Talisman Plots New Course
Talisman Energy President and CEO John Manzoni recently spoke at length about his company's new strategic framework, vowing to increase the company's profitability. In his speech, he said:
"We started with four objectives. First, we wanted to lengthen the stride, creating a portfolio which gave confidence in longer-term production growth. The second objective was to increase our focus on fewer, more material assets. Third, was the requirement to maintain healthy returns through capital discipline, while delivering sustainable growth. And last, but not least, we set about to improve our delivery against the targets we set.
"As we reposition the portfolio over the next 18 months, we expect production to grow at an average annual rate of between 5-8%, based on our continuing operations at the end of 2007. We see the majority of this growth coming from development projects nearing completion in Norway and Southeast Asia. This growth range includes the impact of additional non-core asset disposals planned for this period. As we complete the majority of the rationalization program, we expect to increase production 5-10% annually from the end of 2009 through 2012.
"Between now and the end of 2009 we plan to spend $1.1-1.3 billion evaluating a material part of the natural gas potential within our 2.5 million net acres of unconventional land in North America. Of the total, $900 million is budgeted for development programs in areas where we have seen early success. This includes drilling approximately 200 wells in the Outer Foothills, Montney and Bakken areas. Additionally, we expect to spend up to $420 million on pilot programs in other parts of the Outer Foothills and Montney, as well as in Quebec and Appalachia. By the end of 2009, we will be able to make informed choices about ongoing levels of investment into our unconventional resource plays.
"We will continue to invest into our existing operations in North America and the UK North Sea, giving us a firm base to underpin production growth elsewhere. Our objective is to reposition our UK business as a steady, high quality stream of cash flow, with a sustainable production level of between 80,000-100,000 boe/d through 2013, from existing assets. We will continue to be a major conventional natural gas producer in North America, particularly in the high deliverability deep parts of the basin and multi-zone plays.
"Southeast Asia will also play a major role in the portfolio. This is a low cost region with built in long-term growth and high returns. Talisman's production in the region is underpinned by long-life natural gas contracts. We have doubled our production in the region over the past five years and see the potential to double it again in the next five from identified development projects. We are also excited by recent oil discoveries in Vietnam and the potential of our offshore acreage in Indonesia.
"In addition to three core asset areas, we see an additional two areas with significant growth potential. These are North Africa, a prolific hydrocarbon basin where Talisman has had a presence since 1994, and South America, where we can utilize our world class expertise in thrust and fold plays.
"We expect to make substantial progress on focusing the portfolio. Although timing will clearly depend on the markets, we anticipate disposing of 35,000-45,000 boe/d of production, with expected proceeds of between $1.5-2.0 billion by the end of next year.
"We plan to increase capital spending by $500 million this year, to a total of $4.9 billion, with the increment due to unconventional gas programs in North America. Next year we expect to spend up to $5.8 billion, but the final amount will depend on the success and pace of our unconventional natural gas programs.
"We also expect to generate substantial free cash flow over the transition period from the combination of asset sales and our growing production base, depending, of course, on the price environment. The cash generated will more than fund the additional capital requirements. If we are successful in our unconventional program over the next 18 months, we anticipate substantial investment starting in 2010. Therefore, during this period, we will use the cash flow to strengthen our balance sheet so that we are well placed in the success case."
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