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EXPLORERS USA 2005: Talisman plays from full upstream hand Sticks with global portfolio of conventional oil and gas prospects; Appalachia, Canadian deep gas figure large; Alaska waits in wings Gary Park Petroleum News Calgary Correspondent
Talisman Energy has seldom been afraid to go where others often fear to tread.
So why not the backyard of North America’s major natural gas markets where a gas well had not been completed in many years and why not take one more daring step by pioneering a new play?
What the Canadian independent produces from its properties in the Appalachia region of the Empire State registers only a small blip on the continent’s gas screen and accounts for just 10 percent of Talisman’s projected global volumes of 1.28-1.35 billion cubic feet per day.
But the company, through its wholly owned Fortuna subsidiary, has invested about C$450 million over the past two years in assembling gross land holdings of almost 900,000 acres.
With wells pumping close to an impressive 20 million cubic feet per day each, Talisman is able to meet the heating needs of about 460,000 homes and believes what Chief Executive Officer Jim Buckee calls a “highly prospective land position” will keep it active for at least the next decade.
He offers that performance as a mild rebuttal to analysts such as Moody’s Investor Services, which urged Talisman management not to continue the “pursuit of the high-cost Trenton-Black River play.”
In fact, the New York wells cost about US$3.9 million to drill and link to pipelines, only 40 percent of well expenditures in Canada’s Rockies and 4 percent of Gulf of Mexico budgets.
The greatest drawback to operating in New York state is the endless litigation spawned by challenges from landowners.
For each drilling site, Talisman is required to lease one square mile, while the landowners are entitled to a portion of the royalties which can climb to US$15,000 a day on a well producing 20 million cubic feet.
Neither has it been an easy matter making gas finds in the geologically complex Trenton-Black River formation that stretches from Canada through New York state to Pennsylvania.
The plans for this year include 23 wells in Appalachia, compared with its forecast North American total of 525 oil and gas wells. Holds Alaska interest Otherwise, Talisman’s U.S. interests are confined to Alaska, where Fortuna has been one of the livelier bidders, accumulating various interests in the National Petroleum Reserve-Alaska to position itself for growth.
While referring to a strategic exploration base of 560,000 acres being “on trend with a number of very large oil discoveries,” Talisman has yet to disclose its intentions for what Buckee has identified as four prospects with oil reserves potential of 300-500 million barrels each.
However, Exploration Vice President John ‘t Hart told a conference call late last year that because of the time needed to gather seismic, drilling is unlikely before early 2006. Bolstering Buckee’s view of the oil market are his conclusions that oil is not likely to drop below US$30 per barrel for any sustained period; prices will remain volatile given the maturity of the world’s big fields and the political risks in many producing countries; and the fact that, once adjusted for inflation, prices have not yet hit 1980-1989 levels. Deep Monkman gas play also of interest What does have Talisman’s attention in North America is its deep play gas discovery in a previously untested structure of the Monkman area of northeastern British Columbia, where a well was brought on stream in December at 66 million cubic feet per day.
The nearby Triassic play has yielded 2 trillion cubic feet and Buckee says Monkman’s Paleozoic reservoir could be as prolific if it turns out to be the forerunner of “significant new gas finds deep beneath Talisman’s existing structure.”
So far, three of six deep exploration wells have posted successes and eight more are planned for this year.
Claiming to have added more deep gas production than any other company in Canada over the past five years, Talisman says its reserve additions and output per well exceed those of its peers.
Analysts such as Steve Calderwood at Raymond James think Buckee is taking a cautious route in not over-selling expectations for Monkman.
Officials with B.C. Energy and Mines are certain that Talisman has demonstrated that there are more substantial pools to be found. Company has global footprint Of Talisman’s C$3.1 billion capital budget for 2005, C$1.45 billion is earmarked for North America and C$1.03 billion for the U.K. North Sea.
The rest is widely dispersed among the company’s international stable so favored by British-born and educated Buckee.
He says the global footprint allows the company to “view a wide range of potential opportunities.”
Without directly naming EnCana, which has put the bulk of its chips in non-conventional ventures, he says Talisman has avoided committing large amounts of up-front capital to projects, such as the oil sands, tight gas and coalbed methane, that carry risks of cost overruns, production outages, rising input costs and performance issues.
His is the only large-scale Calgary-based producer without any oil sands production, although leases have been acquired and might qualify for some investment “at the right time, when technology is better proven.”
Buckee’s strategy emphasizes flexibility and limits individual project risk.
Thus, having recovered from getting his fingers burned through a turbulent 25 percent stake in Sudan’s Greater Nile Oil Project, he has spread Talisman through many of the world’s richest basins, accumulating C$5 billion in corporate and assets acquisitions and sales this century, to ensure the company keeps growing at 5-10 percent annual production per share.
The inventory includes what Buckee lists as “high impact exploration opportunities” in Alaska, Qatar, Columbia and Peru, which carry a fair degree of risk-reward that should unlock finds in the 50-500 million barrel range.
Add to that list Talisman’s 25 percent non-operated interest in Trinidad’s Angostura oil and gas development that has just come on stream and is targeting 12,000-16,000 bpd of oil this year; a 35 percent non-operated stake in Algeria’s Greater MLN project should yield a net 15,000-17,000 bpd in 2005; a new development in the North Sea’s Tweedsmuir fields should start pumping in late 2006, averaging 45,000 boe per day net to Talisman; and a Malaysia/Vietnam holding that could produce up to 30,000 bpd of oil and liquids, plus 115 million cubic feet per day of gas in 2005.
The cumulative package generates occasional buzz about a takeover bid, which Buckee would not want or welcome, although he suggests the door is open to anyone willing to fork over a premium to the market value of about C$15 billion.
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