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Alaska fits Talisman profile Canadian independent needs breather from Sudan pummeling to build value Gary Park Petroleum News Calgary Correspondent
Alaska could be a glittering new piece in Talisman Energy’s mosaic as the Canadian independent sets about restoring lost production and reshaping its image.
Still dogged by church and human rights groups over its four-year sojourn in Sudan and still facing a U.S. lawsuit that alleges it contributed to human rights abuses in the war-torn African country, Talisman is anxious to turn the page.
Alaska suddenly emerged as the likely first step in that direction when Chief Executive Officer Jim Buckee told analysts May 7 that a deal is expected this month giving the company access to four fields containing 300 million to 500 million barrels each. (See story on page 1 of the May 11 issue of Petroleum News.)
Without elaborating on the Alaska prospects, he said Talisman — which made an after-tax gain of C$296 million from the sale of its Sudan assets, but shed production of 60,000 barrels per day in the process — is eyeing a number of cash deals ranging from under C$100 million to several hundred million.
“You’ll hear about some of them in the ensuing weeks,” he promised.
Talisman has the financial means to embark on acquisitions and is under pressure to resume a growth path that can both help fend off hostile takeover bids and revive a stock that Buckee conceded is “trading below net asset value by some margin.” Lingering effects of Sudan But he got an unwelcome reminder this month that the Sudan experience, which Buckee views as history, has lingering after-effects.
Activists continued to bombard the annual meeting May 6 that a frustrated Buckee said were “getting a bit repetitive.”
“We were (in Sudan) for a brief period. Now we’re out. We make a convenient whipping boy, but we’re not. I don’t think much of it is justified,” he said.
Yet to be resolved is the U.S. lawsuit filed in 2001 by the Presbyterian Church of Sudan seeking compensation for Sudanese who were allegedly displaced by the government to make way for the Greater Nile oil project in which Talisman had a stake.
A U.S. District Court judge rejected a Talisman bid in March to have the suit dismissed. Talisman, while arguing it invested millions of dollars in roads, schools and hospitals and insisting it has no evidence of citizens being forcibly displaced, intends to fight the case. Executive Vice President Jacqueline Sheppard told analysts that a ruling against Talisman would hold corporations responsible for government actions.
Major change in strategy But these continuing reminders of a lucrative, yet controversial foray into a world trouble-spot are expected by analysts to force a major change in the company’s investment strategy.
As it is Talisman’s overseas holdings still include Indonesia, Malaysia, Vietnam, Colombia, Qatar and Algeria that Buckee concedes are riskier than those in North America, while holding the promise of much greater returns.
What Alaska represents is an opportunity, through farm-in options, to build production at minimal political risk. From an initial interest in oil, Talisman, as one of Western Canada’s leading natural gas producers, might also open the door to participating in North Slope gas development.
“We’re off to a good start in 2003,” said Buckee, noting that the company expects output in the range of 360,000-370,000 barrels of oil equivalent per day in the current quarter, climbing to 430,000-440,000 barrels by the final quarter.
“We have a large exploration program that is just gearing up,” he said.
“We have the financial strength to consider any opportunities that come available,” Buckee said, commenting that there are a “lot of assets coming around that are not necessarily public.” Buckee was with BP in Alaska Buckee’s own background, other than a Ph.D. in astrophysics from Oxford University, included stints with BP in Alaska, the Middle East and Norway before a posting to BP Canada in 1991.
He was around in 1992 when BP sold its majority Canadian interest and changed the company name to Talisman.
For the best part of a decade, Talisman could do no wrong, embarking on a series of takeovers — Encor, Bow Valley Energy, Britain’s Goal Petroleum, Pembina Resources and Rigel Energy — valued at about C$4.4 billion.
In 1998, Buckee’s flair for risk-taking led to a C$330 million purchase of Arakis Energy, a tiny Canadian E&P independent which was unable to raise the money to retain its interest in the Greater Nile venture.
In short order, Sudan overpowered Talisman, culminating in threats of U.S. legislation that could have cost the company its prized New York Stock Exchange listing.
Never inclined to back off a fight, Buckee inflamed critics of the Sudan adventure as he lashed out against those campaigning for pension funds to divest their Talisman shares. “Sudan is not the most perfect place, but jeez, look at Angola. There is lots of other nasty places. Why us? Why Sudan?” he said in 1999.
With the strain building, Talisman hired public relations giant Hill and Knowlton to lobby the Canadian government and protect the company’s interests “because we have better things to do.” Out of Sudan last October The battle dragged on until last October when a deal was struck with ONGC Videsh, the overseas arm of India’s state-owned Oil & Natural Gas Corp., to give Talisman a way out of Sudan, but by then the damage had been done. Even Buckee conceded that Talisman shares have been “discounted based on perceived political risk in-country and in North America to a degree that was unacceptable for 12 percent of our production.” Shareholders bluntly told him they were weary of having to monitor an analyze events in Sudan.
Analysts have calculated that Talisman’s stock, which has been hovering in the C$55-$60 range this year, would climb to C$75 if ever the company could regain its momentum. In fact, Brian Prokop, an analyst with Peters & Co., suggested to Buckee that Talisman’s own appraisal of its various assets translate into a stock value of C$100.
Lehman Brothers analysts Thomas Driscoll and Philip Skolnick said in a May 8 note to clients rated Talisman as “one of the cheaper stocks trading” at an 11 percent discount to its peers, despite a strong balance sheet. They set a C$75 price target, largely because only 35 percent of Talisman production is weighted towards North American natural gas. High-potential opportunities But the analysts noted that Talisman has a number of high potential opportunities in North America, including a promising Appalachian gas play in the United States and the highly rated Foothills, Monkman, Deep Basin Chauvin and Edson areas of Alberta and British Columbia.
Now Talisman, with a market value is close to C$7.4 billion, is hoping that it can get proper recognition for the bulk of its operations by advancing its short-term growth prospects in North America, the North Sea, Trinidad, Malaysia/Vietnam and Algeria and making strategic acquisitions.
For the first quarter it had net income of C$573 million and cash flow of C$845 million. Daily production average 247,369 barrels of oil (including Sudan output) and gas was 1.096 billion cubic feet.
Taking advantage of its Sudan proceeds, it wiped one-third off its net debt of C$3 billion in the first quarter and hopes year-end debt will be “well below cash flow.”
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