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Debt Lightened, Talisman Focusing on Liquids-Rich Plays

Calgary-based Talisman Energy Inc. last year cut debt by $750 million, stabilized its balance sheet and is now focused on two core areas: the Americas and the Asia-Pacific region, said CEO Hal Kvisle.

In North America, Talisman is replacing natural gas with higher-margin liquids and targeting $1-1.5 billion of dispositions or joint ventures while it markets assets in the North Duvernay Shale and parts of the Montney Shale. Company-wide, Talisman is planning $2-3 billion of dispositions or joint ventures.

"We are quickly moving to strengthen and focus our company by imposing strict capital discipline, increasing the cash margins on the barrels we produce, and unlocking value through asset sales or strategic joint ventures," said Kvisle. "Our focused capital program targets high-margin, near-term opportunities in our two core areas.

"...[O]nce we execute these planned sales or joint ventures, we will have the option of using proceeds to pay down debt, or increase cash flow per share through short-term development spending or share repurchases."

Talisman's America's core is composed of North America and Colombia. In North America it has "material" positions in three liquids-rich plays and "upside exposure in two of the best dry gas plays." Late last year Kvisle said during a conference call that the company has "...many opportunities in North America. But in the near term it's prudent to reduce our investment in the face of weak gas prices [see Shale Daily, Nov. 1, 2012]."

A significant portion of the North American resource base is in the company's Canadian heritage region, which stretches from Fort St. John in northeastern British Columbia to Edson in west-central Alberta.

Talisman is a significant operator in the Marcellus Shale (see Shale Daily, March 6), with 5 Tcf of contingent resource and an estimated 1,600 prospective drilling locations, the company said. The play is self-funded and provides material upside with an increase in North American natural gas prices. In the Marcellus, Talisman said it will selectively spend capital to hold strategic core acreage positions.

"In the current low natural gas price environment, we have sharpened our focus in North America in 2013, reducing spending on dry gas plays," the company said. "Our short-term priority is to continue to develop the liquids-rich Eagle Ford Shale play, where production growth combined with capital and operating efficiency improvements will deliver considerable cash flow from this high-cash margin play.

"In addition, our 2013 priorities for North America include drilling to hold strategic land positions in some of our dry gas plays. We will also seek to monetize assets with minimal cash flow and high net asset values, specifically the Montney and North Duvernay plays."

Talisman said it plans to spend about $1.1 billion in its core North American business this year, which marks a decrease of roughly 30% from the previous year. About 80% of capital is being allocated to liquids-rich plays, with a significant reduction in spending on dry gas plays. "This activity set positions Talisman to double its North American liquids production over the next few years," the company said.

In the Eagle Ford, the focus will be on liquids-rich acreage with an increase in pad drilling. "We have built a secure egress position and we entered the year with 50 uncompleted wells, which we plan to complete and tie-in," the company said.

"In the liquids-rich Duvernay shale, we hold approximately 350,000 net acres. We recently completed a well reporting one of the highest liquids ratios in the play and we plan continued appraisal drilling in 2013."

At Wild River in Western Canada the company said it is growing NGL volumes through development of a multi-zone play, with a new Deep Cut liquids extraction facility that should be operational by the end of this year.

In the Montney, the majority of the capital program is funded by the company's joint venture partner Sasol (see Shale Daily, March 9, 2011). Talisman said it will continue to assess and appraise the property and continue to develop the liquids-rich eastern portion of the play. "We will also invest capital at Edson to maintain mineral rights and assess liquids-rich opportunities," Talisman said.

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