Talisman's Q3 Income Up 22%
Talisman Energy Inc. on Thursday reported its operating and financial results for the first nine months of 2006.
Cash flow (1) during the third quarter was $1,136 million ($1.04/share), compared to $1,252 million ($1.14/share) a year earlier and $1,142 million ($1.04/share) in the previous quarter. Cash flow was down nine per cent compared to the third quarter of last year, largely due to lower North American natural gas prices. Cash flow to September 30 was $3,622 million ($3.30/share), compared to $3,204 million ($2.90/share) a year ago.
Earnings from operations (1) for the quarter totaled $391 million ($0.36/share), compared to $607 million ($0.55/share) a year ago and $409 million ($0.37/share) in the second quarter. Year to date, earnings from operations were $1,335 million ($1.22/share) versus $1,381 million ($1.25/share) a year ago. Earnings from operations is calculated to better illustrate Talisman's performance on an internally consistent basis and adjusts for non-operational impacts on earnings.
Net income during the quarter was $524 million ($0.48/share) up 22 per cent compared to $430 million ($0.39/share) a year ago and $686 million ($0.62/share) in the previous quarter. Net income for the first nine months was $1,407 million ($1.28/share), up 37 per cent from $1,028 million ($0.93/share) a year ago.
Production during the quarter averaged 460,000 boe/d, relatively unchanged from the prior year and three per cent below the second quarter. Production for the first nine months averaged 485,000 boe/d, an increase of seven per cent over the same period last year. Netbacks during the quarter were $36.56/boe, compared to $41.16/boe a year ago and $36.29/boe in the second quarter.
"The quarter saw a lot of successful drilling activity; we've added exciting new exploration acreage in several areas and production has increased to about 500,000 boe/d in recent weeks," said Dr. Jim Buckee, President and Chief Executive Officer. "The $3.6 billion in cash generated in the first nine months easily surpasses all other years. Cash flow in the quarter was down year over year, reflecting an 11 per cent drop in netbacks, but unchanged compared to the second quarter. Compared to last year, the biggest factor was a 29 per cent drop in North American natural gas netbacks. In contrast, our gas netbacks in Southeast Asia increased by 15 per cent and are now higher than North American netbacks. Having said that, the economics of our conventional gas programs in North America continue to be very attractive, and the increase in Southeast Asia netbacks nicely illustrates one of the benefits of diversity.
(1) The terms "cash flow" and "earnings from operations" are non-GAAP measures, please see advisories elsewhere in this press release.
"There are some early signs that drilling cost pressures are abating, but services and equipment remain tight. Unit operating costs were down nine per cent from the second quarter and are expected to fall again in the fourth quarter. Unit royalties and unit general and administrative costs were both down 14 per cent, relative to the second quarter.
"We grew North American gas sales by four per cent over the second quarter, despite third party outages and asset sales. Divestitures impacted natural gas production by approximately 20 mmcf/d during the quarter. The Company recently set a new production record in the Alberta Foothills of 193 mmcf/d. We are building a new core area in the Outer Alberta Foothills, having acquired 260,000 acres of land with the prospective resource estimated at between 1-2 trillion cubic feet. Our deep gas strategy continues to deliver some spectacular results. A recent Talisman Foothills well tested with an estimated sandface absolute open flow (aof) rate potential of 372 mmcf/d. The Talisman operated Palliser pipeline was commissioned in the quarter and we are working to bring more gas to market.
"In the North Sea, volumes were down seven per cent over the second quarter, due to extensive planned maintenance programs, third party outages and mechanical issues. The maintenance work is completed and production rates are climbing, with last week's combined production from the North Sea at 166,000 boe/d. We recently announced the acquisition of the 8,000 boe/d Auk and Fulmar fields in the UK. Auk, in particular, with 800 mmbbls of original oil in place and only 18 per cent recovery to date, is an exciting development opportunity. Elsewhere, we drilled successful development wells at Tartan, Blane, Claymore, Enoch and Varg (in Norway) and announced an exploration success (11,000 bbls/d) adjacent to the Talisman operated Buchan field. We continue to progress 10 subsea development projects in the North Sea, the largest of which is the Tweedsmuir development.
"In Southeast Asia, production was down compared to record second quarter volumes, largely due to maintenance and weather related issues, but still up 12 per cent over the same period last year. The Company drilled a successful development well in Block 314 (Malaysia) and the Bunga Tulip development is underway. Talisman added some very prospective deepwater exploration acreage in Indonesia and is currently drilling its first exploration well on Block 15-02 in Vietnam, for which early indications are encouraging.
"Offshore Trinidad, we made an exploration discovery at Ruby, which tested at 5,000 bbls/d. In Qatar, we are about to spud an exploration well. The Company has also added over 600,000 acres of exploration land in Alaska and new acreage in Colombia.
"Investors who follow the industry know that recent challenges, such as tight labor markets, equipment backorders, lack of spare parts and recent severe weather conditions, are not unique to Talisman. Taking everything into account, we expect production in the fourth quarter to average about 490,000 boe/d, plus or minus two per cent. Production for the full year is expected to average approximately 485,000 boe/d. Cash flow for 2006 is expected to be approximately $4.8 billion, assuming a WTI oil price of US$60/bbl, NYMEX gas of US$6/mmbtu and a US$/C$ exchange rate of $0.90 in the fourth quarter.
"Taking an early look at 2007, in an uncertain commodity price environment, our emphasis is going to be a focus on value and capital discipline. The plan is to keep exploration and development spending unchanged from the expected 2006 level of $4.8 billion. Given cost inflation in the sector, this equates to a real decrease of 10-15 per cent. This spending level reflects a commitment to value optimization and fiscal prudence, not a shortage of opportunities. Talisman's management team has decided to defer approximately $1 billion of proposed spending on 2007 exploration and development projects.
"I continue to believe that Talisman shares are undervalued and represent an excellent investment opportunity for the Company. The major driver of production per share growth in 2007 will be the continued repurchase of Talisman shares, funded by asset sales. We repurchased 5.8 million common shares in the third quarter and an additional 5.6 million common shares in October. Although I anticipate we will fund 2007 exploration and development spending from cash flow, we will also use some proceeds from asset sales, if necessary, to keep well within our prudent guidelines for financial leverage.
"The timing, production volumes and proceeds from asset sales are yet to be determined and we will increase our normal course issuer bid limit to 10 per cent as required, subject to necessary approvals. Our objective continues to be to grow production per share by 5-10% annually. With asset sales, the spending cap and some project slippage I expect we will be close to the mid-point of this range in 2007. As projects are completed we should be at or above the upper end of the range in both 2008 and 2009.
"We will provide additional guidance on 2007 in early December once we have completed our detailed planning process."
Talisman Third Quarter Summary
- Drilling success averaged 99 per cent in North America with 96 gas and 79 oil wells.
- The Company announced the development of a new gas play along the Outer Foothills trend of the Rocky Mountains.
- Talisman achieved a new daily production record of 193 mmcf/d in the Alberta Foothills.
- The Palliser pipeline was commissioned in September and is currently flowing 26 mmcf/d gross raw gas (13 mmcf/d net Talisman sales gas).
- Two very successful wells were drilled in Appalachia (current combined production of 36 mmcf/d gross sales).
- The Company drilled one of the most successful Foothills wells in its history (estimated sandface aof of 372 mmcf/d).
- A Talisman subsidiary, FEX L.P., successfully bid on 55 tracts totaling approximately 600,000 gross acres in Alaska.
- In the UK, two development wells were successfully drilled in the Blane field and one in each of the Tartan, Claymore and Enoch fields. The initial rate of the Tartan well was over 10,000 bbls/d.
- The Company drilled a successful exploration well in the Buchan area of the North Sea (testing 11,000 bbls/d).
- The Tweedsmuir development project continues with the pipelay currently in progress. Startup is scheduled for the end of the first quarter 2007.
- The first of two wind turbines in the Beatrice Wind Farm Demonstrator project was successfully installed offshore and is commissioning.
- Talisman's UK subsidiary reached an agreement to acquire an 85.8 per cent interest in the Fulmar field and 100 per cent interest in the Auk field in the Central North Sea.
- In Scandinavia, two Varg development wells were drilled successfully, and development of the Rev gas condensate field, adjacent to Varg, was sanctioned.
- Production from the Greater MLN field in Algeria, which was temporarily shut-in following the failure of a gas reinjection compressor motor, was put back onstream mid-August.
- In Malaysia, one development well was drilled and completed on Block PM-314.
- In Vietnam, Talisman spud its first exploration well, Hai Su Trang, on Block 15/02.
- Offshore Trinidad, the new Ruby-1 discovery well tested at 5,000 bbls/d.
- In Colombia, the Company successfully gained a 30% working interest in the Niscota block.
- In October, the Company declared a semi-annual dividend of seven and one-half cents Canadian (C$0.075) per share on its common shares.
- During the quarter, Talisman repurchased 5.8 million common shares at an average price of $18.39.
- During October the Company repurchased an additional 5.6 million common shares at an average price of $17.85.On September 12, 2006 the lawsuit brought against Talisman by the Presbyterian Church and others under the Alien Tort Claims Act was dismissed. The plaintiffs have indicated that they intend to appeal the dismissal and other prior rulings to the Second Circuit Court of Appeals.
- Talisman has been included in the Dow Jones Sustainability (North America) Index.
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