|17 - The companies|
Unable to raise sufficient investment elsewhere, and unable to fulfill its initial exploration and production agreement alone, in 1996 Canada's Arakis began negotiating with the Sudan government over the introduction of China and Malaysia into its oil venture, including the $1.2bn pipeline plan.
An interim agreement in December 1996, finalised by mid-1997, gave the state-owned China National Petroleum Corporation (CNPC) 40%, Malaysia's state-owned Petronas 30%, Arakis 25% and the Sudan National Petroleum Company 5% in a joint operating company - the Greater Nile Oil Project.
'Sources close to the deal say Khartoum imposed Petronas and the CNPC on Arakis by threatening not to renew its concession. China is a key arms supplier to Khartoum, whose links to Malaysia, especially to its Islamist networks, are growing. Rivals in Asia, Beijing and Kuala Lumpur are co-operating to fight the Western, mainly United States', oil monopoly.' (Africa Confidential 17 January 1997)
MAJOR OIL FIELDS
MAJOR OIL COMPANIES
|CANADA: TALISMAN ENERGY Inc.|
"Talisman have committed themselves
to a large investment, regrettably with abominable partners in
a complex and volatile landscape."
Talisman is now the third largest independent oil company in the world, the largest independent oil and gas company in Canada, and one of Canada's 60 largest corporations.
It was created in 1992 in a management buyout of the assets of BP Canada and expanded aggressively through corporate acquisition. In 1998 it acquired the struggling Arakis Energy for about $220 million after Arakis failed to raise funds to meet its obligations to the $1.4 billion Sudan oil project. This ended Arakis's long and controversial bid to bring the pipeline project to fruition, and gave Talisman a 25% interest in the Greater Nile consortium.
Talisman also operates in Canada, Ross field in the North Sea, and Indonesia, and is involved in operations in Algeria and Trinidad. It has won an award for its installation at Wych Farm, its English onshore operation, and has an office in Aberdeen, Scotland.
Talisman's market capitalization is CAN$ 5.1 billion and its daily production totals 248,000 b/d. In 1998 Talisman operations in Western Canada accounted for 53% of their production and for 83% of their operating income. But if the forecasts for Indonesia and Sudan materialise, by the year 2001, 60% of the companys production and operating income will come from outside Canada.
A January 1997 report on the World Bank's Oil and Gas Portfolio concluded that "especially in countries with unstable governance, the oil and gas portfolio is almost certain to remain risky and contain an above average share of problem projects."
Talisman has taken on the added political risk of operating in the proximity of war zones in Sudan, in civil unrest zones in Indonesia, and in Algeria. In valuing Talismans operations financial analysts Merrill Lynch already put an after tax discount of 14% on its Indonesia project and 20% on the Sudan. If the SPLA takes the war to the heart of Unity State, this 20% discount stands to increase. Should the Sudan oil project be disrupted, Talisman would find itself unable to operate the project and unable to receive cash related to its share of the production.
FAIR SHARES? There is now a mobilisation in North America of people calling for divestment of Talisman shares. It may ruin the commercial credibility of Talisman if American and Canadian shareholders start to sell Talisman shares in a rush, or if they apply the brakes to Talismans involvement in Sudan. Major Talisman shareholders include two giant pension funds in Canada and several institutions each holding over one and a half million shares:
|- RT Investment MGNT||8,951,960||2/99|
|- Royal Trust Investment MGNT||5,671,630||2/99|
|- Ontario Teachers Pension Plan||4,500,000||12/98|
|- Caisse de depot et placement du Quebec||3,911,670||12/98|
|- Capital Research and Management Company||3,240,000||3/99|
|- T.A.L Investments INC.||2,745,200||3/99|
|- TIPS 35||2,410,200||11/98|
|- Vanguard U.S. Growth portfolio||1,900,000||8/97|
|- Trimark Select Canadian Growth||1,683,400||12/98|
|- Mackenzie Financial||1,677,000||3/99|
|- Trimark RSP equity||1, 517,000||12/98|
|source: Bloomberg and Targeted|
IG Investment, Royal Canadian
Equity, Investors Canada, Investor Retirement, Credit Swiss,
Al Tamira Equity Fund, Canada Trust Stock, J.P. Morgan, Scotia
Canadian Grow, CIBC Core Canadian, Green Line Balanced, TD Green
Line, also have varying amounts of shares.
The Teachers' Pension fund has a total value of shares in excess of Can$210m at Can$47/Talisman share. Another reputable sectors pension fund has an equally large stake. The two largest known shareholders as well as Capital Research purchased their shares in the first quarter of 1999.
Despite record third quarter results in 1999, Talisman's share price dropped some 12% at the beginning of November when Canada's Foreign Minister announced an inquiry into the human rights aspect of the Sudan project. CEO Jim Buckee attributed the low share price to Talisman's having "been in the news lately". When the price rallied a little, critics ascribed it to mere "dead cat bounce", maintaining that the shares were tainted.
Silence is golden?
As criticism of its Sudan venture grew in November 1999, Talisman began using the major US public relations company Hill & Knowlton, who also served the Bank of Credit and Commerce International (BCCI) before its collapse. CEO Jim Buckee's frequent riposte to his detractors - that if Talisman gave up its business in Sudan, it would only mean that someone else would step in - echoes a familiar refrain of arms dealers throughout the world. Hill & Knowlton's first advice was that he should say less. Even if Talisman is superseded in Sudan, it will have fulfilled the NIF's purpose of building momentum for the oil project.
The Canadian government has been acutely embarrassed by Calgary-based oil companies' adventures in Sudan: first by Arakis Energy's scandals, and now by Talisman. Although Canada is a vocal human rights advocate at the UN, and a member of the IGAD Partners Forum seeking to assist the Sudanese peace process, the Liberal government appears equally determined to be seen resisting pressure from Washington to order Canadian commercial interests out of Sudan.
In November 1999 Lloyd Axworthy, Canada's Foreign Affairs Minister, said he would await the outcome of a special fact-finding mission to Sudan before deciding whether to impose sanctions on Sudan and restrict Canadian business operations there. John Harker, the head of the mission, said that he had seen the UN human rights report on Sudan by Dr Leonardo Franco and hoped to meet its author before setting off. However, sceptics said his visit was likely to be far too short - two weeks at the end of the rainy season when travel is hardest - to be of any real value, and risked being stage-managed by the regime.
Hospital: gains and losses
Talisman's most frequently-mentioned
"humanitarian" contribution is a hospital at Heglig.
Aid agencies deride this as tokenism, and recall that other hospitals
in the area have repeatedly been bombed and clinics destroyed
by the Sudan government, Talisman's partner in the project. Even
the acknowledgement for building this hospital was lost when
Hassan al-Turabi instead gave the credit to Rahman Khan
of Arakis, and claimed it as a Muslim good deed.
In November 1999 the China National Petroleum Corporation (CNPC) was hoping to get a listing on the New York Stock Exchange - and access to "the greatest capital market in the world". Some westerners see this as useful "constructive engagement" with China, and a way to appease China pending its full acceptance into the World Trade Organisation (WTO). China is keen to talk up its prospects in Sudan - where it is the largest stakeholder in the petroleum consortium - to improve its likely share price.
CNPC's China National United Oil Corp (Chinaoil), will also have a hand in marketing the new crude. It will focus on building up business customers in Europe and the Far East as well as in China itself. Customers in the United States are out of bounds.
China is a principal trading partner and sometime ally of Sudan at the UN Security Council. It has been the major supplier of arms to the Khartoum government since 1989, and in recent years has been part of a three way trade involving the shipment of Iranian oil to China in return for arms shipped to Khartoum.
CNPC plays a key role in the Greater Nile Oil Project in Sudan, with a 40% stake.
It holds several other concessions in Sudan beyond the GNOP concession area, having acquired exploration and production rights on the Sharaf, Tabaldi and Abu Jabra fields (Block 6), on which it began exploration and development work in 1997.
Sudan is said to be CNPC's largest single foreign investment, and the only one producing oil in any quantity.
China has made huge capital expenditures in Sudan - it has projects either underway or "on the drawing board" worth some $15bn - and hopes its presence on the New York Stock Exchange with CNPC will "backfill" these expenditures.
As the largest investor and provider of much of the equipment for the pipeline project, the Chinese company seems to need the skills and sophisticated technology of western countries to complete the task. It has little experience in on-shore oil exploration, compared to its considerable experience in offshore exploration, but wants to gain it in Sudan.
It has recently become a net importer of oil, and wants to find sources of crude oil for its own needs, so it has made a number of world-wide oil investments over the last couple of years.
Sudan's crude is usefully similar to the Daqing crude that China's refineries are designed for. China needs a secure source of oil to carry out its modernisation plans, while Sudan needs the external credit China offers, as well as investment and a market for its oil.
China has a vested interest in ensuring the NIF stays in power, so that it is repaid for its investment and continues to have access to crude oil. It has shown that it will support Khartoum diplomatically, no matter what the charges. On June 15, 1999 the US House of Representatives voted 416 to 1 to declare the Sudanese regime's conduct of the civil war to be "genocidal." China rejected this finding, and promised to use its UN Security Council vote to veto any condemnation of Khartoum's actions.
The SPLA and NDA have said that they will not honour oil deals brokered by Khartoum if they take power, and China has become so close to the National Islamic Front that it faces a serious showdown if the regime falls.
However, it has succeeded in the past to maintain relations with every government in Sudan, and is willing to play a long game. The arms it shipped in 1989 had actually been ordered by the Sadiq al-Mahdi government, and it is certain to have contacts with ex-ministers now in the opposition. In the event of the NIF falling, it probably stands the best chance of survival of all the members of the consortium - but has no guarantees.
|El-Obeid Chinese road camp blues|
In early 1999 a delegation of El-Obeid inhabitants petitioned the Wali (Governor) of Kordofan about the behaviour of Chinese construction workers building a road to link the town with El-Fashir in Darfur. They accused the Chinese of rape, theft and fighting, and of harassing local people in the street, and demanded that he impose a curfew on them and lock them in their road camp. Instead, the Wali used the local radio to advise husbands and fathers in El-Obeid to make sure their wives and daughters stayed indoors at night.
The Chinese workers were alleged to be "criminals released from Chinese prisons", among thousands brought to work in Sudan by the China National Petroleum Company. After working on the pipeline project, several hundred were "sub-contracted" to Maban, a construction company owned by Abdul-Rahman al-Tuhami. Tuhami's father, ex-Irrigation Minister Sharif al-Tuhami, resigned from the government in October 1998 after allegations that he had helped his son obtain a contract to supply pipe for the oil pipeline.
Malaysia, which has a 30% stake in the pipeline consortium, has become an important focus for Sudan's Islamist government in recent years. Bilateral trade arrangements have become common, many individual business deals have been made, and thousands of NIF students have gone to Malaysia for training.
A Sudanese diplomat who defected from the Sudan embassy in Malaysia in 1997 has claimed to have extensive evidence of Malaysia's involvement in the shipment of arms to Sudan. One such shipment was brought in to Port Sudan labelled as oil pipe machinery, but was - he claimed - revealed to be weapons when a crane dropped a consignment it was unloading.
The NDA bitterly resents Malaysia's support for the National Islamic Front, and if the current Khartoum government falls it is fairly certain that Malaysia will unceremoniously be shown the door.
Malaysia's Prime Minister Mahathir bin Mohamed is one of the current Sudan government's keenest supporters, and despite Malaysia's own economic difficulties, he is determined to pursue big, influential projects in Africa.
In mid-1999 he and Sudan's Lt-Gen
Bashir announced a joint venture railway expansion project, which
was short on detail but usefully came a few weeks after Malaysia's
YTL power and construction group withdrew from a controversial
$1bn privatisation and expansion plan for the Hwange power station
in Zimbabwe. Opposition from western donors, angered by the way
YTL came to be awarded the deal, and from the power utility's
own board, which believed it was not in the best interests of
Zimbabwe, had forced it to pull out.
Malaysia's Petronas Carigali is a giant state-owned company, whose fluctuating fortunes have been linked to the crises facing the rest of the Malaysian economy. They have probably been most visible in the interrupted completion of the ambitious twin Petronas Towers in Kuala Lumpur, whose aim is to be the tallest building in the world. With the UK-based Premier Oil, it is a stakeholder in the seafloor oilfields of Burma, whose ruling military junta is using forced labour to build roads and other infrastructure.
Petronas is not exposed to the stock market, but has started selling $750m to $1bn of bonds on the global market, mainly to build up its petrochemical capacity. Bond credit rating agencies Duff & Phelps and Standard & Poor's are quite positive about Petronas' finances. It has some $6bn in cash reserves, it finances 70% of its capital expenditure from cash flow, and over half its debts don't come due until after 2004.
However, Malaysia's energy sector is directly controlled by Mahathir's office, and "Petronas' investment decisions may be guided by national policy objectives to support government-backed initiatives," according to Duff & Phelps. In practice this means pressure from the Prime Minister's office and obligation to spend its capital on social safety nets, and bailing-out less successful state companies. In May 1998 it bought a controlling share of a shipping line owned by Mahathir's son Mirzan. In August 1999 it was on the verge of a $260m deal for a 27% stake in another favoured project, the financially troubled company that makes the Proton car, Perusahaan Oxtomobil Nasional. Now it is reportedly being pushed to take over the national Malaysia Airline System, which lost $184 million in the 1998-99 fiscal year.
Oil analysts portray Petronas' chief executive, Hassan Merican, as having transformed Petronas and as having driven hard bargains in these diversions. He has boosted revenues from foreign assets since taking over in 1995 - by mid-1999 they made up 34% of its income - and is regarded as having stood up to attempts to milk its cash. The jailed former deputy prime minister, Anwar Ibrahim, was a big supporter of Hassan, however, and his treatment has prompted rumours about Hassan's own job security.
Peace or pollution?
Malaysia's presence alongside the NIF at a "peace" meeting with Nelson Mandela in South Africa brought compaints of interference from Sudan's opposition NDA.
The NDA sent a five-man delegation
to Malaysia in September 1997 to meet Prime Minister Mahathir
Mohamad. Its aim was "to clear the air of the NIF's disinformation
pollution, to present the true situation in the Sudan to the
government and people of Malaysia, and to tell the authorities
there to advise ... the Khartoum government to return to the
regional mediation... of IGAD [the main channel for peace talks,
which the NIF government was trying to sidestep]. This mission
was very successful. [We] believe that PM Mahathir Mohamad has
given his advice to Bashir to return to the IGAD process...'
The Sudan government intends to privatise electric power generation while maintaining state control over transmission and distribution. It has concluded a memorandum of understanding with a Malaysian firm which would act as an individual power producer, selling electricity to the national electricity corporation for distribution.
Oil in Red Sea region
In October 1998 a joint Sudanese and Malaysian expedition was looking for oil deposits in the northwest of Sudan. Hassan Mohamed Ali al-Tom, secretary-general of the ministry of energy and mining, said that sedimentary basins in the area suggested the existence of oil.
In addition, final tests in the Red Sea region had already produced promising results, particularly in regard to natural gas deposits, he said. The joint mission would carry out further geological tests that could help in promoting the project to international companies.
To South Africa?
Petronas was considering taking its share of crude from Sudan (c.37,500 b/d) to its Engen refinery in South Africa, industry sources said on 28 April 1999. The final decision would depend on global oil prices: if spot prices soared, then selling into the merchant market would be more lucrative.
Engen processes Middle East crude at the 100,000-b/d refinery in Durban that Petronas took over in October 1998. It says this can be substituted, in part, by the new Sudan Nile Blend crude.
|SWEDEN: Lundin / Sands / IPC|
Since 1991 the main holder of the Red Sea concession has been IPC (International Petroleum Corporation, now part of the Swedish Lundin group). The Lundin oil group was also the biggest single shareholder in Canada's Arakis from 1994 until 1998, when Arakis was taken over by Talisman.
Sweden's Lundin Oil/IPC also holds concessions in Block 5A, immediately southeast of Talisman's Unity field in Southern Sudan, between Mankien, Leer and Adok, an area devastated by oil-related violence, famine and human displacement. Notorious for picking tough spots, Lundin also has mining concessions in Congo- Kinshasa.
In March 1994 the Geneva-based oil and minerals investor Adolph Lundin and his family took a 8.25% stake in Arakis Energy through their 31%-owned Swedish exploration and production company Sands Petroleum AB. Some saw the new Lundin holding as the potential springboard for a takeover. Although this never happened, Lundin came to control 9.6 million or 10.8 percent of the Arakis shares, and gained an influential presence on the company board.
IPC is wholly owned by Lundin Oil, based in Stockholm and controlled by the Canadian-Swedish, Swiss-based family. It signed an Exploration and Production Sharing Agreement with the Sudanese government on 6 February 1997 granting it rights to Block 5A. IPC has 40.375 % of the Block 5A concession, leading a consortium with Malaysia's Petronas (28.5%), Austria's OMV (Sudan) GmbH (26.125%), and the Sudan Government's Sudapet (5%).
On 20 May 1997, Lundin/IPC said that an exploration well in Block 5A had given "very significant" results.
In the drilling and logging of the Thar Jath oil well, one of the largest structural features identified to date in the Muglad basin, and "on trend" with oilfields in Blocks 1 (Unity) and 2 (Heglig), "Petrophysical analysis of the primary Bentiu and Aradeba sandstone reservoirs indicates a substantial net pay interval which is further supported by excellent oil and gas shows and an oil gradient from RFT pressure samples. Reservoir quality appears to be excellent from both electric log and sample analysis. The well was drilled to a total depth of 1,820m and is currently being temporarily suspended in preparation for production testing."
"Due to the impending onset
of the rainy season and associated logistical difficulties, the
testing of the well will be postponed until the commencement
of the next dry season at the end of 1999"
IPC and other companies with oil to pump are legally obliged to use the Greater Nile Petroleum pipeline. The pipeline has a theoretical capacity of 100,000 b/d available for third party users such as Lundin and Total.
PRESIDENT BASHIR MEETS SWEDISH OILMAN
In June 1997, Austria's oil and chemicals group OMV AG joined Lundin/IPC and Petronas in exploring Block 5. On 17 July 1997 Sudan's state-owned New Horizon newspaper said that OMV (Mineral and Oil Administration) had joined the consortium but would limit its investment for the moment because of the Southern conflict. The Austrian company would be expected to help finance much of the venture's early work. Oil sources said in November 1997 they had committed about $900 million so far.
OMV director Marc Hall said in April 1998 the company wanted to pick up oilfield bargains as part of a strategy to boost output by 70 percent by 2005. It had set aside an unspecified sum to acquire oilfields already in production, in order to increase the proportion of its own crude that it processes.
"We want to be an anti-cyclical investor - for a company wanting to grow in the upstream business it is good that there are some companies getting out of projects and if you want to acquire them they are cheaper.''
It is a partner in Alyeska, the
consortium running the 22 year old pipeline in Alaska which was
alleged by whistleblowers to have falsified maintenance records.
Its existing four core areas are the North Sea, Libya, Austria and Pakistan. Further acquisitions in the North Sea are unlikely, but OMV is exploring further opportunities in Canada and Australia, Albania and Sudan. In May 1999, OMV said it had made a significant oil find in Block 5A (see Lundin above).
18 - Technical Concerns