Talisman Energy reported that production for the quarter averaged 432,000 boe/d, 4% below the same quarter of 2007, mainly due to the sale of non-core assets, which produced 29,000 boe/d in the second quarter of 2007; however, volumes were 3% above the previous quarter.
Netbacks increased to a record $61.33/boe, up 63% from the second quarter of 2007. The main reason was a 90% increase in the benchmark WTI oil price, which averaged US$124 /bbl in the quarter. A stronger Canadian dollar versus the US$ (up 9%) mitigated the effect of oil prices somewhat. NYMEX and AECO natural gas prices were approximately 40% higher than a year ago.
In May, the Company set out plans to drill up to 130 wells in new unconventional areas. In the first six months of the year, the Company completed 34 development wells and eight Talisman operated pilot wells. With continuing success in a number of areas, this program has been expanded to over 50 pilot wells and approximately 110 development wells for the year.
The Company increased production by 25% over the same period in 2007 in Bigstone/Wild River. A new production record was set in April, reaching 172 mmcf/d, with production averaging 168 mmcf/d in the quarter.
In the Outer Foothills, the Company recently acquired 25,000 net acres of land in the Hinton region and now holds over 80,000 net acres with 190 identified drilling locations. A total of eight successful wells have been drilled at Hinton year-to-date, with a recent discovery testing at 15 mmcf/d (gross raw gas). Talisman moved from two zone to five zone completions. The Company has four drilling rigs in the area and is looking to expand this.
The Company is also expanding its Montney program. A total of 18 wells have been drilled to date, including two pilots, and Talisman plans to drill over 30 wells in the second half of the year (up from a plan of 19) and expects to expand to nine rigs.
In the Bakken light oil play, Talisman has three drilling rigs operating and drilled 11 of a planned 56 wells in 2008. Four wells are on production with initial rates averaging 190 bbls/d per well.
In Appalachia, Talisman is mobilizing its first dedicated shale rig. Partner operated results from one horizontal and two vertical wells in the shale are very promising, but still in the cleanup phase. In New York State, new legislation has been signed that permits conforming spacing units up to 640 acres for horizontal drilling into the Marcellus Shale. The State has also undertaken to update its Environmental Quality Review Act to facilitate increased activity in the shale.
In Quebec, a rig is recompleting the Gentilly well and the Company is planning to drill up to four wells by the end of the year.
Production from continuing operations in the UK averaged 96,303 boe/d during the quarter, down 7% from the same period in 2007 and up 9% from the first quarter 2008. Production during the second quarter was impacted by scheduled maintenance shutdowns at the Blake, Ross, Auk, Fulmar and Clyde platforms, as well as unplanned shutdowns at the Piper and Claymore platforms. These reductions were offset by improved throughput at Tweedsmuir following production facility modifications and new production from Enoch, Duart and Blane, which came onstream in 2007.
Tweedsmuir production averaged 22,235 boe/d (net) during the quarter, an increase of 68% over the first quarter, as commissioning of the Tweedsmuir Phase 2 project neared completion. By the end of June, a peak daily production rate of 33,000 boe/d (net) had been attained. Final commissioning of the platform gas plant is continuing. The Company now expects Tweedsmuir to average 23,000 boe/d (net) for the year.
During the quarter, an appraisal drilling program was carried out in the Burghley field, which is planned as a tieback to the Balmoral platform. Also during the quarter, development wells were drilled in the Andrew field and in the Netherlands. At the end of the quarter, development drilling was progressing at Claymore and Ross.
Production from continuing operations in Scandinavia averaged 33,042 boe/d during the quarter, up 11% over the second quarter of 2007 and down 4% from the first quarter of 2008. The production increase over 2007 was due to new production from Blane, which came onstream in the third quarter 2007, and good performance of development wells drilled at Gyda and the Brage fields. The increase was partially offset by natural declines at Varg and Veslefrikk.
During the quarter, a successful long-reach development well was drilled at Gyda and had an initial gross production rate of 3,500 bbls/d. A successful well was also drilled adjacent to Varg and started production at 3,600 bbls/d. In addition, development wells were drilled at Brage and Veslefrikk. At the end of the quarter, development drilling was progressing at Gyda, Varg, Brage and Veslefrikk.
Development of the Rev Field, located on the Norwegian continental shelf close to the UK Border, continued. During the quarter, Rev subsea wells were tied back to the third-party operated Armada platform and the Rev module was lifted onto Armada in April. Progress towards the planned August 2008 production startup continued until the end of June. At the end of June, the operator of Armada informed Talisman that safety critical maintenance work at Armada would take priority over the Rev work until the temporary floating accommodation unit finishes its contract in early August. Although there is only limited work remaining on Rev, it will not be possible to complete Rev until the floating accommodation unit returns in the fourth quarter of 2008. As a consequence, first production from Rev is now expected in early 2009.
In Southeast Asia, production averaged 90,847 boe/d, comparable to the same period last year and slightly above the last quarter. Indonesian production averaged 57,242 boe/d, 22% higher than the same period last year and 8% higher than the previous quarter, primarily due to increased West Java natural gas sales and higher Singapore gas takes. In Malaysia/Vietnam, production averaged 30,172 boe/d, 23% lower than the same period last year and 12% lower than the previous quarter, mainly due to natural declines and a scheduled maintenance shutdown at PM-3 CAA.
Natural gas volumes from PM-3 CAA are expected to increase from approximately 175 mmcf/d to 250 mmcf/d as development drilling continues for the remainder of 2008 and into 2009. Three gas wells were successfully drilled in the Northern Fields, with all wells meeting or exceeding expectations. A second rig commenced drilling in May. Drilling operations and progress on the Bunga Orkid-A processing and accommodation platform to be installed later this year are on schedule for first oil in the first half of 2009.
In Indonesia, natural gas sales to West Java increased from 80 mmcf/d to an average of 100 mmcf/d in line with plan. Talisman's gas sales in Indonesia averaged 271 mmcf/d, up 26% from a year ago and Indonesia set a new weekly productionrecord of 64,321 boe/d in this quarter.
Talisman also signed a memorandum of understanding with Pertamina, the national oil company, that provides the opportunity to evaluate and participate in two enhanced oil recovery projects. In addition, a 3D seismic survey was completed at Pasangkayu in preparation for the first exploration well to be drilled in 2009. Talisman was also awarded two Joint Study Agreements in the Sageri area and bid on a new exploration licence in a recent bid round.
In Vietnam, Phase 2 drilling operations for the Song Doc development will commence at the beginning of the third quarter with the completion of the five pre-drilled wells. First oil is expected with the arrival of the Floating Production and Storage Offloading vessel at the beginning of the fourth quarter of 2008. The Hai Su Bac well was drilled in the quarter and was a small oil discovery. The Hai Su Nau exploration well was drilled to a total depth of 4,644 meters and was suspended. The well will be subject to further testing in the fourth quarter of 2008.
Production in Australia was 3,414 bbls/d, 25% lower than the same period last year primarily due to riser failures and 72% higher than the last quarter due to reconfiguration of the Corallina gas lift. The failed Corallina riser will be replaced in the third quarter, which is expected to restore full production by the fourth quarter. Following the successful Kitan exploration program in the first quarter and a successful appraisal well in the second quarter, a Declaration of Commerciality was made for the discovery and a Development Plan is currently being prepared.
In Talisman's other areas, production was down 5% compared to the same period a year ago, averaging 20,113 boe/d. Production in Algeria was 14,754 boe/d, an increase of 14% from the same period in 2007, due to Greater MLN development drilling in 2007, and a facility maintenance shutdown that reduced rates in April 2007.
In Trinidad and Tobago, production averaged 4,470bbls/d, down 37% from the same period a year earlier due to a scheduled maintenance shutdown in April 2008. Progress continued towards sanction of the Angostura gas project, with sanction expected in the third quarter of 2008. Talisman has initiated the sale of the Trinidad and Tobago assets. The sale is expected to be completed in early 2009.
In Colombia, the Huron-1 well on the Niscota Block spud in mid-June. The Company also acquired 3D seismic in the El Caucho Block. A Talisman subsidiary was a joint bidder in the winning bids on two large Technical Evaluation Agreement areas. Talisman's subsidiary will operate one of the blocks. In Peru, preparations continue towards drilling an appraisal well at the Situche discovery, which is expected to spud at the end of 2008.
Two of Talisman's wholly-owned subsidiaries have entered into agreements with the Kurdistan Regional Government (KRG) within Iraq for Blocks K44 and K39. Talisman has a 40% interest in Block K44, with WesternZagros Limited holding 40% as operator and the KRG retaining 20%. The Sarqala well spudded on May 8 and is currently drilling on Block K44. On Block K39, Talisman has entered into a seismic option agreement with the KRG for two years, following which it will have the option to enter into a Production Sharing Contract as operator of the block with a 60% working interest and a one well commitment in the first year.
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