Talisman is better off nurturing core assets - The Globe & Mail, June 22
BRENT JANG
CALGARY -- All roads don't necessarily lead to Sudan.
Calgary-based Talisman Energy's $529-million deal yesterday to buy Sweden's Lundin Oil could clear the way for the Canadian company to eventually extricate itself from war-torn Sudan.
This may require some creative financial manoeuvring on the part of Talisman to exit the African country, but if there's a will, there's a way.
Although oil sales from Sudan account for 10 per cent of Talisman's worldwide revenue from oil and natural gas, those Sudanese assets have made the company a pariah in the minds of human rights groups and some investors.
Talisman's plan to acquire Lundin has this important twist: If the friendly takeover offer goes through as expected, Lundin's energy properties in Sudan and Russia will be spun off into new entity, whose shares would be distributed to Lundin shareholders. Lundin executives will manage those properties.
If the political heat over Sudan becomes too much for Talisman to bear, the company could find refuge in the spinoff based in Sweden, or pursue other escape hatches.
Talisman chief executive officer Jim Buckee doesn't like to get boxed in. He has already softened his stance this week on keeping Talisman's 25-per-cent stake in the Sudanese project run by a group called Greater Nile Petroleum Operating.
China's largest oil company, China National Petroleum, is the lead partner with 40 per cent, a state-owned Malaysian firm has 30 per cent and the Sudanese government owns 5 per cent.
Those three partners could be in a position some day to increase their stakes if Talisman were to seek buyers for its Greater Nile interest, or perhaps a new partner such as France's TotalFinaElf would join the consortium.
There have been forceful arguments on both sides of the debate over whether Sudanese citizens would be better off with Talisman staying in versus pulling out of Sudan, where a bloody civil war has raged for 18 years.
The conflicts involved are complex and include internal battles among the rebels in addition to the main war being waged between the Islamic government of Khartoum in the north and Christian and animist rebels in the south.
But even if you sympathize with Talisman's view that sanctions against Sudan hurt ordinary Sudanese, there's still the perception that oil revenue is fuelling Khartoum's fight.
Much to the chagrin of its critics, Talisman still sees its duty as a corporation to conduct business in the best interests of its shareholders. For now, that means staying in Sudan.
However, divesting the 25-per-cent stake in Greater Nile by distributing shares to Talisman shareholders would be one option for addressing some of the concerns about doing business in Sudan. The uncertainty is dragging down Talisman's stock price.
Or how about this clumsy but workable concept: The Calgary producer could toss its Sudanese interests into the Lundin spinoff and keep a minority stake. The snag here would be problems ranging from finding a major European exchange listing to the threat of U.S. politicians continuing to hound Talisman, no matter how small or indirect its stake in Sudan's oil fields.
The importance of this time-consuming play can't be overstated for Mr. Buckee. He won't be bullied by human rights groups into withdrawing from Sudan because he genuinely believes that Talisman is doing more good than harm.
What will ultimately tip the scales is whether enough money can be raised or new assets gained from unloading Talisman's Sudanese properties -- valued at $825-million at the end of last year by some estimates -- to make it worthwhile.
The Lundin purchase bolsters Talisman's presence in the North Sea, while also diversifying Talisman's global portfolio into Vietnam, Papua New Guinea and, significantly, Malaysia.
If there could be a swap of assets with, say, Malaysia willing to pay a hefty premium for the Sudanese stake, Mr. Buckee would have to pinch himself. Sudan oil? It's all yours. Good luck.
As a whole, Talisman is worth $8-billion on the Toronto Stock Exchange, so eliminating the so-called Sudan discount on its share price is very much desirable.
Talisman has been a shrewd operator in Western Canada, the North Sea and Indonesia. If and when the senior producer sees opportunities to expand, it should concentrate its energies in those regions, even if that means reducing its role in or getting out of Sudan altogether.
bjang@globeandmail.ca |
