Talisman Exits 2009 with $4B Cash Flow
Talisman Energy reported its operating and financial results for 2009:
- Cash flow(1) was $4 billion, down 36% from 2008, primarily due to lower commodity prices. Cash flow in the fourth quarter was $921 million, down 41% from a year earlier, but up 10% compared to the previous quarter;
- Net income was $437 million, down from $3.5 billion in 2008. The company recorded a loss of $111 million for the quarter;
- Earnings from continuing operations(1) were $640 million versus $2.3 billion a year ago. The total for the fourth quarter was $76 million;
- Talisman completed non-core asset sales with proceeds of approximately $2.7 billion;
- Capital spending was $4.3 billion, down from $5.2 billion in 2008;
- Net debt(1) at year end was $2.1 billion, down from $3.9 billion a year earlier;
- Production from continuing operations increased 2% over 2008 to 413,000 boe/d. Total production averaged 425,000 boe/d, down 2% due to asset sales;
- The company replaced 162% of 2009 production with proved reserves, excluding divestitures, and 112% through drilling and non-price revisions;
- Reserve replacement costs were $24.30/boe (excluding price revisions), and $19.72/boe excluding land and price revisions;
- The company spent $1.4 billion on shale plays in North America, adding substantial acreage and progressing development of the Pennsylvania Marcellus and Montney shale programs;
- The company set a new production record in Southeast Asia, volumes increased 18% with completion of the Northern Fields development and increased contract takes at Corridor;
- In January 2010, Talisman acquired an interest in the Jambi Merang PSC in Indonesia;
- In the North Sea, first production from the Rev Field was achieved early in 2009 and the company progressed field developments at Yme, Auk North, Auk South and Burghley;
- Talisman completed a number of transactions to acquire a large exploration position in Papua New Guinea (PNG); and
- The company made exploration discoveries in the North Sea, Colombia and the Kurdistan region of northern Iraq and successfully appraised the Situche discovery in Peru.
(1) The terms "cash flow", "earnings from continuing operations" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this press release.
"We continued to make significant progress on strategic implementation through 2009, despite the volatile commodity price environment," said John A. Manzoni, President and CEO. "Over the past 18 months, we have been restructuring and repositioning Talisman, focusing the portfolio, upgrading both the quality of assets and the growth potential of the company. 2010 will be an important transition year as we cycle increasing amounts of capital into developing our shale plays in North America.
"A major objective of the strategy is to improve returns through lower reserve replacement costs. We've started to see evidence of this in 2009, largely as a result of successful shale drilling programs. Our proved reserve replacement cost in 2009 was $24.30/boe, 43% lower than 2008 and 25% lower than our three year rolling average. Excluding land expenditures in 2009, this number is below $20/boe.
"We replaced 112% of production in 2009 through drilling and non-price revisions, with 173 mmboe of proved reserve additions, excluding the impact of asset sales. Including the impact of price and other revisions, the number was 251 mmboe or 162%. In North America, we replaced 210% of production with proved reserve additions through drilling.
"With lower oil and natural gas prices brought on by the economic downturn, we saw netbacks fall by over 40% in 2009, and these lower commodity prices had a substantial impact on our financial results.
"Cash flow for the year was approximately $4 billion, versus $6.2 billion a year earlier, reflecting lower commodity prices, although we were helped by cash proceeds from derivative contracts, and lower taxes and royalties. Cash flow in the fourth quarter was $921 million, down from 2008, but up 10% from the third quarter with higher production volumes and commodity prices.
"Reflecting this trend, earnings from continuing operations came in at $640 million versus $2.3 billion, and net income was $437 million, also down sharply, from $3.5 billion a year earlier. We recognized $1.7 billion of gains on our held for trading financial instruments in 2008, compared to a loss of approximately $400 million in 2009. However we generated approximately $1 billion in cash proceeds from these instruments during 2009.
"Production from continuing operations increased 2% to 413,000 boe/d, and our actual production rate for the year was 425,000 boe/d. However, we sold 30,000 boe/d of non-core assets over the course of the year, which lowered total volumes in 2009 by about 15,000 boe/d.
"These sales generated $2.7 billion in proceeds, with metrics of approximately $80,000 per boe per day. The divestment program helped focus our portfolio and strengthen the balance sheet. As a result, we are in strong financial shape with year end net debt at $2.1 billion, compared to $3.9 billion at December 31, 2008.
"Capital spending came in at $4.3 billion, with approximately one-third ($1.4 billion) directed at North American shale programs. Talisman added substantial amounts of acreage in the Pennsylvania Marcellus and Montney shale plays, where we now have approximately 4,800 net drilling locations in our Tier 1 acreage.
"We participated in 66 net shale pilot and development wells, moving the Pennsylvania Marcellus, and two areas within the Montney shale, to commercial development. We expect to exit 2010 with Pennsylvania producing between 250-300 mmcf/d as we ramp up to 10 rigs, and recent well results are coming in better than planned. Pilot work also continues in Quebec.
"We have taken significant steps towards reshaping and strengthening our international exploration portfolio. We have built a strategic land position in PNG through a series of acquisitions, and now have interests in over eight million net acres, as part of a strategy to aggregate significant gas reserves. We also acquired additional exploration acreage within our core operating areas in the North Sea and Southeast Asia, as well as in South America and the Kurdistan region of northern Iraq.
"In the North Sea, we made exploration discoveries at Grevling, Shaw and Godwin, and development options are being evaluated. We also made gas condensate discoveries in Colombia and the Kurdistan region of northern Iraq and drilled a successful appraisal well in Peru.
"In Southeast Asia, the company continues to pursue its successful growth strategy, setting a new production record with completion of the Northern Fields development in Malaysia/Vietnam and increased gas sales at Corridor in Indonesia. Talisman continues to progress development plans for the HSD/HST fields in Vietnam. Talisman and its working interest partners approved sanction of the Kitan discovery in December 2009 and are awaiting approval from the Timor Leste/Australia Authority. We've also recently acquired an interest in the Jambi Merang PSC in Indonesia, near the Corridor gas field.
"In the North Sea, the majority of our development capital program was directed toward progressing the Yme, Burghley, Auk North and Auk South field developments, which will come onstream in the 2010 to 2012 time frame. We commissioned the Rev Field in Norway, with a significant ramp up in production over the course of the year. The company also drilled a number of successful development wells, including three in the Varg field.
"In summary, the transition of our portfolio is on track. We ended the year with a more focused portfolio and a strong balance sheet. We are on a path to transition into higher return, longer-term production growth from shale, and we will continue to step up our investments into shale programs over the next few years. Our investment plan this year reflects that transition, and we will maintain flexibility to ensure we can execute against it."
Operates 8 Offshore Rigs
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