Talisman Energy Inc. on Tuesday set aside C$2.2 billion for North American exploration and development spending in 2007, with more than 90% of the money for natural gas projects. More than half of the amount will be spent on Talisman’s four core gas plays: the Alberta Foothills, Edson, Bigstone/Wild River and Monkman. Another C$130 million is set aside for its U.S. Appalachian play, and C$30 million will be spent on exploring new deep gas plays in the western United States.

In its guidance for 2007, the Calgary-based independent said it plans to drill 380 development and 65 exploration wells (gross), including eight high-impact exploration wells, in the United States and Canada. Talisman also budgeted C$190 million for continued expansion of its midstream operations.

Most of Talisman’s growth between 2007 and 2009 will come from development projects overseas and in Canada that are now under way, said CEO Jim Buckee.

“We added significant amounts of acreage in Western Canada, building a strategic land position in the Outer Foothills and drilled high deliverability gas wells in both Canada and Appalachia,” said Buckee. “Talisman’s production in North America is expected to fall in 2007 as a result of asset sales, which year over year have an estimated impact of approximately 17,000 boe/d. Production growth beyond 2007 is expected to average about 5% annually.”

Buckee said Talisman will hold tight to its purse strings in 2007, with total capital spending essentially flat compared with this year, as it focuses on selling noncore assets and repurchasing stock. However, beginning in 2008, Talisman plans to pump up its oil and natural gas output by 15% or more over 2007, with incremental growth of 10% through 2009.

Talisman’s total exploration and development spending was estimated at C$4.8 billion in 2007, flat compared with this year. About 50% of the capital budget, C$2.4 billion, will be spent on drilling, with more than 600 wells planned. An additional C$1.8 billion will be spent on plants and equipment. Projects in North America and the North Sea will account for 80% of planned expenditures.

“Talisman is well positioned to deliver production per share growth of 5% to 10% annually through at least 2009,” said Buckee. “Growth in 2007 will come through ongoing share repurchases as we rationalize our portfolio and continue to use the proceeds to buy back Talisman shares. We are also mindful of capital discipline given industry cost inflation, maintaining a strong balance sheet and investing in high return projects. Talisman plans to keep its exploration and development spending within the range of its projected cash flow for next year.

Total production in 2007 is expected to average around 485,000 boe/d, essentially unchanged from expected 2006 estimates. The forecast includes production excluded from planned asset sales (37,600 boe/d), as well as “constrained capital spending and some project delays,” the company said. Still, Talisman expects to achieve 5-10% production growth in 2007.

Cash flow is projected to be about C$5 billion in 2007. The estimate assumes oil prices at US$65/bbl (West Texas Intermediate) and New York Mercantile Exchange gas prices at US$7.50/MMBtu.

“Our exploration portfolio has been significantly enhanced and upgraded over the past year and, in my opinion, is now more prospective than at any time in Talisman’s history,” said Buckee. “We’ve added significant acreage in Alaska and will shortly be drilling the first of three planned wells.”

Talisman plans to spend about C$100 million on its Alaska program in 2007, including the three high impact wells in the northwest planning area of the National Petroleum Reserve.

The producer also plans to participate in 35 international exploration wells and eight contingent appraisal wells, with a net unrisked prospective and contingent resource potential of more than 750 MMboe.

“This has been a difficult and challenging year for the oil industry in general,” said Buckee. “Cost pressures were higher than expected, and many companies, including Talisman, experienced production outages due to mechanical issues, project delays and weather issues. However, we were successful on many fronts.”

Unit operating costs are expected to average about C$10.50/boe in 2007, an increase of 6% compared with 2006. Higher unit operating costs in North America and Norway are expected to be partially offset by lower unit costs in the United Kingdom, because of new low cost development projects. General and administrative costs are expected to be about C$225 million, unchanged from the projected 2006 level.

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