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Talisman deal may not be what investors imagined

Investors in Talisman Energy Inc. have waited a long time for their ship to come in. The one from Spain may not be loaded with all the gold they once hoped for.

Depending on what Repsol SA, the Spanish oil outfit, wants from Talisman – the entire company or just plum assets – the stock is unlikely to be bid up anywhere near the $24 range of early 2011, which is more than double the current price. That was when problems with assets in the North Sea just began to weigh on the company's fortunes.

Since the last part of 2012, when Hal Kvisle took the helm at Talisman, promising to untangle its web of global assets and sell off ones that didn't offer prospects of quick cash flow, the shares have remained mostly stuck under $14.

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Before Wednesday, when Talisman acknowledged that Repsol had approached it to discuss "various transactions," the company had been down 15 per cent on the year, despite a recovery in natural gas prices that had helped lift its rivals.

The last part is a surprise, as it has happened during its Carl Icahn era.

When the U.S. activist investor first revealed his stake in Talisman via Twitter last October, many in the market wagered he would light a fire under Mr. Kvisle's in-motion restructuring efforts, perhaps even force the long-discussed split along geographic lines. That is, packaging up shale and other properties in the Americas, and the offshore business in Southeast Asia, and setting them free as either separate companies or targets for suitors.

Of course, as Mr. Kvisle has explained, the U.K. North Sea business is problematic for any company-wide plan, whether it includes a sale or remaining a going concern. Talisman must deal with frequent operational headaches and is contractually obligated to spend hundreds of millions of dollars annually there for the next few years. In Norway, the expensive Yme project has so far proven to be unworkable and may not yield commercial oil.

Mr. Icahn, perhaps seeing the complexity, agreed in December to play nice rather than escalate matters into a public scrap. Talisman gave up two board seats to his representatives.

"We look forward to working with the board of directors and management with a common objective of creating sustainable value for all shareholders," he said at the time. All very nice, but the market moved on and now, with Mr. Kvisle's tenure as CEO set to end later this year, perhaps his patience is wearing thin.

The talks with Repsol are the first that the company has acknowledged by press release, and his role has not been disclosed. Reports have surfaced about other deals, including an effort to sell holdings in the red-hot Eagle Ford shale play in Texas.

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Let's compare and contrast.

Early this week, it was revealed that Jana Partners LLC, the activist hedge fund led by Barry Rosenstein, has amassed a more than $1-billion (U.S.) stake in Houston-based Apache Corp. and is already making demands.

Canadian investors remember Jana from a heated, and ultimately unsuccessful, proxy war it waged at Agrium Inc. last year.

As with the situation at Talisman, Apache had already been "rebalancing its portfolio." It has sold international assets and redeployed the capital in North American resource plays. Jana wants the effort accelerated, and is calling for the company to sell its interests in two liquefied natural gas projects, including the proposed Kitimat LNG plant on Canada's West Coast.

Unlike the situation at Talisman, Apache shares have not been stuck in a quagmire. Its shares had climbed more than 15 per cent this year before news broke about the Jana stake.

They are now at their highest since early 2012, having tacked on another 5 per cent in the past couple of days.

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It could mean one of two things: 1) When it comes to activists, investors actually like aggressiveness; or 2) It's good to board a ship for which the destination is already in sight.

It appears that neither of them had been the case at Talisman in the past year.

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