Talisman bows out with a whimper

Gary Park

For Petroleum News

Sadness enveloped the meeting room as a sparse gathering of Talisman Energy shareholders performed the final rites as yet another petroleum company prepared to reduce the ranks of those with head offices in Calgary.

But there wasn’t much time for sentiment, not among those investors who bit their lips and voted by a resounding majority - 99.36 percent - to accept a miserable US$9.33 a share takeover bid by Spain’s Repsol.

The US$13 billion deal was described as a “very sad day for a lot of people” by shareholder David Saunders who was once among the many who thought the sky was the limit for Talisman.

The pain will affect an unknown number of employees, with departing Chief Executive Officer Hal Kvisle conceding that layoffs are certain because some of the head office jobs will no longer be needed as Repsol absorbs Talisman’s assets into its global empire of 24,000 people in 30 countries, placing it among the 15 largest privately owned oil and gas companies on the planet.

What Repsol has become might once had been a plausible goal for Talisman, which was created in 1992 from assets unloaded by BP Canada and quickly established its limitless ambitions, often by setting up shop in some of the world’s political hot spots such as Sudan, Kurdistan, Colombia and parts of Southeast Asia, along with a production base in the British North Sea that is now listed as a liability.

Kvisle was recruited in September 2012 after retiring as chief executive officer of TransCanada to focus Talisman on a handful of core assets, with the objective of righting a ship that was badly lurching.

Nothing was more of a burden than the North Sea, which was described by Kvisle as a “company-threatening situation” as unforeseen operational problems overshadowed what he described as “just one hurdle too many for us.”

In 2012, his predecessor, John Manzoni, reached for the lifeboat in the storm-tossed North Sea when he sold 49 percent of the holding to China’s Sinopec for US$1.5 billion, slashing Talisman’s share of production to 55,000 bpd from 120,000 bpd.

It was quickly obvious that Kvisle’s primary function was to find a buyer for a company whose output was 353,000 barrels of oil equivalent per day, 85 percent of it outside Canada.

The field of contenders was narrowed down to Repsol, which engaged in on-again, off-again talks during the second half of 2014,wrapping up in January with what Kvisle said was the best possible outcome for shareholders.

Whatever the investors feel, the sale will handsomely reward Talisman’s top five executives, who will pocket US$28 million, with Kvisle collecting US$15 million.

“They got, quite frankly, more than a fair deal,” said Chris Cox, an analyst with Raymond James, who believes it will be “quite a challenge for Repsol to ... integrate the company into its portfolio and make it a profitable, growing business.”

The Spanish company has identified Talisman’s Canadian assets as a key growth prospect by leveraging Talisman’s shale experience and its own financial flexibility to accelerate development of those assets.

Cox said Talisman had no hope of accomplishing a turnaround because it was overloaded with debt and lacked a focus on its world operations.

He said Repsol faces billions of dollars to decommission the North Sea assets and joint venture.

The sense of despair within Talisman was expressed by Chairman Chuck Williamson who told shareholders there was no simple answer to the question about what went wrong with the company’s grand strategy.

“I wish ... I could tell you we are sitting here with a US$25 share price, but we don’t. So I don’t have a simple explanation. There was a series of events over many, many years,” he said. “Frankly some things happened we didn’t anticipate.”

All of which was hard to swallow for the faithful few who were left looking at a company that averaged production last year of 2.14 billion cubic feet equivalent per day, almost half of which came from Western Canada (up 13 percent year-over-year) and the Eagle Ford.