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OIL: Strange Bedfellows

3 minute read

If politics makes strange bedfellows, so does business—as Gulf Oil Corp. has discovered. Last week, under pressure from the U.S. State Department, Gulf suspended its profitable oil-producing operations in the newly independent African nation of Angola. One reason: its taxes and royalties had been supporting the Soviet-backed faction in the civil war there, and indeed far outweighing the money that the U.S. Central Intelligence Agency had been slipping to the anti-Communist side.

The story opened in 1957, when Gulf began exploring for oil off the coast of Cabinda, a province of Angola, then under Portuguese colonial rule. The Cabinda subsidiary of Gulf began pumping in 1968, eventually taking 150,000 bbl. a day out of 120 wells, and Gulf paid taxes and royalties—most recently $10 per bbl.—to the territorial government of Angola. By 1973, the wells had repaid Gulfs $250 million investment, and since then they have been returning a profit to the Pittsburgh-based company.

As Portugal pulled out of Angola, matters became complicated. In September and October, Gulf made routine payments totaling $116 million to the Banco de Angola in Luanda, to the official who had previously accepted royalties and taxes for the Portuguese administration. It turned out that the man was working for the Popular Movement for the Liberation of Angola (M.P.L.A.), which is being supported by the Soviet Union and Cuba. Angola became officially independent in November, and the M.P.L.A., which already controlled Cabinda, took over the government in Luanda, and presumably the $116 million. Gulf was due to pay another $95 million on Dec. 31, and a further $30 million in mid-January. Meanwhile, the CIA had already spent or authorized the spending of $33 million to aid UNITA, M.P.L.A.’s anti-Communist rival (Congress, fearful of a new Viet Nam, cut off the aid last month).

Shut Down. The State Department was understandably upset: if Gulf had continued the tax and royalty payments through 1976, it might have paid the pro-Soviet faction $500 million. Last week, after several months of talks with State Department officials, Gulf announced that the $125 million due Angola by January would be placed in escrow, earning interest until Angola has a government “recognized by the world community” to which payments can be made. In addition, Gulf said it would shut down its Angola production until the end of the civil war, which it maintained made continued drilling impossible anyway.

Some of Gulf’s 17 American employees in Angola have been moved to neighboring Zaïre, where the company is beginning offshore drilling. Gulf plans to return them to Angola when the war ends, unless its operations there are expropriated, which they may well be. In any case, Gulf officials maintain that they do not wish to support either side in a civil war, and the Ford Administration emphatically does not want the giant multinational to bankroll the pro-Soviet side.

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