Executive summary Talisman Energy Inc. is a company that has been through a lot in the past, due to their negative experience in Sudan. They were accused of aiding the Government of Sudan in the commission of human rights violations and indirectly providing funds to purchase weaponry, which eventually led to selling their Sudan asset. Now, they’re debating whether or not they should enter into the Kurdistan region of Iraq, potentially knowing that the same thing could happen. KRG is asking for $220 million in exchange for allowing Talisman to search for oil reserves. The main question here is; will the KRG use the money on economic development or on weapons in order to force their independence from Iraq? With the experience on the board of directors, proper due diligence, and constant re-evaluation of the situation, Talisman should find it easier in discovering potential risks in Iraq, hence being pro-active in finding and solving issues before they arise. With this said, I feel that Talisman should enter Iraq.
Problem statement Talisman Energy Inc. has had problems in the past when entering into politically unstable markets. They are now faced with a dilemma on whether they should or shouldn’t enter into the oil-rich Kurdistan region of Iraq. If they do decide to enter into this market, can they do it without facing the same problems they faced when they entered into Sudan?
Analysis
Talisman Energy Inc. is a company that has gone through a lot of scrutiny and has had a lot of experience doing business in countries with high political risk. In order to find out whether Talisman should enter Iraq or not, a few questions have to be answered, and information has to be analyzed and clarified.
In retrospect, should Talisman have gone into Sudan? Many would argue that going into Sudan hurt Talisman’s reputation and caused a lot of controversy when they were accused of fueling the civil war, and being involved in the genocide that was taking place in Sudan. However, others would argue that if they had not gone into Sudan, they would have had no mistakes to learn by. Their time in Sudan and everything that came from that experience can only help them when making future decisions, and faced with similar situations.
What are the learnings from the Sudan experience? Talisman’s “mistake” of going into Sudan prompted them into becoming a signatory of the United Nations Global Compact and to the Extractive Industries Transparency Initiative, joining the Voluntary Principles on Security and Human Rights, and being recognized for their Corporate Responsibility efforts. They also added the International Code of Ethics for Canadian Business to their existing corporate code of ethics. Overall, it seems that they have learnt to put more emphasis on being more dedicated to corporate responsibility (CR). This includes putting more effort into assessing the risks involved in new projects, especially when entering countries that have a high level of political risk. They should have also learnt from their experience with the Teachers Union’s threat to sell all their shares, by identifying their shareholders’ sensitivities towards taking part in controversial investments. It would also be very useful to consider whether other similar western firms have operated in a given country, and challenges they were faced with.
Is Talisman allowing history to repeat itself? By the information given, it seems that Talisman is putting more emphasis on corporate responsibility. However, it appears like they’re making the same mistakes that they made in Sudan by going against what the Americans are saying. The Americans stated that the boundaries of the Kurdistan region are not well defined, and that the lines are “wiggly”. There is also evidence that shows that American companies are leaving Iraq, because the US State Department view of contracts with the KRG are politically sensitive. This is similar to what happen in Sudan when US companies were prevented from operating in the country. This could imply that the Americans might take the same route by preventing foreign companies developing oil and gas in Iraq from selling in USA.

Is it really possible to know where the $220 million will go, and what it’ll be used for? It seems to me that it would be rather difficult to accurately know what the money is being used for, as Iraq’s Corruption Perceptions Index (CPI) Score is 1.0 -1.9 and their political risk is at a very high level. Making predictions in such an unstable nation would seem to be a rather difficult. Since the Kurds have been seeking greater autonomy in Iraq for decades, it seems that the money would be a good source of funding in order to obtain weaponry in an attempt to gain independence. However, if Talisman does do all they could possibly do to ensure that the money is used to re-invest into the community, there’s no reason why they shouldn’t take a chance (Exhibit 1).
How much money can Talisman make by entering Iraq? Even though Talisman has a new board of directors full of experienced members, it seems that their judgement could easily be clouded by the estimated 39 billion barrels of oil reserves that are believed to be in Kurdistan. At $130 a barrel, it’s understandable how $5 trillion (39 billion x $130) can cloud ones judgement.
What are the costs and benefits for Talisman of entering Iraq?
Benefits
• Financial benefit that could lead to trillions of dollars in profit.
• An increase in geographical presence, which will reduce risks by being stuck in one region (Exhibit 2).
• An increase in market share.
• An opportunity to invest into the community (Exhibit 3).
Costs
• Talisman’s entry might be viewed as support for the Kurdish regional government and could result in opposition from the U.S. government.
• There is no agreement on revenue sharing which could cause some problems between the central government and the KRG.
• A decision to enter Iraq could hurt their reputation indefinitely, since this would be the second time this happens.
Discussion of alternatives I feel that Talisman didn’t work hard enough in order to portray a positive image of themselves and the difference they were attempting to make in the local communities when in Sudan. I feel that they have to be more proactive and aggressive in their publicity in order to show not only the community, but the world that they are making a difference for the better. Even though this extra publicity will be more expensive, it will enhance their public image and will hopefully prevent controversy against their presence in Iraq. Talisman should have pulled out of Sudan a lot sooner in order to save their reputation, time, and money. In order for them to keep themselves from making the same mistake twice, it would be good to continuously re-evaluate their risk exposure in order to better diminish unexpected risks. Even though this will be more costly, it will give Talisman consistent updates on the situation and allow them to be more proactive in their decision to stay or go. Talisman can make an agreement with the KRG which states that instead of giving $220 million to the KRG, they can directly put the money into the community by building schools, hospitals, playgrounds, etc... This would ensure that the money would be spent on the community and not on an attempt to create independence from Iraq.
Recommendation
Talisman is a corporation that went through a lot during their time in Sudan and has learnt a great deal from that experience. Unlike Sudan, Iraq’s situation has cooled down quite a bit and with the added certain degree of autonomy that was granted to KRG by the American-backed government of Iraq, Talisman should have a higher level of comfort in doing business in Kurdistan. With proper due diligence, constant re-evaluation of risk, and thorough exploration of political, environmental, security, and human rights issues, Talisman should find it easier in discovering potential risks in new investment ventures. All in all, with their experience and the changes they have made since their entry into Sudan, I feel that Talisman should enter Iraq.

Exhibit 1
Helping To Rebuild Communities
We have carried out seismic exploration activities in the Kurdistan region of northern Iraq and commenced drilling our first operated well earlier this year. As a condition of our investment, we provided capacity-building payments of US$220 million in 2008 to the Kurdistan Regional Government (KRG) to rehabilitate local communities damaged by past conflict. We have taken steps to ensure these dollars are managed transparently. The KRG has established a committee to oversee allocation of $200 million of the initial capacity-building payments. Talisman has a seat on that committee. To date, about $75 million has been invested in projects to build roads, improve water sanitation, drill water wells, build schools and provide affordable housing developments. (Talisman corporate responsiblity report, 2010)

Exhibit 2