Talisman Energy loses US$1 billion in Q4 2013
CALGARY - Talisman Energy (TSX:TLM) posted an unexpected US$1-billion net loss in the fourth quarter, reflecting the reduced value of its North Sea operations, which have been a long-running headache for the Calgary-based oil and gas producer.
The asset and goodwill impairments totalled US$826 million after tax for the quarter, much of which was related to its European offshore activities
That included a $277-million charge on its U.K. North Sea joint venture with China's Sinopec, "as a result of negative reserves revisions influenced by poor reservoir and asset performance, increased decommissioning cost estimates and higher development and operating cost estimates."
Since taking over as CEO in 2012, Hal Kvisle has been steering Talisman in a more focused direction, concentrating on the Americas — North American shales and Colombian oilfields — and Asia Pacific. Talisman has announced $2.2 billion in asset sales since then and said Wednesday that it aims to shed another $2 billion over the next 12 to 18 months.
The North Sea assets, which are mature and prone to operational upsets, are not seen as core to Talisman's new strategy.
"So the best case scenario is that we convey our ownership interests to somebody else that sees that as a longer-term game," Kvisle said in an interview Wednesday.
"It's not a bad game. It's just that it takes a lot of capital and we can't afford to do the North Sea as well as North America, Asia Pacific and Colombia."
"So we've chosen to focus on the other areas and the best-case outcome is that we have a smooth exit and turn the North Sea over to somebody else that's committed to it," he said.
John Stephenson, a portfolio manager at First Asset Investment Management, said earlier this week that the market was expecting the North Sea writedowns. He said it would be best for Talisman to get the ugly news out of the way and move on.
"It's all been a disaster for them and that's the problem for the stock," Stephenson said.
"Any kind of action on the North Sea, even if it's ugly, is better than just a continued slow drip, drip, drip of problems."
Last year, the company also booked an after-tax impairment expense of $252 million on conventional dry natural gas properties as it lowered its long-term outlook for natural gas prices while raising its expectations for costs in some areas.
Talisman shares rose two per cent to close at $11.92 on the Toronto Stock Exchange.
Its fourth-quarter net loss, reported in U.S. currency, amounted to 98 cents per share. A year earlier, Talisman posted a fourth-quarter net profit of $376 million, or 37 cents per share.
It also reported a loss from operations of $116 million, or 11 cents a share, widening from an operating loss of $107 million, or 10 cents a share, in the fourth quarter of 2013.
Analysts had expected Talisman to break even on an operating basis and have a small net profit equal to four cents per share, according to estimates compiled by Thomson Reuters.
Talisman is looking to sell down part of its position in Alberta's Duvernay shale to a potential partner.
"Our land position in the Duvernay is so large that there's no way that Talisman could fund the full appraisal and development of that Duvernay position," Kvisle said.
"So, if we go it alone, we maybe only ever work our way through half the land, whereas if we could bring in a partner, between us, we can work the whole spread and I think that's the better value for us at the end of the day," he said.
While a recent run-up in natural gas prices adds some optimism to what has been a weak deal-making environment in Western Canada, Kvisle said he's not getting his hopes up.
"Things continue to be slow and I think that's just going to be the reality for a little bit longer yet."
Talisman may also look for deals in the semi-autonomous Iraqi region of Kurdistan, where it has a potentially huge oil discovery, as well as processing infrastructure in the massive Marcellus shale formation in the northeastern United States. However, the company isn't holding its breath for the North Sea to contribute much towards reaching its divestiture goals.
Talisman has set a capital budget of $3.2 billion, about the same as last year but down 20 per cent from 2012.
It lowered its general and administrative expenses — in part through layoffs — by 20 per cent over the past year and is aiming for a further 10 per cent reduction in 2014.
Pressure for a quick-turnaround at Talisman mounted in October when activist investor Carl Icahn began amassing a seven per cent stake in the company. Two representatives from Icahn's firm joined Talisman's board of directors in December and Kvisle described his company's relationship with Icahn as "constructive."
Kvisle also dismissed as "complete misinformation" a media report out of London last month that French utility GDF Suez had made a $17-billion takeover bid for Talisman, which was rejected. The two firms had discussed assets in the North Sea and other non-core areas, but nothing more, he said. GDF's CEO also denied the report.
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