Looking forward, Talisman believes it can deliver growth at the upper end of its targeted 5-10% production per share range through 2008. Production in 2006 is estimated to average between 515,000-545,000 boe/d. This represents growth of 11-18% relative to 2005, excluding any Paladin volumes in 2005. The Paladin acquisition was initially expected to close late in the year but is now anticipated to add 5,000-6,000 boe/d of production (annualized basis) in 2005. Including these Paladin volumes, growth relative to 2005 is expected to be in the 10-16% range.
The Company intends to dispose of some 10,000-15,000 boe/d of production from non-core assets in Western Canada and the North Sea early in 2006. Once the impact of these sales is known, subsequent production and financial guidance for 2006 will be updated.
Talisman expects to generate approximately $5.2-$5.6 billion in cash flow in 2006, based on a US$57/bbl WTI oil price, a US$9.00/mmbtu NYMEX natural gas price and a US$/C$ exchange rate of $0.84. Additional guidance details and sensitivities are included in tables later in this news release. The Company plans to release its 2005 results on March 1, 2006.
"Talisman has a very attractive opportunity set which is reflected in our 2006 capital spending program," said Dr. Jim Buckee, President and Chief Executive Officer. "The Paladin acquisition has gone smoothly and adds significantly to both production and drilling opportunities in 2006 and beyond. We have assumed that commodity prices will be relatively flat in 2006 with continued demand growth. Even so, we expect upwards of 15% growth in cash flow, well in excess of anticipated capital spending.
"Our inventory of investment opportunities should generate approximately 10% production growth annually through 2008. In North America, we expect to drill 685 gross wells in 2006 with large programs in the Alberta Foothills, Bigstone/Wild River, Edson, the Deep Basin, Appalachia and Monkman areas. We expect to grow our North American gas production by at least 3-5% annually over the next three years through the drill bit.
"We have a significant program in the North Sea next year, led by the 45,000 bbls/d Tweedsmuir development which is expected to be onstream at the end of the first quarter of 2007. In addition, we are planning to drill 63 gross wells, including 18 exploration wells.
"Our major project in Malaysia/Vietnam will be the Northern Fields development on Block PM-3 CAA, with first production in 2008. We also have seven exploration wells planned including our first well on Block 15-2/01 offshore Vietnam.
"The Corridor expansion project is on schedule for first gas deliveries to West Java in the first quarter of 2007. We expect Talisman's Indonesian gas production to increase from approximately 175 mmcf/d in 2005 to over 300 mmcf/d in 2008.
"Elsewhere, phase two expansion of the MLN facilities in Algeria is proceeding, with an expected onstream date late in 2007. In Trinidad, we are currently drilling our first onshore exploration well with plans for two to three additional wells in 2006. We are drilling our first offshore exploration well in Qatar and plan two additional wells next year. Talisman is also evaluating additional drilling in Peru to follow up on our recent oil discovery.
"In summary, we expect to continue to deliver strong production, drilling and financial results. Talisman has a visible growth profile going forward. We anticipate record cash flow again in 2006. Our balance sheet is strong and we have world class exploration opportunities."
Talisman expects to generate cash flow of $14.25-15.25/share in 2006, based on the mid-point of the production guidance range. This is a 12-20% increase over the estimated 2005 figure, without additional share buy backs in 2006.
Production in 2006 is expected to average between 515,000-545,000 boe/d, with most of the increase over 2005 coming from the North Sea and Southeast Asia. Talisman believes it can achieve average compound production per share growth of approximately 10% per annum between 2005 and 2008.
Talisman has budgeted approximately $4.4 billion in exploration and development spending in 2006, up 36% over 2005. Approximately one-third of this increased spending is on the Paladin assets and the remainder is due to an increased work scope and some cost inflation.
Approximately $2.1 billion (48% of the budget) will be spent drilling 685 domestic and 136 international exploration and development wells. The other major budget items are plant and equipment ($1.7 billion) and land/G&G ($450 million).
Exploration and development spending in North America is estimated at $2 billion (45% of total Company spending). Over 90% of conventional North American spending will be directed towards natural gas exploration and development.
Capital spending in the North Sea is expected to increase to about $1.6 billion in 2006. Exploration activity remains centered on prospects in the central North Sea and the Norwegian Continental Shelf.
In SE Asia, spending will increase with expansion of the gas processing facility in the Corridor Block in Indonesia. In addition, spending in Malaysia and Vietnam is expected to total approximately $350 million, including commencement of the Northern Fields development project on Block PM-3 CAA. Algerian spending will increase with expansion of the MLN facilities. Spending in Trinidad will be directed at exploration with one offshore and up to three onshore wells planned.
Royalty rates are expected to average between 15-17%. Unit operating costs (including transportation) are forecast at $9.35-$10.45/boe. An effective income tax rate of between 42-48% is expected (calculated on income after PRT expense which is deductible for income tax purposes). Cash and future income tax estimates incorporate the 10% UK tax rate increase effective January 1, 2006; however, future tax estimates exclude an estimated one-time non-cash income tax charge of approximately $300 million associated with the rate increase which the Company expects to book in the first quarter of 2006. This one-time charge relates to years prior 2006 and will not be reflected in Earnings from Operations.
Unit G&A is expected to fall slightly to $1.13/boe. As a result of increased debt in conjunction with the Paladin acquisition, interest expense is estimated to increase to approximately $280 million in 2006, of which approximately $70 million is expected to be capitalized.
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