One month ago Talisman Energy Inc.
Justin Bouchard, P.Eng., CFA • (403) 532-6615 • justin.bouchard@vmd.desjardins.com
Rating: Buy, Risk: Average, Target: US$11.00
TLM US$6.10, NYSE/TLM C$6.92, TSX
Lack of updates and pending writedowns mar results
The Desjardins Takeaway: Neutral
TLM released 3Q14 results, highlighting total production of 353 mboe/d. Production from ongoing
operations was 348 mboe/d, which is down 4% from 2Q14 (and in line with our estimate and consensus)
as turnarounds in Edson, the North Sea and Malaysia impacted volumes. The company generated CFPS
of US$0.49, which was in line with our forecast of US$0.48 and consensus of US$0.47.
Pending writedown for UK. The company foreshadowed a potential writedown for the TSEUK
subsidiary coming in 4Q14, reflecting challenges associated with declining production and potential
cost increases in development and decommissioning. TLM reports a carrying value of US$637m for
TSEUK investments (we estimate a NAV of US$570m, with estimated 2015 operating CFPS of US$0.05).
The struggles in the North Sea are nothing new, but a writedown would result in the lowering of
reserves and cash flow projections.
Quiet on asset sales or CEO replacement. In 2Q14, TLM reiterated its intention to sell an additional
US$2b over the next 12–18 months. However, the company failed to provide additional colour on the
sales process for its Marcellus midstream assets or developments regarding Duvernay joint ventures.
We were also anticipating news regarding the replacement CEO for Hal Kvisle, who plans on leaving the
company by year-end, but no additional discussion around the search process occurred.
Initial Duvernay results appear respectable. The company provided results on three Duvernay wells
in Ferrier and Bigstone, showing respectable rates (2.7 mmcf/d plus 1,216 bbl/d of liquids, 1.9 mmcf/
d and 600 bbl/d, and 11.3 mmcf/d and 670 bbl/d, respectively). However, we note that these are 24-
hour test rates—somewhat curious given a company of TLM’s size.
With no updates on the strategic review or the CEO search, we are growing more cautious on the
potential for additional material asset sales given current commodity prices. We view TLM as possessing
an interesting suite of assets, but unlocking shareholder value has been a tough process over the past
few years. While our thesis remains that the company’s parts are worth more than the whole, we note
that the current price environment is likely to slow down any large-scale sales process.
This report was prepared by an analyst(s) employed by Desjardins Capital Markets and who is (are)
not registered as a research analyst(s) under FINRA rules. Please see disclosure section on pages 2–4
for company-specific disclosures, analyst certification and legal disclaimers. NOVEMBER 4, 2014