Calgary-based Talisman Energy Inc. will add up to C$500 million more to its C$2 billion North American capital spending budget this year to accelerate exploration and development activities in unconventional natural gas plays, CEO John Manzoni said last week.

Talisman in May said it would spend around C$1.1-1.3 billion through 2009 to evaluate the oil and gas potential of its 2.5 million acres in North America (see NGI, May 26). However, based on results by other producers in some of Talisman’s gas exploration regions, the company plans to bump up its North American spending by C$400-500 million, Manzoni said.

Talisman’s North American onshore holdings include acreage in the Marcellus Shale in Pennsylvania and New York, and in the Outer Foothills and Montney formations of Alberta and British Columbia.

“The incremental spending will be entirely on unconventional gas plays, and it will be funded entirely from cash flow,” Manzoni told energy analysts. Total company spending this year is now set at C$5.5 billion.

Manzoni, who noted that Talisman’s 2Q2008 North American production was up 10% compared with the same period a year ago, explained the reasoning behind the spending hike during a conference call to discuss quarterly earnings. The accelerated spending and drilling followed favorable results by other producers, he said.

With the additional capital, Talisman will speed up its North American unconventional developments with a revised plan to drill 160 wells this year, which is 30 more than originally planned. Year-to-date, Talisman has drilled eight wells in the Outer Foothills, 18 in Montney and 11 in the Bakken Shale, an oil-heavy asset. Four wells also are planned for an emerging gas play in Quebec, and Talisman has moved its first rig into the Marcellus.

“To be successful, we must be looking in the most prolific place,” Manzoni said. Talisman used to spend time “looking for tiebacks,” but he said that if the company is successful in its quest for more resources, it would have a huge impact on reversing Talisman’s string of production losses in recent years. “In the general context for Canada and shale plays, things are heating up and we’re responding to that.”

Because of hedging losses and on gains from asset sales in 2007, Talisman’s 2Q2008 net income was down 23% from a year ago to C$426 million. Earnings from continuing operations were 167% higher at C$846 million. Cash flow hit a record C$1.7 billion for the quarter, which was 44% higher than in 2Q2007 and 37% higher than in 1Q2008.

Oil and gas output from continuing operations averaged 432,000 boe/d, down 4% from 2Q2007. Talisman said the loss followed the sale of some noncore assets. Production from continuing operations inched 3% higher in the period from a year ago to average 425,000 boe/d.

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