THE INDEPENDENTS 2003: Talisman, Fortuna venture into Arctic

First deal in Alaska is farm-in on National Petroleum Reserve-Alaska acreage with Total

Kay Cashman

Petroleum News

Talisman Energy took its first step into North America’s Arctic at the end of 2002 when it took a minor role in a partnership with Petro-Canada, which planned to drill a well in Canada’s Mackenzie Delta in 2003.

A Petroleum News source said in December 2002 that Talisman was also evaluating Alaska’s North Slope for possible investment, so it came as no surprise when Talisman CEO Jim Buckee told analysts on May 7 that his company was “within two weeks” of a deal that would make it a significant player in Alaska. He said the Calgary-based independent, which has a market value of approximately C$7.4 billion, has its eye on at least four prospects of 300 million to 500 million barrels each.

Calgary analysts said Alaska has special appeal because infrastructure is in place and there is none of the negative fallout from Sudan that has been a drag on Talisman stock values.

Talisman, which had production in the range of 200,000 barrels per day of oil and liquids and more than 1 billion cubic feet per day of natural gas at the beginning of the year, has an international portfolio that includes the North Sea, Algeria, Malaysia, Vietnam, Indonesia, Colombia and Qatar — locations that Buckee concedes are riskier than those in North America, while holding the promise of much greater returns.

Minimal political risk in Alaska

The move into Alaska, although initially involving oil prospects, might also open the door to Talisman participating in North Slope gas development. The company is one of Western Canada’s leading natural gas producers.

“We have the financial strength to consider any opportunities that come available,” Buckee said in May, commenting that there are a “lot of assets coming around that are not necessarily public.”

On June 24, Buckee announced that Talisman’s U.S. subsidiary, Fortuna Exploration, had signed a farm-in agreement with Total E&P USA to 360 square miles of the National Petroleum Reserve-Alaska.

With Sudan “behind us, we have new vistas,” he said during a Calgary investment symposium sponsored by the Canadian Association of Petroleum Producers.

Buckee said the Alaska deal gave Talisman a chance to participate in a league of successful northern producers, although his company won’t deviate from its Canadian gas focus south of the 60th parallel.

The NPR-A acreage holds four prospects, each with reserve potential in the range of 300 million to 500 million barrels, he said.

Fortuna Exploration will participate in an exploration well to earn a 30 percent interest in a selected prospect and holds the right to earn similar interests in the other prospects.

Talisman said evaluation of the prospects, which lie west of the 430-million-barrel Alpine field and the Lookout and Rendezvous discoveries in the NPR-A, will continue through 2003 and the first well is expected in the early winter of 2004. (See equipment staging photo from September in this story.)

Looking for nearer-term pay-off

He said the fact that Mackenzie Delta gas will not reach southern markets before late 2009 is one reason Talisman had remained away from the delta until late 2002.

“We prefer things with a nearer-term pay-off,” he said. “That boat (the delta) is a long way off.”

That meant spending more than C$1 billion in 2003 to develop gas in northern Alberta and British Columbia, which produce 75 percent of the company’s gas output of 1.1 billion cubic feet per day.

Buckee was with BP in Alaska

Buckee’s own background, other than a Ph.D. in astrophysics from Oxford University, includes 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.