Despite the dismal performance of the Canadian news media in covering last week’s Talisman AGM in Calgary and attendant protests—or in analyzing Talisman’s deeply disingenuous “Corporate Social Responsibility Report”—there is clear evidence that the Canadian energy company’s complicity in the oil-driven destruction of Sudan is still costing them significantly. Today’s Globe and Mail gives a compelling account of the size of the ongoing “Sudan discount,” despite Talisman’s recent run-up on the strength of yet another rumored sale of its Sudan holding. This “discount” leaves aside, of course, massive expenditures for Hill & Knowlton PR services, the mounting legal fees in the US class action suit against Talisman (progressing exceedingly well for the Sudanese plaintiffs in the case), the many hundreds of millions spent in share buy-back—and the management resources devoted to justifying the unjustifiable.
Eric Reeves [May 7, 2002]
Northampton, MA 01063
Using the analysis offered by Brian Dutton, an analyst at UBS Warburg Inc., Dave Ebner of the Globe and Mail (May 7, 2002) reports that because of the “Sudan discount,” Talisman stock trades at a very significant discount to its peers. According to Mr. Dutton, Talisman trades at five times its “enterprise value” (see explanation below), as opposed to a figure of six times for its peers. Talisman shares would thus need to rise 20% to equal the valuations of other comparable oil and gas outfits.
This “discount” is, of course, absorbed by all Talisman investors: their callousness is appropriately punished with a significantly diminished return on investment. Talisman is burdened, even more appropriately, with a loss of over C$1.5 billion in total market capitalization.
Talisman management made much at its AGM of the report by US special envoy for Sudan, John Danforth. The report is not, in fact, in final form—and controversy continues to swirl around the document, its final status (or lack thereof), and the role it will have in guiding US policy. But what is unambiguously clear is that the thoroughly misguided revenue-sharing proposal in the Danforth report has been peremptorily rejected by the Khartoum regime of the National Islamic Front. Those naively assuming that the Danforth report would offer Talisman an easy pass for its continuing complicity in the ravaging of southern Sudan have instead been given an abrupt lesson in Khartoum’s brutal belief in its entitlement to oil revenues for additional military purchases.
And those counting on India’s National Oil and Natural Gas Corp. to bail Talisman out of its misguided and immoral presence in Sudan had best check the track-record of the Indian company in making purchases. They are notoriously slow—and they clearly are not presently willing to pay what Talisman is demanding. Talisman CEO Jim Buckee made clear that the purchase offer being reported was not the sort he had in mind for the ugly exercise in prevarication and face-saving that Talisman will have to engage in when they are eventually forced from Sudan.
Of course, the price will change dramatically if oil field security continues to deteriorate. Lundin Petroleum of Sweden and OMV of Austria have already been forced to suspend their operations in Block 5a, with no resumption even vaguely in sight. And this August will mark the one-year anniversary of the SPLA’s successful attack on Talisman headquarters and nerve-center at Heglig. The rainy season has begun again, severely constraining the mobility of Khartoum’s military forces. Predictions are only that, but military intelligence from the ground in Sudan and from the region makes it seem highly likely that there will be a significant attack on Talisman infrastructure in the next three months.
Canadians concerned about egregious human rights abuses in Sudan, including massive destruction and displacement of civilians from Talisman’s oil concession areas, should continue to work for divestment from Talisman shareholding—continue to try to make Talisman’s presence in Sudan untenable. Khartoum is desperately in need not only of the moral cover provided by Talisman’s presence, but Talisman’s technical expertise as well (Talisman continues to outstrip by a wide margin the production and discovery efforts of its Malaysian and Chinese partners).
Moreover, the Gagnon/Ryle human rights report [“Report of an Investigation into Oil Development, Conflict and Displacement in Western Upper Nile, Sudan,” October 2001, by Georgette Gagnon (Canada) and John Ryle (United Kingdom)] estimated that oil production in Sudan would fall by 30% if Talisman were forced to withdraw from Sudan, putting enormous pressure on the Khartoum regime, which is already engaged in military spending well beyond realized oil revenues (this despite its status as one of the world’s most heavily indebted nation).
Divestment from Talisman continues to be a morally compelling investment responsibility for those who care about the massive, oil-driven destruction of civilian life in Sudan—but also a means of bringing about significant change in Sudan
[From The Globe and Mail, May 7, 2002, by Dave Ebner]
“On Bay Street, the controversy has in part held back the valuation of Talisman stock, which trades at a discount to its peers. ‘Investors have applied a “Sudan discount” to Talisman’s share price,’ Brian Dutton, a UBS Warburg Inc. analyst, told his clients in a report yesterday. Talisman confirmed last week that it is in talks to sell the stake to India’s national oil company. According to UBS Warburg, Talisman trades at about five times enterprise value (market capitalization plus debt) divided by this year’s estimates for debt-adjusted cash flow. Its peers trade at about six times the same multiple. If Sudan is sold, Talisman’s valuation could rise a half-point, Mr. Dutton said, pushing the stock to $74. Should the stock close the valuation gap, it could break through $80. It closed yesterday at $68.25 on the Toronto Stock Exchange.”