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Talisman sharpens shale focus Unloads mostly conventional gas production; independent producer confident it can continue lowering finding, development costs Gary Park For Petroleum News
In what could be the largest disposals of Canadian oil and natural gas assets in 2010, Talisman Energy has negotiated five separate transactions totaling C$1.9 billion.
It is selling production of 42,500 barrels of oil equivalent per day (about 90 percent from mostly conventional gas fields) from proved plus probable reserves of 120 million boe and 1 million net acres of exploration lands.
Only one buyer’s identity was disclosed. Calgary-based junior Eurogas, a 54 percent owned subsidiary of Dundee Corp., paid C$131 million for “the largest accumulation of oil and natural gas assets” in the province of Ontario, covering onshore oil production and offshore natural gas acreage.
The sale equated to about C$44,000 per boe of production and C$16 per boe of reserves, which Mark Friesen, an analyst with Versant Partners, said was “right in the range we were looking for.”
Rafi Khouri, an analyst with Raymond James, said the metrics matched or topped the value his company had assigned.
UBS Securities analyst Matt Donohue said the metrics were “slightly below our expectations” based on recent transactions that yielded C$55,000-$60,000 per flowing barrel, but he conceded the rapidly changing outlook for natural gas has likely eroded average values in a market place awash with conventional assets.
A Talisman spokeswoman said the company believes it “received full market value,” measured against other recent gas-weighted transactions, adding Talisman has not yet decided whether to offer more assets.
Sayer Energy Advisors said Canadian mergers and acquisitions in 2009 averaged C$37,000 per flowing boe, one of the lowest levels since almost a decade ago.
Sayer President Alan Tambosso said a month ago he did not expect average prices to rise for conventional gas assets at a time when buyers were in scarce supply.
Suncor next test The next test for sellers involves Suncor Energy’s plans to dispose of about 75,000 boe per day, with expectations high that the oil sands producer will raise about C$4 billion.
To date, Suncor has sold almost 70 million cubic feet per day of gas production in Trinidad and Tobago to a subsidiary of Centrica for US$380 million and 20.5 million cubic feet per day, plus 540 bpd of liquids, in various Alberta properties for C$235 million, to unidentified buyers.
In addition to its planned divestment of non-core gas assets in Western Canada, Suncor is also looking for buyers of its U.S. Rockies and some North Sea assets.
For Talisman the latest deal follows sales of C$2.3 billion in 2009 and matches its target of unloading about 40,000 boe per day in 2010 as it moves aggressively to redeploy capital in North America to its unconventional gas plays in British Columbia’s Montney and Pennsylvania’s Marcellus zones.
Once the deals are completed by mid-year, Talisman’s Canadian net proved reserves will be reduced by 28 percent to about 310 million boe, with the major reductions involving 93 million proved and probable reserves in the Peace River Arch which straddles the northern Alberta and British Columbia border and 70 million proved and probable reserves in the central Alberta Foothills.
The Peace River production of 18,000 boe per day included 8,800 boe per day of Montney production which Talisman did not view as an opportunity to pursue large-scale development. The Foothills production was 19,200 boe per day.
Assets couldn’t compete Chief Executive Officer John Manzoni said the assets had a “great future, but they can’t compete for capital within our emerging strategic asset mix.”
He said that shedding the properties will “help us focus on, finance and build our growing low-cost North America shale gas business.”
That program will claim the bulk of Talisman’s 2010 capital budget of C$1.6 billion for North America, dominated by 200 pilot wells in the Marcellus and Montney plays, compared with 70 wells in 2009.
The hope that Manzoni dangles before shareholders is that Talisman can reduce its operating costs by up to C$150 million “year-on-year” as the company targets continued reductions in its finding and development costs to under C$20 per boe this year from C$43 in 2008.
He said Talisman’s “shale business model” should enable the company to bring its proved, developed and producing reserves replacement costs into line with total replacement costs as it ramps up shale drilling in 2010 and 2011.
FirstEnergy Capital analyst Michael Dunn said the series of asset disposals has allowed Talisman to set up its North American business “the way they want to,” and allow it to rebuild its production by assigning more capital to the Marcellus and Montney plays.
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