Case Analysis: Unocal in Burma
Union Oil Company of California, Unocal, progressed into a full-service oil business after being founded more than 100 years ago to develop oil fields in California. Its services included extraction, refining, distribution, marketing and retail. Because of the depletion of oil fields in the United States, Unocal turned to foreign investments with a strategy to market its one-stop shopping business to governments. A major international project of interest was the "Yadana Field" off the shore of Burma, which contained approximately 5 trillion cubic feet of natural gasenough to produce gas continuously for about 30 years. Burma's government created the company Mynamar Oil and Gas Enterprise (MOGE) to find private companies to help develop their oil. In 1992, MOGE signed a contract with Total S.A which gave Total the right to develop the field and build a pipeline to transport the gas from Yadana to Thailand. In the contract, MOGE agreed to provide Burmese government security through its army and ensure that land was cleared and that the right of way was secured in the passage for the pipeline through Burma. Thailand's government would purchase the gas. Burma had the opportunity to earn approximately $200-$400MM per year over the life of the project. A portion of the revenues would be shared with Burma's oil development partners.
The Burmese project was appealing to Unocal for many reasons: cheap, educated labor, and rich natural gas resources as well as other untapped resources. There was also the advantage that Burma would provide an entry point into other profitable international markets such as China, India and other Southeast Asian countries. The fact that Burma had a strong, dependable government with a stable political climate was also appealing. Yet it was widely known that since 1988, Burmese government had continuously violated human rights in a brutal manner.
Prior to taking on the Burmese project, Unocal conducted research on the sociopolitical environment of Burma. The 42 million person population is 69% Burmese, while several minority groups are present including the Karens, clustered in Southern Burma, who had a history of rebellion against the government. Burma is a poor country with a GDP of only $200-300 per capita, and high inflation. The country suffers from high infant mortality (95 deaths/1000 births) and low life expectancy (53 males/56 females). The Burmese project had the potential to benefit the poor country by providing much-needed revenues and benefits.
However, a major problem did exist with the project: the Burmese government. Unocal viewed that "the only real problem" was that the Burmese government was a military dictatorship which had accusations of perpetually violating the human rights of its people. In 1988, the Burmese military seized power and imposed martial law on the entire country. The US government reported in 1991 that the Burmese government maintained law and order through such things as arrests, harassment, torture of political activists, torture, arbitrary detentions, forced labor and restricting basic rights. Amnesty International reported that same year that their government "continues to seize arbitrarily, ill-treat and extra-judicially execute members of ethnic and religious minorities in rural areas" and victims are forced to do hard labor and very dangerous work. US Congress outlawed Burma and former President Clinton barred Burmese government officials from coming to the US.
Unocal hired Control Risk Group, a consulting firm, to check out the situation first hand which reported that Burma continually made use of slavery in construction of roads and that Unocal would not have much freedom of mobility. Regardless of the warnings they received and the obvious risks facing them, Unocal moved forward to invest in the project because they felt that the benefits to Unocal and to the countries of Burma and Thailand outweighed the risks....
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