“Talisman Energy in Sudan: Some Ugly Prospects for the New Year”
It has become increasingly obvious that Talisman simply cannot find a buyer willing to pay the face-saving price that CEO Jim Buckee is demanding for its Sudan stake. In the absence of such a buyer, Talisman seems determined to remain complicit in the terrible human destruction in the oil regions of southern Sudan and to send oil revenues to the brutal regime prosecuting a war against civilians. This is a high-risk strategy, both for Talisman share price in the equity markets (where damage has been massive), and on the ground in southern Sudan, where Talisman’s Greater Nile project infrastructure is under acute risk of military attack by the southern opposition. Evidence available suggests that there will be a more determined attack in the near term against their Heglig headquarters, and it is unlikely to be less destructive than last year’s significant attack.
Eric Reeves [January 3, 2002]
Northampton, MA 01063
Talisman boasted some impressive numbers in early November of 2001, including record production volume and a nine-month cash flow of C$2 billion. At the same time, the company was forced to re-purchase yet another 1.5 million of its own shares in an ongoing battle to support share price. Divestments, large and small, have continued to take their toll—and unmeasurable are the number of silent commitments, by individual and institutional investors, not to own Talisman shares while the company remains in Sudan.
Even with a reduced estimate of cash flow per share for 2001, Talisman still trades at approximately 3x that number, a highly distressing and increasingly frustrating price level for many investors who have come to realize that this number is unlikely to change so long as Talisman is in Sudan. It’s worth bearing in mind that when Buckee first announced the share buy-back plan in late 1999, Talisman’s cash flow per share multiple was the same dismal 3x—leading Buckee to exclaim that at this level, “Talisman shares should a screaming buy!”
More than two years later, and an awful lot of shares re-purchased—1.5 million in just the third quarter of last year—there is no change in the multiple. Analysts and investors have sent every possible signal that they are unhappy with the massive opprobrium that attaches to Talisman’s investment in Sudan’s agony. And given the number of rumors that have been floated about potential buyers, it would seem that Talisman has got the message.
But a variety of factors now conspire to make such a sale, at least at Talisman’s asking price, very unlikely.
 The military threat to oil operations in southern Sudan only increases. Talisman never allowed journalists to inspect the damage in the immediate wake of the successful August 5 attack on its Heglig headquarters. But an extremely reliable and seasoned humanitarian worker reported to me from the region that on August 15 a plane flew directly over Heglig at an altitude of 1300 feet. From this extraordinary vantage, the pilots of the plane reported that no cars were in evidence and only three people were visible.
The pilots further reported that the natural gas-fired generators at Heglig were off (ten days after the attack), and that there was no power in evidence anywhere in the area. Significantly, the attacking Sudan People’s Liberation Army (SPLA) claimed to have heavily damaged the electrical generating station. This source (with excellent contacts throughout southern Sudan) also noted that reports reaching him from the field indicated that everything at Heglig was shut down, including the very large reservoir tanks. He had also spoken directly to the team leaders of the force that attacked Heglig in confirming these details.
Given ongoing reconciliation between Nuer and Dinka military commanders in the south (the oil regions are primarily in Nuer areas), it is highly likely that another, possibly much more devastating attack will occur during the present dry season; renewed heavy fighting is now imminent. Another such attack will diminish even further the price of Talisman’s Sudan asset, and surely frighten away a number of potential buyers.
 Khartoum’s unwillingness to lose the moral cover provided by Talisman’s presence in the Greater Nile project also works against a sale. Talisman CEO Buckee has complained to a high-level North American government official that Khartoum is obstructing the sale of Talisman’s 25% stake in the Greater Nile project. Such obstruction comes with good reason. For example, in defending oil development in the south, Khartoum official Kabir Abdelbagi has said that “the investment by Talisman and others showed there was no truth to the idea that Sudan was a deeply divided state with fundamental internal problems. We think this foreign investment [by Talisman] could only be evidence of tranquillity and a prosperous atmosphere.”
The loss of such moral cover, not to speak of Talisman’s engineering and technical expertise, would be a severe blow to Khartoum’s large ambitions for the southern oil fields. They have a powerful motive in obstructing Talisman’s exit.
 The Sudan Peace Act, with provision for capital market sanctions against Talisman and other oil companies operating in Sudan, remains distinctly alive in Washington. The House of Representatives has already named its conferees (the House passed the version of the bill with capital market sanctions); Senate Democrats have agreed to name conferees. This leaves the Republicans in the Senate as alone responsible for holding up legislative resolution of the bill. This will likely change soon following the present Congressional recess. The House version of the bill would cut off all access to US debt and equity markets for Talisman and its partners in oil-driven destruction. Support for the House version runs wide and deep, and comes from a number of politically unignorable constituencies across the ideological spectrum.
No company that desires access to the American debt or equity markets will purchase Talisman’s stake in the Greater Nile project.
 A legal suit, now in federal district court in New York, was brought against Talisman last year under the US Alien Tort Claims Act on behalf of affected Sudanese from the oil regions. Liabilities could easily run to the hundreds of millions of dollars. The case is proceeding efficiently, and the plaintiff list continues to grow, as does progress on the evidentiary front. Another such suit against oil companies in Sudan is being developed in the Netherlands.
Again, no company contemplating an investment in Sudan can look with indifference at this highly threatening development.
 Talisman’s military funding of the National Islamic Front regime in Khartoum will receive significantly increased scrutiny this year. Khartoum’s recent purchase of highly advanced military jet aircraft (MiG-29s), representing a commitment of US$400 million (more than two thirds of oil revenues for 2001), makes nonsense of claims by Khartoum and Talisman that oil development and revenues benefit all Sudanese. Such high-profile military purchases suggest that Khartoum feels no need to make even a pretense of productive use of oil revenues. As the war continues to destroys tens of thousands of lives and displace even greater numbers in the southern oil regions, Talisman funding of Khartoum’s war machine will insure that their “Sudan profile” remains very high.
What company wants to inherit or augment that “profile”?
 The divestment campaign against Talisman continues. Last year saw the completion of divestment by every single public institutional shareholder of note in the US. Divestment was also voted by the Presbyterian Church/USA, the Episcopal Church, and several churches in Canada. TIAA-CREF, the world largest private pension plan, long ago divested. Many institutionals have put Talisman on their “black list”; and more divestments are likely in Canada this year. Very significant pressure continues to be directed against Fidelity Investments (Boston), with one of the largest US shareholdings of Talisman (between four and five million shares).
What is significant about divestments is that they represent a commitment not to buy Talisman shares so long as the company remains in Sudan, no matter how cheap they become. The market for Talisman shares has effectively been reduced in absolute terms—and in numbers that much exceed those re-purchased through Talisman’s expensive share buy-back (which may soon, if it has not already, pass the $500 million mark).
If Talisman exits, a divestment campaign and/or consumer boycott will be directed at any company purchasing their stake.
The longer Talisman demonstrates that it is unable to break out of the dismal “3x cash flow/year” range, despite terrific growth, the more buyers will have to reconsider just how much of a “Sudan discount” is at play in the price.
For given the threat of capital market sanctions, the nature of divestment pressures, the likelihood of massive legal liabilities, and the military insecurity of the oil infrastructure, Talisman’s Sudan holdings are quite capable of holding down share price even more significantly and over an indefinite time period.
Talisman’s one contribution to Sudan is the example it has made of itself. They have shown that there are potentially immense costs to be borne for viciously irresponsible complicity in the oil war of southern Sudan. As long as Talisman remains in Sudan, many hope that their example is an increasingly painful one, and will work hard to make it such.