Sudan factor. "The pressure on the buy sites wasn't worth it," says Brian Prokop, an analyst with the brokerage Peters and Co in Calgary. "People liked the company but it had hair on it, as long as they were in Sudan."
ONGC doesn't mind a little hair. With its share in Greater Nile, India gets an operation that produces 12 million tonnes of crude oil a year, as much as the country's biggest oilfield, the Bombay High project. India is currently filling 70 per cent of its oil needs from imports and that has ONGC increasingly interested in exploration in countries under US sanctions (Libya, Iraq and Iran) where it is cheaper and easier to work. But the risks are higher too—both for internal instability in these countries and for disfavour with the White House.
Prokop notes that ONGC is a national energy company: its mandate is to make sure India has a plentiful, affordable supply of oil. It doesn't have Buckee's stock price worries. Indeed, Naik has said "the civil war in Sudan and protests by human rights groups" do not worry him. Talisman supporters have decried the sale, saying the human rights types had lost their leverage. But the activists who took on Talisman aren't so sure.
Melville Middleton, head of human rights organisation Freedom Quest International, said he expected pressure in India to be just as strong as it was in Canada. "The Indian oil company is no paragon of virtue, I'm sure, but the last thing the Indian government wants to do is support an Islamic fundamentalist regime." He predicted that ONGC's board would soon be facing tough questions at home about Khartoum's public position of support for Kashmiri independence. "Now Indians have got their oil company providing hundreds of millions of dollars to a state sponsor of terrorism. India is going to be raising the issue—there is going to be scrutiny." And the coalition that fought Talisman is already making contact with civil society organisations in India, he said."We're making calls. People are already concerned."