Hal Kvisle, President and CEO of Talisman Energy, speaks with reporters in Calgary, Alta., Tuesday, Dec. 16, 2014. Kvisle says a multibillion-dollar takeover by Spanish energy giant Repsol is the best possible outcome for shareholders and he expects the deal will receive federal approval.Jeff McIntosh/The Canadian Press
Repsol SA's $8.3-billion (U.S.) offer is the best Talisman Energy Inc. investors could expect in a crumbling oil market that promised more pain for the struggling company, its chief executive said on Tuesday.
CEO Hal Kvisle said Talisman, a 22-year-old Canadian energy producer that was once an active acquirer of international assets, had weighed several options for its future as oil prices tumbled and its prospects dimmed in recent weeks.
The $8-per-share offer from the Spanish company, announced early Tuesday, prevents a likely cash crunch, Mr. Kvisle said.
The cash offer, which has the blessing of both boards of directors, represents a 75-per-cent premium to Talisman's average share price over the past seven days. On Tuesday, its shares on the New York Stock Exchange jumped 47 per cent to $7.53. But that's still a far cry from levels above $10 or $15, where Talisman had traded over much of the past decade.
"It would be hard not to see that shareholders would be happy with this deal," he told reporters. "Our stock was priced at $4-$5 for a reason, and that people can see with weaker commodity prices our cash flow per share was going to go down significantly. With some of the larger liabilities and challenges that we have in the North Sea and elsewhere it was going to be difficult for us to work our way out of that."
Under the deal, Talisman's businesses will be folded into Repsol's, and the Madrid-based company said it aims to speed up development of its Canadian and international oil and gas assets. Calgary will become one of its largest offices.
The transaction shows how quickly conditions worsened in the energy sector as crude prices sank to five-year lows, darkening the financial picture for players such as Talisman that had already been seeking ways to deal with high debt levels. West Texas intermediate oil traded at about $56 a barrel Tuesday, down from more than $100 in the summer.
Talisman had been working to hone its focus on two major regions, the Americas and Southeast Asia, which offered the highest returns. But it had a few well-publicized hurdles, which were made more difficult to clear by the sputtering energy market.
Chief among them, Talisman has been locked into spending hundreds of millions of dollars a year on its money-losing offshore joint venture with China's Sinopec. That had been a stumbling block for previous potential buyers, even when market conditions were much stronger.
It had been seeking to sell other assets as a way to bolster its balance sheet and pay down debt, but values for the holdings have dropped dramatically with oil prices, making deals difficult to close, said Mr. Kvisle, who had said he wanted to retire by the end of this year.
As a result, Talisman faced the potential for debt-ratings downgrades, which could have led to breaches of debt covenants.
Numerous analysts said the chances of a higher bid for Talisman are slim, and recommended that investors tender their shares.
"We believe the offer represents the best alternative for shareholders, especially with no visibility on the CEO search and expanding debt levels in a low-price commodity environment," Desjardins Securities analyst Justin Bouchard wrote in a note to clients.
The combined company will produce 680,000 barrels of oil equivalent a day, a 76-per-cent increase to Repsol's current output, and have a presence in more than 50 countries. Its work force will number 27,000, including roughly 3,000 currently employed by Talisman.
Repsol said it did not yet know how Talisman staff might be affected, but pointed out that one of the reasons it was buying the company was for its expertise as well as operations in regions where it does not currently operate.
"The rationale behind it is gaining size, not getting smaller," spokesman Kristian Rix said. "You're gaining size in assets and in teams to deal with them, so that's where we're going with this."
He said Repsol has more financial wherewithal to deal with the operational problems in the North Sea, including the sizable abandonment liabilities. In addition, the company already has a working relationship with Sinopec stemming from a joint venture in Brazil, Mr. Rix said.
Initial reaction to the deal on Repsol's conference call was "lukewarm," Canaccord Genuity analyst Richard Griffith said. "Nobody was congratulating them on the deal, which is unusual."
With files from Bertrand Marotte in Montreal
Jeffrey Jones