Talisman Energy Inc. is slashing dry gas spending again in response to chronically low prices, but the company continues to ramp up production from the liquids-rich shale plays in its portfolio.

The Calgary-based company now plans to spend only about $200 million on all dry gas activities in North America for the remainder of the year, primarily to hold acreage and maintain options for the future, CEO John Manzoni said during an earnings conference call Tuesday.

A warm winter on top of a supply glut kept natural gas prices below what Talisman needed to justify investment, Manzoni said. “With the injection season now upon us, it’s quite possible that this gets even worse before it gets better, and we’ve adjusted our capital plans accordingly.” Although encouraged by the ongoing switch from coal to gas for North American power generation, Manzoni said, “We need to be ready for this to last well into 2013.”

After cutting its Marcellus Shale rig count in half and then in half again, Talisman is now running only a single rig in the play, down from 10 at the end of December (see Shale Daily, Feb. 16). In the Montney Shale of British Columbia, the company is reducing its activity from 11 rigs at the end of the year to four, with further reductions planned in the coming months.

Manzoni insisted the cuts are temporary, though. “I see no reason to continue spending money in dry gas shales when it doesn’t remunerate…We’re holding land where we need to because it makes sense to retain our position in the best dry gas plays for another day,” he said.

That energy is going into liquids. Talisman plans to run 12 rigs in the liquids-rich Eagle Ford Shale this year, up from 10 in 2011, and the company recently drilled the second of a six-well pilot project in the liquids-rich Duvernay Shale in Alberta as part of a goal to increase liquids production from North American shale to more than 60,000 b/d by 2015, from about 25,000 b/d this year.

Talisman earned $291 million (28 cents/share) during the quarter, up from a net loss of $326 million (minus 32 cents/share) in the first quarter of 2011 caused by increased taxes in the United Kingdom and a loss on held-for-trading financial instruments (see Shale Daily, May 6, 2011).

Talisman cut its capital budget to $3.6 billion, down from $4 billion (see Shale Daily, Jan. 11).

Additionally, Talisman announced about $1 billion in sales of noncore assets in North America and continues to eye the North Sea and exploration ventures for possible sales.

Prices aside, Talisman remains committed to shale, Manzoni said. The company produced 462,000 boe/d during the first quarter, up 4% both year over year and quarter over quarter on growth in North American shale and Southeast Asia conventional production, but the company expects production to flag in the second and third quarters because of planned maintenance.

Talisman produced 675 MMcfe/d from shale in the first quarter, up from 450 MMcfe/d in the first quarter of 2011. The company increased Marcellus Shale production more than 50% to 529 MMcfe/d and more than tripled Eagle Ford Shale production to 76 MMcfe/d, but it saw production from its remaining shale plays, including the Montney, fall by 8% to 70 MMcfe/d.

Whereas Talisman spent $1.2 billion in the Marcellus in 2011, it plans to spend only $350 million this year and expects to produce 450-500 MMcf/d, a decline from last year.

Talisman brought 36 Marcellus wells online in the quarter but reported a $21 million cost related to the new impact fee, including $18 million in retroactive payments through 2011.

As of Tuesday, Marcellus gas in northeastern Pennsylvania where Talisman operates traded for a combined average price of $2.05/Mcf, down 10 cents, according to NGI’s Shale Price Index.

While the Marcellus is hurting in the current price environment, the Eagle Ford is booming for Talisman. The company canceled plans to run 14 rigs this year because decreasing drilling and completion cycle times have allowed the company to beat its production targets using only 12 rigs, according to Paul Smith, executive vice president for North American operations.

Talisman greatly increased Eagle Ford production because “we were able to get every single molecule away through interruptible transportation.” Smith said, but with activity in the basin expanding, growing production for the remainder of the year depends on finding more capacity.

In a note Wednesday, analysts from Tudor, Pickering, Holt & Co. called Talisman’s assets in the Marcellus and Eagle Ford a “bright spot” for the company because of production increases.