Arakis Energy Corporation

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Arakis Energy Corporation, "an oil exploration company" once listed (AKSEF) on the Vancouver (Canada) Stock Exchange (VSE) and NASDAQ, was "acquired in a friendly merger by Talisman Energy Inc. in October 1998." [1]

Overview: Arakis in Sudan

"Oil exploration in Sudan began in the late 1950s and was originally concentrated on the Red Sea continental shelf. ... In 1974, the Chevron Oil Company was awarded the southern and middle parts of the Red Sea and carried out aero-magnetic and gravity surveys." [2]

"The only significant offshore discovery was the Chevron-Suakin gas discovery in 1976. Chevron's continued exploration in the 1960's and 1970's led to several discoveries in southern Sudan near the towns of Bentiu, Malakal and Muglad. Chevron operated in the region from 1974 to 1985, but fighting in the civil war" between the Sudanese armed forces and the Sudanese Peoples Liberation Army (SPLA) "caused Chevron to relinquish its concessions." France/Belgium's Total "also suspended its onshore exploration activities, but retained the rights to its concessions. The Sudanese government sub-divided Chevron's concessions into smaller exploration blocks, and Canada's Arakis Energy (Arakis) acquired the portion of Chevron's concession north of the town of Bentiu in 1993." [3]

To locate Sudanese towns and oilfields, see: USAID Map of Sudan Oil Concessions; United Nations Cartographic Map; and CIA Map.

"After the withdrawal of Chevron from its Suakin Basin oilfields, 40 km from the Red Sea, the Government of Sudan signed an agreement with the Saudi Arabian businessman, Adnan Khashoggi, to establish the National Oil Company of Sudan to resume the production of oil in exchange for a 50% interest in the venture and related assets." [4]

Between the end of 1995 and June 1996, Arakis had drilled "two successful multi-zone wells on lands between its Heglig and Unity fields" (Blocks 1, 2, and 4). Arakis's El Toor well tested at 4,500 barrels per day. Company officials said that engineers estimated "72 million barrels could be recovered from the surrounding field." Arakis's Toma South well flow "tested at 850 barrels per day from one zone and 650 each from two others. That field was estimated to harbor 130 million recoverable barrels, the company said." Drilling success "moved the company's projected startup output from the project to 150,000 barrels per day from the previous 85,000 barrel per day estimate. The expected production boost ... served to increase the company's planned pipeline capacity by adding pumping stations to construction plans." [5]

Following the investment debacle with Arab Group International (AGI) (see below), on December 1, 1995, Arakis "substantially changed its management" and James Terrence Alexander and "other executives resigned." The company moved from Vancouver to Calgary and John G.F. McLeod, "a former Amoco Canada engineer who had been with Arakis since 1993, took over." [6]

"Because the fields were not located near the Red Sea coast, Arakis entered into a consortium with the Greater Nile Petroleum Operating Company (GNPOC) to raise investment for a 1,590-km pipeline from the fields to the Suakin oil terminal near Port Sudan." [7] In June 1996, the "entire cost for exploration, development and pipeline construction" was now "pegged" at U.S. $930 million to be spent over a period of 30 months. [8] Arakis projected that once pipeline construction started, "it would be about two years before the project [came] on stream." [9] Pipeline construction, however, did not begin until May 1998. It was completed in 1999 following Talisman's acquisition of Arakis. [10]

The GNPOC consortium, "established after Arakis was unable to attract the backing of a major U.S. company, believed to be Los Angeles-based Occidental Petroleum Corp.," consisted of Arakis (25% share and field operator), China National Petroleum Corporation (CNPC) (40%), Petronas (Petroliam Nasional Berhad, a subsidiary of Malaysia's National Petroleum Company) (30%), and Sudan National Petroleum Corporation, Sudapet (5%). [11][12]

In April 1998, when the company announced its 1997 financial results, the news was grim. The company had lost another U.S. $9.2 million on top of the U.S. $12.9 million loss of the year before.

The company was pinning its hopes on being able to develop oil projects in the Sudan. The company stated in its annual report that its focus "remained fixed on the Sudan Petroleum Project in which it is a 25 percent interest joint venture partner. Under the operatorship of an international consortium, the project entails the exploration and development of a 12.2 million-acre concession in the Republic of Sudan and the construction of a 1,500 kilometer export pipeline. The Consortium's goal is to achieve commercial production at a minimum rate of 150,000 barrels of oil per day by mid-1999. Activity on the Concession in 1997 resulted in the drilling of 25 wells, of which 18 were new pool discoveries or extensions, three were successful development wells and four were dry and abandoned."

"Consortium plans for 1998 include[d] a further acceleration of activity including the drilling of up to 22 exploration and appraisal wells and 36 development wells. The development drilling program [would] focus on the five fields designated to be the initial project producers: the Greater Heglig, the Greater Unity, the Toma South, the El Nar and the El Toor fields. Field development studies anticipate the installation of production facilities during the next dry season, commencing in November 1998," Arakis stated.

"Arakis announced in June 1998 that continued development on the fields had been successful with oil discoveries at nine of 13 wells drilled in 1998. Arakis' involvement in Sudan [was hindered] by a lack of investment, [drew] criticism from human rights groups, and [was] threatened by the rebel movement. Although the formation of GNPOC committed $700 million of capital into the project, Arakis [continued] to have troubles raising funding. The U.S. embargo on Sudan preclude[d] any direct U.S. investment in the country without a special waiver from the U.S. government. The SPLA targeted the oil facilities" and "warned Arakis to abandon the area. The SPLA stated that it consider[ed] the oil facilities as 'legitimate military targets' since 'the oil is taken from here and is used by the Khartoum government to finance the war.'" [13]

On August 17, 1998, Canadian firm Talisman Energy Inc. "agreed to purchase Arakis for $200 million. The U.S. military strike several days later did raise doubts about the completion of the purchase by Talisman, but the company announced on August 31, 1998 that it was advancing $22 million to Arakis to meet funding obligations." [14]

Arab Group International et al.

On August 24, 1995, Arakis announced that it had "agreed in principle to certain amendments to the terms and conditions" of a Financing Agreement dated July 6, 1995, with Arab Group International for Investment and Acquisition Co., Ltd., (AGI) which is controlled by Prince Sultan bin Saud bin Abdullah Al Saud, Abbas Salih and Haroun Hamid Haroun. AGI and Salih and Haroun were "collectively referred to as the 'Investors'." [15]

The "architect" of the deal was "Pakistani entrepreneur (Mohamed) Lutfur Rahman Khan," founder of the State Petroleum Corporation, "Arakis' operating subsidiary in Sudan." Khan was said to have "access" to National Islamic Front (NIF) "people." The deal followed the June 1995 "collapse of talks between Sudan and Russia's Yuri Shafranik when it became clear Moscow was short of hard currency. Khartoum had earlier sought Iranian and Iraqi interest." [16]

Between 1994 and the summer of 1995, Arakis's stock had "soared to $25 from around $2 on news that the company had bought the rights to a big oilfield in Sudan that had been owned by Chevron Corp. Due to political instability in Sudan, the U.S. major had left the field in the 1980s. Arakis maintained it had the necessary financing from an unnamed Saudi prince to develop the field. But highly publicized doubts about the project's viability hit the company's share price. And after much prodding from the Vancouver Stock Exchange, Arakis asked that its shares be delisted by the VSE in August 1995. Nasdaq halted trading in the stock for nearly a month. Arakis was sued by a number of U.S. shareholders who alleged that chief executive Terry Alexander and his brother, David, the chief financial officer, had manipulated stock." The lawsuits were dismissed and by September 1995, "the Saudi prince was no longer a backer." [17][18]

For details, see:

Funding Muslim Extremists?

In its August 1995 issue of Sudan News & Views, the University of Pennsylvania's African Studies Center reported that "Many press reports also questioned the credibility" of Arakis' promoters and of Arab Group International, "which was mainly involved in transportation and real estate in Sudan and had a shrimp farm on the [Red Sea]. There were even claims that the promotion is being used as a conduit to fund Islamic extremists by making payments to bogus charities in Sudan. Terry Alexander, chairman of Arakis, responded that 'Muslim fundamentalists are like everyone else, and those who speak ill of them have a cultural bias'."

Human Rights in Sudan

"In November 1992, as Khartoum began planning for oil exploitation in a new consortium with Canada’s Arakis Energy, the government and its murahleen allies began a five-month offensive designed, according to Human Rights Watch, 'to permanently dislodge the civilians'. 'In November 1992 through April 1993, these forces looted, burned, killed and abducted people,' Human Rights Watch said. 'The survivors said that the government was trying to clear the area so the SPLA would not be near the oil fields.' ... In October 1996, two months before China and Malaysia joined Arakis in the so-called Greater Nile Oil Project Corporation (GNOPC), a new government-murahleen offensive displaced many thousands more, furthering the deliberate creation of a cordon sanitaire around the oil areas. Cattle and grain were looted, food stores looted and burned." [19]

"By Arakis own admission, they were providing over 10,000 barrels of oil per day to the Sudan government refinery in El Obeid, a city in the middle of Sudan which has very few civilian vehicles. El Obeid is, however, a major air force base and center for military operations against the Sudanese people in southern Sudan and the Nuba mountains," Mel Middleton of Freedom Quest International reported.

"In August of 1998, Talisman Energy Inc., another Calgary based oil company, took over the shares of Arakis and pumped in some badly needed capital to the whole enterprise." [20] Talisman "began constructing a 1,000-mile pipeline linking the oil fields to a new supertanker terminal on the Red Sea coast." [21]

"At a meeting at the Department of Foreign Affairs and International Trade in September, 1998, Jim Buckee, Talisman Energy's CEO acknowledged that approximately 250 million dollars from this initial oil investment would directly benefit the Sudan government. ...

"At a recent rally in Port Sudan, Sudanese Vice President, Ali Osman Mohamed Taha stated that 'with the start of the oil exportation, (scheduled to begin the end of June, 1999), we will score a decisive victory by liberating all positions and spreading peace and stability in all parts of Sudan.'

"It is clear from these remarks that the Sudanese government is counting on the development of the oil industry to aid them in their war against the Sudanese people. This is clear evidence that Canadian oil companies, are directly aiding the Khartoum government in their war efforts. We can also infer, with reasonable probability, that Canadian oil companies are unwittingly supporting a campaign of genocide against the people of southern Sudan and the Nuba Mountains," Middleton wrote.

Mansoor Ijaz

On April 27, 1997, Arakis announced the appointment of Mansoor Ijaz "to an advisory committee to the company's board. Ijaz said he did not get paid for the position.

"But he said 'it wouldn't be the first time that an interested party lobbied [Samuel "Sandy"] Berger, the White House, the National Security Council or other organs of our government for business purposes.'" [22]

Dr. Cleophas Lado, Department of Geography and Environmental Studies at the University of the Western Cape in South Africa, wrote in 1999:

"Since the introduction of the Anti-Terrorism Act in 1996, the US administration was targeted by other lobbyists on the payroll of companies such as Arakis in an effort to soften America's foreign policy towards Sudan. One notable example is the campaign of Ijaz Monsoor to influence American policy-makers and promote engagement with the NIF regime. Ijaz Monsoor was on the advisory board of Arakis before it was taken over by Talisman, and is also the Chairman of a private New York firm, Crescent Investment Management. Monsoor is particularly interested in new oil field development and seeks to further [his] business interests through [channels] as in US policy towards Islamic countries, particularly Sudan. The Washington Post's David Ottaway documented direct fundraising activities on the part of Ijaz Monsoor for the Democratic Party. During the Clinton/Gore campaign in 1996, Monsoor raised $525,000 for the Democratic Party, $250,000 coming from his own personal funds, and $200,000 from a private fundraiser he held for Al Gore. As a result of his fundraising activities, Monsoor was able to curry influence and gain access to top administration officials, urging individuals such as National Security Advisor Samuel Berger to adopt a policy of constructive enactment towards Sudan. Monsoor also testified before the US Congress against the imposition of economic sanctions against Sudan in 1997. This type of behind the scenes lobbying is important to note in that it reveals the extent to which a Canadian oil company operating in Sudan attempted to influence the foreign policy of a world power towards" the Government of Sudan.

Talisman Acquires Arakis

Talisman Energy Inc. and Arakis Energy Corporation announced August 17, 1998, that they "entered into an agreement for the acquisition by Talisman of all of the outstanding shares of Arakis."

  • Talisman indirectly acquired State Petroleum Corporation, "the wholly-owned subsidiary of Arakis which owns a 25% interest in an oil exploration and development project in Sudan."
  • As of June 30, 1998, "Arakis had no outstanding debt and US$45.6 million of cash."
  • The project in Sudan, of which Talisman "indirectly would own 25% upon completion of the arrangement, consist[ed] of a 12.2 million acre concession area, proven reserves and new infrastructure in central Sudan. As part of the arrangement agreement, Arakis has agreed not to solicit or encourage any competing acquisition proposals and has agreed to pay Talisman a break fee of US$12 million in certain events."
  • Talisman and Arakis "also entered into a Credit Agreement under which Talisman ... agreed to loan up to US$54 million to Arakis to fund State Petroleum's share of the Project's capital requirements prior to completion of the arrangement. The loan [was to] be convertible by Talisman into Arakis common shares at a price of US$1.00 per share, subject to a maximum number of shares equal to 20% of Arakis' presently outstanding shares. Talisman's security under the Credit Agreement include[d] substantially all of Arakis' assets."

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