Talisman Energy Inc. said it may make a "material" writedown on the value of some of its assets in the North Sea in the next quarter, and that its troubles in the region are part of the reason that it has not been able to find a new chief executive.
Investors were rattled, even though the company's third-quarter earnings met the market's expectations. Talisman shares lost nearly 12 per cent Tuesday, after the company reported a $425-million profit in the third quarter. The stock is now at a 12-year low. Talisman, however, eased some investor concern in its conference call, telling the market it expects to sell one or two assets by the end of the year. Specifically, it said it is in the final stages of negotiations regarding its midstream assets in the Marcellus.
Talisman's woes have dragged on longer than investors – and chief executive Hal Kvisle – had expected. Worries over the North Sea writedown and unanswered questions regarding Mr. Kvisle's successor have been amplified as the price of oil around the globe continues to skid.
"The mood is horrible and people are looking for reasons" to sell stock in energy companies, said David Neuhauser, a managing director at Livermore Partners. That hedge fund, based in Illinois, specializes in energy. Talisman's struggles off the shores of Britain are well known to energy investors, but the company's official warning added more anxiety for Talisman shareholders.
"Anytime you see those types of headlines, guys look at it and say: 'Oh my god, they are going to have to write this down,'" he said. "Given the bearish tone for energy prices and oil companies today, it is just easier to pick on [that]."
Talisman's partner in the North Sea project in Britain is China's Sinopec Corp. The Calgary-based company on Tuesday said the joint venture has been "challenged with respect to asset uptime, declining production and emerging potential increases to development and decommissioning cost estimates," in 2014.
"The magnitude of potential impairments could result in a material reduction in the carrying value of the company's investment in" the joint venture, Talisman said in a statement. The total value of the investment in the project as of the end of September was $637-million, Talisman said. The company will unveil any potential impairments next quarter.
Mr. Kvisle took over Talisman, which is trying to focus on its assets in Asia, Canada, the United States, and Colombia, in the fall of 2012. He has since said he wants to retire by the end of 2014. Talisman provided scant details on its succession plan, which added to the market's concern Tuesday.
The company's troubles around the world – it also has assets in Iraq's Kurdistan region, for example – has made it difficult to find a new leader, Mr. Kvisle said.
"There's so many changes occurring within Talisman as we look at the company today," he said during the third-quarter conference call. "We have major challenges internationally."
The board is determined to find the right person to "lead the kind of company Talisman will be once we complete our current divestment and regional focus initiatives," Mr. Kvisle said. "I remain committed to running the company well until that time and ensuring an orderly transition with my successor in the months ahead."
The company earned $425-million or 41 cents a share in the quarter, up from a loss of $237-million or 23 cents a year ealrier. Talisman said the latest quarter included mark-to-market gains on commodity derivatives, offset by lower prices for natural gas and natural gas liquids.