Talisman's Year-to-Date Production Up from Southeast Asian Volumes

Citing Talisman Energy's solid operational and financial performance for the second quarter, President and CEO John A. Manzoni noted that Talisman's production from continuing operations has increased by 6%, driven by increasing volumes from Southeast Asia.


North America

Production in North America averaged approximately 171,000 boe/d in the quarter, down 9% from the same period in 2008. Production from continuing operations was down 6% over the same period in 2008, reflecting reduced capital spending and a shift in development focus from conventional areas to unconventional plays. Production from new unconventional areas increased 22% from the first quarter.

On June 1, Talisman closed asset sales in southeast Saskatchewan and Cutbank Midstream for cash proceeds totaling approximately $1 billion. The Saskatchewan production was sold at approximately $85,000 per boe/d and the midstream assets were sold at approximately ten times trailing EBITDA.

Capital spending included $496 million in unconventional natural gas areas and $128 million on conventional properties. During the first six months of the year, Talisman participated in 92 gross wells (50.8 net), with 82 gross wells in unconventional plays.

In the Marcellus Shale, the Company drilled nine gross (nine net) wells during the quarter, for a total of 12 gross (12 net) in the first half of the year. The development plan is ahead of schedule and the Company is now producing at rates in excess of 30 mmcf/d. Talisman currently has two pre-set drilling rigs and two horizontal rigs operating and a third horizontal rig is expected to start in July. Talisman is increasing capital spending in the Marcellus play as a result of recent results and its proximity to premium natural gas markets. The Company now expects to drill approximately 50 wells during the year versus the original plan of 36 wells.

Marcellus wells continue to exceed expectations. The latest wells on production have achieved initial production rates averaging 5 mmcf/d and peak rates above 5 mmcf/d, well above the original 2.5 mmcf/d type curve. Capital costs also continue to improve, with the most recent well achieving drilling and completion costs of approximately US$4 million. Drilling cycle times have been reduced by 60% as a result of Talisman's LEAN Well Delivery initiative. The Company is already drilling on state lands acquired in late 2008.

In the Montney Core, Talisman drilled 12 gross (9.9 net) wells in the first half of the year. The most recent eight horizontal wells have averaged initial 30-day production rates of 3.5 mmcf/d, well above the original target of 2.6 mmcf/d. Talisman has made significant strides in reducing costs in the Montney, targeting a US$4/mcf (NYMEX) breakeven cost by the end of the year.

The Company drilled a total of five wells in the Montney Shale in the quarter, for a total of 12 gross (9.2 net) in the first half of the year. The first horizontal and vertical pilot wells exceeded initial type curve expectations.

In Quebec, the Company is currently testing vertical wells, which were drilled to complete the land earning requirements. Based on encouraging test results from its vertical wells, Talisman intends to begin drilling horizontal pilot wells by the end of the third quarter, with the potential to drill at least two horizontal wells in 2009. To date, three separate pilot areas have been identified next to the vertical test wells.

Talisman's conventional areas continue to perform well even with reduced capital. Base declines are lower than anticipated and many areas continue to report strong production volumes.


Production from continuing operations in the UK averaged approximately 93,000 boe/d during the quarter, unchanged from the same period in 2008 and down 14% from the first quarter. Production during the second quarter was lower due to both planned shutdowns and a number of unplanned events.

Most significantly, there was a compressor failure at Claymore (eight weeks outage with one compressor now online and a second compressor expected online at the end of July) and a well was shut in at the Wood Field due to poor reservoir performance. A well intervention is planned for the first half of 2010.

Tweedsmuir has been performing well, with production very steady at over 25,000 boe/d for the quarter. At Tartan, improved production efficiency has resulted in higher volumes across the fields producing through the Tartan facility, with production in the area averaging over 8,500 boe/d during the quarter.

The Company has made a discovery on the Shaw prospect in Block 22/22a, adjacent to its recently announced Godwin discovery. The well tested at 4,800 boe/d on a restricted choke and Talisman is currently drilling an appraisal sidetrack. Talisman is reviewing options to develop the Godwin discovery via the Montrose - Arbroath facilities.

Talisman continues to progress its developments at Burghley, Auk North and Auk South, which are on schedule and on budget. At Auk North, three batch wells continued drilling during the quarter. Early indications show better than expected performance with an initial free flow rate on the first well of 6,500 boe/d through a restricted choke. However, the non-operated Affleck field continues to experience delays, with first oil now expected later this year.

As part of the ongoing program to manage capital spending levels, Talisman has worked with its rig vendor to renegotiate the terms of its contract, with early release of the Ocean Nomad at the end of the current exploration well, combined with a corresponding extension of the commitment on the Ocean Princess.


Production from continuing operations in Scandinavia averaged approximately 39,000 boe/d during the quarter, up 18% over the second quarter of 2008 and down 9% from the first quarter of 2009. Production during the second quarter was down due to planned shutdowns and lower than expected operating efficiency for Rev through the non-operated Armada facility in the UK.

The Company made a promising oil discovery on the Grevling prospect, offshore Norway in PL038, Block 15/12. A subsequent sidetrack was drilled down-dip of the structure, which extended the proven oil column with remaining potential untested down-flank. The Company is currently evaluating development options across its Varg facilities. A further appraisal well is planned for early 2010.

Southeast Asia

In Southeast Asia, production averaged approximately 105,000 boe/d, 15% higher than the same period last year and 4% above the last quarter. Indonesian production averaged 65,000 boe/d, 14% higher than the same period last year and 3% higher than the last quarter. In Malaysia/Vietnam, production averaged 35,000 boe/d, 2% above than the same period last year, due to gas and oil production from Northern Fields and the ongoing Bunga Kekwa C infill program, partially offset by a decline in South Angsi production. Volumes were also 15% higher than the previous quarter, mainly due to Northern Fields oil production, which came onstream late in the first quarter of 2009.

Production from Corridor during the quarter reached a record high of 331 mmcf/d (net to Talisman) as sales volumes to both Caltex and PGN continued to increase.

During the second quarter, the Tangguh Liquefied Natural Gas (LNG) facility produced its first LNG and commenced loading operations, with the first cargo shipped on July 6.

A Gas Sales Agreement for the sale of Mandala gas and field solution gas in the Ogan Komering Block was signed in April. The contract will be in place until 2016 at an average rate of 12 mmcf/d gross sales gas.

Gas production from the Northern Fields averaged 119 mmcf/d gross sales during the quarter, with liquids production averaging approximately 12,700 boe/d. To date, 25 wells have been drilled on Northern Fields with 100% success. Production will continue to ramp upwards as additional oil and gas producers are brought onstream and commissioning of compression systems is completed in the third quarter.

In the Southern Fields, a planned shutdown for preventative maintenance was completed in May, with the oil system shut-in for 10 days and the gas processing system shut-in for 13 days. The first infill well in the Improved Oil Recovery Phase 1 program came on production in April at an initial rate of 1,100 bbls/d. The second well of a six well program is currently being drilled.

The Company continued the appraisal of the Hai Su Den (HSD) discovery in Block 15-2/01 in Vietnam. The 3X basement appraisal well flowed oil on drill stem test and was subsequently abandoned. The 4X exploration well spud early in July and a further basement appraisal well (5X) is planned for later in the year.

Production in Australia was approximately 4,700 boe/d, 37% higher than the same period last year and 47% higher than the last quarter, primarily due to the new flowline at Corallina and reinstatement of the Lam-2 well.

Sanction of the field development plan for the Kitan discovery is expected in fourth quarter with first oil planned for mid-2011.

Other Operating Areas

In North Africa, production from continuing operations averaged 13,000 boe/d, down 13% compared to the same period a year ago, mainly due to continued OPEC production restrictions and natural declines. The Company expects these restrictions to continue at this level for the remainder of 2009.

The Company is in negotiations for the sale of its assets in Tunisia. The sale of Talisman's interests in Trinidad and Tobago was completed on May 27.

International Exploration

International exploration spending during the second quarter was approximately $176 million.

In June, Talisman entered an agreement to purchase the issued and outstanding shares of Rift Oil, whose principal assets are highly prospective exploration licences PPL235 and PPL261 in the Foreland Basin of Western Papua New Guinea. This provides the Company with a low cost opportunity to aggregate gas in Southeast Asia, one of the growth areas in Talisman's portfolio. The transaction is subject to a number of conditions.

On the Sageri Production Sharing Contract, processing of 2-D seismic acquired earlier in the year was completed. Talisman submitted bids for blocks in the Sabah bid round in Malaysia and North Sumatra bid round in Indonesia with results expected later in the year.

In the Kurdistan region of northern Iraq, the Kurdamir-1 well spud in early May and is currently drilling. The Company has also agreed to acquire an option on the K9 Block.

In Colombia, Talisman made a significant gas condensate discovery in the Niscota Block in the Andes Foothills. The Huron-1 well, which spud in June last year, encountered several reservoirs and tested one zone at 3,400 boe/d. Further logging and testing is underway. The Situche Central 3X well on Block 64 in Peru, which spud in late December 2008, is currently drilling in the reservoir.

Talisman was also awarded three blocks in Norway, in the Barents Sea, in the 20th Licencing Round.


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