Talisman wants to sell assets. Here’s why it’ll be tricky

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Talisman Energy Inc. wants to offload another $2-billion in assets in the next 12 to 18 months. That should keep bankers busy. Here's a rundown on the potential sales, the roadblocks, and how the company would like to see deals structured.

Hal Kvisle, Talisman's chief executive and the man running the turnaround process, has been candid about what he wants to jettison. The one he most desperately wants to ditch is the one hardest to sell – the North Sea assets. And Talisman's inability to get a deal done there puts more pressure on the company.

"The exit of the North Sea, whether by divestment or some other mechanism or by dilution of our interest there, we're of course disappointed that we've not been able to more completely disengage from the North Sea sooner," Mr. Kvisle said in an interview Wednesday. "We would like to expedite that and put it behind us sooner rather than later. But it is a complicated situation and we're not there yet.

"The longer the North Sea situation carries on, the more pressure there is on us to do things on other fronts."

Talisman and Sinopec, one of China's state-owned energy companies, are partners in the North Sea. Talisman sold Sinopec a slice of the asset in 2012, and the Canadian company has contractual obligations to its partner under the original agreement. "This is not an asset we can just go and sell to somebody else. We can't do that," Mr. Kvisle said.

The North Sea operation has underperformed for the last 18 months, and that has to be worked out before Talisman and Sinopec can "conclude" a deal, Mr. Kvisle said.

Talisman operates the largest number of production facilities in the North Sea, he said. (It is not the biggest producer, though). Different assets in the North Sea interest different parties, and it is highly unlikely there's any one potential buyer – other than Sinopec – who would step in and relieve Talisman of all of its properties. Talisman will need to do multiple deals unless Sinopec swallows all of Talisman's stake there.

Talisman and Sinopec are not yet at the point where they are talking about a deal, Mr. Kvisle said. "The discussion is not about that right now. It is about resolving a lot of the complex obligations in the agreement and resolving exactly how we fund ongoing development programs on some of the big assets there."

With the North Sea out, Talisman expects to meet its $2-billion target by selling assets in Kurdistan; midstream assets in the Marcellus formation; and finding a joint venture partner in the Duvernay formation.

The Calgary-based company isn't fussy on what kind of deal it strikes in the Duvernay. Cash? Sure. Farm-in? Talisman will take it.

"We're just looking to get the right partner that will contribute more than money," Mr. Kvisle said during the conference call. "We want a partner that would come forward and bring technical capabilities as well."

Kurdistan is relatively new to the auction block because of an existing relationship. Again, that has created tangles.

"It has always been the case that the government has a 20 per cent share and we have a share that we would like to convey to a new partner, but that has to happen in a single transaction and the government has not been ready to convey their part until now," Mr. Kvisle said in an interview. Talisman needs additional partners there because it can't fund the oil project on its own.

Mr. Kvisle wiped away confusion on reports about GDF Suez SA, a French electric and utility company, circling Talisman. GDF, Mr. Kvisle said, never bid for the Canadian company. (GDF cleared that up after initial reports in January). Further, GDF never made a "formal bid" for assets, Mr. Kvisle said.

"We have had discussions with GDF about some particular assets. They have never made a formal bid for anything."

Talisman announced over $2-billion in asset sales in 2013, and says the new $2-billion target has nothing to do with an activist investor exerting influence. Talisman granted two board seats to Carl Icahn's New York-based firm, which accumulated about 7 per cent of the company's stock last fall, in December.

"The board members are relatively new to our board. I think what they really want is to fully understand Talisman, and what the opportunities and upsides in our asset base are. And just really satisfy themselves as to the value of the company and what the right course of action is."