Talisman could split in two

Talisman could split in two

by Peter Koven

Energy, natural gas, Talisman Energy

Unconventional natural gas deposits were the dominant theme at Talisman Energy Inc.'s investor day, and UBS Securities analyst Andrew Potter wrote that the company's next big move could be an acquisition in that area, and ultimately a split into two companies to capture a higher valuation for the unconventional assets.

"The strategy introduced last year of focusing on unconventional gas as a major growth driver has panned out far greater than we expected, both in terms of amount of resource but also the economic viability of that resource," Mr. Potter wrote in a note.

He added that it will take some time for the unconventional gas to deliver aggregate growth to the company, since growth in unconventionals will be mitigated by declines in conventionals. But he expects the unconventionals to become self-financing in 2010 in a US$7/mcf pricing environment.

At that stage, he thinks Talisman will consider separating its North American business (which is heavily focused on unconventional gas) from its international business, if the market has not rewarded the company with a "reasonable" valuation.

"We believe [Talisman's] North American gas assets would ultimately attract a competitive valuation with other large-cap gas plays given its top-tier resource size and economics," Mr. Potter wrote.

He reiterated a "buy" rating on the stock, and increased his target 15% to $23 a share. He noted that Talisman still trades at a discount to its large-cap peers, and a re-rating is likely as the market gains confidence in Talisman as "a credible unconventional gas story."

Peter Koven

Oil above US$65 Friday on brighter outlook

Friday, May 29, 2009

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Oil above US$65 Friday on brighter outlook

Reuters 

LONDON -- Oil rose above US$65 a barrel on Friday, on track for its largest monthly%age gain in more than a decade, after Japanese and U.S. data suggested the economic downturn may be moderating.

Oil prices have jumped around 28% this month, buoyed by expectations of a global economic recovery later this year and a bullish price outlook from key OPEC member Saudi Arabia.

U.S. crude oil for July delivery was up 20 cents at US$65.28 per barrel by 3:26 a.m. EDT, after earlier hitting a six-month high of US$65.70.

The contract, which has risen about 5% this week, settled up 2.6% at US$65.08 on Thursday, the highest close since early November.

London Brent crude gained 20 cents to US$64.59.

"The market seems to be focusing strongly on the bullish sentiment and the brighter macro-economic outlook, but it's a little doubtful whether the demand fundamentals can continue to support oil prices at such levels," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

Data on Friday showed Japanese industrial production rose 5.2% in April on a monthly basis, and the government said it expected continued gains through June.

Better U.S. durable goods orders figures on Thursday also reinforced the sense that the global economic slump might be abating, despite a disappointing U.S. home sales report and lingering concerns over mounting Western government debt.

U.S. INVENTORIES

Another bright spot was U.S. crude oil stocks, which fell by 5.4 million barrels in the week to May 22, the U.S. Energy Administration said, way above analysts' expectations in a Reuters poll for a 700,000 barrel decline, as refiners ramped up output ahead of the summer driving season.

Gasoline inventories also dropped for the fifth week in a row as demand rose in the week preceding the Memorial Day holiday, which traditionally marks the start of the summer driving season in the U.S.

OPEC's decision to hold oil production steady also helped prop up prices.

The producer group on Thursday kept its output targets unchanged as the market had expected, betting on a strengthening world economy and tentative signs of increased demand.

Analysts said Saudi Arabia's rare forecast this week that oil prices could reach US$75 a barrel later this year represented a policy shift from the world's largest oil producer, which has until recently hinted it would be happy with a lower price to help the world economy back on its feet.

"Taken in this light, Saudi's statement clearly represents a policy shift from a priority on the economy to a view that higher prices are not something that Saudi Arabia will stand in the way of," JP Morgan analyst Lawrence Eagles said in a note.

Investors will be keeping a close watch on economic data due later, including U.S. first-quarter preliminary GDP figures and Reuters/University of Michigan May consumer sentiment.

© Thomson Reuters 2009