BUSINESS

Talisman Energy to trim capital spending in 2012 to more than $4 billion

01/10/2012 05:20 EST | Updated 03/11/2012 05:12 EDT
CALGARY - Seeing no recovery in natural gas prices on the horizon, Talisman Energy Inc. plans to spend less this year than it did in 2011 and is eyeing up to $2 billion in asset sales.

"I believe we can expect gas prices to remain depressed through this year — at least that's the basis on which we've set our capital plans," chief executive officer John Manzoni told a conference call with analysts Tuesday.

The Calgary-based company (TSX:TLM) has set a 2012 capital budget of just over $4 billion, a decrease of $500 million or 11 per cent from 2011. Capital spending in North America is expected to be approximately $1.8 billion in 2012, which is about $400 million lower than last year.

Talisman plans to spend less on dry natural gas and focus more on areas rich in natural gas liquids, which have been much more robust lately. The company aims to increase liquids production from 25,000 barrels of oil equivalent per day this year to 60,000 barrels by 2015.

The company is looking to pare down its portfolio by $1 billion to $2 billion this year, eyeing opportunities to divest assets in the North Sea, North America and in early-stage international exploration areas.

Manzoni said over time, Talisman plans to reduce its footprint in the "mature and relatively volatile" North Sea. Higher taxes, pipeline outages, maintenance delays and other issues have caused headaches in that region lately.

"I'm not in a position today to describe exactly how we'll achieve that, although we are investigating several options: a combination of some sales, some farm outs and some dilutions will over time result in the North Sea becoming a smaller part of the portfolio."

Talisman will continue to focus on North America, but "some assets are non-core to Talisman and should be sold," Manzoni said.

"In other areas, we'll seek to use other expertise or resources to accelerate activity and optimize value in areas where we would not otherwise direct capital."

The oil and gas producer may look to exit some of its international assets — in the Iraqi region of Kurdistan, South America, for example — "as part of the natural evolution of that portfolio."

"Some areas we'll appraise and develop, but others we'll choose to exit for value at an earlier stage in the cycle," Manzoni said.

Lanny Pendill, an analyst with the Edward Jones brokerage in St. Louis, Mo., said he was glad to see Talisman set conservative targets for itself.

"The biggest issue for them is meeting targets that they provide for the street. They did not do that last year and the stock got clobbered for it," he said.

"It's always better to set the bar low and exceed targets than it is to try to get aggressive on a target and come underneath, and that's always been Talisman's problem."

Talisman said production averaged about 425,000 barrels of oil equivalent in 2011, an increase of nine per cent. Production growth of up to five per cent is expected this year.

In discussing its third-quarter results, Talisman had said in November that its 2012 plans would likely include a greater focus on liquids-rich natural gas and asset sales.

Like many natural gas producers, Talisman has been coping with stubbornly low natural gas prices by drilling in areas rich in valuable liquids. Natural gas liquids, used to make plastics and petrochemicals, track oil prices more closely than they do ordinary dry natural gas.

More than a year ago, Talisman bulked up its presence in a liquids-rich part of the Eagle Ford shale in Texas, alongside Norway's Statoil. The company signalled in November that capital in 2012 will likely be funnelled toward the Eagle Ford, and away from dry gas holdings in the Marcellus play in northeastern United States and the Montney formation in Western Canada.

Another strategy natural gas producers have adopted recently is to ink joint-venture deals. Last December, Talisman agreed to sell a 50 per cent stake in two of its shale properties in northeastern British Columbia to South Africa's Sasol for $1.05 billion each.

Talisman shares rose 14 cents to $12.54 Tuesday on the Toronto Stock Exchange.