Genevieve Simms

Oil and gas investment is a risky high-stakes business, and when corrupt governments and human rights are involved it can be a potential public relations disaster. For five years, international oil companies have anxiously awaited the green light to tap into Iraq’s vast petroleum supply. And with proven reserves of 115 billion barrels of oil and 112 trillion cubic feet of gas, Iraq is a goldmine. Among the groups hoping to cash in on this lucrative market is Calgary’s Talisman Energy. The company, still recovering from its PR nightmare in Sudan, signed a $315-million US oil exploration agreement with the Kurdistan Regional Government (KRG) in late June.

Located in the northern region of Iraq, Kurdistan is considered relatively stable compared to the southern half of the country. However, investing in Kurdistan is not without risks. The threat of violence is just as real, the KRG has a record of human rights abuses and the legality of the contracts is under dispute by the central government in Baghdad. For Talisman, a company that has courted controversy by dealing in volatile countries with dubious human rights records, venturing into Kurdistan could be a recipe for disaster, or conversely, vindicate the company on its progress on corporate social responsibility since leaving Sudan in 2003.

Mel Middleton, an activist who worked extensively to get Talisman to withdraw from Sudan, questions whether or not the energy company has learned from its previous dealings in the war-torn country. “Talisman does not have a track record of being able to sort its way through that kind of an environment in a way that is going to help the local people,” he says. “Their solution is to throw money at some projects and call that social responsibility without looking at the ramifications of propping up governments that commit serious human rights abuses.”

According to a report by Human Rights Watch, detainees in Kurdistan are routinely tortured and denied basic rights by government security forces known as Asayish. Torture methods include beatings with metal rods and cables, forced to endure stress positions and solitary confinement for extended periods. The report, released in July 2007, also found that hundreds of detainees are denied the right to due process, access to a lawyer or relatives, or even the knowledge of what offence they have been charged with.

Human Rights Watch acknowledges the co-operation of the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK), which gave the group access to detainees and detention facilities. While it recognizes the co-operation and efforts of the two government parties in addressing the issues, it states, “these efforts have not translated into any discernible improvement for most detainees in Asayish detention facilities.”

FREEDOM AND DEMOCRACY OR OIL AND PROFITS?

This was not the intended result of the U.S.-led war in Iraq. Freedom and democracy were to spread across the country and the entire Middle East. However, now into its sixth year, there is no end to the conflict in sight, and regional stability is as elusive as ever. The Bush administration’s pretext for invading Iraq and ousting Saddam Hussein was as simple as it was ever-changing: to destroy Iraq’s alleged cache of weapons of mass destruction, to spread democracy, to free an oppressed people from a brutal dictator and uphold human rights. And to a U.S. citizenry still reeling from the events of 9/11, invading Iraq was an easy sell. Those who argued the war was about oil were labelled traitorous and unpatriotic, and largely dismissed.

However, time clears minds and soothes tempers, and the release of official government documents has dulled pro-war rhetoric. One such document clearly shows that as early as April 2001, the Bush administration had plans to overthrow Hussein — not to thwart terror, but to secure Iraq’s vast oil reserves for the U.S.

Days after a newly elected George W. Bush took office as president in 2001, U.S. vice-president Dick Cheney commissioned a task force report on energy security under the title: Strategic Energy Policy Challenges for the 21st Century. Committee members on the task force included such heavyweights as pre-indictment Enron CEO Kenneth Lay, ChevronTexaco (now Chevron) CEO David O’Reilly, and former regional president of British Petroleum (BP) and current Talisman Energy president and CEO John A. Manzoni.

Allegations by critics of the war that it was motivated by oil were often dismissed by the Bush administration as groundless conspiracy theories. However, the authors of the report clearly focus on the instability of world oil prices caused by Hussein’s willingness to use oil as a weapon by alternately flooding the market and then restricting exports. “Therefore the U.S. should conduct an immediate policy review toward Iraq including military, energy, economic and political/diplomatic assessments,” states the report. The task force considered the easing of economic sanctions if an arms-control program was implemented. The report dismisses the notion of easing of sanctions on the grounds that such a policy could increase Iraq’s oil revenues, which would help fuel Hussein’s ambitions, strengthen his regime and make him “a greater security threat to U.S. allies in the region if weapons of mass destruction (WMD) sanctions, weapons regimes, and the coalition against him are not strengthened.”

TALISMAN ROLLS THE DICE

After a largely successful career at BP that spanned 24 years, Manzoni, who was a task force committee member, resigned as BP’s chief executive of refining and marketing in May 2007. His departure came two years after a refinery explosion in Texas City. One of the worst U.S. industrial accidents in two decades, it saw 15 workers killed and 170 others injured. Although an internal investigation found Manzoni was not guilty of serious neglect or intentional misconduct, it concluded he had failed to heed warning signs prior to the explosion. Shortly after leaving BP, Manzoni was appointed president and CEO of Talisman in September 2007. Less than a year after his appointment, Talisman, partnered with Canadian company Western Zagros, inked the deal with the KRG. A spokesperson for Talisman told Fast Forward that Manzoni was unavailable for an interview.

“We did do a lot of due diligence to make sure we’re happy with any associated risks,” says company spokesperson Teri Keyser. “Talisman’s corporate responsibility policies, which we apply to everywhere we operate, we also apply in KRG.” As part of the agreement, Talisman will pay the KRG $220 million US that is to be allocated to infrastructure improvements in local communities.

While the situation in Kurdistan differs from Sudan, Talisman will nonetheless face criticism from non-governmental organizations (NGOs) for dealing with a government that could be supporting terrorists and violating human rights, says Jaana Woiceshyn, associate professor of strategy and global management at the U of C. “It’s the whole idea that people are critical of oil companies when they go explore and produce oil in places where there’s conflict.” According to Woiceshyn, Talisman will also have to assess whether the risks outweigh the benefits, which should include shareholder interests, worker safety and the possibility of the government nationalizing the company’s assets. “The whole issue of whether NGOs will be critical of them should be secondary,” she says. “What they need for that is they need to be able to stand up and say, ‘We have the moral right to go explore and produce oil in this place.’”

Nancy Palardy, senior analyst with Jantzi Research, an independent investment research firm, believes Talisman has made solid gains on social issues following the fallout of the Sudan affair. “They learned a lot from their time in Sudan,” says Palardy. “They are a company that was in the spotlight for a number of years. My sense is that they will do whatever they can to ensure that things are handled properly.”

Along with signing onto the Extractive Industries Transparency Initiative (EITI), Talisman has signed onto the Voluntary Principles on Security and Human Rights, which acts as a framework for companies to reduce the risk of human rights abuses and promote respect for human rights. While these initiatives are voluntary, Palardy says it does reflect a company that is at the least grappling with these issues and attempting to address them.

“Maybe they’ve learned a lesson from [Sudan],” says Middleton. “But I think investors and certainly media should be asking an awful lot of questions.”