Talisman Generates $1.1B in Cash Flow, Record $686M in Net Income
Talisman Energy Inc. on Thursday reported its second-quarter operating and financial results.
Cash flow(1) was $1,142 million ($1.04/share), an increase of 15% compared to $993 million ($0.90/share) a year earlier and $1,344 million ($1.22/share) in the first quarter of 2006. Cash flow to June 30 was $2,486 million ($2.26/share) compared to $1,953 million ($1.76/share) a year ago, an increase of 27%.
Earnings from operations(1) totaled $414 million ($0.38/share) unchanged from a year ago and down from $539 million ($0.49/share) in the first quarter of 2006. Earnings from operations to June 30 were $953 million ($0.87/share) an increase of 22% compared to $778 million in the corresponding period last year.
Net income for the quarter doubled to $686 million ($0.62/share), a new quarterly record, and compares to $340 million ($0.31/share) a year ago. Net income was $197 million ($0.18/share) in the first quarter of 2006. Net income for the first six months was $883 million ($0.80/share) compared to $598 million ($0.54/share) a year earlier.
Production averaged approximately 473,000 boe/d, an increase of 6% over the second quarter of 2005, but down from 523,000 boe/d in the first quarter, largely the result of plant turnarounds and mechanical issues. Oil and liquids production averaged 252,437 bbls/d, an increase of 10% compared to a year ago. Natural gas production averaged 1,321 mmcf/d in the quarter, an increase of 2% over last year.
"This was a very strong quarter financially, " said Jim Buckee, Talisman’s president and CEO. "Cash flow was up 15% over a year ago and we set a quarterly record for net income.
"Our major projects are proceeding smoothly. We are progressing 10 subsea tiebacks in the North Sea. The largest of these, Tweedsmuir, is 69% complete and should be on-stream towards the end of the first quarter of 2007. Tweedsmuir is expected to produce over 50,000 bbls/d net to Talisman from startup. The Wood and Enoch tiebacks are on schedule for first quarter 2007 startup and the Blane tieback is expected in the second quarter of 2007. In North America, we completed the Lynx pipeline in the third week of June and the Palliser pipeline will be operational in September. We drilled another very successful Monkman Triassic well in the quarter which tested at 27 mmcf/d.
"In Indonesia, natural gas production exceeded 200 mmcf/d during the quarter and we expect these volumes to ramp up to approximately 300 mmcf/d with the expansion of the Corridor gas plant at Suban and the new pipeline to West Java. Initial gas deliveries are expected in the first quarter of 2007. We drilled two successful development wells in Malaysia which flowed at combined rates of 6,500 bbls/day. Development of the Northern Fields is continuing with first oil on schedule for the third quarter of 2008.
"Operationally it was a difficult quarter. Compressor failures in Algeria, the North Sea, and Canada collectively shut-in over 20,000 boe/d of production for varying periods. Repairs have been completed in Canada and the other repairs are expected to be completed in 4-6 weeks. These production outages, coupled with turnarounds, also contributed to the increase in unit operating costs during the quarter.
"All of this, combined with the completion of our non-core asset sales, plus previously disclosed short-term production issues in Norway and Malaysia now lead us to believe that production will average approximately 500,000 boe/d for the year. This is still expected to result in $5.0 -5.2 billion in cash flow(2) despite the weakness in North American natural gas prices and a stronger Canadian dollar.
"We are also considering significant additional non-core asset sales over the next 6-12 months. Given the appetite in the marketplace, I believe this is an opportune time to monetize some assets which may not be getting full credit in our share price, as well as allowing us to streamline, focus and simplify our operations. We are looking at selling additional non-core assets in Canada and the North Sea, as well as exiting a select number of countries where we do not see strategic value. The value of these sales could be well over a billion dollars and we intend to use the proceeds to buy back Talisman shares."
Talisman Second Quarter Summary
- In North America, Talisman participated in 134 gross wells (79 operated), resulting in a total of 105 gas and 24 oil wells for an average success rate of 96%.
- At Monkman, a Triassic well tested at rates of up to 27 mmcf/d (gross, raw gas). This well is expected to be tied in during the fourth quarter of 2006.
- In Appalachia, the Schwingel well came on production in late-April at 8 mmcf/d.
- The Lynx pipeline was commissioned on June 23 and is currently transporting 16 mmcf/d of Talisman sales gas.
- At Bigstone/Wild River, Talisman set a monthly production record in April of 134.5 mmcf/d.
- Talisman acquired rights to over 340,000 hectares of land in the Northwest Territories Crown land sale (Talisman working interest 50%).
- Talisman drilled its first exploration well in Quebec. The well is currently awaiting a completion rig.
- In the UK, the Tweedsmuir development project is on schedule for start up in the first quarter of 2007. Overall the project is 69% complete.
- The Affleck development continues to make good progress and is on schedule for first production in the fourth quarter of 2007.
- The Tweedsmuir South and Wood development wells were successful.
- The Orion Mey 2 producer was completed, with initial production of 5,000 bbls/d.
- The latest Claymore development well was completed with initial production of 6,000 bbls/d.
- At Ross/Blake there was a gas lift compressor motor failure in June, which has led to constrained production. The compressor is due to be back in service in August.
- During the quarter, the Beatrice Windfarm Demonstrator project received development approval. Offshore installation of the two wind turbines is underway and first power is expected during the third quarter of 2006.
- Talisman entered into agreements to sell non-core assets in Canada and the UK. On May 26, Talisman announced the sale of assets (producing 9,200 boe/d) in the North Sea for US$414 million. On June 14, the Company announced the sale of assets in Canada (producing 7,000 boe/d) for $379 million. These assets have been classified as discontinued operations.
- In Malaysia/Vietnam, two successful development wells were drilled and completed in Block PM-3 CAA, with initial flow rates of 3,600 and 2,900 bbls/d. A third development well, Kuning-2, was also drilled in Malaysia.
- In Indonesia, the Corridor gas facilities expansion project continues to make good progress, with an expected in-service date by the end of 2006.
- Production from the Greater MLN field in Algeria has been temporarily shut-in due to flaring restrictions following the failure of a gas reinjection compressor motor in May. The motor is under repair, and the field is expected to be back onstream by the end of August.
- Offshore Trinidad, Talisman participated in two successful development wells.
- In Indonesia, Talisman (30%) and Marathon won the bid round for the highly attractive Pasangkayu exploration block.
Exploration and Operations Review
During the second quarter of 2006, Talisman participated in 134 gross wells (79 operated), resulting in a total of 105 gas and 24 oil wells for an average success rate of 96%. Included were 48 exploration wells, with 47 successful gas wells.
Total production from North America was 200,874 boe/d in the second quarter of 2006, 2% lower than the previous period and 3% lower than the same period in 2005. Natural gas production averaged 884 mmcf/d, 27 mmcf/d (3%) lower than the same period in 2005 and 9 mmcf/d (1%) below the previous quarter. The reduction in rates was due in part to significant turnarounds at Hanlan Robb and Edson. Liquids production averaged 53,522 bbls/d, 5% lower than the first quarter of 2006 and 4.5% lower than the same period last year. The lower volumes are primarily a result of weather related delays and plant turnarounds. These volumes include discontinued operations.
At Monkman, production for the quarter averaged 123 mmcf/d, 17 mmcf/d higher than the previous quarter and 22 mmcf/d above the same period last year. The b-60-E well is currently producing approximately 50 mmcf/d gross sales gas (40 mmcf/d gross sales gas). The d-93-D well commenced production on April 10, 2006 and is currently producing 29 mmcf/d gross raw gas (23 mmcf/d gross sales gas). During the quarter, a Triassic well, Bullmoose a-A043-E/93-P-03, tested at rates of up to 27 mmcf/d of gross, raw gas. This well is expected to be tied-in during the fourth quarter of 2006. A deep well was spudded on July 24 and is expected to be rig released in early 2007.
In the Alberta Foothills, Talisman produced 123 mmcf/d during the second quarter, 29 mmcf/d lower than the last quarter, due mainly to compressor cylinder failures at Chungo and a plant turnaround at Hanlan Robb which was originally planned for September. The Chungo compressor failure reduced production by 13 mmcf/d for the quarter. The compressor was restarted on June 24 and the Company has subsequently set a weekly production record of 165 mmcf/d.
Talisman participated in 4.3 net wells (7 gross wells) during the quarter in the Alberta Foothills and six wells are currently drilling. Five wells were tested with combined rates of 61 mmcf/d (gross raw gas). Talisman's average working interest in these wells is 75%.
The Lynx pipeline was commissioned on June 23, 2006 and is currently flowing 35 mmcf/d gross raw gas (16 mmcf/d net Talisman sales gas). Talisman expects to be flowing 18 to 22 mmcf/d net sales gas from Lynx after facilities optimizations have been completed. There is an additional 45 mmcf/d of shut-in natural gas in the Northern Alberta Foothills awaiting completion of the Palliser pipeline and other facilities.
In the Greater Arch, production averaged 28,344 boe/d during the second quarter, 8% lower than the second quarter of 2005 and 7% lower than the previous quarter. The Company participated in 21.1 net wells (39 gross) in the area during the quarter.
In the Edson area, second quarter production averaged 45,930 boe/d, 1% over the same period last year and 2% higher than the previous period.
At Edson, production averaged 12,080 boe/d, a decrease of 19% from the same period last year and a decrease of 6% over the previous period. Natural gas production decreased to 62 mmcf/d, 16.5 mmcf/d lower than the second quarter of 2005 and 4.5 mmcf/d lower than previous quarter due to the Edson gas plant turnaround. The impact on volumes during the quarter was 5.6 mmcf/d and the turnaround lasted roughly 15 days. Weather and construction delays resulted in a deferral of 10 mmcf/d. With completion of the Ansel pipeline most of this production will be realized early in the third quarter.
At Bigstone/Wild River, quarterly production was 23,835 boe/d, 17% higher than the same period last year and 9% above the first quarter of this year. Natural gas production during the quarter was 131 mmcf/d, 17% higher than the same period in 2005 and 8% higher than the previous quarter. Talisman participated in 8.5 net wells (16 gross) in the area during the quarter. The Company had record monthly production of 134.5 mmcf/day in April 2006.
Production at West Whitecourt during the quarter averaged 53 mmcf/d, on par with the same period last year (54 mmcf/day) and 2% lower than the first quarter.
In Quebec, a natural gas exploration well was drilled and is currently suspended until a completion rig becomes available.
During the quarter, Talisman Midstream Operations (TMO) transported and processed an average of 450 mmcf/d through its systems, a slight increase over the preceding quarter. The Lynx pipeline was commissioned on June 23, 2006 and is currently transporting 35 mmcf/d, gross raw gas. The Palliser pipeline is expected to be commissioned in September. TMO currently has a throughput of 532 mmcf/d.
In Appalachia, the Schwingel well came onstream in April at 8 mmcf/d. The meter upgrade at BJ Hartman (FEI 49.5%) is complete and the well is currently producing at 10 mmcf/d. Talisman's wholly owned subsidiary, Fortuna Energy Inc., has permits in place for seven wells and is waiting for four more. Production in Appalachia for the quarter was 98 mmcf/d, 17 mmcf/d higher than in the previous quarter. Talisman participated in 9.5 net wells this quarter and is currently drilling two Trenton Black River wells.
Talisman bid successfully for lands in the Northwest Territories Crown land sale of May 9 (Talisman working interest 50%). Talisman acquired rights to 340,349 gross hectares in the Central Mackenzie Valley.
Production in the second quarter averaged 116,866 boe/d. This is down compared to 148,065 boe/d in the first quarter 2006, and up 5% compared to the second quarter of 2005. Production during the quarter was impacted by planned facilities shutdowns at Piper (for Tweedsmuir tie-ins), Beatrice and Clyde. In addition, there were unplanned shutdowns for a Scapa riser failure, repairs to a compressor at Tartan and repairs to Galley flowlines.
Unit operating costs increased to $19.14/boe in the quarter as a result of higher maintenance costs, increased fuel gas costs and extended shut-down periods.
The Tweedsmuir South development well was drilled and completed, with good quality, hydrocarbon bearing reservoir. All four Tweedsmuir wells (two oil producers and two water injectors) have now been successfully drilled and completed and are suspended in preparation for production start-up towards the end of the first quarter of 2007. The subsea manifolds have been installed and the subsea control system has been hooked-up and tested. Overall the project is 69% complete (drilling 100%, topsides 62% and subsea 61%).
The Orion Mey 2 producer was successfully completed, providing incremental production of 5,000 bbls/d.
The most recent Claymore development well was completed and started production at 6,000 bbls/d.
The Wood development well was successfully drilled and suspended with better than expected hydrocarbon bearing reservoir. The well will be completed later in 2006 for production start-up in the first quarter of 2007. Overall the project is 55% complete.
Development of the Enoch and Blane fields is proceeding. Enoch is expected to start production in the first quarter of 2007 with Blane start up in the second quarter 2007. Development drilling started on Blane in the second quarter and will commence on Enoch in the third quarter. Development of the Duart and Galley subsea tiebacks to Tartan were approved during the quarter.
Negotiations are ongoing with Shell and Esso to acquire their combined interests in the Fulmar and Auk fields. The transaction is conditional on agreement of the final terms of the acquisition and will be subject to co-venturer and UK government approvals. Assuming successful completion of the transaction, Talisman expects to assume operatorship of these fields at the end of the year.
The Beatrice Windfarm Demonstrator project received development approval. Installation of the two offshore wind turbines is underway and first power is expected during the third quarter of 2006.
Talisman Energy Inc.'s UK subsidiary, Paladin Resources Limited, has entered into an agreement with Endeavour Energy UK Limited for the sale of the wholly owned subsidiary Talisman Expro Limited. The sale will include Talisman's interests in the producing assets of Goldeneye, Bittern, Alba, Caledonia, Ivanhoe/RobRoy/Hamish, Renee, and Rubie.
Talisman had a successful gas discovery at the E/18-6 well (Talisman 8%) in the Netherlands.
Production in the second quarter averaged 31,812 boe/d. This is down compared to 42,237 boe/d in the first quarter 2006, and up 33% compared to 23,894 boe/d in second quarter of 2005. Norway production continues to be below planned rates, primarily due to early water breakthrough in two high-producing wells on the west flank of the Varg field. A new sidetrack is currently being drilled on the west flank of the Varg field.
A successful appraisal well for the Rev Field (formerly named Varg South) was drilled during the first quarter of this year. The project to develop Rev as a tie-back to the Armada field in the UK has been sanctioned. Rev is expected to start production at a net rate of 16,000 boe/d in the fourth quarter of 2007.
Pre-development work continues on the Yme project.
SOUTHEAST ASIA AND AUSTRALIA
Production in the second quarter averaged 105,734 boe/d, up 7% compared to 98,974 boe/d in the first quarter 2006, and 43% compared to 73,800 boe/d in second quarter of 2005. Production increases are due to ongoing development drilling in the region, the start up of the South Angsi field in Block PM 305 in August 2005 and the acquisition of the Paladin assets.
Drilling was completed on two batch-drilled development wells in Block PM-3 CAA in Malaysia with initial flow rates of 3,600 and 2,900 bbls/d, respectively. Both wells were completed 15% faster than planned. Another development well, Kuning-2, was drilled in Malaysia during the quarter. Drilling of a development well (Naga Kecil-2) is currently underway on Block PM-314. The development of the Northern Fields in Block PM-3 CAA continued with first oil on schedule for the third quarter of 2008.
In Vietnam, Talisman plans to spud its first exploration well on Block 15/02 later in 2006.
In Indonesia, the expansion of the Corridor facilities (Suban phase 2) and the pipeline to West Java are proceeding on schedule for production start in the first quarter of 2007. Also in Indonesia, a full scale waterflood facility has been initiated in the OK Block and is expected to be completed later this year. In the SE Sumatra Block, first gas sales to PLN began during the quarter. Talisman was also successful in a bid (30% Talisman working interest) for the highly prospective Pasangkayu Block in Indonesia.
In Trinidad and Tobago, production averaged 7,648 boe/d in the second quarter compared to 11,461 boe/d in the first quarter of this year and 11,200 boe/d in the same quarter in 2005. There was an extended, planned maintenance shut-down during the quarter. Two Angostura development wells were drilled in the quarter: one oil well K2-GG, plus a gas well for the proposed Angostura Phase 2 project, which is expected to provide first gas in 2009. The fourth exploration well on Block 3a, Kingbird, is drilling ahead.
The second exploration well (Shandon Beni) on the Trinidad onshore Eastern Block is currently drilling.
In North Africa, production averaged 9,736 boe/d, down from 17,159 boe/d in the first quarter of this year and 16,000 boe/d in the second quarter of 2005 due to the failure of the gas reinjection compressor motor in the Greater MLN field in Algeria in May. The MLN field has been temporarily shut-in due to flaring restrictions. The motor is expected to be repaired and restarted by the end of August.
The expansion of the Greater MLN facilities is on schedule for gas injection in the third quarter of 2007. The development of the EMK Unit, which straddles Blocks 405 and 208 in the southeast corner of Block 405, is progressing with four appraisal wells drilled during the quarter. The EMK Unit will be produced to the El Merk facility, a shared processing facility proposed for Block 208 and expected on stream in 2009.
In Peru, Talisman is evaluating next steps following the successful exploration well at Situche Central. In Qatar, Talisman plans to spud a second exploration well in the second half of 2006. In Tunisia, Talisman has plans for appraisal and exploration drilling later in 2006.
Talisman Energy Inc. is a large, independent upstream oil and gas company headquartered in Calgary, Alberta, Canada. Talisman has operations in Canada and its subsidiaries operate in the North Sea, Southeast Asia, Australia, North Africa, the United States, and Trinidad and Tobago.
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