Reg Manhas

The case of Talisman Energy in Sudan and the divestment campaign unleashed against the Company highlights a number of significant issues for consideration, including the power as well as limitation of divestment campaigns.  The outcome of the divestment campaign, namely the withdrawal of Talisman from Sudan, raises powerful questions regarding the use of tools such as divestment campaigns in a global context.

The Company

Headquartered in Calgary, Canada, Talisman Energy (Talisman) is an independent upstream energy company active around the world, with its shares listed on the Toronto and New York stock exchanges.

The Investment

Talisman acquired an indirect 25 percent interest in the Sudan oil project in October 1998.  At the time of acquisition, the project was under construction – the production facilities, pipeline and offshore loading terminal were being built and the wells were being drilled. By the summer of 1999, oil was flowing and being exported from Sudan. By 2002, the project was producing 240,000 barrels of oil a day apportioned among the project’s participants – subsidiaries of state-owned oil companies – from China (40 percent), Malaysia (30 percent) and Sudan (5 percent), and an indirect subsidiary of Talisman (25 percent).

The Controversy

Many non-governmental organizations and other stakeholders were concerned about the oil project and Talisman’s indirect investment in it.  Among the concerns was the possible use by the Government of Sudan of the revenue generated from the project to fund civil war efforts rather than to support broad-based development. There was also concern that the development of a domestic oil industry in Sudan during a time of civil war would result in human rights violations.

Over the course of Talisman’s indirect investment in the project, the Board and management of Talisman and of its indirect subsidiary operating in Sudan, expressed their own concerns about the situation there. On balance, however, it was determined that Talisman should remain as an indirect participant in a project that was contributing revenues towards social and political development in the country.  In addition, through the presence of its subsidiary operating in Sudan and its participation in the project, it would be able to continue to lead by example through operating responsibly and providing jobs, training and community development projects that benefited the Sudanese people directly.

As an indirect investor in Sudan, the company was also able to continue its advocacy with the Government of Sudan for tolerance and the protection of human rights, and the continuation of the peace process. The company also believed that this voice and ability to express concerns raised by non-governmental organizations and others, would likely be lost if Talisman ceased to be an indirect investor in Sudan.

During the period of its indirect investment in the project, the company developed a comprehensive corporate responsibility framework. This framework included introducing an active community development program (including hospitals, schools and agricultural capacity building) in the oil project area, hiring local workers and advocating for the respect of human rights and the peace process at the highest levels of the Sudanese Government. The company was also actively involved in assisting the peace process by providing geological, commercial and other information to the negotiators as critical wealth-sharing agreements were being developed. The company also published an independently-audited corporate responsibility report which disclosed the full revenue stream flowing to the Government of Sudan from the project.

The Divestment Campaign

Various stakeholders hoped that through a high profile divestment campaign, Talisman would be forced to sell its indirect investment in the project, and that oil production from the project would decrease or even stop.

Despite efforts to address the concerns of its critics, Talisman faced unprecedented public pressure to sell its indirect investment in the project. Protests and letter-writing campaigns undertaken by various non-governmental organizations gained widespread public recognition and pressured governments, public sector pensions and mutual funds to take action against the company. The company’s share price struggled as many institutional investors sold their holdings of Talisman shares to distance themselves from the controversy.

In June 2001, the United States House of Representatives passed the Sudan Peace Act, which, if ultimately turned into law, would have (amongst other things) resulted in the delisting of Talisman shares from the New York Stock Exchange.  This bill prompted a serious debate in Washington regarding the politicization of the U.S. capital markets, and ultimately a version of this bill that did not contain these capital market sanctions was passed by the U.S. Congress and signed by the President in late 2002.  However, the initial bill passed by the House and the subsequent policy debate in Washington created additional pressure on Talisman investors, especially those based in the U.S.

It should be noted that of the companies with an interest in the oil project, only Talisman was publicly listed.
 
The Decision

In October 2002 Talisman announced the sale of its indirect interest in the project to ONGC Videsh Limited, India’s state-owned oil and gas company. Talisman attributed the decision to sell to shareholder fatigue and to the concern that its shares were being discounted based on perceived political risk.

The Results

The divestment did not, however, achieve the results desired by its proponents.  Talisman’s sale of its indirect interest in the project did not interrupt or even slow oil production (in fact, oil production is higher today than when Talisman sold its indirect interest in the project) and concerns regarding human rights violations in Sudan continue. The corporate responsibility initiatives and transparency that Talisman brought to the project have disappeared.

The company’s indirect investment in the project in Sudan has had a profound impact on it. The company created a dedicated Corporate Responsibility and Government Affairs group and began issuing an annual corporate responsibility report and is now recognized as a leader in the field of transparency. Talisman is now also directly engaged in a number of multilateral stakeholder engagement initiatives related to corporate responsibility including the Extractive Industries Transparency Initiative and the Global Compact.

The Implications

The arguments for and against investment in weak states or areas of conflict are both compelling and complex. While every country and situation is different, companies can make a positive impact by creating economic opportunity and promoting the principles of the Global Compact. This was recognized sixty years ago by U.S. Secretary of State George C. Marshall, architect of the Marshall Plan to rebuild Western Europe and Asia following the Second World War, when he stated that “a working economy . . . permit[s] the emergence of political and social conditions in which free institutions can exist”.

Today, more than ever, the energy industry is global in scope, with large state-owned companies directly competing for resources against western publicly-traded companies.  It can be argued that divestment is a blunt instrument that only creates pressure on those companies from which divestment is even possible (generally western, publicly-listed companies).  In working to improve the corporate responsibility performance of companies operating around the world, more nuanced and constructive approaches that result in dialogue and incremental performance improvement by all companies needs to be more seriously considered.

Reg Manhas established Talisman’s corporate responsibility group in 2000. Since then, he has led the development of the company’s corporate responsibility program, including its implementation of the Voluntary Principles on Security and Human Rights and participation in the UN Global Compact and the Extractive Industries Transparency Initiative, as well as its annual corporate responsibility report.  Prior to 2000, he was legal counsel at Talisman and previous to that practiced law with McCarthy Tetrault.  Earlier in his career he worked as an engineer in the upstream energy industry with Petro-Canada. Mr. Manhas earned both his law degree and his chemical engineering degree from the University of British Columbia.