Talisman sees hope in Sudan
Calgary firm continues to face obstacles
Friday 19 March 1999
Chris Varcoe
Ottawa Citizen
Dry holes, angry church activists and American missile attacks.
And now, Talisman Energy Inc. is getting pressure from Foreign Affairs
Minister Lloyd Axworthy over the Calgary oil company's controversial
investment in war-torn Sudan.
The obstacles facing Talisman in the North African country seem to come
one after another.
But sitting back in his office 24 floors above downtown Calgary, Talisman
chief executive Jim Buckee sees success in one of the world's most
unstable countries -- even if critics haven't seen the light.
"People are nervous. It is a remote part of the world from most people's
experience, so . . . they take a Doubting Thomas stance,'' he says. "I'm
confident now this will be a successful project."
On Wednesday, the spotlight returned to Talisman's involvement in the
$1.4-billion US venture, called the Greater Nile Oil Project.
Axworthy told a seminar in Ottawa on religious persecution that he
recently reminded Talisman officials of the need to uphold certain codes
of conduct when doing business in the country -- something Buckee says his
company already follows.
At the same conference, Sen. Lois Wilson -- former president of the World
Council of Churches -- said that if no progress is made in Sudan's civil
war peace talks by April 15, Canada should consider putting pressure on
Talisman to refuse to turn on the flow of oil.
For the Calgary petroleum company, the limelight is a familiar place since
it first got involved in the project last August by purchasing Arakis
Energy Corp. of Calgary for $277 million.
Arakis had obtained a stake in Greater Nile after U.S. oil giant Chevron
relinquished the concession in 1992 due to Sudan's ongoing civil war.
However, the small Calgary firm couldn't raise enough money and was
eventually taken over.
Today, Talisman owns 25 per cent of the venture, with state-owned oil
companies from China, Malaysia and Sudan controlling the rest.
Analysts say the project has tremendous upside, with 12.2 million acres of
concession land, about half the size of Oklahoma, in a low-cost, oil-rich
basin.
Earlier this month, Buckee told a New York energy conference that the
development contains commercial reserves of an estimated 800 million
barrels of oil, compared to 450 million barrels when Talisman first got
involved.
The project's biggest technical obstacle has always been the need for a
way to move the oil to export markets. Work on a 1,500-kilometre pipeline
to the Red Sea, along with a marine terminal, is almost complete.
Talisman's share of the capital costs will reach about $220 million this
year, after it spent $140 million in Sudan in 1998.
Geopolitical risk is the other obstacle.
U.S. warplanes attacked a pharmaceutical factory in the capital city of
Khartoum mere days after Talisman announced the Arakis deal last August.
American officials claimed the plant made a component used in nerve gas.
"Having moved into the Sudan, the one thing Talisman misjudged was the
political sensitivity of the Sudan. And, of course, Clinton sending a
bunch of missiles in the suburbs of Khartoum didn't provide a lot of good
timing," says analyst Andy Gustajtis of HSBC Securities in Toronto.
"Much of that negative attitude is going to fall by the wayside once the
oil starts flowing."
Crude oil production from the Muglad Basin is expected to begin late in
the third quarter of 1998 or early in the fourth quarter, hitting 150,000
barrels per day next year, with 37,500 barrels flowing to Talisman.
With continued exploration drilling, production could reach 200,000
barrels per day, says David Mann of Talisman.
Early last year, it looked like the exploration was beginning to falter.
Former Arakis CEO Ray Cej said the new Chinese-Malaysian partners "wanted
to put their oar in the water" on the drilling program, leading to several
dry holes in the first half of 1998.
But the technical issues are resolved, says Buckee, leading to recent
exploration success.
Sudan, a country of 33 million, desperately needs the development to
succeed. The nation has been crippled by chronic political instability
since its independence in 1956.
Less than half the country's population is literate and the unemployment
rate is 30 per cent.
Southern Sudan, where much of the war has been waged against secessionists
since 1983, is particularly poor and lacks infrastructure, says David De
Chand, a Sudanese external affairs official.
"We have now a generation of children that only know an AK-47 (firearm),''
he says.
De Chand, who lives in southern Sudan, says the project is crucial to
development in the region, providing drinking water, health care and new
roads.
But given the Sudanese government's record for human rights violations and
religious persecution of Christians and animists, Canadian church groups
have attacked Arakis, and now Talisman, for their involvement.
The United Church, which owns 70,000 shares in Talisman, said last week
it's worried oil money could give the government additional resources to
fight the war, while exposing investors to significant risks.
Just last month, the Foreign Affairs Department issued an advisory warning
Canadians to defer all travel to Sudan, noting "repeated security threats
specifically related to the oil development region."
Cej, who has visited the country four times, doesn't believe the danger is
great.
"We had been in there for five years, with virtually one incident, which
was more of a bandit activity - somebody tried to stop a truck and a guy
got shot in the foot,'' he says.
"There are troops down there, no question, but they're not that active and
it's as much to deal with inter-tribal skirmishes to the south."
Talisman has hired political consultants and done security risk
assessments on Sudan, and the company noted the concession is 250-500
kilometres from the troubled zones.
Ultimately, the Canadian company won't take sides in a dispute that's been
going on for decades, but it can bring Western values to the venture,
Buckee maintains.
"The project is going well and it's going to go ahead anyway,'' he says.
"Our presence can only be beneficial.'' |
