Talisman Energy Inc
Symbol TLM
Shares Issued 1,018,770,249
Close 2009-03-04 C$ 11.48
Recent Sedar Documents
Talisman Energy earns $3.51-billion in 2008
2009-03-05 08:45 EST - News Release
David Mann
TALISMAN ENERGY GENERATES A RECORD $6.2 BILLION IN CASH FLOW AND A RECORD $3.5 BILLION IN NET INCOME FOR 2008
Talisman Energy Inc. has released its operating and financial results for 2008. Highlights for the year include:
* Cash flow was a record $6.2-billion, up 42 per cent from a year ago due to higher commodity prices; cash flow in the fourth quarter was $1.6-billion, up 54 per cent from a year earlier, due primarily to realized gains on derivative contracts;
* Net income was $3.5-billion, an increase of 69 per cent from a year earlier, and $1.2-billion for the quarter, almost double a year ago;
* Earnings from continuing operations were $2.5-billion, an increase of 167 per cent. The total for the quarter was $537-million, more than four times higher than the previous year, despite a significant decline in oil prices;
* Production averaged 432,000 barrels of oil equivalent per day, a decrease of 4 per cent relative to 2007; however, excluding discontinued operations, production was 3 per cent higher than the previous year;
* Net debt at year-end was $3.9-billion, down from $4.3-billion a year earlier;
* Total exploration and development spending was $5.1-billion;
* The company spent $1.8-billion on unconventional programs in North America, adding substantial amounts of acreage and progressing development of the Montney and Marcellus plays;
* Development projects were brought on stream in Southeast Asia (Song Doc, Northern Fields gas), and the Rev Field (Norway) started production in January, 2009;
* The company acquired exploration acreage in the Kurdistan region of northern Iraq, expanded its exploration holdings in Colombia and entered into two joint study agreements offshore Indonesia;
* Talisman continued to focus its operations, completing sales of 12,000 barrels of oil equivalent per day of non-core assets for approximately $1-billion, including properties in Denmark and the Netherlands;
* Yesterday, the company announced it has entered into an agreement to sell non-core assets in southeast Saskatchewan for proceeds of approximately $720-million;
* The company replaced 75 per cent of 2008 production with proved reserves (excluding price-related revisions).
"Two thousand eight was a year of change for Talisman," said John A. Manzoni, president and chief executive officer. "We set the company in a new strategic direction and realigned major parts of the organization in support of the new strategy. We've also successfully navigated a very dynamic economic environment, posting record financial results despite the collapse in oil and natural gas prices in the fourth quarter.
"Talisman paid down a significant amount of long-term debt last year and we are in excellent financial shape. The company entered into a number of derivative contracts last year to protect its capital programs against a drop in prices and this contributed to very strong fourth quarter results. The 2009 capital program has been designed for a volatile and uncertain economic environment and low commodity prices.
"Talisman generated a record $3.5-billion in net income for the year, a 69-per-cent increase over 2007 despite writedowns associated with year-end pricing and reserves. Earnings from continuing operations were $2.5-billion, 167 per cent higher than the prior year.
"Cash flow was $6.2-billion, up 42 per cent year over year, and $1.6-billion in the fourth quarter. Talisman paid down $935-million of long-term debt, net of cash, last year. However, the impact on our year-end numbers was less than this because of the currency effect of the weaker Canadian dollar.
"Production from continuing operations averaged 419,000 barrels of oil equivalent per day for the year, an increase of 3 per cent, with production gains from Corridor (Indonesia), Tweedsmuir (U.K.) and new wells in North America (Monkman, Foothills, Bigstone). Including assets, which were sold during the year or slated for sale, production was 432,000 barrels of oil equivalent per day. This was slightly above our last guidance provided at the end of the third quarter.
"Talisman replaced 75 per cent of its production through drilling and non-price revisions last year. The company wrote down 159 million barrels of oil equivalent of proved reserves, almost all in the United Kingdom North Sea, due to low year-end prices. However, using average 2008 prices, these price-related revisions would have been positive instead of negative.
"We replaced 106 per cent of production in North America, with approximately half of our proved reserve additions coming from unconventional drilling programs. Proved reserves in unconventional areas account for about 11 per cent of our North American total, which means there is a lot of running room.
"International reserve additions can be lumpy, depending on both project approvals and drilling results, and this was the case in 2008. For example, we have a number of development projects moving towards approval in Southeast Asia. Talisman's new strategy will improve reserve replacement and finding and development costs over time.
"Since the introduction of the strategy last May, we have made significant progress towards our objectives of profitable long-term growth, high-impact exploration and focusing the portfolio.
"We continued to dispose of non-core assets, selling assets in Denmark, the United Kingdom and Canada last year and completing a sale in the Netherlands early this year. Proceeds totalled $1-billion and the impact on production was 12,000 barrels of oil equivalent per day. Yesterday, we announced the sale of non-core southeast Saskatchewan properties for approximately $720-million.
"The company is positioned for profitable long-term growth from its unconventional natural gas portfolio in North America and development projects in Southeast Asia and Norway.
"Talisman spent $1.8-billion on its unconventional portfolio last year, adding a significant amount of land. We have moved into development of the Marcellus shale play in Pennsylvania, with excellent drilling results so far. We are moving from piloting to development in our Montney core area and seeing some very encouraging pilot results in the Montney shale play. In Quebec, we will complete our fourth well in the evaluation phase and are excited by the long-term potential.
"Outside of North America, we brought on production from the Northern Fields and Song Doc in Southeast Asia and commissioned Rev in Norway early in 2009. This year, we expect to see first production from the Northern Fields oil development and will progress work on the Yme oil redevelopment in Norway.
"We are also repositioning our international exploration program to focus on larger, material prospects. As an example, last year, the company acquired interests in two blocks in the Kurdistan region of northern Iraq. This is a region with world-scale, unexplored oil opportunities.
"Talisman also added to its offshore exploration portfolio in Southeast Asia and continued the appraisal of oil discoveries in Vietnam. In South America, we added additional acreage in Colombia and have started evaluating our light oil discovery in Peru.
"We have made a lot of progress towards implementing the strategy in a short period of time. Talisman is in a strong financial position and can react quickly in this volatile environment. We have set our plans for the year to be robust to low commodity prices, while still investing into our strategic priorities. We will remain flexible through the year and we are confident that our new strategic direction will result in sustainable and profitable growth into the longer term."
Financial results
Talisman plans to file its audited financial statements for the year ended Dec. 31, 2008, along with the related management's discussion and analysis, with Canadian and United States securities authorities on March 5, 2009. The company will file its annual information form and annual report on Form 40-F on March 9, 2009.
Cash flow for 2008 was $6.2-billion, up 42 per cent from a year earlier. This was primarily due to higher average commodity prices and a $365-million aftertax cash gain on held-for-trading commodity derivatives. Cash flow from continuing operations was $6-billion. Despite falling commodity prices in the fourth quarter, cash flow from continuing operations increased 54 per cent to $1,530-million compared with a year ago, with a realized aftertax cash gain of $461-million on derivative contracts.
Net income was also a record $3.5-billion, an increase of 69 per cent from a year earlier, reflecting a $1.2-billion aftertax gain on held-for-trading commodity derivative contracts and higher commodity prices.
Total depreciation, depletion and amortization expense was almost $3-billion for the year, an increase of $800-million compared with 2007. Of this increase, $585-million (73 per cent) was the result of writing down proved reserves due to low year-end prices. These writedowns had a $225-million aftertax impact on net income.
Earnings from continuing operations were $2.5-billion, versus $952-million last year, primarily the result of higher commodity prices and higher production volumes. However, these were offset by increased operating expenses and higher depletion, depreciation and amortizatio. Earnings from continuing operations adjust for significant one-time events and non-operational items such as the mark-to-market effect of changes in share prices on stock-based compensation expense, unrealized mark-to-market gains and losses on commodity derivatives, changes to tax rates, and additional depletion, depreciation and amortization related to properties that had no proved reserves at year-end prices. The company strengthened its balance sheet, reducing net debt to $3.9-billion, down from $4.3-billion in 2007, principally due to cash flow in excess of capital expenditures. In total, the company repaid $935-million of long-term debt net of cash, which was partially offset by a $581-million currency translation effect.
Talisman spent a record $5.1-billion on exploration and development in 2008, an increase from the $4.4-billion capital budget in 2007. North America accounted for 48 per cent of spending, North Sea development 25 per cent, Southeast Asia development 9 per cent and international exploration was 17 per cent.
Production from continuing operations averaged 419,000 barrels of oil equivalent per day, 3 per cent above 2007, in part due to increased production at Tweedsmuir (U.K.), Corridor (Indonesia) and first gas from the Northern Fields development in Malaysia/Vietnam. Total production for the year was down 4 per cent to 432,000 barrels of oil equivalent per day, as a result of asset sales, as well as maintenance at the PM-3 CAA field.
In 2008, the company's average netback was $47.33 per barrel of oil equivalent per day, 30 per cent higher than 2007, with the effect of higher commodity prices partially offset by increases in royalties and operating costs.
As discussed previously, commodity prices were extremely volatile in 2008 and both oil and natural gas prices fell significantly in the fourth quarter. Fourth quarter netbacks were down 34 per cent from the same quarter last year, averaging $25.98 per barrel of oil equivalent per day, 54 per cent below the third quarter of 2008.
Higher average prices translated into a higher corporate royalty expense of $2,091-million, a 34-per-cent increase over 2007. The company's average royalty expense remained relatively unchanged at 18 per cent.
Unit operating costs increased 12 per cent to $13.57 per barrel of oil equivalent per day over the previous year. Unit operating costs in North America rose by 14 per cent due to increased processing fees and maintenance costs. Pricing pressure in the United Kingdom resulted in unit costs increasing 21 per cent as the cost of labour, fuel, repairs and well operations rose with commodity prices. In Scandinavia, increased production volumes resulted in a 9-per-cent reduction in unit operating expenses.
The company may choose to designate derivative instruments as hedges for accounting purposes. To date, the company has elected not to designate any commodity price derivative contracts entered into since Jan. 1, 2007, as hedges.
The company added 118 million barrels of oil equivalent of proved gross reserves last year through drilling and positive revisions (non-price), replacing the equivalent of 75 per cent of annual production.
Under existing SEC rules, the company wrote down 159 million barrels of oil equivalent of proved gross reserves, almost all of which were in the U.K. North Sea, due to low year-end prices. The SEC has announced new reserves disclosure requirements, including an average annual pricing methodology, which is expected to be applied to 2009 year-end reports. Using average 2008 prices, the effect on Talisman would have been the addition of 19 million barrels of oil equivalent of proved gross reserves, rather than writing off 159 million barrels of oil equivalent.
Using year-end pricing, Talisman's proved gross reserves totalled 1,434 million barrels of oil equivalent, down 14 per cent from a year earlier. Using average 2008 prices, proved gross reserves were down 3 per cent to 1,612 million barrels of oil equivalent.
Drilling results in North America were encouraging. The company replaced 106 per cent of production with proved gross reserves through drilling. About half of Talisman's proved North American reserve additions came from unconventional areas. At year-end, proved gross unconventional reserves in new areas accounted for only about 11 per cent of the company's total in North America.
International reserve additions can be highly variable because they depend on development approval before discoveries can be moved to the proved reserves category. Development plans are under way for a number of Talisman projects, including offshore development in Vietnam and expansion of the Corridor gas project in Indonesia.
The new strategy, with the emphasis on unconventional gas in North America, low-cost, long-life reserves in Southeast Asia and the addition of new core areas from high-impact exploration, is expected to improve Talisman's reserve replacement ratios and finding and development costs in the future.
North America
Talisman has identified significant potential within its unconventional North American landholdings and has targeted this part of its portfolio for long-term growth. In 2008, the company focused on piloting and started development on a number of new unconventional plays.
Production from continuing operations averaged approximately 1.1 billion cubic feet equivalent per day (180,000 barrels of oil equivalent per day) in 2008, a 4-per-cent increase over 2007. Natural gas production from continuing operations averaged 838 million cubic feet per day, with increases in the Northern Foothills, Monkman and Bigstone/Wild River areas.
Talisman spent $1.8-billion on unconventional natural gas programs in North America, including land, development, infrastructure and drilling. The company drilled 169 gross wells on its new unconventional areas. Talisman also added significantly to its unconventional land base in 2008 (320,000 net acres added in new areas) bringing total unconventional holdings to three million net acres.
In New York and Pennsylvania, Talisman holds 800,000 net acres. During the year, the company shifted its focus toward Pennsylvania from New York, where pilot programs have been delayed due to regulatory and environmental reviews. In Pennsylvania, Talisman has 140,000 net acres of undeveloped land, including the addition of highly prospective state land last year. The 2008 pilot program consisted of one operated rig with a total of six gross wells (five net) drilled.
Results of the Pennsylvania pilot program have been encouraging, with recent production rates upward of 3.5 million cubic feet per day per well. Based on this early success, Talisman is preparing to move to development in Pennsylvania by mid-2009, with plans to drill 36 gross horizontal wells. The company currently has two rigs drilling, with plans for up to five rigs by the third quarter.
Talisman continued to expand its Montney land base in British Columbia and Alberta in 2008, which now totals 600,000 net acres (380,000 Montney core, 220,000 Montney shale). The region has numerous opportunities at different stages of maturity and Talisman made significant progress in its piloting programs in preparation for development in 2009.
Within the Montney core, the company completed 39 gross (31.1 net) development wells in 2008 in addition to 13 gross pilot wells to test drilling, completion techniques and the quality of the reservoir. Initial production rates have been encouraging, ranging from 1.6 million cubic feet per day to 3.6 million cubic feet per day (sales gas) per well. Talisman expects to drill 35 gross (26 net) wells in 2009, with a focus on horizontal wells from pad locations to reduce costs and improve efficiencies.
The company started pilot operations in the Montney shale area of northeastern British Columbia in mid-2008, drilling nine gross (3.2 net) wells last year. At Farrell Creek, the company successfully tested a vertical well with rates up to five million cubic feet per day (raw gas). A total of 14 gross pilot wells are planned in the Montney shale in 2009, in addition to construction of processing facilities.
The company has the ability to accelerate drilling, depending upon economic conditions and drilling results in both the Marcellus and Montney plays.
Talisman is continuing its pilot program in Quebec where the company holds rights to 770,000 net acres. In September, the company completed a successful test well from the Utica shale in the Gentilly well. This well flowed at 800,000 cubic feet per day (raw gas) from one completed interval during the test period. Talisman expects to complete the earning phase of its drilling program in Quebec in 2009.
In the Bakken core, Talisman drilled 43 gross (36 net) wells, achieving top-tier performance in drilling costs and production rates. However, the company has decided to exit southeast Saskatchewan to focus on more material assets in North America. Yesterday, Talisman entered into an agreement to sell these assets for proceeds of approximately $720-million. Current production is approximately 8,500 barrels of oil equivalent per day (net).
In the Outer Foothills, Talisman was successful at Hinton and Ojay. In total, 21 gross (15.8 net) wells were drilled and Talisman now holds 430,000 net acres in the area with the addition of new land in the Hinton area.
Production from Talisman's conventional areas was 730 million cubic feet equivalent per day. In total, 129 gross (74.3 net) wells were drilled in 2008, with excellent results in the Foothills and at Monkman.
Talisman's midstream operations averaged throughput of 635 million cubic feet per day. The company will use its expertise in infrastructure development to support its unconventional natural gas programs. In line with the objective to focus operations and exit non-strategic areas, Talisman completed the sale of its Lac La Biche assets for proceeds of $247-million.
United Kingdom
Talisman is repositioning its high-quality U.K. assets as a source of free cash flow from a sustainable long-term production base. Production from continuing operations in the United Kingdom averaged 95,800 barrels of oil equivalent per day, relatively unchanged from 2007.
Production increases from drilling and development projects, including Tweedsmuir and Blane (on stream in 2007), offset natural declines and maintenance shutdowns at Monarb and Claymore. At Tweedsmuir, production averaged 22,459 barrels of oil equivalent per day.
The company progressed the Burghley and Auk North subsea developments and has started engineering work for the Auk South redevelopment project.
Talisman completed the sale of the Beatrice oil field licence interests in 2008. In January, 2009, the company also completed the sale of its assets in the Netherlands, with proceeds of approximately $600-million.
Scandinavia
Norway is seen as an area of growth from continuing development projects in the short-term and exploration activity in the long-term. Production from continuing operations in Scandinavia averaged 34,866 barrels of oil equivalent per day for 2008, a 15-per-cent increase from 2007, mainly due to increased production from new wells at Varg and Brage and a full year of production at Blane.
In the Southern North Sea area, including the Blane and Gyda fields, Talisman drilled two development wells and one exploration well. The long-reach development well at Gyda had an initial gross production rate of 3,500 barrels per day. Production from the Southern North Sea area averaged 11,437 barrels of oil equivalent per day.
In the Mid North Sea area, the Rev field commenced production in January, 2009. The field is expected to produce at a rate of approximately 15,000 barrels of oil equivalent per day net to Talisman from two subsea wells. A third producer, the Rev East well, is expected to be brought on stream later in 2009. Talisman also drilled seven development wells in the Mid North Sea area in 2008.
Development of the Yme field in the Norwegian continental shelf continued throughout 2008 and seven development wells are planned at Yme for 2009.
Talisman sold its producing interests in Denmark in 2008. In February, 2009, Talisman entered into an agreement to sell a 10-per-cent interest in the Yme field.
Southeast Asia
Southeast Asia is a low-cost area with opportunities for sustainable long-term growth. Production from continuing operations in Southeast Asia averaged 91,363 barrels of oil equivalent per day, approximately the same as in 2007. Production increases came from first gas production from Northern Fields, the start-up of the Song Doc field and additional Corridor sales in Indonesia, which were largely offset by natural declines in Malaysia.
Talisman's interests in block PM-3 CAA offshore Malaysia/Vietnam are split between the Southern Fields and the Northern Fields. In the Southern Fields, compression upgrades on the Bunga Raya platform were fully commissioned in 2008, adding 17 million cubic feet per day of gross sales gas.
Following successful platform installations and drilling 19 development wells, first gas from the Northern Fields commenced on schedule in July, 2008, at 30 million cubic feet per day net sales gas. Oil production is expected from Northern Fields toward the end of the first quarter of 2009 and dry gas is expected in mid-2009.
In January, 2008, Talisman announced its second oil discovery offshore Vietnam at Hai Su Den in block 15-2/01, following up on the Hai Su Trang discovery in 2007. Development sanction for the Hai Su Trang field and for the Hai Su Den early production scheme is expected in 2009, with first production anticipated in 2012.
In late November, 2008, oil production commenced at the Song Doc field in block 46/02. Gross production from five predrilled wells is expected to reach approximately 20,000 barrels per day in early 2009. An additional three development wells are currently being drilled.
In Indonesia, natural gas production increased by 16 per cent to 266 million cubic feet per day, mainly due to the West Java pipeline being on stream for the entire year.
Other areas
In Talisman's other areas, production from continuing operations during the year averaged 16,031 barrels per day, an increase of 12 per cent over 2007. In Algeria, production averaged 15,100 barrels per day, up from 13,200 barrels per day.
In line with its strategy to focus on core assets, Talisman has announced the intention to sell its assets in Trinidad and Tobago.
International exploration
Southeast Asia
In September, 2008, Talisman entered into a farm-in agreement in blocks 133 and blocks 134 offshore Vietnam with a 38-per-cent working interest. This agreement was approved by the Vietnamese government in February, 2009, and represents the company's first step into the Nam Con Son basin.
In July, 2008, Talisman was awarded 100-per-cent and 60-per-cent interests in two joint study agreements in the Makassar Strait, offshore Indonesia. The company is currently evaluating the blocks and recently completed the seismic across both blocks. Talisman can elect to include these blocks in a future bid round.
In early 2008, Talisman participated in the successful Kitan-1 exploration well in PSC 06-105 offshore Australia resulting in an oil discovery, which tested at 6,100 barrels per day. A subsequent appraisal well delineated the discovery. A field development plan is currently being prepared and is scheduled to be submitted later in the year.
North Sea
In the United Kingdom, Talisman added to its acreage position in the Central Graben area of the North Sea with three blocks awarded in the 25th licensing round. In addition, the company participated in the APA 2008 bid round in Norway, with two licences awarded in February, 2009. Talisman also submitted a bid in the 20th licence round in Norway for blocks in the Barents Sea and expects the results in spring of 2009.
In Norway, Talisman drilled one successful well in the Southern North Sea area.
South America
Talisman has built a significant presence in Peru and now has interests in four blocks covering 4.5 million net acres. In 2008, the company began evaluating an earlier Talisman discovery at Situche on block 64 and expects to complete drilling of the well in 2009.
In Colombia, Talisman has added sizable amounts of acreage. The company now has interests in 11 blocks covering approximately five million net acres. Talisman plans to complete drilling of the Huron exploration well in 2009.
Kurdistan region of northern Iraq
In 2008, Talisman entered into an agreement with the Kurdistan regional government within northern Iraq for interests in block K44 and K39. The company has acquired seismic across block K39 in order to define drilling prospects for future drilling consideration. The Sarqala-1 well on block K44 was drilling over the year-end, with a second well planned for later in 2009.
CONSOLIDATED STATEMENTS OF INCOME
(in millions of dollars, except per-share amounts)
For the three months For the year
ended Dec. 31, ended Dec. 31,
2008 2007 2008 2007
Revenue
Gross sales $ 2,200 $ 2,393 $ 11,779 $ 8,861
Hedging gain/(loss) - 3 (28) 104
--------- --------- --------- ---------
Gross sales, net of hedging 2,200 2,396 11,751 8,965
Less royalties 380 440 2,091 1,558
--------- --------- --------- ---------
Net sales 1,820 1,956 9,660 7,407
Other 33 37 146 145
--------- --------- --------- ---------
Total revenue 1,853 1,993 9,806 7,552
--------- --------- --------- ---------
Expenses
Operating 538 502 2,025 1,854
Transportation 44 48 208 205
General and administrative 98 57 295 223
Depreciation, depletion and
amortization 1,207 544 2,979 2,177
Dry hole 220 298 492 607
Exploration 158 91 431 315
Interest on long-term debt 43 55 168 207
Stock-based compensation
(recovery) (36) (53) (73) (15)
Gain)/loss on held-for-trading
financial instruments (1,695) 41 (1,664) 25
Other, net (52) 55 (183) 34
--------- --------- --------- ---------
Total expenses 525 1,638 4,678 5,632
--------- --------- --------- ---------
Income from continuing operations
before taxes 1,328 355 5,128 1,920
--------- --------- --------- ---------
Taxes
Current income tax 277 236 1,497 700
Future income tax (162) (238) 119 (58)
Petroleum revenue tax 16 60 176 258
--------- --------- --------- ---------
131 58 1,792 900
--------- --------- --------- ---------
Net income from continuing
operations 1,197 297 3,336 1,020
--------- --------- --------- ---------
Net income from discontinued
operations 5 359 183 1,058
--------- --------- --------- ---------
Net income 1,202 656 3,519 2,078
========= ========= ========= =========
Per common share
Net income from continuing
operations 1.18 0.29 3.28 0.99
Diluted net income from
continuing operations 1.17 0.29 3.23 0.97
Net income from discontinued
operations - 0.35 0.18 1.02
Diluted net income from
discontinued operations - 0.34 0.17 1.00
Net income 1.18 0.64 3.46 2.01
Diluted net income 1.17 0.63 3.40 1.97
We seek Safe Harbor.
