Talisman Energy First Quarter ResultsTalisman Energy Inc.
TSX : TLM
NYSE : TLM
May 01, 2012 05:00 ET
Talisman Energy First Quarter Results
Cash Flow Up 5% to $851 Million
Production Up 4% to 462,000 BOE/D
$1 Billion in Non-Core Asset Sales
CALGARY, ALBERTA--(Marketwire - May 1, 2012) - Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) reported its operating and financial results for the first quarter of 2012. All values in this release are in US$ unless otherwise stated.
- Cash flow1 was $851 million, up 5% over the first quarter of last year and 3% higher than the prior quarter.
- Net income was $291 million, compared to a net loss of $326 million in the first quarter of 2011 and a net loss of $117 million in the fourth quarter.
- Earnings from operations1 were $167 million, compared to $157 million a year earlier and $114 million in the previous quarter.
- Production was up 4%, with record sales in Southeast Asia and higher volumes in Colombia and shale. Liquids volumes in Southeast Asia and North America are up 35% year over year.
- $1 billion of non-core asset sales have been agreed in North America; net debt1 was down to $4 billion from $4.5 billion at year-end.
- Capital spending will be further cut to approximately $3.6 billion in 2012.
- In Papua New Guinea, Mitsubishi Corporation (MC) was brought in as a strategic partner; natural gas resource aggregation continues with success at Elevala-2 and Ketu-2.
- Discovery of light oil was confirmed in the Kurdamir-2 well.
"The first quarter was very strong operationally, and we have made significant progress towards meeting key objectives set out in our January guidance," said John A. Manzoni, President and Chief Executive Officer.
"On a macro level, although oil prices are a bit stronger, North American gas prices are weaker than we anticipated coming into the year. As a result, we are taking additional steps to reduce capital spending in dry gas plays in North America. We are now projecting total capital expenditure on exploration and development activities to be around $3.6 billion for the year. For the remainder of the year, we anticipate spending only about $200 million on dry gas activities in North America, primarily to maintain land and options for the future.
"We have reached agreements to sell approximately $1 billion in non-core assets in North America, which further strengthens our balance sheet. We are continuing to look at other options to focus our portfolio, including potential dilution of redevelopment projects in the North Sea, and high grading our exploration portfolio.
"Production averaged 462,000 boe/d, up 4% from both a year ago and the fourth quarter of last year, driven by growth in both North American shale and Southeast Asia. Planned maintenance turnarounds will result in lower volumes in the second and third quarters, and lower capital spending will impact North American natural gas volumes over the rest of this year.
"Underlying production growth for the year is now projected to be at the bottom of our production growth guidance range of 0 - 5%, due to the further reduction of capital in our dry gas assets. The actual outcome will depend on the asset disposals we make through the year.
"Our shift towards liquids-rich opportunities in North America continued during the quarter. We are currently running 12 rigs in the Eagle Ford shale, up from 10 at year-end. In Southeast Asia we set a new production record. Natural gas sales in the region averaged 548 mmcf/d, up 11% year over year, with realized prices averaging $9.85/mcf.
"In the UK, the Tartan field was brought back onstream in March after several months of safety-related work. The Claymore field, which was also subject to an extended turnaround for safety-related work, was brought back onstream in October of last year, and produced around 10,000 bbls/d over the first quarter.
"In Norway, we have been progressing independent technical studies as part of our assurance processes as operator of the Yme field. These studies indicate that a substantial amount of work is still required to complete the facility to meet Norwegian specifications.
"Given this uncertain timing, we are removing Yme from our forward production projections and have taken the prudent step of writing down a portion of the carrying value of the project (a writedown of $248 million after tax), which we believe represents a sensible view of the range of potential outcomes. We are committed to successful startup of the field and will continue to work with our partners and the contractor to achieve this. At the same time, we are considering all options to complete the Yme development.
"In Colombia, Talisman, like others, is experiencing delays in the regulatory permitting process. We are working with the government and our partners and are expecting to see a ramp up of activity in the latter part of the year.
"We are excited about the results of the Kurdamir-2 well in the Kurdistan Region of northern Iraq. The well tested light oil, condensate and natural gas from a portion of an upper zone. We are currently drilling deeper zones and plan to further test the well this summer.
"In Papua New Guinea (PNG), we are very pleased to have Mitsubishi Corporation (MC) as a strategic partner going forward. In addition to funding $280 million of the future program, they bring global and regional gas market expertise. Drilling results in PNG continue to be encouraging, and our gas aggregation plans are on track.
"In summary, we will continue the course set out in January: reducing spending, directing more capital to liquids plays and continuing to focus and high grade our portfolio. Our balance sheet is strong, and we are encouraged by continuing exploration success in Colombia, PNG and Kurdistan."
Cash flow was $851 million compared to $811 million in the same period last year, due mainly to higher volumes, oil prices and Southeast Asian natural gas prices, offset by lower North American gas prices, higher royalties and higher operating costs.
Net income was up, reflecting the increase in cash flow plus gains on asset sales, lower dry hole expense and lower exploration expense, a smaller loss on derivatives, a share-based payments recovery and lower taxes, offset by a partial writedown of the Yme project and higher DD&A.
Earnings from operations, which reflect the underlying operations of the company, increased by 6% over the same period last year. Capital expenditure, including exploration expensed2 in the quarter, was $1.1 billion. Net debt2 at the end of the first quarter was $4 billion, down from $4.5 billion at the end of 2011.
(2) The terms "cash flow," "cash flow per share," "earnings from operations," "earnings from operations per share," "capital expenditure, including exploration expensed" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.
Talisman's realized sales price of $65.14/boe was relatively unchanged compared to the same period in 2011, since higher global oil and liquids and Southeast Asian natural gas prices were offset by lower gas prices in North America.
The company's average netback was $36.79/boe, 9% lower than 2011 due to higher royalties and unit operating expenses. Natural gas netbacks in Southeast Asia increased 12% to $5.83/mcf.
WTI oil prices averaged $102.93, up 9% from the first quarter of last year. NYMEX natural gas prices averaged $2.77, a 33% decrease from a year ago due to continued natural gas oversupply in North America.
Total production and production from ongoing operations increased by 4% over the previous year, due principally to increased oil and gas volumes in Colombia and Southeast Asia and shale volumes in North America, partially offset by lower North Sea production.
We are well positioned in some of the top-tier shale plays in North America. We are shifting our focus to the liquids-rich parts of our portfolio and expect to grow our liquids production from approximately 25,000 bbls/d in 2012 to over 60,000 bbls/d by 2015.
In North America, production averaged 198,000 boe/d for the first quarter, up 17% from a year ago. Liquids volumes averaged 28,000 boe/d, an increase of 33%.
Talisman sold non-core, non-producing coal properties in Northeast British Columbia for $500 million in cash, and has secured buyers for two non-core conventional oil and gas properties, with additional proceeds of approximately $500 million. These deals are expected to close in the second quarter.
We continue to ramp up our development program in the liquids-rich Eagle Ford, with 12 rigs active at quarter end. During the quarter, Talisman signed a number of deals with midstream companies to secure significant, long-term egress.
In the liquids-rich Duvernay, we drilled the second well of a six-well pilot program.
In the Pennsylvania Marcellus, gas production was 529 mmcf/d, up 51% over the prior year with 36 wells coming onstream this quarter. We have reduced the number of rigs from 10 at the end of December to one in April, reflecting the company's shift away from dry gas to higher-value liquids projects. In February, Pennsylvania introduced a retroactive impact fee. This increased our operating costs in the quarter by $21 million, $18 million of which reflected a non-recurring, one-time impact for wells that were drilled pre-2012.
In the Montney, we have reduced the number of rigs from 11 at the end of 2011 to four currently, with plans to further reduce this to three.
Southeast Asia is a cash-positive growth area, where the majority of our gas sales contracts are linked to oil price benchmarks. It is expected to grow at an average of approximately 8% per year through the medium term. The region is one of the fastest growing natural gas markets in the world.
Liquids production averaged 45,000 bbls/d in the quarter, an increase of 36% over last year. Natural gas sales averaged 548 mmcf/d, a new record, with prices averaging $9.85/mcf.
In Malaysia, the company achieved record gas sales of 128 mmcf/d, 13% higher than the same period last year, reflecting continued optimization initiatives at PM-3 CAA and strong regional gas demand. Talisman plans to drill up to six development wells on the block this year.
In Indonesia, production was higher than the same period last year principally due to Jambi Merang volumes and improved operational efficiency at the Tangguh LNG plant. Facility optimizations were completed at the Suban gas plant in the Corridor PSC, increasing gross throughput by approximately 45 mmcf/d. Overall, the Corridor PSC is now producing at record levels of over 1 bcf/d gross sales gas.
In Vietnam, production averaged 2,000 bbls/d. The Hai Su Trang and Hai Su Den (HST/HSD) development, which was sanctioned in December 2011, is progressing on schedule and on budget, with first production planned for the second half of 2013.
Production from Australia/Timor-Leste JPDA averaged 13,000 bbls/d, an increase of 30% over the previous period, due primarily to current production from Kitan, which continues to exceed our expectations.
The North Sea is an important cash generator for the company. We continue to maximize value from these assets by improving operational efficiency. At the same time, we will seek to reduce our exposure in this region.
In the UK, production recommenced at the Tartan platform at the end of March. Claymore has also been up and running since the fourth quarter of 2011. A new well was brought onstream at Auk North, and the Fulmar coil tubing campaign was successfully completed.
Production decreased 4% compared to the fourth quarter of 2011 and was down 29% year over year as a result of a pump failure at Auk North, technical issues with compressors at Claymore and the Ross/Blake facility, and the shutdown at Tartan. In addition, we are seeing both natural declines and water breakthrough at Rev and Tweedsmuir. We continue to work to improve facilities reliability and take remedial actions to offset some of the water breakthrough issues. Planned maintenance activities will result in lower volumes in the second and third quarters.
In Norway, Talisman remains committed to the safe development of the Yme field but we are concerned with the continued delays in the delivery of the facility. Recent technical studies indicate that a substantial amount of work is still required to complete the facility. We are removing the field from our forward production projections pending the development of a work plan to complete the facility to Norwegian specifications.
As such Talisman has taken the prudent step of writing down a portion of the carrying value of the project. Talisman continues to work closely with the Yme partners and the contractor to fully understand the remaining scope of work. At the same time, we are considering all options to complete the Yme development.
Yme is a turnkey, lump sum lease arrangement, which means that the platform belongs to the contractor and is their project to deliver. Upon delivery, Talisman will lease the facility and begin production.
International Exploration
We have created an exploration portfolio focused on material prospects including near-term oil growth and large Asian gas opportunities. We are looking to expand our portfolio in areas that have significant resource potential and low finding costs. We will continue to high grade our assets by seeking new organic options and rationalizing others at an earlier stage in the cycle.
During the quarter, Talisman confirmed the presence of light oil at Kurdamir-2 in the Kurdistan Region of northern Iraq. An open hole drillstem test flowed at unstimulated rates of 7.3 mmcf/d of natural gas and 950 bbls/d of oil and condensate, with no indications of water and no observed decline. A total of 140 metres of gross reservoir (88 metres net) was identified through wireline logging. The well is drilling ahead toward underlying Eocene and Cretaceous targets, with additional testing of the Oligocene planned after the well has finished drilling.
In Papua New Guinea, the company farmed out interests in nine licences in the Western Province to Mitsubishi Corporation (MC), at a value of approximately $280 million. Following government approval of MC's entry, Talisman's and MC's respective equity positions will average approximately 40% and 20%. The natural gas aggregation project continues in the Western Province, with successful results from the Elevala-2 and Ketu-2 wells. Offshore Vietnam, Talisman has just spud its first exploration well in the Nam Con Son basin.
In Colombia, an additional stratigraphic well, Akacias Es-1, has been drilled on Block CP0-9, and preliminary results are very encouraging. In the Niscota block, the Huron-2 appraisal well is expected to finish drilling mid-year.
In the first quarter, production from Colombia averaged 17,000 boe/d with excellent performance from new wells and facilities debottlenecking.
In Peru, the Situche Norte-4X well reached its target depth. It failed to encounter a commercially viable reservoir and has been plugged and abandoned.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York Stock Exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.