Talisman Energy Net Income Down 18 Pct (Canada)

Talisman Energy Inc. reported its operating and financial results for 2011.

Highlights

• Cash flow1 was $3.4 billion, up 16% year over year. Fourth quarter cash flow was up 25% over the same period last year, due to higher oil prices.

• Net income was $776 million, down 18% due to higher DD&A, lower gains on asset sales, and higher operating expenses and taxes.

• Earnings from operations1 increased 9% year over year, to $604 million.

• Production averaged 426,000 boe/d, an increase in underlying production of 9% over the previous year.

• Proved reserves replacement was 157%, at a cost of less than $20/boe. The company’s three-year replacement cost trend continues to improve.

• Shale volumes in North America more than doubled year over year, to 500 mmcfe/d.

• The company commenced drilling in the Duvernay shale play.

• The non-operated Kitan project was commissioned and started producing oil in October.

• The company drilled a successful well in PNG at year-end as part of its gas aggregation strategy and continues its active drilling program in Colombia.

“2011 saw its share of successes as well as challenges for the company,” said John A. Manzoni, President and Chief Executive Officer. “North American natural gas prices fell by a third, ending the year below $3, and we saw a significant tax increase in the UK. In addition, our own delivery, particularly in the North Sea, fell short of expectations.

“There were also a large number of positives during the year. Oil prices remained high and helped drive annual cash flow up by 16%. The company grew underlying production by 9% with record shale volumes, two new projects in Southeast Asia and production from Colombia. We have built out our Eagle Ford organization to full capacity from a standing start and started piloting the liquids-rich Duvernay shale, which we will test through this year.

“We have an active exploration and appraisal drilling program in Colombia, which continues to demonstrate success. We drilled two encouraging development wells in Piedemonte and continue to appraise Block 6 and the Akacias discovery in Block 9. In Southeast Asia, gas prices averaged $9.30/mcf in 2011, and the business is expected to grow at an average rate of approximately 8% per year over the next few years.

“Talisman drilled a successful gas condensate well at year-end in Papua New Guinea (PNG), providing ongoing confidence in our gas aggregation strategy. We are also making excellent progress towards bringing in a strategic partner. In the Kurdistan Region of northern Iraq, we have confirmed a substantial natural gas and condensate discovery with our recent Topkhana well.

“We have reduced replacement costs by 50% over the last three years, improving our long-term profitability. In 2011, our reserves replacement cost was less than $20/boe, with costs in North America less than $10/boe. We replaced 157% of production with proved reserves last year.

“In setting our plans for 2012, our expectation is that North American gas prices will remain low, but that oil will be underpinned at $85/bbl or more. Our priorities are profitability versus headline growth, while preserving our balance sheet. We will reduce exploration and development spending from approximately $4.5 billion to around $4 billion, with 80% of this investment directed towards liquids-rich opportunities. Areas of increased investment this year will include the liquids-rich Eagle Ford and Duvernay shale plays, as well as Colombia.

“We will continue to focus our portfolio and seek to divest some non-core assets in our North American business, reduce our exposure in the North Sea, and take decisions on exiting some exploration areas as we drill them over the course of the next 12 months. Talisman’s balanced portfolio provides options to redirect capital, and to adjust focus as external conditions change.

“As a result of the reduction in spending and the shift to liquids, we expect underlying production growth of 0 – 5% this year. However, we are setting Talisman up for an increase in liquids production in 2013 and beyond. For example, we expect to grow liquids production in North America from approximately 25,000 bbls/d in 2012 to over 60,000 bbls/d by 2015. And we remain confident in our projection of 5 – 10% average annual production growth through the medium term.”

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LNG World News Staff, February 15, 2012