May 14, 2008: 11:59 AM EDT
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Weatherford makes amends in Sudan

After pulling out of embargoed Sudan, the oil services company donates its equipment to an effort to drill water.

By Vivienne Walt

(Fortune) -- All too seldom is a Fortune story about corporate misbehavior transformed into feel-good news. But for the Texas oil-services company Weatherford International, our revelation last July that the company was operating in embargoed Sudan looked to be just such an opportunity. Weeks after we uncovered Weatherford working out of a two-story suburban villa in Khartoum, despite decade-old U.S. sanctions against Sudan, the company filed an SEC report announcing that it was pulling out - not only from Sudan, but also from Iran, Syria and Cuba. Those are all countries where Americans are forbidden to do business. By the end of March the company had closed its offices in all four countries.

But in Sudan, the company did not stop there. Shortly after its SEC filing, Weatherford (WFT) executives in Houston began discussing what they could do to help the millions of refugees displaced by the devastating conflict in Darfur. The answer: Water - a commodity far more precious than oil in that region of Western Sudan, where up to 400,000 people might have died from conflict-related causes, including dehydration and malnutrition. Weatherford general counsel Burt Martin had already received a call from Thirst No More, an organization in Austin, Tex. that drills water wells in some of the world's most stricken areas. The group's staff had read about Weatherford withdrawing from Sudan, and made a tentative approach to Weatherford about getting involved in Darfur, where Thirst No More was planning to dig its first water wells.

"Before we knew it they were calling us and offering several different things to us," says Thirst No More president Stephen Craig Miller. Says Weatherford general counsel Burt Martin: "We decided it was just the right thing to do." It was also practical. Weatherford was saddled with valuable equipment from its Khartoum villa, as well as several vehicles in the driveway, none of which it had much hope of ever excising from Sudan. So it offered Thirst No More whatever it needed - which was a lot.

"We're a small organization and we're growing quickly," Miller says. Among the most valuable items it received was Weatherford's Nissan truck, which hauled oil-drilling equipment in Sudan, and which will now pull water rigs and pipes in parched Darfur. And most of the furniture and office equipment from Weatherford's Khartoum villa will be shipped to the Thirst No More base in North Darfur's capital El Fasher. Burt Martin says he does not know the value of Weatherford's donated goods, but says "there was a substantial amount." The company is also paying to ship three containers of goods from the United States to Sudan for Thirst No More's operation there. "Weatherford has taken us from piecing things together to fully operational," Miller says.

It is still unclear whether Weatherford was operating illegally in Sudan (Commerce and Treasury officials are investigating whether the company broke sanctions regulations). The company used a loophole in U.S. sanctions laws - used also until recently by Halliburton (HAL, Fortune 500) in Iran - which allows U.S. companies to operate in embargoed countries, so long as no U.S. citizens are involved, and it operates under a foreign subsidiary. Weatherford's Khartoum operation was part of its Dubai subsidiary Weatherford Oil Tool Middle East - one of hundreds of Weatherford entities - and was run by an Egyptian citizen. When Fortune visited the office last July its staff insisted it had no connection with the U.S. company, despite using Weatherford's red logo and posting photographs of Houston executives on its wall.

For Weatherford - a $6.5 billion company - the Khartoum operation was too marginal to risk the bad publicity, first in Fortune, and after that from the Washington-based Sudan Divestment Task Force, which placed the company on its worst-offenders list. "It was apparent it was not popular," says Burt Martin. "We decided to focus on business which was not a distraction."

The move has transformed Weatherford's image among activists from bogey to good corporate citizen. The Task Force's advocacy associate Max Croes says Weatherford's decision to withdraw from Sudan and donate to Darfur relief "has been one of the best success stories involving a corporation." Unlike drilling for hydrocarbons, no one can complain about water gushing out of the ground. To top of page

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