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Talisman Energy Case Analysis

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Talisman Energy Inc. after a failed oil venture in Sudan due to poor handling of public relations is contemplating entering Kurdistan after the Iraq War. The Sudanese fiasco was due to a portrayal of Talisman as a conspirator with the Sudanese government in perpetuating regional conflict and funding human rights abuses. The subsequent media firestorm and activist pressure spooked high-stakes investors who forced Talisman to withdraw. An equally dangerous and fluid political clime exists in the war-torn Kurdistan, with a regional government struggling with legitimacy and seeking foreign investment.

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Though the potential for profit is high and resources are plentiful, the field is largely devoid of other firms who could prevent Talisman being singled out again, and logistical and ethical problems abound. Talisman is advised not to enter such a risky market again, especially with their recent failure so fresh in the worlds (and their investors) memory. Talisman, though performing their due diligence and making visible corporate efforts to the contrary was painted by the media as indirectly funding human rights abuses through their operations in Sudan.

They were unable to mitigate the damage and had to leave the region and profits behind.

Before choosing to enter Iraq, Talisman should consider the impact on their image and stock price by political pressure and public opinion. Talisman’s problems with public relations, which led to its eventual pullout from Sudan, were caused by two main factors. First were the company’s circumstances, with regard to Talisman’s position in the region, as well as its makeup; both of which served to make it an ideal target for activists. Second was its handling of the incident both pre- and post-backlash, which served to hasten the demise of their misadventure.

Talisman had an explicit relationship with the Sudanese government after they bought into a 25% stake of GNPOC, through which they engaged in profit sharing with the Sudanese as well as other international firms represented in the company. These funds for the large part went directly to the government and not to local communities. The problem with this was that these revenues were being used to fund additional hostilities in the nation, which raised the ire of the activist community. In Iraq, the instability of the KRG and its contested legitimacy make for a similarly tumultuous and fluid political situation.

As a minority group in a war-torn region with a history of violence, foreign investment in Kurdistan is risky at best. Talisman was not the first international firm to operate in the region, notably Chevron in the 1970s. However, after US sanctions checked the activities of American firms, Talisman was in an ideal position to capitalise on a market with drastically reduced competition. While this allowed them to focus on maximizing revenue, it also singled them out as there was nowhere to figuratively hide from international scrutiny.

In other markets Talisman might be able to point out the activities of other firms as both justification and as a tool to detract from the negative press from the media at large; however in Sudan they were the only operator susceptible to the same exacting level of study. Similarly, in Iraq US companies were discouraged from operating in the region, and while there is another Canadian firm operating there; Talisman has a history of stigma with the media and would be jumping into the same hotbed of potential media furor that they experienced in Sudan.

The company was well aware of the risks involved in doing business in an unstable region. CEO Jim Buckee and the management staff had decided that the immense potential for profit outweighed the risk, and even anticipated initial resistance but was confident that they could weather the storm. After the initial wave of negative press and pressure, Talisman enacted many policies and measures in an attempt to demonstrate their compliance with the call for them to help stop human rights violations.

However, this failed in two respects: One, Talisman was already in a minority position and had little real power over the Sudanese at only a 25% stake. Two, their efforts were too little, too late in the face of a veritable tidal wave of condemnation from the international community, activists and media outlets. In Iraq, there is a large potential for profit with a potential 39 billion barrels to tap, however with no way to export the oil and further conflict erupting in the region the propensity of risk is extremely high.

Additionally, as a publicly traded Western firm Talisman was beholden first to its investors, who were again both a source of strength and also a visceral weakness for their success in the Sudanese venture. While the company’s revenues quadrupled, its stock price over the course of this misadventure fell drastically. The reason for this is public opinion has an immense effect on the stock value of a company, often irrespective to its real worth. Talisman was publicly traded in both Canada and the United States, which left it vulnerable on two sides.

Through the work of NGOs and media, a massive divestment campaign targeted Talisman as a surrogate for the Sudanese-if the government would not bend to the pressure then they would remove its lifeblood. Their plan worked, and Talisman investors threatened to pull their backing if they did not capitulate. Had Talisman been a privately or state-owned enterprise, these issues would have significantly lower impact. Two alternatives which could have saved both reputation and stock price for Talisman would be better pre-planning and a stronger response to media criticism.

If Talisman had taken into better account the volatile nature of the region, and prepped for their operations on the ground they may have been able to generate some goodwill and possibly prevent some of the more vocal backlash such as the lawsuits form Sudanese church groups and activists. Possible examples include better outreach programs to local communities, pre-placement of human rights violations monitoring and more high-profile inclusion of activists as consultants and corporate advisors.

By involving these groups and allowing them to participate in the process you are better able to quash resistance before it begins, in keeping with the adage of “keeping one’s friends close, and one’s enemies closer”. While this may have left Talisman open to a possible expose-style media attack, or incited anger from activists if they felt their input was not valued; in all likelihood their concerns and anger would be mollified and there would be nobody to call attention to alleged abuses.

Another option for Talisman would be to completely rethink their response to the rising tide of media-fueled outrage and pressure from the world at large. Instead of pointing the finger at other companies operating in the region, (which was largely irrelevant as they did not have the same demographics as Talisman and as such were unaffected by the same pressures) Talisman should have opted with a strong positive media campaign from the get-go.

By first meeting with NGOs and activists who were complaining, and compiling their complaints they would have been able to put together a media package redressing the negative press. Additionally, Talisman could have spent significant revenue (at the time their profits quadrupled) to saturate the media with positive imagery in order to overwhelm the lambasting of the international community.

By flooding the press with positive PR, investors would be less likely to react so poorly to pressure and there would be additional consideration from the public at large when confronted with two opposing narratives. The possible downside is if Talisman’s campaign was ineffective, it would further damage their reputation and credibility by being perceived as a cover-up attempt, which would only serve to vilify them in the world’s eyes.

Given the lack of preparation for non-traditional risks, and their subsequent mishandling of the PR crisis I would recommend that Talisman not have gone into Sudan. However, the lessons learned in Sudan of evaluating your potential problems; prior planning for all risks, not simply traditional risks; being able to quickly respond to backlash and maintaining a positive media position must be applied to a possible Iraqi venture. There is an incredibly high risk of falling into the same trap as in Sudan.

Factors such as logistical problems with exporting oil, an unstable political climate, the dearth of additional firms of similar demographic; as well as the ghost of the Sudanese failure behind them all make for a potential disaster. A second failure would have catastrophic effect on major investors who are doubtless shy of being burned twice, which could spell doom for the company. It is inadvisable for Talisman to enter Iraq. If Talisman chooses to go ahead with exploring Kurdistan, they must first go above and beyond due diligence and prepare for the worst.

Cite this Talisman Energy Case Analysis

Talisman Energy Case Analysis. (2016, Oct 26). Retrieved from https://graduateway.com/talisman-energy-case-analysis/

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