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Natural Gas

Talisman plays its shale hand Add to ...

Talisman Energy Inc. is sharpening its focus on booming North American natural gas shale plays, selling some conventional oil and gas assets for $1.9-billion which is roughly the amount it intends to spend on its U.S. and Canadian shale gas properties this year.

In five separate deals, the Calgary-based producer said it unloaded assets, primarily in Alberta, that are producing 42,500 barrels per day of oil equivalent, though mostly as natural gas.

"Although these are excellent assets with a great future, they can't effectively compete for capital within our emerging strategic asset mix," Talisman CEO John Manzoni said in a release. The sales "will help us focus on, finance and build our growing, low-cost North American shale gas business."

Talisman has become a major player in two of the most important natural gas developments in North America, the Marcellus shale area in the eastern U.S, and the Montney in northeastern B.C.

The company also sold its properties in Ontario, including onshore oil production and offshore natural gas acreage, for $131-million to Calgary-based junior Eurogas Corp.

Analyst Michael Dunn of FirstEnergy Capital said the company's asset restructuring - which included last year's sale of Bakken oil properties in southeastern Saskatchewan - appears to be largely completed. "I think they have their North American business set up the way they want it now," he said. "It's going to establish a lower baseline of current production from North America but it should be growing rather quickly from here with the amount of capital that they are devoting to the Marcellus and Montney plays."

Talisman's increased focus on shale gas comes as North American prices for natural gas have failed to match the past year's increase in crude oil prices. Natural gas prices are at rock-bottom levels - in part because of the prolific production from North American shale gas reserves - and as a result, Talisman's share price has lagged some of its more oil-rich competitors.

But company spokeswoman Phoebe Buckland said Talisman is positioned to be a low-cost gas producer and expects prices to rebound over the longer term. "We feel we're in excellent position and are looking past current gas prices," Ms. Buckland said.

Natural gas futures traded yesterday on the New York Mercantile exchange at $4.02 (U.S.) per thousand cubic feet. This week, the U.S. Energy Information Administration forecast gas prices to average $4.44 per thousand cubic feet in 2010, rising to $5.33 in 2011.

Earlier this year, Talisman said it would spend $1.6-billion on shale development. It plans to spend $1-billion on its Marcellus properties in Pennsylvania. It is among the largest players in New York, but that state has a de facto moratorium on drilling until concerns are addressed that development will threaten drinking water.

TALISMAN (TLM)

Close: $17.40 (Cdn), down 43¢

 

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