I wonder if Talisman Energy Inc.'s legal department has a function on its computers that allows it to spit out "We're in talks with Repsol" press releases with a single keystroke.
It would be useful, given that Talisman has to keep telling regulators in the scantest of details about discussions on potential deals with the Spanish oil company. It disclosed the latest episode on Monday.
This time, though, the pressure on Talisman to sell is much greater than it's ever been, certainly more so than during its past tango with Repsol in the summer. With oil prices in rapid decline, the Calgary-based oil company faces declining cash flow expectations, a sizable debt burden, an intractable operational problem in the North Sea and a weakened stock price.
Chief executive Hal Kvisle, who had expected to be retired by now, still has asset sales planned to help cut the debt, though the energy market's slump makes potential buyers a bit poorer and, perhaps, less anxious to snap up properties.
In its brief statement on Monday, Talisman did not say if rekindled talks with Repsol – and others this time, apparently – involve selling assets or the whole company. If it is the latter, it's a dirge of a swan song for a Canadian company that was once an active consolidator of oil and gas assets around the world.
Talks between the two cooled off last summer after Repsol was unable to find buyers for the Talisman assets it did not want to keep, according to a Bloomberg report at the time. But that was before oil really hit the skids.
Even then, some analysts questioned how Talisman might be able to match its cash flow with the capital it needs to expand production while maintaining dividends, given its asset sale plans.
Now, properties that might have looked sort of pricey to Repsol with crude at $98 (U.S.) are downright cheap with oil in the $60s, and perhaps that's what it's counting on – store-wide bargains.
The company has long expressed an interest to snap up oil and gas assets in Organization for Economic Co-operation and Development countries, using $5-billion in proceeds it received following the nationalization of its assets in Argentina. The war chest can pay for a lot these days.
It's all fine for a buyer with deep pockets and a plan, but bad for investors in Talisman. Some may have held out hope for a turnaround and return to a stock price of three years ago above $20 (Canadian), but oil markets keep pushing the goal post farther away. The shares have climbed by around 20 per cent since word of Repsol's return spread on Monday, but it is still worth less than $5.
In 2013, the entrance of activist investor Carl Icahn raised hopes of a silver bullet that Mr. Kvisle and the board of directors had somehow missed, even as a turnaround plan was already in motion. More than a year later, it looks like the investor optimism was misplaced.
Mr. Kvisle, an oil-patch veteran, has said often the North Sea assets have acted as a virtual poison pill turning away would-be buyers. Under an agreement with China's Sinopec, its partner in the operation, the company is locked into investing hundreds of millions of dollars annually through 2016. Also, with high abandonment liabilities, the overall value of the assets is diminished.
All of this masks some impressive operations around the world, including in Southeast Asia, where its offshore business is a perennial money-maker, and the Eagle Ford in Texas, which was slow to develop but this year showed promise.
In addition, Mr. Kvisle has said he is close to finalizing a deal to sell its gas pipeline and processing assets in the Marcellus shale region of the U.S. Northeast, one that could bring in a hefty sum and help reach his asset-sale goal of $2-billion (U.S.).
The problem: lower oil prices make the goal look light. Analyst Phil Skolnick, in a parting shot as he left his position as head of North American energy research for Canaccord Genuity last week, projected that, with $70-a-barrel oil, proceeds will have to double for Talisman to get its debt down to 1 1/2years worth of cash flow, which is an acceptable load for the industry.
The extra $2-billion would equate to about 45 per cent of the company's current market capitalization.
If there is a silver bullet, now would be the time for Talisman to use it. A takeover would mean one fewer Canadian energy company punching above its weight class in international markets, after having been plucked at the bottom of the market.