As a company once known for being a voracious predator of oilpatch weaklings, Talisman Energy Inc. understands how cruel the market can be.
Today it’s Talisman’s turn to be on its knees, its stock pushed down to an absurd level by the oil price crash, a number of setbacks, and panicky investors. But just because the company is being hunted doesn’t mean its shareholders should agree to become prey.
Anticipating a rock-bottom price, Repsol SA, the Spanish energy company that has been kicking tires in Calgary for a while — including at one point pursuing similarly troubled Athabasca Oil Corp. — is preparing what should be viewed as a stink bid.
According to reports, Repsol was to present a proposal to its own board Monday to buy the Calgary-based international oil and gas producer at between $6 and $8 a share — or about $6 billion to $8 billion, and is said to be in a hurry to wrap up a deal by Christmas.
Even with Talisman stock spiking in recent days over the takeover talk, it remains down more than 50% this year and has lost more than 75% of its value since 2011.
Calgary-based Talisman — which has assets in Western Canada, the United States, the North Sea, and Southeast Asia — has acknowledged discussions with Repsol on a potential corporate transaction, but has also said that it has been approached by other parties. Reports on Monday had the Canada Pension Plan Investment Board emerging as another potential bidder.
While Talisman is down, it’s hardly out, and its board should hold out for better options rather than sell out during a massive oil price correction, while depriving Canada of yet another independent Canadian energy company, head office, and employer.
What the company needs is a new chief executive officer to replace Hal Kvisle, with the courage to do what it takes to get this fallen Canadian energy company back on the right track.
“We see untapped value in many of TLM’s [Talisman’s] assets and believe that under the right management, they could thrive,” Bernstein Research analysts said in a report Monday.
In another report by the New York firm on Sept. 29, senior analyst Bob Brackett said the company was fairly valued at US$9 a share, with an upside scenario as high as US$17.30 a share. The stock closed Monday up 18% at $5.97 in Toronto, and US$5.12 in New York.
“Talisman appears to struggle on quantity and quality,” Mr. Brackett wrote. “In terms of quality, clearly they still remain too scattered and reducing overhead costs has been trivial on a unit basis … In terms of quantity, the Talisman turn-around and pace of asset sales has lagged all of their peers undertaking similar exercises which leads us to believe that either current leadership doesn’t have the mandate to act decisively or the organization lacks the ability to act decisively. It appears that a level of intensity of action not yet witnessed would be required to truly put Talisman on a sustainable footing.”
Bernstein also noted that since Oct. 3, more than half of Talisman’s shares have traded hands at a weighted average price of US$5.60/share, suggesting that a majority of shareholders might take a bid for US$5 to US$6 a share. The turnover may put some pressure on directors, though activist investor Carl Icahn, who bought the stock a year ago when it traded around $13, may want more upside.
We see untapped value in many of TLM’s [Talisman’s] assets and believe that under the right management, they could thrive
Mr. Kvisle, a member of Talisman’s board and the former president and CEO of TransCanada Corp., came out of retirement to run the company after the firing of John Manzoni more than two years ago. The interim appointment has dragged on while the company began fixing itself.
Mr. Kvisle has made it known that he wants to step down as CEO by the end of December.
In an interview last month, Mr. Kvisle said the search for a new leader was complicated by not knowing what the company would look like because so many options were being considered, including the off-again, on-again talks with Repsol, the sale of its Marcellus midstream assets, and negotiations with China’s Sinopec, its partner in the North Sea.
“It’s not been entirely clear at times whether we were looking for an expert in North American operations, or an expert in international diplomacy, offshore operations versus onshore,” Mr. Kvisle said.
He painted a picture of progress for Talisman’s two core regions – Southeast Asia and the Americas, where “this company is performing well and I think would rank well against peers.”
But he acknowledged Talisman has stumbled in two other areas: the North Sea, where its share of production has been dwindling while costs have remained high, and its high-impact international exploration program, from which the company wants to exit. Talisman warned last month that it might write down its U.K. North Sea business in the fourth quarter.
Certainly Talisman could have made better choices in the past few years. But investors should be reminded that it weathered many oil price downturns in the last two decades and that it transformed an unwanted branch plant of British major BP PLC into a major international Canadian energy company. Given time, there’s more value in this name than is suggested by its stock price.