Talisman Energy Generates $1 Billion in Cash Flow
Talisman Energy Inc. (Toronto:TLM.TO) (NYSE:TLM) reported its first quarter operating and financial results.
Cash flow (1) was $1,004 million, including the impact of a non-recurring cash tax charge of $77 million in relation to the sale of the Company's indirect interest in Syncrude. Cash flow was down 25% compared to $1,344 million a year earlier. Cash flow was $1,126 million in the fourth quarter of 2006. Cash flow per share (1) was $0.95, down 21% compared to $1.21 in the first quarter of 2006.
Net income was $520 million ($0.49/share) compared to $197 million ($0.18/share) a year ago and $598 million ($0.55/share) in the previous quarter. The increase in income compared to a year ago was mainly due to a $277 million after tax gain on asset sales, whereas first quarter 2006 results were adversely affected by a $325 million tax charge related to an increase in the UK income tax rate.
Earnings from continuing operations (1) decreased 43%, totaling $276 million ($0.26/share) versus $485 million ($0.44/share) a year earlier and $328 million ($0.30/share) in the fourth quarter of 2006.
Production averaged 470,000 boe/d, a decrease of 10% from the first quarter of 2006. However, volumes were above guidance for the quarter. Production in the fourth quarter of 2006 averaged 486,000 boe/d. Oil and liquids production averaged 251,893 bbls/d, down 16% from last year. Natural gas production averaged 1.3 bcf/d in the quarter, down 2% from last year.
"Last year Talisman embarked on a program to sell non-core assets and repurchase shares, which continues to impact volumes," said Dr. Jim Buckee, President and Chief Executive Officer. "However we are above production guidance for the quarter and still on track to average 485,000 boe/d for the year. We have been investing in growth projects over the past year or two, which are now coming to fruition. Yesterday I was pleased to announce first oil production from our Tweedsmuir development in the North Sea, where volumes will continue to increase as platform upgrades are completed. First production from the Enoch development is expected shortly, with Wood and Blane expected in the third quarter and Affleck and Duart in the fourth quarter.
"In Norway, we drilled two successful development wells at Brage and Gyda. Additional sidetrack drilling on Block 15-2/01 in Vietnam has confirmed that this is a significant discovery. We are preparing for first gas sales to West Java in Indonesia and fabrication work is well underway for the Northern Fields development in Block PM-3 CAA in Malaysia/Vietnam.
"In North America, Talisman continues to deliver year over year gas production growth, despite asset sales. We've made significant new discoveries in Appalachia, the BC Foothills, Northern Alberta Foothills and the Deep Basin. I am very encouraged by what we saw in our winter drilling program in Alaska, although we didn't have the opportunity to test.
(1) The terms "cash flow", "cash flow per share" and "earnings from continuing operations" are non-GAAP measures.
"Volumes in the second quarter are expected to average approximately 450,000 boe/d, reflecting seasonal maintenance turnarounds. Operating costs came in higher than expected during the quarter, largely driven by foreign exchange movements. We expect Talisman's unit operating costs to average less than $10/boe in the fourth quarter as we bring on new, low cost production in the third and fourth quarters.
"The sale of our Brae asset package is expected to close later in the year. We have a number of sales in the final stages of closing in North America and are still negotiating on other assets. Total transactions signed or close to signed total 9,021 boe/d with proceeds of approximately $530 million.
"Cash flow for the year is expected to be about $5 billion, based on an average US$64.25/bbl WTI oil price, US$7.70/mmbtu NYMEX natural gas price, a US$/C$ exchange rate of $0.88 and C$/Pounds Sterling exchange rate of $2.26. Year-to-date, Talisman has repurchased 15.5 million shares at a cost of $299 million and intends to purchase additional shares as proceeds are received from asset sales."
Talisman First Quarter Summary
- Talisman participated in 170 wells in North America with a 98% success rate, resulting in 129 gas and 37 oil wells. Included were 47 exploration wells with 46 successful gas wells and one oil well.
- Talisman announced a successful natural gas well in the Foothills area of northeastern BC, which tested at restricted rates of 21 to 25 mmcf/d (gross raw gas).
- At Bigstone/Wildriver, the Company achieved a new production record of 140 mmcf/d in March.
- In February, Talisman Midstream Operations transported and processed a record 603 mmcf/d.
- Talisman's subsidiary commenced production from a prolific gas well in the Appalachian Basin of New York state, which is currently producing 11 mmcf/d net sales gas.
- In Alaska, three exploration wells encountered hydrocarbons. One well was plugged and abandoned and the other two wells have been suspended with plans to evaluate them next winter.
- In the UK, Talisman participated in four successful development wells at Arkwright, Chanter, Duart North and Affleck.
- Talisman's Tweedsmuir development project in the North Sea commenced production on May 8.
- Wholly owned subsidiaries of Talisman Energy entered into an agreement to sell non-operated interests in the Brae assets in the UK North Sea.
- Talisman was awarded 10 blocks in the 24th License Round (two blocks in the Central North Sea and eight blocks in the West of Shetland area) as well as two licenses in Norway.
- In Scandinavia, a Gyda development well was drilled, which had an initial gross oil rate of 10,200 bbls/d. Talisman also participated in a successful Brage development well, which had an initial gross oil rate of 13,900 bbls/d.
- Talisman announced plans to redevelop the Yme Field in Norway.
- In Vietnam, a successful exploration well was drilled at Hai Su Trang, testing at a combined rate of 14,863 bbls/d. A subsequent sidetrack well confirmed that the adjacent Te Giac Trang industry discovery extends onto Talisman's Block 15-2/01.
- Talisman was awarded the highly prospective Sageri License Block covering approximately 960,000 acres offshore Indonesia.
- Talisman announced start up of production from the Suban 10 well in Indonesia, which is producing 200 mmcf/d gross sales gas.
- In Malaysia, the new Bunga Kekwa C Annex wellhead riser platform was installed, paving the way for the ongoing drilling program in the second quarter.
- A successful development well was drilled offshore Trinidad in addition to five development wells in North Africa.
- Talisman renewed its Normal Course Issuer Bid.
Exploration and Operations Review
During the first quarter, Talisman participated in 170 gross wells (105 operated), resulting in a total of 129 gas and 37 oil wells for an average success rate of 98%. Included were 47 exploration wells, with 46 successful gas wells and one oil well.
Total production from North America was 200,938 boe/d in the first quarter, in line with planned rates. Natural gas production averaged 923 mmcf/d, 28 mmcf/d (3%) higher than the same period in 2006 and 19 mmcf/d (2%) below the previous quarter. Liquids production averaged 47,377 bbls/d, 8,800 bbls/d (16%) lower than the same period last year and 3,701 bbls/d (7%) lower than the fourth quarter of 2006. Asset sales in the second quarter of 2006 reduced volumes by 23 mmcf/d and 2,712 bbls/d and the sale of Talisman's indirect interest in Syncrude on January 2, 2007, reduced volumes by an additional 3,921 bbls/d.
In the Alberta Foothills, Talisman produced 169 mmcf/d during the first quarter, 16 mmcf/d higher than the same period in 2006 and 8 mmcf/d lower than the previous quarter. The Company drilled 3.5 net wells (five gross wells) during the quarter, of which one well is currently producing approximately 5 mmcf/d gross raw gas (4.5 gross sales gas) and nine wells were drilling at the end of the quarter. There is approximately 47 mmcf/d of net sales gas in the Northern Alberta Foothills awaiting completion of pipelines and facilities.
At Monkman, production for the quarter averaged 115 mmcf/d, relatively flat compared to the previous quarter and 10 mmcf/d above the same period last year. The b-60-E well is currently producing approximately 46 mmcf/d gross raw gas (39 mmcf/d gross sales gas) and the d-93-D well is currently producing approximately 34 mmcf/d gross raw gas (28 mmcf/d gross sales gas). The 43-E/93-P-3 well is producing approximately 17 mmcf/d gross raw gas (10 mmcf/d gross sales gas). The Company participated in 0.8 net wells (one gross) during the quarter.
The Company announced the results of a successful well in the Foothills area of northeastern BC. The well tested at restricted rates of 21 to 25 mmcf/d (gross raw gas) with a flowing wellhead pressure of 2,300 psi. The well is expected to commence production by November 2007.
Production in the Greater Arch averaged 25,237 boe/d during the first quarter, 17% lower than the first quarter of 2006, due in part to dispositions in the second quarter of 2006, and 1,140 boe/d lower than the previous quarter. The Company participated in 11.2 net wells (17 gross) of which one net well (one gross) was in the Outer Foothills play area.
Production in the Deep Basin averaged 8,898 boe/d during the first quarter, 6% lower than the first quarter of 2006 and 314 boe/d higher than the previous quarter. Talisman participated in 5.2 net wells (11 gross) of which 2.5 net wells (three gross) were in the Outer Foothills play area during the quarter. The Company has a 50% working interest in a new well that came on production March 26 and is currently producing at a rate of approximately 17 mmcf/d gross raw gas (16 mmcf/d gross sales gas).
At Edson, production was 15,645 boe/d, an increase of 21% over the same period last year and 2% above the previous quarter. Gas production was 20% higher than the first quarter of 2006 and 2 mmcf/d higher than the previous quarter. Liquids production averaged 2,401 boe/d, an increase of 31% over the same period last year and relatively flat compared to the previous quarter. Talisman participated in 13.7 net wells (17 gross) of which 3.3 net wells (four gross) are in the Outer Foothills play area.
Production at Bigstone/Wild River was 25,113 boe/d, 15% higher than the same period last year and 4% higher than the previous quarter. Natural gas production during the quarter was 139 mmcf/d, 14% higher than the same period in 2006 and 3% higher than the fourth quarter of 2006. A new production record of 140 mmcf/d was set in March 2007. Talisman participated in 25 net wells (36 gross) in the area during the quarter.
At West Whitecourt, production was 10,431 boe/d, 2% higher than the same period last year and 4% higher than the previous quarter. Talisman participated in 13.9 net wells (17 gross) in the area.
At Chauvin, production during the quarter was 15,423 boe/d, 13% lower than the same period last year, due in part to divestitures, and relatively flat compared to the previous quarter. The Company participated in 10.3 net wells (23 gross) in the quarter.
In February, Talisman Midstream Operations transported and processed a record 603 mmcf/d through its systems. Volumes transported and processed during the quarter averaged 555 mmcf/d, a 3% increase over the preceding quarter. The Palliser Extension and the Bigstone West Sweet Plant were both commissioned in April 2007. The Cutbank Complex expansion is on schedule with expected commissioning in the fourth quarter of 2007.
In Quebec, a well drilled in the St. Lawrence Lowlands was completed in the first quarter. Natural gas was discovered in the Trenton Black River formation and the well is currently being evaluated. A second well is suspended. Talisman may commit to drill one additional earning well under each farmout agreement later in 2007.
In Appalachia, production was 99 mmcf/d, 13 mmcf/d lower than the previous quarter, largely due to natural declines in new wells brought on production in the previous quarter. The Hulett K1 well came onstream in January and is currently producing 11 mmcf/d net sales gas. Fortuna participated in 5.8 net wells (seven gross) during the quarter. The Dzybon A1 well is expected to have initial production in the range of 6 mmcf/d (gross sales gas) with a 98.455% working interest. This well is expected to commence production in the third quarter of 2007.
In Alaska, Talisman's subsidiary FEX L.P. completed a three well program in the northwest planning area of the National Petroleum Reserve - Alaska. One well was plugged and abandoned and two were suspended. All wells encountered hydrocarbon-bearing sandstones in several formations based on log analysis and strong gas and oil shows, including oil staining and free oil in the drilling mud of one of the wells. The Company plans to evaluate the wells next season.
Talisman's UK production averaged 119,331 boe/d over the quarter, in line with planned rates and the fourth quarter of 2006, but down 18% from the first quarter of 2006. The largest contributor to the drop compared to the first quarter of 2006 was 9,300 boe/d due to asset sales. This was offset by 6,600 boe/d from the purchase of the Auk and Fulmar assets. In addition, reduced production occurred at Brae due to lower gas sales; Montrose/Arbroath due to an extended shut-down to bring a jack-up drilling rig alongside; Claymore due to water injection restrictions; and at Blake due to flush production in the first quarter of 2006 following an extended shutdown in the fourth quarter of 2005.
Operating costs were significantly higher in the quarter compared to the first quarter 2006 largely as a result of the sale of lower operating cost assets, adverse exchange rate movements and the purchase of currently high unit operating cost assets at Fulmar and Auk.
During the quarter, Talisman drilled successful development wells at the Arkwright, Chanter and Duart North fields. The Arkwright well had an initial gross production rate of 6,900 bbls/d. The Duart North well tested at 3,000 bbls/d and is capable of 8,000 bbls/d oil, and the Chanter well is expected on production in mid-May. Talisman also participated in drilling a non-operated development well at Affleck. At the end of the quarter, development wells were drilling at Arbroath, Scapa, Tartan North, Clyde, Affleck and the Beinn field in the Brae area.
The Tweedsmuir field development commenced production on May 8 and is expected to reach peak rate following completion of topside modifications in September 2007. An average annual production rate of 46,000 boe/d (gross) is estimated in 2008. Development is also underway at the Enoch, Wood, Blane, Affleck, Duart and Galley fields. First production is expected at Enoch in May, Wood in July, Blane in August, and at Affleck, Duart and Galley in the fourth quarter of 2007.
Talisman's wholly owned subsidiaries, Talisman Energy (UK) Limited and Talisman LNS Limited, have entered into an agreement with TAQA Bratani Limited, a wholly owned subsidiary of the Abu Dhabi National Energy Company (TAQA), to sell their entire non-operated interests in the Brae assets in the UK North Sea for a consideration of US$550 million. The sale has an effective date of January 1, 2007 and is expected to complete later in the year. Talisman's net production for the Brae assets averaged 19,000 boe/d in 2006.
During the quarter, Talisman was awarded 10 blocks in the 24th License Round. Two of the blocks were in the Central North Sea and the remainder were in the West of Shetland area.
Talisman's Scandinavian production averaged 34,290 boe/d over the quarter, slightly below planned rates and the fourth quarter of 2006, and 19% down from the first quarter of 2006. Compared to the first quarter of 2006, production decreased primarily due to unexpected water breakthrough at two high-producing Varg wells in the second quarter of 2006. Production rates have recently increased to over 40,000 boe/d with the start up of two prolific wells in Norway.
During the quarter, Talisman drilled a Gyda development well, which started production at an initial rate of 10,200 bbls/d (gross). In addition, Talisman participated in drilling a successful Brage development well, which started production at an initial oil rate of 13,900 bbls/d (gross). At the end of the quarter, development wells were drilling at Brage and Veslefrikk.
Processing and transportation agreements have been signed for the Rev development tieback to the Armada field in the UK. The field is expected to start production in mid-2008. During the quarter, the Company drilled a successful exploration well with two follow up sidetracks to evaluate the eastern flank of the Rev discovery.
Development work is underway on the Yme project. The redevelopment of the field was sanctioned in December 2006 and construction contracts are being awarded.
Production in Southeast Asia averaged 94,104 boe/d in the first quarter, 5% lower than the same quarter last year and 6% lower than the previous quarter, largely as a result of natural oil declines in Malaysia/Vietnam.
In Malaysia, the Bunga Raya-E gas processing facility was commissioned in the first week of April and is currently processing 90 mmcf/d gross sales gas. This is expected to increase to 180 mmcf/d gross sales gas towards the end of May when raw feed gas becomes available from two new gas wells, which are currently drilling on the Bunga Kekwa C Annex platform. These two wells are expected to come onstream at approximately 100 mmcf/d gross sales gas.
Development of the Northern Fields is progressing with all major contracts awarded. Fabrication and procurement are well underway on the wellhead riser platforms, central processing platform and the floating storage and offloading vessel. First gas and oil from the Northern Fields are expected to come onstream in the second and fourth quarters of 2008 respectively. The gas export pipeline from Bunga Raya to Ca Mau in Vietnam is complete and gas began flowing in late April at initial rates of 20 mmcf/d. Gas volumes are expected to increase by an incremental 46 mmcf/d gross sales gas by September 2007. Gas takes are anticipated to remain at these levels for the remainder of the year as the power generation facilities in Vietnam are commissioned.
Two wells have been drilled and completed in the Angsi Southern Channel Pool in Malaysia in the last six months. One well tested at 2,638 bbls/d and the other well is capable of producing 2,200 bbls/d. Unitization is ongoing to monetize this discovery, which has been proven to be part of the Angsi Southern Channel Pool in Block PM-305. In Block PM-3 CAA, Talisman drilled one development well, two water injector wells and two exploration wells during the quarter. The two injector wells are each currently injecting over 3,500 bbls/d of water to boost Bunga Tulip production, resulting in an incremental production increase of 1,000 bbls/d (414 bbls/d net).
In Vietnam, one exploration and two sidetrack wells were successfully drilled in Block 15-2/01. The first exploration discovery well, Hai Su Trang (HST), tested at a combined rate of 14,863 bbls/d through a two inch choke at an average 450 psi surface pressure. The first sidetrack well tested at 4,886 bbls/d of 37 degrees API oil, limited by well test equipment. The second sidetrack encountered 167 feet of net oil pay at a structural elevation very similar to the first well. These wells also determined that the adjacent Te Giac Trang (TGT) industry discovery in Block 16/01 extends onto Block 15-2/01. Three additional exploration wells are planned for the block later in the year.
Also in Vietnam, development of the Song Doc Field in Block 46/02 is progressing with a five well development drilling program planned for this summer and first oil is expected in the second quarter of 2008.
In Indonesia, production increased by 5% over the same period last year and 3% over the previous period as a result of higher gas nominations from the Corridor PSC Block. Record monthly production was attained in Indonesia in March at 47,933 boe/d. In the Corridor PSC Block, the recently completed Suban 10 well is currently producing 200 mmcf/d gross sales gas. The subsequent well, Suban 11, was recently completed and a multipoint test demonstrated open hole capability of 335 mmcf/d. The final stage of tying in two new gas sweetening trains of the Suban Phase 2 facilities expansion was completed in February. Construction of the Corridor segment of the natural gas pipeline from South Sumatra to West Java is progressing with expected completion in July 2007 and initial volumes of 50 mmcf/d gross sales gas (18 mmcf/d net sales gas) to the new markets in West Java. In the Ogan Komering Block, Talisman discovered a number of bypassed pay zones that are currently producing an incremental 1,153 bbls/d of oil (474 bbls/d net). Talisman participated in eight gross development wells in this quarter.
Talisman was awarded the highly prospective Sageri License Block, offshore Indonesia. The block covers approximately 960,000 acres and is situated in water depths of 2,000 meters.
In Australia, production during the first quarter of 2007 increased 48% over the same period last year, largely as a result of two well workovers in the Laminaria field in the summer of 2006.
In Talisman's other areas, production averaged 21,378 boe/d, a decrease of 25% from the same period a year ago, and an increase of 3% over the fourth quarter of 2006. In North Africa, production averaged 14,897 bbls/d in Algeria (down 8%) and 1,122 boe/d in Tunisia (up 14%) compared to a year ago. The Algeria Greater MLN facility expansion is progressing with upgraded gas injection scheduled for the fourth quarter of 2007. Two development wells were drilled in the quarter in the Greater MLN area, two in the Ourhoud Unit, plus one in Tunisia.
In Tunisia, Talisman participated in three successful exploration wells in the Adam and Borj El Khadra concessions.
In Trinidad and Tobago, production averaged 5,359 bbls/d (down 53%). Production was below planned volumes over the quarter due to a glycol dehydrator failure in late 2006, which limited rates through January, followed by a compressor coupling failure in February. Production volumes returned to planned rates in mid-March.
During the quarter, a Canteen development well was drilled in Angostura Block 2(c) offshore Trinidad and Tobago and is currently being tested. Pre-development planning continues for the Angostura Phase 2 gas development project. A Heads of Agreement has been signed with Trinidad and Tobago's National Gas Company (NGC) to sell gas at initial rates of 220 mmcf/d (gross) starting in 2010. Negotiations are underway with NGC on the gas sales contract.
In Peru, Talisman has contracted a seismic acquisition program on Blocks 64 and 101.
Operates 8 Offshore Rigs
- Strong Upstream Performance from European Majors (Jul 28)
- PETRONAS, PetroVietnam Extend PM3CAA PSC in Malaysia-Vietnam Waters to 2027 (May 10)
- Repsol Significantly Scales Back Upstream Investment (Oct 15)