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Talisman Targets $2B More in Asset Sales, Cuts Spending to Revamp Operations

Talisman Energy Inc., one of the biggest natural gas operators in North America, plans to focus capital this year on liquids plays after recording a $1 billion loss in 4Q2013 on cost-intensive operations. More than $2 billion in assets were sold in 2013, and $2 billion more are to be marketed over the next 12-18 months.

The Calgary independent, like several other North American producers, has been pressured by shareholders to shed less profitable properties to increase earnings and stock prices. Late last year Icahn Capital managing directors Samuel Merksamer and Jonathan Christodoro were appointed to the board after Carl Icahn bought nearly 6% of the stock (see Daily GPI, Dec. 2, 2013; Oct. 9, 2013).

"Our objective is to create sustainable value for our shareholders, and we will continue to position the company to achieve this by generating near-term steady cash flow from our best assets in our two core regions," CEO Hal Kvisle told analysts during a conference call Wednesday to discuss quarterly results. Kvisle, the former chief of TransCanada Corp., is serving as interim CEO until the board selects a new leader, expected sometime this year.

Last year actually was a "foundational year" for the company, the CEO told analysts. However, extremely poor weather from North Sea operations cut into not only earnings but production output.

"The company reset its strategy and made significant progress against its four key priorities. It increased North American liquids production by 30%, and reduced and reset its cost structure, cutting capital by 20% and underlying net general and administrative by 20% compared to 2012 on a run-rate basis.

"The company improved operating performance, reduced drilling and completion costs and cycle times in North America," Kvisle said.

Talisman has a broad global portfolio that includes substantial assets in North America's onshore. However, quarterly results of late have slumped, in part because of struggling gas prices and in part to high operating costs in the UK's North Sea and in Norway. At the end of 2013, net debt totaled about $4.8 billion, up from about $3.7 billion in 2012.

Talisman posted a loss of $1.01 billion (minus 98 cents/share) in 4Q2013, versus profits of $376 million (37 cents) in the year-ago period. Adjusted for one-time charges, Talisman still lost 11 cents/share, well below Wall Street's forecast. The biggest pinch was a $277 million charge for lower reserve estimates and higher operating costs in the North Sea. Cash flow in the final quarter dropped from a year earlier to $580 million from $675 million.

Mostly because of the poor results in the North Sea, output was down in the fourth quarter from a year ago by 33%. Production fell to 387,000 boe/d from 392,000 boe/d.

To turn around the balance sheet, the focus this year is going to be considerably smaller, said Kvisle. In North America, it's going to be all about the liquids. Capital also is to target ventures in the Asia-Pacific will combine with more noncore asset sales.

And there will be more assets trimmed, Kvisle told analysts.

Talisman sold about $2.2 billion in properties and pipeline operations in 2013. Over the next year to 18 months, another $2 billion properties are to be sold. Joint ventures (JV) also are being considered.

Now on the market the Norwegian oil and gas business in the North Sea. The considerable -- but gassy -- Marcellus Shale leasehold isn't for sale, but the midstream operations are being sold. The Duvernay Shale in Alberta also isn't for sale, but management need a capital infusion to develop the leasehold. To secure the cash, Talisman would welcome a JV partner to carry drilling costs and/or own part of the leasehold.

"In 2014, we expect more improvements in performance, with continued growth in high-margin liquids production generating increased cash flow," said Kvisle. "While our overall production base will be lower as a result of noncore asset sales, production from ongoing operations in our two core regions, the Americas and Asia-Pacific, is expected to grow 4-7% with liquids volumes increasing 14-19%."

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