Talisman Energy Inc. has reduced its capital spending and production guidance this year, but on Friday the Calgary-based independent announced a C$94 million acquisition of Canadian junior explorer RSX Energy Inc. that it said it couldn't pass up.

RSX produced 1,566 boe/d, including 5.2 MMcf/d of gas, in 3Q2007. Its core properties would boost Talisman's northwestern Alberta holdings, including RSX's largest asset, a natural gas field at Hinton, where the producer has identified 22 locations. Hinton is a deep basin gas discovery made by RSX and Cabot Oil & Gas Corp.

Also in Alberta RSX holds interests that range from 50% to 100% in the Randell/Otter oilfield, Gold Creek gas and oilfield, Karr/Bezanson gas, oil and natural gas liquids field; and Boundary Lake's oil and gas field. It estimated last June that it had 61-66 drill-ready locations across all of its Alberta fields.

According to RSX, Talisman will pay about C$1.70/share plus debt in the friendly deal, which brings the total value of the transaction to C$106 million. The share price represents a 12% premium over RSX's 20-day weighted average on the TSX Venture Exchange.

RSX's board has accepted Talisman's offer and recommended that shareholders approve the deal. RSX added that 32% of the shares held by management already have been tendered.

Talisman last week announced plans to cut its spending and production guidance in 2008, making good on a pledge by CEO John Manzoni late last year to set more realistic targets. Talisman plans to spend about 5.9% less, or C$4.4 billion, on exploration and development in 2008, which is down from an estimated C$4.6 billion in 2007.

The independent also set a production target of 435,000-460,000 boe/d for this year, compared with an estimated 452,000 boe/d produced in 2007. Talisman's production outlook for this year ranges from a decline of 3.8% to an increase of 1.8%, which is well below its earlier forecasts for annual production growth of 5-10% through 2010. Last year Talisman sold assets that produced 28,000 boe/d.

"We must set out something which is both realistic and which the teams around the world are confident that they can achieve," Manzoni said during a conference call. He took over as CEO last September (see NGI, June 4, 2007).

Talisman's management has been "concerned especially" about its North Sea assets, where the company has had "difficulty meeting targets over a number of years," said the CEO. "That's both demoralizing for the team, and I believe it undermines all the good work which actually is being done."

Following the spending forecast, Sanford C. Bernstein & Co. analyst Ben Dell said the news "shows signs of growing capital discipline." He said Talisman is "focusing on wells with a higher return on capital."

Manzoni said Talisman expects to complete a previously announced strategy review in 2Q2008 to help it with its longer-term growth plans.

"I don't expect the result to be a sudden change of direction as the size and diversity of the portfolio necessarily means things take time," Manzoni said.

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