Cash flow(a) during the third quarter was $1,251 million ($3.41/share), compared to $993 million ($2.70/share) in the previous quarter and $706 million ($1.84/share) a year earlier. Cash flow was up 77% compared to the third quarter of last year on both higher prices and volumes. Cash flow to September 30 was $3,204 million ($8.69/share), compared to $2,237 million ($5.82/share) a year ago.
Net income during the quarter was $430 million ($1.17/share) compared to $122 million ($0.32/share) a year ago and $340 million ($0.93/share) in the previous quarter. Net income to September 30 was $1,028 million ($2.79/share) compared to $533 million ($1.39/share) a year ago.
Earnings from operations(a) for the quarter totalled $632 million ($1.72/share), more than triple the level of a year ago. Year to date, earnings from operations were $1,437 million ($3.90/share), more than double the first nine months of 2004. Earnings from operations is calculated to better illustrate Talisman's performance on an internally consistent basis and adjusts for non-operational impacts on earnings such as the mark-to-market effect of changes in share prices on stock-based compensation expense and changes to tax rates.
Production during the quarter averaged 461,000 boe/d, an increase of 7% over the previous year and 4% over the second quarter. Production for the first nine months averaged 454,000 boe/d, an increase of 5% over the same period last year. Netbacks during the quarter were $41.16/boe, compared to $24.51/boe a year ago and $32.58/boe in the second quarter.
(a) The terms "cash flow" and "earnings from operations" are non-GAAP measures, please see advisories elsewhere in this press release.
"We set a new all time production record for Talisman this quarter, delivering production per share growth of 12% compared to the third quarter of last year," said Dr. Jim Buckee, President and Chief Executive Officer. "This impressive performance was compounded by high commodity prices which, as we are virtually unhedged, delivered striking financial results.
"The recently announced offer for Paladin Resources will also enhance shareholder value if successful. We expect production per share growth well in excess of 10% in 2006 with Paladin. The transaction should also be accretive to cash flow and other key metrics on a go forward basis. We like the overlap of assets in areas where we already operate and Talisman will be able to create additional value through the drill bit.
"In North America, we drilled 97 successful gas wells during the quarter, increasing natural gas production by 2% from a year ago. We recently announced development of a new core area in the Northern Alberta Foothills which should add 35 mmcf/d of production when the Lynx and Palliser pipelines are operational. In the North Sea, third quarter production is up 10% from a year ago and we have also had a successful drilling program in the third quarter, adding combined initial production potential of over 25,000 bbls/d. Tweedsmuir development is on track to add 45,000 bbls/d of production early in 2007.
"The South Angsi field in Malaysia came onstream in August and is currently producing 18,000 bbls/d (net Talisman share) and the Naga Kecil exploration well was successful. We have spudded our first onshore well in Trinidad and our first well in Qatar will spud this quarter.
"We currently expect Talisman to generate approximately $4.65 billion in cash flow in 2005, or approximately C$12.65/share based on average US$59.50/bbl WTI prices, US$11.85/mmbtu NYMEX gas prices and an 85 cent Canadian dollar over the remainder of the year. Production is expected to average between 480,000-500,000 boe/d in the fourth quarter."
These financial and operational estimates do not reflect any contribution from the Paladin acquisition, which may result if the transaction is completed prior to year end.
Talisman Third Quarter Summary
- On October 20, Talisman announced that it had reached an agreement on the terms of a cash offer by a wholly-owned subsidiary to purchase the shares of Paladin Resources plc in the United Kingdom for approximately C$2.5 billion. The recommended offer was formally made to Paladin shareholders on October 28, 2005.
- Drilling success averaged 98% in North America with 97 gas and 71 oil wells.
- In early October, Talisman announced plans to add upwards of 35 mmcf/d of production (net TLM sales gas) from a new core area in the Northern Alberta Foothills when the Lynx and Palliser pipelines are operational.
- In October, Bigstone/Wild River set a new weekly production record of 118 mmcf/d.
- Talisman's sweet natural gas gathering system at Cutbank achieved record throughput of 169 mmcf/d in September.
- In the North Sea Talisman drilled successful development wells at Claymore (2,700 bbls/d), Orion (8,000 bbls/d), Clyde (7,000 bbls/d) and two wells at Varg in Norway (6,500 and 3,600 bbls/d).
- Talisman made a new exploration discovery in Block 13/23b of the UK North Sea, testing 6,700 bbls/d of 35 degree API oil.
- The Tweedsmuir development is on schedule for early 2007.
- In Malaysia, the Company announced first oil production from South Angsi in mid-August.
- Expansion of the Corridor gas plant facilities in Indonesia and the pipeline to West Java are on schedule for a first quarter 2007 startup.
- Talisman spud its first onshore exploration well on the Eastern Block in Trinidad.
- Talisman declared a semi-annual dividend of 17 cents Canadian (C$0.17) per share on its common shares.
Purchase of Paladin Resources plc
On October 20, Talisman announced an agreement with Paladin Resources plc on the terms of a cash offer by a wholly-owned subsidiary of Talisman, for all of the shares of Paladin, valuing the existing issued share capital of Paladin at approximately Pounds Sterling 1,218 million (C$2,521 million). Paladin is a UK oil and gas exploration and production company whose shares are listed on the London Stock Exchange. Paladin has a portfolio of production and exploration assets predominantly in the Norwegian, UK and Danish sectors of the North Sea, as well as in Australia, Indonesia and Tunisia. It also has exploration acreage in Gabon and Romania.
Talisman believes this deal will add value for its shareholders. If successfully completed, the Paladin acquisition is expected to be accretive to cash flow and other key metrics through 2008 (Talisman's detailed planning period). The acquisition should also allow Talisman to exceed its commitment to deliver 5-10% per share growth annually through 2008, while maintaining a strong balance sheet.
Talisman estimates that Paladin's proved plus probable reserves are approximately 190 mmboe. Paladin recently reported production of approximately 46,000 boe/d for the first half of 2005. Talisman expects incremental production in 2006 to be in the range of 45,000-50,000 boe/d with potential for over 70,000 boe/d in 2009. In addition, Talisman sees significant exploration and development potential on the Paladin properties.
Talisman believes that the integration of Paladin's portfolio of assets will strengthen its position as a leading independent operator in the North Sea. Approximately three quarters of Paladin's reserves and production are in the Norwegian, UK and Danish sectors of the North Sea. The transaction also provides additional international opportunities in regions that are well suited to Talisman's operating style and skills.
The acquisition will add a significant operated core area at MonArb in the Central North Sea (Montrose, Arbroath, Arkwright, Brechin, Wood). A large number of prospects and leads have been identified in MonArb with the introduction of modern seismic techniques.
Paladin will also bring approximately 600,000 net acres of exploration acreage in Norway. Paladin's 40% working interest and operatorship of Production License 316 in Norway will give Talisman an operated and dominant position in the Egersund basin. Talisman acquired a 30% interest in this area earlier this year. Talisman sees material upside potential here from both exploration and development.
As of October 31, Talisman had acquired approximately 25% of Paladin's existing issued share capital and had irrevocable undertakings to accept its takeover offer for another 7% of Paladin shares.
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