Production during the quarter averaged 429,000 boe/d, an increase of 13% over the previous year but down 2% from the second quarter, with the dip due to planned plant turnarounds for maintenance in Western Canada and the North Sea. Production averaged 434,000 boe/d for the first nine months, an increase of 11% over the same period last year. Netbacks during the quarter were $24.76/boe, compared to $22.03/boe a year ago and $24.65/boe in the second quarter.
Cash flow during the third quarter was $706 million ($1.84/share), compared to $767 million ($2.00/share) in the previous quarter and $640 million ($1.66/share) a year earlier. The drop in cash flow from the previous quarter reflects lower production. Increased hedging losses and current taxes also had a significant impact during the quarter. Cash flow was up 10% compared to the third quarter of last year on both higher prices and volumes. Cash flow to September 30 was $2,252 million ($5.86/share), compared to $2,085 million ($5.39/share) a year ago.
Net income during the quarter was $122 million ($0.32/share), compared to $128 million ($0.32/share) a year ago and $197 million ($0.50/share) in the second quarter. Net income to the end of September was $542 million ($1.39/share) versus $904 million ($2.29/share) in the same period last year.
In order to better illustrate Talisman's core operating performance on a consistent basis, the Company has calculated an adjusted earnings from operations number. This metric adjusts for significant one-time events such as the sale of Talisman's assets in Sudan and changes to tax rates in 2003. It also adjusts for other non-operational impacts on earnings such as the mark-to-market effect of changes in share prices on stock based compensation expense.
Using this approach, adjusted earnings from operations during the quarter were $196 million ($0.51/share), an increase of 31% over the previous year. Year to date the comparable number was $626 million ($1.63/share), up 19% over the first nine months of 2003. Additional details are provided on the third page of this report.
"Although the net income number was affected by a number of non-operational factors during the quarter, our underlying performance remains strong and we achieved a number of strategic milestones," said Dr. Jim Buckee, President and Chief Executive Officer. "The Company grew its North American gas volumes for the fourth consecutive quarter, driven by a very successful drilling program and highlighted by a number of high impact wells. The most significant success was our deep Monkman well, which tested at a constrained rate of 40 mmcf/d and reinforced our belief that this play has huge potential value.
"In the North Sea, Talisman started production from the Tartan North field two months ahead of schedule and received development approval for Tweedsmuir. Tweedsmuir is expected to come on stream late in 2006 with production of 40,000 boe/d and Talisman will have a 94% working interest. In Indonesia, an agreement was reached to sell an additional 2.3 tcf of natural gas from Corridor, where Talisman has a 36% interest. The incremental sales are expected to start in 2007. In Trinidad, development of the Angostura oil and gas field is almost complete with first production expected early in 2005.
"Year over year, we are still delivering double digit production growth and expect production to be near the mid-point of our guidance range of 420,000-450,000 boe/d for the year. With the continued strength in oil and natural gas prices, we expect cash flow of approximately $3.1-3.2 billion or $8.00-8.50 per share based on fourth quarter WTI oil prices of US$50.00/bbl, NYMEX gas prices of US$7.30/mcf and a C$/US$ exchange rate of $0.80."
Talisman Third Quarter Summary
Adjusted earnings from operations
To assist in understanding the Company's adjusted earnings from operations the following table adjusts the Company's net income per the financial statements, for certain items of a non-operational nature, on an after-tax basis, to reflect adjusted earnings from operations. This term is not defined by Generally Accepted Accounting Principles (GAAP) in either Canada or the US. Our reported results may not be comparable to similarly titled measures by other companies. The Company uses this data to evaluate performance of core operational exploration and production activities on a basis comparable between periods.
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