Talisman Energy Inc. is putting large swaths of its Canadian assets on the auction block in a bid to focus the company and fill its coffers.
Talisman wants to pull in between $2-billion (U.S.) and $3-billion from land sales or joint ventures in the next 12 to 18 months, roughly split between international and North American deals. In Canada, it wants to shed part of its Montney shale gas play and its north Duvernay liquids-rich natural gas assets.
Companies such as Talisman and Encana Corp. have spent years collecting North American natural gas assets in hopes prices would swing upward. But as abundant gas supplies continue to weigh on prices, they are unable to finance the development of all of the land under their control, giving major international players a chance to snap up projects with huge potential. Talisman shares have performed poorly as the company's results failed to impress investors in recent years.
Recently appointed Talisman chief executive officer Hal Kvisle bluntly outlined his strategy Wednesday, tapping Talisman's assets in the Asia-Pacific region and some of its projects in North America and Colombia as central to the company's future. Mr. Kvisle said he would prefer to sell Talisman's unwanted positions in the Montney and north Duvernay in Alberta outright.
"We would like to have a clean exit from some of these because an innumerable number of joint ventures brings a certain amount of complexity and ties our hands a bit on what we can do down the road. A clean sale for cash would be our preference."
Areas such as the Montney in the northeast corner of British Columbia have attracted natural gas companies because of the prospective liquefied natural gas market off the west coast. However, the zone is largely undeveloped and infrastructure such as pipelines and export terminals are only in the planning stages. For Talisman, a company searching for immediate cash flow, the Montney does not make sense.
"Our Montney position is just far too large for a company like Talisman to fund on its own," Mr. Kvisle said, noting he sees more than 5,500 drilling locations in the property. "That would take us forever to get through."
But Talisman, a sprawling and struggling company, is not alone. A number of energy outfits want to sell similar natural gas positions or find partners, meaning buyers could come out on top.
"There are a lot of transactions and a lot of other acquisitions and divestment activity going on in the Montney and that of course is a concern," Mr. Kvisle said, noting that low North American natural gas prices are also a deterrent because the LNG market does not yet exist. "So we have to be realistic and we have to very carefully weigh any offer that we get."
Talisman intends to keep its Marcellus shale play in Pennsylvania and New York, although because of its $3-billion budget, it will curtail spending there. Randy Ollenberger, an analyst with BMO Nesbitt Burns, believes investors may balk at this plan.
The analyst views the plan for dispositions "as a potential positive for the shares but the lack of a Marcellus divestiture may be viewed negatively," he said in a research note.
Talisman said it expects to produce between 375,000 and 395,000 barrels of oil equivalent a day in 2013. Between 35 and 40 per cent of this production will be natural gas products such as propane and butane – commodities that are attracting healthier prices in North America compared to pure natural gas.
The company predicts cash flow will come in at $2.5-billion, about $500-million short of its budget. Cash from asset sales will make up for the shortfall, Mr. Kvisle said. The former TransCanada Corp. leader, who was on the board when former John Manzoni ran Talisman, wants the company's capital spending to eventually reflect its cash flow.