Talisman confident in asset sale target, despite plunging commodity prices

CALGARY – Talisman Energy Inc. should be able to announce a deal or two by year-end and expects to meet its target of selling US$2 billion in assets by mid-2015, CEO Hal Kvisle said Tuesday.

Over about the past two years, Talisman has been selling holdings that don’t fit into its two core areas: Southeast Asia and the Americas, which includes Canadian and U.S. shale deposits as well as Colombian oilfields. It set its latest divestiture goal in February.

The recent drop in oil prices to below US$80 a barrel won’t necessarily make the sale process harder, Kvisle said in an interview.

For instance, one of the deals Talisman hopes to push past the finish line soon — the sale of its infrastructure assets in the Marcellus shale region of the northeastern United States — is more dependent on interest rates than on commodity prices.

“If potential buyers of that midstream business can borrow debt capital at pretty attractive interest rates, it drives up the value of an asset like that,” said Kvisle, who has said he wants to retire as CEO by year-end.

“We view (Talisman) as possessing an interesting suite of assets, but unlocking shareholder value has been a tough process over the past few years,” wrote Desjardins analyst Justin Bouchard in a note to clients.

“While our thesis remains that the company’s parts are worth more than the whole, we note that the current price environment is likely to slow down any large-scale sales process.”

During the third quarter, Talisman’s share of production in the U.K. North sea dropped 43 per cent to 12,000 barrels of oil per day.

The company’s offshore operations in the region, being jointly developed with China’s Sinopec, have been an ongoing headache for Talisman.

Toward the end of every year, energy firms like Talisman do a thorough accounting review of their holdings. Talisman signalled on Tuesday that the findings may not be pretty when it comes to the U.K. North Sea and it may have to take writedowns.

“We do acknowledge that the U.K. has turned into a problematic operation with very high costs. It’s the highest cost production that we have in the company,” said Kvisle.

Operating costs average about US$100 per barrel across the region, well above the recent price of Brent, the benchmark for international crude, he said.

“We’re not generating enough cash flow to cover our operating costs and that usually sets the stage for a cold, hard look at the asset.”

The magnitude of any impairments could mean a “material” reduction in the carrying value of Talisman’s share of the U.K. joint venture, worth about US$637 million as of Sept. 30. Any writedowns would be booked in the fourth quarter.

Shares in Talisman closed down about almost 12 per cent at C$6.10 Tuesday on the Toronto Stock Exchange.

The stock drop came despite improved financial performance in the third quarter. In that period, the company swung to a profit, with net income of US$425 million, or 41 cents per share, compared with a loss of US$54 million, or five cents per share, a year earlier.

On an adjusted basis, profits were five cents per share, beating the average analyst estimate of two cents per share, according to Thomson Reuters.

Cash flow was $507 million, down from $573 million in the year-ago quarter.

Total production averaged 353,000 barrels of oil equivalent per day, compared with 371,000 a year ago.

Kvisle has said he does not intend to remain as CEO past the end of 2014, but on Tuesday said that the search for his successor was still ongoing and indicated he’d be open to staying on longer if necessary.

“I’m not at all inclined to walk away and leave the company in an uncertain position, so I believe the board will meet its objective of having a new CEO in place fairly quickly and I’m not going to do anything rash,” he said.

“I’ll be here to help them out until that happens and I’ll be here to help the new CEO out as they settle into the job.”

Follow @LaurenKrugel on Twitter.