While Talisman Energy Inc. has a diverse portfolio of international exploration and production (E&P) interests, in North America the company is focused largely on the Marcellus, Montney and Eagle Ford shales, plays in which its activities are in various stages of development. In the Marcellus, where its shale activities are the most mature, Talisman is enjoying improved well results as it continues to learn the play.

In North America Talisman production from continuing operations last year was 756 MMcfe/d (126,000 boe/d), an increase of 14% over 2009, due to ongoing development programs in shale gas, the company said. Natural gas production from continuing operations averaged 636 MMcf/d.

Production from shales averaged 218 MMcfe/d during the year, up from 34 MMcfe/d a year earlier. Shale accounted for 28% of Talisman’s North American natural gas production. Capital spending in North America last year was C$1.8 billion, including C$1.6 billion related to shale activities.

“We are now well positioned in three of the leading shale plays in North America, in different stages of development, and each with relatively low land retention commitments,” said CEO John A. Manzoni. “This provides tremendous flexibility in being able to respond to dynamic external conditions.

“We have proved the low-cost, high-growth potential of the Marcellus Shale, which was producing 315 MMcf/d at the end of the year. The company secured a strategic partner in its Farrell Creek assets in the Montney Shale, with Sasol paying approximately C$1 billion for a 50% share…

“We also acquired a material position in the heart of the liquids-rich window of the Eagle Ford Shale play in Texas, forming a joint-venture with Statoil.

“As part of the move to reposition our portfolio, Talisman sold over C$2 billion of mainly gas-producing assets in North America in 2010, bringing total asset sales to over C$5 billion during the past two years.”

In the Marcellus Talisman is enjoying lower break-even costs, noting a drop from C$4/Mcf to C$3.50. Paul Smith, executive vice president for North American operations, said this is mainly due to higher estimated ultimate recoveries (EUR) from the company’s Marcellus wells.

“We’ve continued to see the EURs expand in the Marcellus,” Smith told financial analysts during a conference call Wednesday. Last year the company was saying its Marcellus EUR per well was about 3.5 Bcf. “We’ve now got the confidence to say that the average EUR for us in the Marcellus is 5 Bcf, and so that’s clearly the biggest driver in taking out full-cycle break-even costs,” Smith said.

“We continue to experiment, and I would say that we’ll be experimenting for many more years to get this completely right. So yes, in general we’re drilling longer in the Marcellus and everywhere that we drill, and we’re sort of tightening the number of frack [fracturing] stages that we use. We’re using higher concentrations of sand. But we’re sort of experimenting with all of that, and yes, that is part of the reason we see increased EURs.”

Talisman net income last year was C$648 million, a 48% increase from 2009 due to higher commodity prices, improved operating performance and noncash gains on derivatives. Earnings from continuing operations were C$347 million versus C$631 million a year ago. Stronger operating performance was more than offset by the effect of cash proceeds from financial instruments in the previous year and higher cash taxes in 2010.

Talisman replaced 164% of production with proved reserves worldwide, achieving a 35% reduction in replacement costs from 2009 and a 63% reduction over the past two years, the company said.

“Looking forward, the portfolio is now positioned for sustainable and profitable growth. We have shifted the emphasis in 2011 in North America to liquids opportunities with a 35% reduction in spending on dry gas. We will ramp up activity in the Eagle Ford and in our conventional liquids areas, while scaling back our net spending in both the Marcellus and Montney.”