U.S. oil firm pulls out of Sudan

After Fortune revealed that Houston-based Weatherford was doing business in Sudan despite U.S. sanctions, the company announces it will withdraw. Fortune's Vivienne Walt follows up.

By Vivienne Walt, Fortune

VIENNA (Fortune) -- Two months after Fortune revealed that a Houston-based oil-services company was operating in Khartoum despite a tight U.S. embargo against Sudan, the company announced on Monday that it was withdrawing from the country, as well as from Cuba, Iran, and Syria (all of which are under U.S. sanctions). In a filing with the Securities and Exchange Commission, Weatherford (Charts) said it would not sign any new contract in those countries, and that it would soon begin "an orderly discontinuation and winding down of our existing business" there.

In July Fortune discovered that the Texas company was operating out of an unmarked two-story house on a discreet side street in Khartoum - a fact which surprised even U.S. activists fighting for divestment from Sudan. Sudan is only one of five countries declared by the State Department as sponsors of terrorism. Weatherford said in its SEC filing that it had taken a "strategic decision" based on "the current U.S. foreign policy environment and the inherent uncertainties surrounding these countries."

That "environment" might have included bad publicity. As concern has mounted over the huge death toll in the conflict in Darfur, in Western Sudan, several American states have signed divestment bills, agreeing to withdraw public funds from companies which do business in Sudan. After Fortune published its story on Weatherford, the Washington-based Sudan Divestment Task Force listed Weatherford on its quarterly "Worst Offenders" list of 24 companies, which appeared on August 31. Numerous universities and state legislatures have used the task force list as a guide to making divestment decision.

To many Americans the revelation that U.S. companies operate at all in countries like Sudan, Iran and Cuba is a big surprise. Weatherford - which has annual revenues of more than $6.5 billion - used a loophole in the U.S. sanctions law. Under U.S. sanctions, American companies are allowed to operate through foreign-registered subsidiaries, using only non-American staff. Weatherford's operations in Sudan fall under its subsidiary Weatherford Oil Tool Middle East, which is registered in Bermuda. Its local director, Tarek Khalil, is Egyptian.

Weatherford's chief financial officer Andy Becnel told Fortune in July that he believed the U.S. sanctions law meant that "no U.S. people and no U.S. goods can have any dealings with Sudan." U.S. Treasury spokeswoman Molly Millerwise agreed.

Weatherford's far larger competitor, Halliburton (Charts, Fortune 500), used the same loophole for years in order to operate in Iran, as Fortune revealed during a visit to Tehran in 2005. And Baker Hughes (Charts, Fortune 500), another Houston oil-services company, operated in Sudan until 2004.

Ultimately, Weatherford might have felt the threat of bad publicity, rather than legal action. "We are determined that it is in the best interests of the company and its stakeholders to implement this new policy," said the company in its SEC filing. Weatherford did not immediately return calls seeking comment. Top of page