Dozens of oil and gas companies have been looking for ways to move into the fast-growing Canadian oil sands business. Calgary-based Talisman Energy Inc. isn’t one of them. The contrarian hopes to auction off its oil sands holdings by the end of the year to concentrate on its natural gas reserves and growing Canadian gas pipeline system.

Talisman’s decision to auction off the oil sands assets, which include a 1.25% stake in the valuable Syncrude Canada Ltd., is no surprise to industry insiders. CEO Jim Buckee has said he is wary of the long-term prospects for oil sands, and critics of the company have urged the producer to focus more on its core holdings in North America.

In any case, Talisman will cash in on the oil sands boom and may fetch up to C$1 billion for the assets. Talisman could sign a joint venture partner to handle the undeveloped leases, but a cash sale is the main goal. More than a dozen other noncore assets also will be sold, and those may bring another C$1 billion. The auction is set to close in November, with the sales anticipated in December.

“We want people focused on the most value-added things we have,” said Talisman’s Ron Eckhardt on Wednesday. Eckhardt, executive vice president of North American operations, spoke Wednesday at the Peters & Co. Ltd. 2006 North American Oil & Gas Conference in Toronto. “The value of the molecule is so high now, and we’re spending more time with other operators and not spending time on our core assets. It’s time to clean up the portfolio a bit, and we’re looking at ways to do that.”

“I think it’s a smart time to be selling it,” energy analyst Chris Theal of Tristone Capital said of the oil sands sale. Talisman “has never been a strategic oilsands player” because “Buckee’s never been a big believer in the oil sands story.”

Talisman intends to focus on exploration, said spokesman David Mann. “The view is that if we want to realize full value from these assets it’s probably best to put them in somebody else’s hands and let them proceed, because they would be more motivated.” Mann said “if somebody comes in with a viable scheme to develop the leases and bring them on stream, and Talisman could participate, we would consider that. Alternatively, if somebody came in with a cash offer that was more attractive than any of the development options, then we’d have to look at that as well.”

Mann said Talisman won’t sell the properties at less than their value. “It’s not a fire sale,” he said.

The additional cash will be spent on land purchases and drilling in Western Canada, where Talisman expects two soon-to-be-completed gas pipelines will boost volumes. The 45-mile-long Lynx natural gas pipeline will act as the main trunk system for the Grande Cache area of the Northern Alberta Foothills, and the Palliser system will connect wells in the northernmost part of the Narraway trend to existing pipelines that move gas into British Columbia (see Daily GPI, June 30).

One project slated to tie into the new pipe system is in the Alberta Outer Foothills, a new Talisman development that could yield 200 MMcf/d by the end of the decade (see Daily GPI, Sept. 6). Talisman earlier this month also spent C$230 million to acquire more land in the Western Canadian Sedimentary Basin, and in 2007, it expects to spend C$250 million more to develop more of the region.

“We are hoping this will be a significant growth area for us, building on our expertise,” Buckee said.

About 55% of Talisman’s reserves are natural gas, and 42% of Talisman’s total production is from North American plays. Another 33% comes from the North Sea and the rest is in Southeast Asia and Australia, said Eckhardt.

“Our set of assets is very, very difficult to replicate,” Eckhardt said. “We expect 5-10% production per share growth between now and 2008.” In 2005, Talisman showed a 10% jump in its proved reserve growth, and there was a 19% hike in liquids production. “Our deep gas strategy has resulted in high deliverability and big wells,” he noted.

“We’re balanced and we have a lot of running room in North America,” he said. “We have higher returns on conventional gas, with a lot of large prospective targets.” Talisman will spend 5-10% of its budget through 2008 on high-impact exploration, which this year has paid off in 3-5% growth in gas volumes. “We look for the bigger accumulations with high deliverability.” Talisman, he said, “finds more gas below 10,000 feet than any other producer in Canada.”

Primarily a conventional producer, Talisman also has a growing stake in shale gas production in the eastern part of the United States. Its focus is on the Devonia Marcellus and Ordovician Utica shales in Appalachia. To date, the Ohio shale in the Appalachian basin has produced more than 3 Tcf, said Eckhardt.

The shale results “can be variable at best,” said Eckhardt. “However, 20% of the wells produce 80% of the production. We’re making about 110 MMcf/d. It’s a very nice area to operate in, with low operating costs, and we’re Nymex-plus on prices because it’s close to the New York market. Proximity to the market is a real price advantage.”

Talisman now is awaiting a decision by New York regulatory authorities to allow for horizontal drilling, a technique that has been used to advantage in the Barnett Shale. “We are planning on this later this year. The important point is, there is a significant shale gas opportunity here.”

Talisman’s conventional reserves per boe produced are more profitable, said Eckhardt. However, “the bottom line is, all barrels aren’t created equally. Conventional gas is more robust in a low-cost environment,” but at current prices, any gas production can prove worthwhile.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.