CALGARY, ALBERTA (NYSE: TLM) reported its operating and
financial results for the second quarter of 2008.
- Cash flow (1) during the quarter was a record $1.7 billion, an
increase of 44% from a year ago and up 37% from the first quarter
of 2008. Cash flow from continuing operations(1) was also $1.7
billion.
- Net income was $426 million, down 23% from a year earlier,
largely due to gains on asset sales in 2007, increased charges for
stock-based compensation and mark-to-market losses on derivative
contracts during the quarter.
- Earnings from continuing operations(1) were $846 million, also
a record, up 167% compared to the second quarter in 2007, largely
driven by higher commodity prices.
- Production averaged 432,000 boe/d, 4% below the second quarter
of 2007, mainly due to the sale of non-core assets, but 3% above
the previous quarter.
- Production from continuing operations averaged 425,000 boe/d,
3% above the same quarter of last year and 3% higher than the
previous quarter.
- Netbacks were up 63% from a year earlier, reaching a record
$61.33/boe.
- Net debt(1) at quarter end was $3.6 billion, down from $4.3
billion at December 31, 2007.
- The Company announced a new strategy in May and has made
significant progress in the intervening two months, notably in its
unconventional oil and natural gas programs in North America.
- First gas from Northern Fields in PM-3 CAA in Malaysia/Vietnam
was achieved in July as planned.
- Talisman closed the sale of non-strategic assets in Denmark
and Canada in the second quarter.
(1) The terms "cash flow", "cash flow from continuing
operations", "earnings from continuing operations" and "net debt"
are non-GAAP measures. Please see the advisories and
reconciliations elsewhere in this press release.
"This was a very successful quarter, highlighted by exceptional
cash flow generation," said John A. Manzoni, President and Chief
Executive Officer. "We generated a record $1.7 billion in cash
flow, an increase of 37% over the first quarter of 2008, on the
back of a 29% increase in prices over the past three months.
"As a result of a very promising start for our North American
unconventional strategy, we are increasing our capital spending
plans. Total Company spending for 2008 is now expected to be
approximately $5.5 billion, an increase of $500 million, with the
final amount dependent on continuing the success we have had in
accelerating the unconventional programs. Of the total, $2.5
billion has been allocated to North America, of which $1.5 billion
will be spent on unconventional programs. The Company expects to
fund the 2008 capital program from cash flow.
"Earnings from continuing operations also reached a new record
of $846 million. Net income was down, with higher gains on asset
sales in 2007, the effect of stock-based compensation charges and
the mark-to-market impact of derivative contracts. The majority of
the mark-to-market losses relate to commodity derivative contracts
put in place in 2007 to lock in natural gas prices for the Rev
development in Norway and, in the first quarter of 2008, to ensure
the Company would be in a position to fund higher capital spending
levels associated with its new strategy.
"Production for the quarter came in slightly higher than
expected and we expect continuing growth in the second half despite
the impact of asset sales. Much of the growth will come from
Southeast Asia with the startup of the Northern Fields gas
development and strong sales from the Corridor field. UK liquids
volumes will increase with higher Tweedsmuir production. The Rev
development in Norway, which was on schedule until very recently,
has been delayed until early 2009. We still believe our production
guidance to be achievable for the year, but given the impact of the
Rev delay, it will likely be closer to the lower end of the
range.
"I am very pleased with the execution of our North American
unconventional oil and gas programs, our ability to quickly scale
up drilling in some areas and the transition from pilots to
development. When we rolled the strategy out in May, we expected to
drill up to 130 wells this year. Plans have now been expanded and
we currently expect to drill over 160 wells.
"In June, we announced a strategic partnership with a US
company, Hallwood Energy L.P. This provides Talisman with
unconventional opportunities in West Texas and Arkansas, as well as
access to Hallwood's renowned expertise, and the relationship is
working very well.
"In the Hinton area of the Outer Foothills, Talisman recently
acquired 25,000 net acres of land and now has 190 drilling
locations. We have drilled eight successful Hinton wells this year,
including a recent gas discovery, which tested at 15 mmcf/d. We are
now developing the area with four active rigs and looking to expand
further.
"In the Montney area, we drilled 18 wells to date and are
expanding our drilling program significantly. We now expect to
expand to nine rigs and plan to drill over 30 wells in the second
half of the year.
"In the Bakken light oil play, we have three rigs running and
drilled 11 wells year- to-date. Four wells came on production at
average initial rates of 190 bbls/d.
"In Appalachia, we are mobilizing our first dedicated shale rig.
We have also participated in a number of promising non-operated
wells.
In Quebec, we have a rig on location recompleting the Gentilly
well and are preparing to drill the first of up to four wells
planned for this year.
"Another commitment in the strategy was to focus the portfolio.
As part of this effort, we recently completed the sale of assets in
Denmark, as well as our Lac La Biche assets in Canada and our
remaining oil sands leases. We also announced the sale of our
Beatrice oil field in the UK, which is expected to close later this
year. Preparations are underway to sell our assets in the
Netherlands and Trinidad and Tobago, in addition to further sales
of non-core UK assets.
"In line with the objective of increasing the quality of our
global exploration portfolio, we added a world class opportunity
with the recently announced entry into the Kurdistan region within
northern Iraq. In Colombia, we were successful in acquiring acreage
in a recent bid round. In Vietnam, the appraisal of the Hai Su Den
Field will commence with the first of two back-to-back wells on
Block 15-2/01 expected to spud in September.
"In terms of growing our existing asset base, a number of
projects are expected to deliver additional production volumes in
2008, 2009 and beyond. First gas from the Northern Fields
development in PM-3 CAA in Malaysia/Vietnam was achieved in July as
planned, with production expected to increase as three pre-drilled
wells are brought onstream. In Vietnam, Song Doc will come onstream
later this year. The Northern Fields oil development and Yme
project in Norway are on track to startup in 2009. We also signed a
memorandum of understanding with the Indonesian national oil
company to look at improving oil recoveries from older fields.
"We are also making changes to the organization to underpin
implementation of the strategy, including expanding and
reorganizing our North American business as we grow our
unconventional programs. We recently announced the addition of
Scott Thomson as Chief Financial Officer to bring together the
various financial functions, including capital management. Scott
has settled in very well with the team and is already making a
strong contribution.
"We have made substantial progress in line with our new strategy
this quarter and I am looking forward to building on these early
steps."
Talisman Generates a Record $1.7 Billion in Cash Flow
Three months ended Six months ended
June 30, 2008 2007 2008 2007
-------------------------------------
Cash flow ($ million) 1,691 1,177 2,923 2,181
-------------------------------------
Cash flow per share(2) 1.66 1.13 2.87 2.09
-------------------------------------
Cash flow from continuing operations
($ million) 1,656 1,079 2,865 2,052
-------------------------------------
Net income ($ million) 426 550 892 1,070
-------------------------------------
Net income per share 0.42 0.53 0.88 1.02
-------------------------------------
Earnings from continuing operations
($ million) 846 317 1,322 587
-------------------------------------
Earnings from continuing operations
per share(2) 0.83 0.30 1.30 0.56
-------------------------------------
Average shares outstanding (million) 1,019 1,040 1,019 1,046
-------------------------------------
(2) The terms "cash flow per share" and "earnings from continuing
operations per share" are non-GAAP measures. Please see the advisories
and reconciliations elsewhere in this press release.
Cash flow for the quarter was $1.7 billion, an increase of 44%
from a year earlier. Significant increases in both oil and natural
gas prices more than offset the impact of a stronger Canadian
dollar, lower production volumes (reflecting asset sales) and
higher operating costs and taxes. Cash flow per share increased
47%, reflecting the impact of share repurchases in 2007.
Cash flow from continuing operations was also $1.7 billion, up
53% from 2007.
Earnings from continuing operations totalled $846 million, an
increase from $317 million a year earlier and $476 million in the
first quarter. This metric adjusts net income for significant one
time events and non-operational items such as the mark-to-market
effect of changes in share prices on stock-based compensation
expense, unrealized mark-to-market gains and losses on commodity
derivatives and changes to tax rates. The Company uses this
information to evaluate performance of core operational activities
on a comparable basis between periods.
Net income was $426 million, down from $550 million a year ago,
in part due to gains on asset sales of $203 million in the prior
year.
Total Depreciation, Depletion and Amortization (DD&A)
expense from continuing operations was $653 million, up 19% from
the same period last year, principally related to increased
production, higher drilling and development costs and increased
capital expenditure. However, unit DD&A costs from continuing
operations increased 8%, averaging $16/boe. Talisman recorded an
expense of $270 million relating to its stock option and cash unit
plans. The stock-based compensation expense is based on the
difference between the Company's share price and the exercise price
of its stock options or cash units at the end of the quarter.
The Company's after-tax realized loss on commodity derivatives
for the quarter was $52 million. Talisman also recorded an
unrealized after-tax loss of $344 million. As of July 25, the total
mark-to-market after tax loss on held-for-trading financial
instruments had fallen by approximately $180 million from the end
of the quarter as a result of lower commodity prices.
The Company's effective tax rate averaged 58% during the
quarter, compared to 48% in the same period of 2007, mainly due to
increased stock-based compensation expense and mark-to-market
losses on commodity derivative contracts in Canada, which has a
lower tax rate than other jurisdictions. A normalized tax rate for
the quarter (excluding the effect of mark-to-market losses on
commodity derivatives) would have been 44%.
The average number of shares outstanding was down 2%, reflecting
share repurchases in 2007. The Company did not buy back shares in
the first half of 2008.
At June 30, Talisman's long-term debt was $3.6 billion, down
from $4.9 billion ($4.3 billion net of cash) at December 31,
2007.
The Company spent $1.1 billion on exploration and development
during the quarter, up from the $1.0 billion spent in the previous
quarter and approximately $950 million in the same quarter of the
previous year.
Production from Continuing Operations Up 3%
Three months ended Six months ended
June 30, 2008 2007 2008 2007
---------------------------------------
Oil and liquids (bbls/d) 219,307 245,349 217,966 248,603
---------------------------------------
Natural gas (mmcf/d) 1,276 1,231 1,246 1,270
---------------------------------------
Total (mboe/d) 432 450 426 460
---------------------------------------
Continuing operations (mboe/d) 425 411 418 419
---------------------------------------
Production for the quarter averaged 432,000 boe/d, 4% below the
same quarter of 2007, mainly due to the sale of non-core assets,
which produced 29,000 boe/d in the second quarter of 2007; however,
volumes were 3% above the previous quarter.
Production from continuing operations (excluding production from
assets sold or held for sale) averaged 425,000 boe/d during the
quarter, up 3% from both the previous quarter and a year ago. Of
note, natural gas volumes were up 18% in Southeast Asia and 13% in
North America. Oil and liquids volumes in Scandinavia were up
9%.
Netbacks Reach a Record $61.33/boe
Three months ended Six months ended
June 30, 2008 2007 2008 2007
---------------------------------------
Sales 94.46 60.50 83.89 57.97
---------------------------------------
Hedging gain (loss) (0.37) 0.51 (0.31) 0.80
---------------------------------------
Royalties 17.23 10.01 15.08 9.87
---------------------------------------
Transportation 1.52 1.32 1.33 1.36
---------------------------------------
Operating expenses 14.01 12.07 13.55 11.88
---------------------------------------
Netback ($/boe) 61.33 37.61 53.62 35.66
---------------------------------------
Oil and liquids netback ($/bbl) 81.01 44.45 69.95 41.25
---------------------------------------
Natural gas netback ($/mcf) 6.83 4.91 6.07 4.85
---------------------------------------
Netbacks increased to a record $61.33/boe, up 63% from the
second quarter of 2007. The main reason was a 90% increase in the
benchmark WTI oil price, which averaged US$124 /bbl in the quarter.
A stronger Canadian dollar versus the US$ (up 9%) mitigated the
effect of oil prices somewhat. NYMEX and AECO natural gas prices
were approximately 40% higher than a year ago.
Talisman's royalty rate averaged 19% during the quarter, up from
17% a year earlier, with increases in Southeast Asia and North
Africa due to higher commodity prices.
Unit operating costs increased 16% compared to the previous
year. UK unit operating costs were up 29% year over year, primarily
reflecting lower volumes from both scheduled and unplanned
shutdowns. However, UK unit operating costs were relatively
unchanged versus the first quarter of 2008. Unit costs were lower
in Scandinavia as volumes increased and higher in North America
with processing fees and property taxes. In Southeast Asia, unit
costs increased due to the timing of liftings and replacement costs
of a riser in Australia. The Company expects unit operating costs
to fall in the second half of 2008 as production volumes
increase.
North America
In North America, Talisman's production averaged approximately
188,000 boe/d in the quarter, unchanged from the same period in
2007 and a 4% increase over the previous quarter. North American
natural gas production was 888 mmcf/d, up 3% from a year ago and 5%
from the first quarter, with new production coming on in the latter
part of the first and second quarters of 2008.
Production from continuing operations was up 11% from the same
period in 2007, largely due to development success in Monkman, the
Alberta Foothills and Bigstone/Wild River and up 3% from the
previous quarter.
On July 11th, Talisman completed the sale of Leases 10 and 6 in
the Athabasca oil sands region.
Conventional
New production records were set in Monkman, reaching 142 mmcf/d
(sales gas) in May with production in the quarter averaging 137
mmcf/d, 80% above the second quarter of 2007. Half of the increase
over last year was due to new wells coming on production and the
remainder reflects a turnaround in 2007. The Brazion a-26-E well
came on production in mid-April at a constrained rate of 40 mmcf/d
sales gas (80% working interest).
In the Alberta Foothills, production averaged 193 mmcf/d in the
quarter, an increase of 10% over the same period in 2007. A Cabin
Creek well (100% Talisman) tested at 14 mmcf/d (gross raw gas) and
is expected to come on production in the third quarter of 2008.
Talisman's Midstream Operations transported and processed 637
mmcf/d in the quarter, 15% above the second quarter of 2007.
In June, Talisman closed an agreement to sell its interest in
its non-strategic Lac La Biche property in northeast Alberta for
$247 million. Production from the property in 2007 averaged 4,712
boe/d.
In Wyoming, the Bear Canyon well reached total depth on March
28th. The rig has been moved off the location and will be brought
back to test later in 2008. The next well in the program, Hogback
Ridge in Utah, is currently drilling.
Unconventional
Talisman has achieved significant progress in implementing and
executing its recently announced unconventional strategy in North
America. The Company continued to build on its 2.5 million net acre
unconventional land base and is expanding and accelerating a number
of drilling programs. As a result, spending on unconventional
programs increased by $500 million and is now expected to total
approximately $1.5 billion in 2008, with the final amount dependent
on the success of continuing to accelerate the unconventional
program.
In May, the Company set out plans to drill up to 130 wells in
new unconventional areas. In the first six months of the year, the
Company completed 34 development wells and eight Talisman operated
pilot wells. With continuing success in a number of areas, this
program has been expanded to over 50 pilot wells and approximately
110 development wells for the year.
The Company increased production by 25% over the same period in
2007 in Bigstone/Wild River. A new production record was set in
April, reaching 172 mmcf/d, with production averaging 168 mmcf/d in
the quarter.
In the Outer Foothills, the Company recently acquired 25,000 net
acres of land in the Hinton region and now holds over 80,000 net
acres with 190 identified drilling locations. A total of eight
successful wells have been drilled at Hinton year-to-date, with a
recent discovery testing at 15 mmcf/d (gross raw gas). Talisman
moved from two zone to five zone completions. The Company has four
drilling rigs in the area and is looking to expand this.
The Company is also expanding its Montney program. A total of 18
wells have been drilled to date, including two pilots, and Talisman
plans to drill over 30 wells in the second half of the year (up
from a plan of 19) and expects to expand to nine rigs.
In the Bakken light oil play, Talisman has three drilling rigs
operating and drilled 11 of a planned 56 wells in 2008. Four wells
are on production with initial rates averaging 190 bbls/d per
well.
In Appalachia, Talisman is mobilizing its first dedicated shale
rig. Partner operated results from one horizontal and two vertical
wells in the shale are very promising, but still in the cleanup
phase. In New York State, new legislation has been signed that
permits conforming spacing units up to 640 acres for horizontal
drilling into the Marcellus Shale. The State has also undertaken to
update its Environmental Quality Review Act to facilitate increased
activity in the shale.
In Quebec, a rig is recompleting the Gentilly well and the
Company is planning to drill up to four wells by the end of the
year.
UK
Production from continuing operations in the UK averaged 96,303
boe/d during the quarter, down 7% from the same period in 2007 and
up 9% from the first quarter 2008. Production during the second
quarter was impacted by scheduled maintenance shutdowns at the
Blake, Ross, Auk, Fulmar and Clyde platforms, as well as unplanned
shutdowns at the Piper and Claymore platforms. These reductions
were offset by improved throughput at Tweedsmuir following
production facility modifications and new production from Enoch,
Duart and Blane, which came onstream in 2007.
Tweedsmuir production averaged 22,235 boe/d (net) during the
quarter, an increase of 68% over the first quarter, as
commissioning of the Tweedsmuir Phase 2 project neared completion.
By the end of June, a peak daily production rate of 33,000 boe/d
(net) had been attained. Final commissioning of the platform gas
plant is continuing. The Company now expects Tweedsmuir to average
23,000 boe/d (net) for the year.
During the quarter, an appraisal drilling program was carried
out in the Burghley field, which is planned as a tieback to the
Balmoral platform. Also during the quarter, development wells were
drilled in the Andrew field and in the Netherlands. At the end of
the quarter, development drilling was progressing at Claymore and
Ross.
Scandinavia
Production from continuing operations in Scandinavia averaged
33,042 boe/d during the quarter, up 11% over the second quarter of
2007 and down 4% from the first quarter of 2008. The production
increase over 2007 was due to new production from Blane, which came
onstream in the third quarter 2007, and good performance of
development wells drilled at Gyda and the Brage fields. The
increase was partially offset by natural declines at Varg and
Veslefrikk.
During the quarter, a successful long-reach development well was
drilled at Gyda and had an initial gross production rate of 3,500
bbls/d. A successful well was also drilled adjacent to Varg and
started production at 3,600 bbls/d. In addition, development wells
were drilled at Brage and Veslefrikk. At the end of the quarter,
development drilling was progressing at Gyda, Varg, Brage and
Veslefrikk.
Development of the Rev Field, located on the Norwegian
continental shelf close to the UK Border, continued. During the
quarter, Rev subsea wells were tied back to the third-party
operated Armada platform and the Rev module was lifted onto Armada
in April. Progress towards the planned August 2008 production
startup continued until the end of June. At the end of June, the
operator of Armada informed Talisman that safety critical
maintenance work at Armada would take priority over the Rev work
until the temporary floating accommodation unit finishes its
contract in early August. Although there is only limited work
remaining on Rev, it will not be possible to complete Rev until the
floating accommodation unit returns in the fourth quarter of 2008.
As a consequence, first production from Rev is now expected in
early 2009.
First oil is expected from the Yme redevelopment project in the
second half of 2009.
In April 2008, Talisman announced the sale of the non-strategic
Siri assets in Denmark for $95 million. The transaction closed on
June 18, 2008.
During the quarter, Talisman participated in the Yoda and Trow
exploration wells, both of which were plugged and abandoned.
Southeast Asia
In Southeast Asia, production averaged 90,847 boe/d, comparable
to the same period last year and slightly above the last quarter.
Indonesian production averaged 57,242 boe/d, 22% higher than the
same period last year and 8% higher than the previous quarter,
primarily due to increased West Java natural gas sales and higher
Singapore gas takes. In Malaysia/Vietnam, production averaged
30,172 boe/d, 23% lower than the same period last year and 12%
lower than the previous quarter, mainly due to natural declines and
a scheduled maintenance shutdown at PM-3 CAA.
Natural gas volumes from PM-3 CAA are expected to increase from
approximately 175 mmcf/d to 250 mmcf/d as development drilling
continues for the remainder of 2008 and into 2009. Three gas wells
were successfully drilled in the Northern Fields, with all wells
meeting or exceeding expectations. A second rig commenced drilling
in May. Drilling operations and progress on the Bunga Orkid-A
processing and accommodation platform to be installed later this
year are on schedule for first oil in the first half of 2009.
In Indonesia, natural gas sales to West Java increased from 80
mmcf/d to an average of 100 mmcf/d in line with plan. Talisman's
gas sales in Indonesia averaged 271 mmcf/d, up 26% from a year ago
and Indonesia set a new weekly production record of 64,321 boe/d in
this quarter.
Talisman also signed a memorandum of understanding with
Pertamina, the national oil company, that provides the opportunity
to evaluate and participate in two enhanced oil recovery projects.
In addition, a 3D seismic survey was completed at Pasangkayu in
preparation for the first exploration well to be drilled in 2009.
Talisman was also awarded two Joint Study Agreements in the Sageri
area and bid on a new exploration licence in a recent bid
round.
In Vietnam, Phase 2 drilling operations for the Song Doc
development will commence at the beginning of the third quarter
with the completion of the five pre-drilled wells. First oil is
expected with the arrival of the Floating Production and Storage
Offloading vessel at the beginning of the fourth quarter of 2008.
The Hai Su Bac well was drilled in the quarter and was a small oil
discovery. The Hai Su Nau exploration well was drilled to a total
depth of 4,644 meters and was suspended. The well will be subject
to further testing in the fourth quarter of 2008.
Production in Australia was 3,414 bbls/d, 25% lower than the
same period last year primarily due to riser failures and 72%
higher than the last quarter due to reconfiguration of the
Corallina gas lift. The failed Corallina riser will be replaced in
the third quarter, which is expected to restore full production by
the fourth quarter. Following the successful Kitan exploration
program in the first quarter and a successful appraisal well in the
second quarter, a Declaration of Commerciality was made for the
discovery and a Development Plan is currently being prepared.
Other Areas
In Talisman's other areas, production was down 5% compared to
the same period a year ago, averaging 20,113 boe/d. Production in
Algeria was 14,754 boe/d, an increase of 14% from the same period
in 2007, due to Greater MLN development drilling in 2007, and a
facility maintenance shutdown that reduced rates in April 2007.
In Trinidad and Tobago, production averaged 4,470bbls/d, down
37% from the same period a year earlier due to a scheduled
maintenance shutdown in April 2008. Progress continued towards
sanction of the Angostura gas project, with sanction expected in
the third quarter of 2008. Talisman has initiated the sale of the
Trinidad and Tobago assets. The sale is expected to be completed in
early 2009.
In Colombia, the Huron-1 well on the Niscota Block spud in
mid-June. The Company also acquired 3D seismic in the El Caucho
Block. A Talisman subsidiary was a joint bidder in the winning bids
on two large Technical Evaluation Agreement areas. Talisman's
subsidiary will operate one of the blocks. In Peru, preparations
continue towards drilling an appraisal well at the Situche
discovery, which is expected to spud at the end of 2008.
Two of Talisman's wholly-owned subsidiaries have entered into
agreements with the Kurdistan Regional Government (KRG) within Iraq
for Blocks K44 and K39. Talisman has a 40% interest in Block K44,
with WesternZagros Limited holding 40% as operator and the KRG
retaining 20%. The Sarqala well spudded on May 8 and is currently
drilling on Block K44. On Block K39, Talisman has entered into a
seismic option agreement with the KRG for two years, following
which it will have the option to enter into a Production Sharing
Contract as operator of the block with a 60% working interest and a
one well commitment in the first year.
Talisman Energy Inc. is an independent upstream oil and gas
company headquartered in Calgary, Alberta, Canada. Talisman has
operations in Canada and its subsidiaries operate in the UK,
Norway, Southeast Asia, North Africa and the United States.
Talisman's subsidiaries are also active in a number of other
international areas. Talisman is committed to conducting its
business in an ethically, socially and environmentally responsible
manner. The Company is a participant in the United Nations Global
Compact and included in the Dow Jones Sustainability (North
America) Index. Talisman's shares are listed on the Toronto Stock
Exchange in Canada and the New York Stock Exchange in the United
States under the symbol TLM.
Early Successes on the New Strategy
On May 20th, the Company announced a new strategy with a
four-part action plan, details of which can be found on Talisman's
website. Significant progress has been made, including:
1. Focusing the Portfolio
- In North America, the Company sold assets at Lac La Biche and
its remaining oil sands leases.
- In the North Sea, the sale of its Siri assets (Denmark) has
been completed. The sale of the Beatrice field (UK) is expected to
close later in the year.
- The Company has initiated the sale of its assets in Trinidad
and Tobago and the Netherlands.
2. Grow Existing Areas
- Natural gas production has started at the Northern Fields in
Southeast Asia. Oil production is on schedule for the first half of
2009.
- Natural gas volumes in Indonesia reached a new record, up 26%
from a year ago.
- North America gas volumes (from continuing operations) were up
13% and Scandinavia oil and liquids volumes were up 9%.
- The Company signed a memorandum of understanding with
Pertamina to examine opportunities for enhanced oil recovery in
Indonesia.
3. New Growth Opportunities
- Talisman increased spending on unconventional oil and natural
gas programs in North America to approximately $1.5 billion.
- The Company entered into an agreement with Hallwood Energy
L.P., which provides entry into US unconventional plays and
augments the Company's technical expertise.
- Talisman drilled eight operated pilot and 34 unconventional
development wells, year- to- date, and plans to at least triple
this drilling level in the second half of the year.
- The Company has mobilized drilling rigs in both Quebec and
Appalachia.
4. Optimize Global Exploration
- During the quarter, two wholly-owned subsidiaries of Talisman
entered into agreements with the Kurdistan Regional Government
within Iraq for interests in two exploration blocks. This is a
world class hydrocarbon basin and fits well with Talisman's global
expertise and exploration strategy. The region has the potential to
become a core producing area for the Company.
- The Company is drilling a well in Colombia and was recently
awarded two blocks in the heavy oil bid round.
- The Company is finalizing plans for preparations to drill an
appraisal well at the Situche discovery in Peru, which is expected
to spud prior to year end.
- In Indonesia, Talisman was awarded two Joint Study Agreements
in the offshore Sageri area.
Earnings From Continuing Operations
30-Jun-08
$ million, except per share amounts
Three months ended Six months ended
June 30, 2008 2007 2008 2007
----------------------------------------------------------------------------
Net Income 426 550 892 1,070
----------------------------------------------------------------------------
Operating income from discontinued
operations 30 49 40 87
Gain on disposition of discontinued
operations 91 203 88 480
----------------------------------------------------------------------------
Net income from discontinued operations 121 252 128 567
----------------------------------------------------------------------------
Net income from continuing operations 305 298 764 503
Unrealized loss (gain) on commodity
derivatives(1) (tax adjusted) 344 (16) 395 1
Unrealized gain on Canadian Oil Sands
Trust units (tax adjusted) - (33) - (23)
Stock-based compensation(2) (tax
adjusted) 191 30 184 59
Future tax charge (recovery) of
unrealized foreign exchange gains
(losses) on foreign denominated
debt(3) 6 64 (21) 73
Tax rate reductions and other(3) - (26) - (26)
----------------------------------------------------------------------------
Earnings from continuing operations(4) 846 317 1,322 587
----------------------------------------------------------------------------
Earnings from continuing operations
per share (4) 0.83 0.30 1.30 0.56
----------------------------------------------------------------------------
(1) Unrealized loss on commodity derivatives relates to the change in the
period of the mark-to-market value of the Company's outstanding
commodity derivatives.
(2) Stock-based compensation expense relates to the mark-to-market value of
the Company's outstanding stock options and cash units at June 30. The
Company's stock-based compensation expense is based on the difference
between the Company's share price and its stock options or cash units
exercise price.
(3) Tax adjustments reflect a Canadian tax rate decrease in the second
quarter of 2007, as well as future taxes relating to unrealized foreign
exchange gains and losses associated with the impact of fluctuations in
the Canadian dollar on foreign denominated debt.
(4) This is a non-GAAP measure. Please refer to the section in this press
release entitled Non-GAAP Financial Measures for further explanation and
details.
Cash Flow
30-Jun-08
$ million, except per share amounts
Three months ended Six months ended
June 30, 2008 2007 2008 2007
----------------------------------------------------------------------------
Cash provided by operating activities 1,538 999 2,850 2,088
Changes in non-cash working capital 153 178 73 93
----------------------------------------------------------------------------
Cash flow (1) 1,691 1,177 2,923 2,181
Cash provided by discontinued
operations (35) (98) (58) (129)
----------------------------------------------------------------------------
Cash flow from continuing operations 1,656 1,079 2,865 2,052
----------------------------------------------------------------------------
Cash flow per share (1) 1.66 1.13 2.87 2.09
----------------------------------------------------------------------------
Cash flow from continuing operations
per share (1) 1.63 1.04 2.81 1.96
----------------------------------------------------------------------------
(1) This is a non-GAAP measure. Please refer to the section in this press
release entitled Non-GAAP Financial Measures for further explanation and
details.
Forward-Looking Information
This press release contains information that constitutes
"forward-looking information" or "forward-looking statements"
(collectively "forward-looking information") within the meaning of
applicable securities legislation. This forward-looking information
includes, among others, statements regarding:
- estimated amounts and sources of capital expenditures;
- estimates of future sales, production, production growth and
operations performance;
- business plans for drilling, exploration, development,
redevelopment and estimated timing;
- business strategy, business strategy review and plans;
- estimated timing and results of new projects, including the
timing of new production;
- expected dispositions and timing;
- estimates of unit operating costs; and
- other expectations, beliefs, plans, goals, objectives,
assumptions, information and statements about possible future
events, conditions, results of operations or performance.
Often, but not always, forward-looking information uses words or
phrases such as: "expects", "does not expect" or "is expected",
"anticipates" or "does not anticipate", "plans" or "planned",
"estimates" or "estimated", "projects" or "projected", "forecasts"
or "forecasted", "believes", "intends", "likely", "possible",
"probable", "scheduled", "positioned", "goal", "objective" or
states that certain actions, events or results "may", "could",
"would", "might" or "will" be taken, occur or be achieved.
Various assumptions were used in drawing the conclusions or
making the forecasts and projections contained in the
forward-looking information contained in this press release.
Information regarding oil and gas reserves, business plans for
drilling, exploration, development and appraisal assumes that the
extraction of crude oil, natural gas and natural gas liquids
remains economic.
Undue reliance should not be placed on forward-looking
information. Forward-looking information is based on current
expectations, estimates and projections that involve a number of
risks which could cause actual results to vary and in some
instances to differ materially from those anticipated by Talisman
and described in the forward-looking information contained in this
press release. The material risk factors include, but are not
limited to:
- the risks of the oil and gas industry, such as operational
risks in exploring for, developing and producing crude oil and
natural gas, market demand and unpredictable facilities
outages;
- risks and uncertainties involving geology of oil and gas
deposits;
- the uncertainty of reserves and resources estimates, reserves
life and underlying reservoir risk;
- the uncertainty of estimates and projections relating to
production, costs and expenses;
- potential delays or changes in plans with respect to
exploration or development projects or capital expenditures;
- the risk that adequate pipeline capacity to transport gas to
market may not be available;
- fluctuations in oil and gas prices, foreign currency exchange
rates and interest rates;
- the outcome and effects of any future acquisitions and
dispositions;
- health, safety and environmental risks;
- uncertainties as to the availability and cost of financing and
changes in capital markets;
- risks in conducting foreign operations (for example, political
and fiscal instability or the possibility of civil unrest or
military action);
- competitive actions of other companies, including increased
competition from other oil and gas companies;
- changes in general economic and business conditions;
- the effect of acts of, or actions against, international
terrorism;
- the possibility that government policies or laws may change or
governmental approvals may be delayed or withheld;
- results of the Company's risk mitigation strategies, including
insurance and hedging activities; and
- the Company's ability to implement its business strategy.
The foregoing list of risk factors is not exhaustive. Additional
information on these and other factors which could affect the
Company's operations or financial results are included in the
Company's most recent Annual Information Form. In addition,
information is available in the Company's other reports on file
with Canadian securities regulatory authorities and the United
States Securities and Exchange Commission (SEC).
Forward-looking information is based on the estimates and
opinions of the Company's management at the time the information is
presented. The Company assumes no obligation to update
forward-looking information should circumstances or management's
estimates or opinions change, except as required by law.
Oil and Gas Information
Throughout this press release, the calculation of barrels of oil
equivalent (boe) is at a conversion rate of six thousand cubic feet
(mcf) of natural gas for one barrel of oil and is based on an
energy equivalence conversion method. Boe may be misleading,
particularly if used in isolation. A boe conversion ratio of 6
mcf:1 bbl is based on an energy equivalence conversion method
primarily applicable at the burner tip and does not represent a
value equivalence at the wellhead.
Talisman makes reference to production volumes throughout this
press release. Where not otherwise indicated, such production
volumes are stated on a gross basis, which means they are stated
prior to the deduction of royalties and similar payments. In the
US, net production volumes are reported after the deduction of
these amounts.
Canadian Dollars and GAAP
Dollar amounts are presented in Canadian dollars unless
otherwise indicated. Unless otherwise indicated, financial
information is presented in accordance with Canadian generally
accepted accounting principles that may differ from generally
accepted accounting principles in the US. Talisman's Consolidated
Financial Statements as at and for the year ended December 31,
2007, which were filed with Canadian and US securities authorities
on March 7, 2008, contain information concerning differences
between Canadian and US generally accepted accounting
principles.
Non-GAAP Financial Measures
Included in this press release are references to financial
measures commonly used in the oil and gas industry, such as cash
flow, cash flow per share, cash flow from continuing operations,
earnings from continuing operations, earnings from continuing
operations per share and net debt. These terms are not defined by
GAAP in either Canada or the US. Consequently, these are referred
to as non-GAAP measures. Talisman's reported results of cash flow,
cash flow from continuing operations, earnings from continuing
operations and net debt may not be comparable to similarly titled
measures by other companies.
Cash flow, as commonly used in the oil and gas industry,
represents net income before exploration costs, DD&A, future
taxes and other non-cash expenses. Cash flow is used by the Company
to assess operating results between years and between peer
companies that use different accounting policies. Cash flow should
not be considered an alternative to, or more meaningful than, cash
provided by operating, investing and financing activities or net
income as determined in accordance with Canadian GAAP as an
indicator of the Company's performance or liquidity.
Earnings from continuing operations is calculated by adjusting
the Company's net income per the financial statements, for certain
items of a non-operational nature, on an after-tax basis. The
Company uses this information to evaluate performance of core
operational activities on a comparable basis between periods.
Net debt is calculated by adjusting the Company's long-term debt
per the financial statements for bank indebtedness, cash and cash
equivalents. The Company uses this information to assess its true
debt position since cash could potentially be used to pay down
long-term debt.
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
----------------------------------------------------------------------------
Financial
(millions of C$ unless otherwise stated)
Cash flow (1) 1,691 1,177 2,923 2,181
Net income 426 550 892 1,070
Exploration and development
expenditures 1,053 943 2,066 2,240
Per common share (C$)
Cash flow (1) 1.66 1.13 2.87 2.09
Net income 0.42 0.53 0.88 1.02
----------------------------------------------------------------------------
Production
(daily average)
Oil and liquids (bbls/d)
North America 40,311 44,637 40,200 46,000
UK 90,709 105,661 87,361 103,715
Scandinavia 32,426 29,931 32,880 30,916
Southeast Asia 35,847 43,962 36,537 46,740
Other 20,014 21,158 20,988 21,232
----------------------------------------------------------------------------
Total oil and liquids 219,307 245,349 217,966 248,603
----------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 888 860 868 891
UK 38 77 37 91
Scandinavia 20 14 20 14
Southeast Asia 330 280 321 274
----------------------------------------------------------------------------
Total natural gas 1,276 1,231 1,246 1,270
----------------------------------------------------------------------------
Total mboe/d (2) 432 450 426 460
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prices (3)
Oil and liquids (C$/bbl)
North America 105.27 56.67 93.07 55.07
UK 123.25 74.89 110.78 69.93
Scandinavia 129.08 77.11 113.98 70.71
Southeast Asia 136.86 81.42 117.91 79.14
Other 141.12 78.45 120.90 73.94
----------------------------------------------------------------------------
Total oil and liquids 124.66 73.32 110.16 69.36
----------------------------------------------------------------------------
Natural gas (C$/mcf)
North America 10.25 7.65 9.08 7.65
UK 9.76 6.47 9.16 7.19
Scandinavia 6.77 4.59 6.28 4.51
Southeast Asia 11.67 7.58 10.41 6.95
----------------------------------------------------------------------------
Total natural gas 10.55 7.53 9.38 7.43
----------------------------------------------------------------------------
Total (C$/boe) (2) 94.46 60.50 83.89 57.97
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Cash flow and cash flow per share are non-GAAP measures.
(2) Barrels of oil equivalent (boe) is calculated at a conversion rate of
six thousand cubic feet (mcf) of natural gas for one barrel of oil.
(3) Prices are before hedging.
Includes the results from continuing and discontinued operations.
Talisman Energy Inc.
Consolidated Balance Sheets
(unaudited)
June 30 December 31
(millions of C$) 2008 2007
----------------------------------------------------------------------------
(restated)
Assets
Current
Cash and cash equivalents 88 536
Accounts receivable 1,713 1,143
Inventories 174 107
Prepaid expenses 27 12
Assets of discontinued operations 55 335
----------------------------------------------------------------------------
2,057 2,133
----------------------------------------------------------------------------
Other assets 156 171
Goodwill 1,489 1,406
Property, plant and equipment 19,339 17,710
----------------------------------------------------------------------------
20,984 19,287
----------------------------------------------------------------------------
Total assets 23,041 21,420
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness 15 15
Accounts payable and accrued liabilities 2,875 1,889
Income and other taxes payable 742 388
Liabilities of discontinued operations 18 128
----------------------------------------------------------------------------
3,650 2,420
----------------------------------------------------------------------------
Deferred credits 35 21
Asset retirement obligations 2,041 1,915
Other long-term obligations 283 140
Long-term debt 3,639 4,862
Future income taxes 4,430 4,099
----------------------------------------------------------------------------
10,428 11,037
----------------------------------------------------------------------------
Contingencies
Shareholders' equity
Common shares 2,439 2,437
Contributed surplus 64 64
Retained earnings 6,441 5,651
Accumulated other comprehensive income (loss) 19 (189)
----------------------------------------------------------------------------
8,963 7,963
----------------------------------------------------------------------------
Total liabilities and shareholders' equity 23,041 21,420
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the financial position
of discontinued operations and the reclassification of certain amounts to
conform to current year presentation.
Talisman Energy Inc.
Consolidated Statements of Income
(unaudited)
Three months ended Six months ended
(millions of C$ June 30 June 30
except per share amounts) 2008 2007 2008 2007
----------------------------------------------------------------------------
(restated) (restated)
Revenue
Gross sales 3,861 2,234 6,329 4,380
Hedging (loss)gain (14) 21 (24) 67
----------------------------------------------------------------------------
Gross sales, net of hedging 3,847 2,255 6,305 4,447
Less royalties 732 380 1,109 720
----------------------------------------------------------------------------
Net sales 3,115 1,875 5,196 3,727
Other 41 44 76 74
----------------------------------------------------------------------------
Total revenue 3,156 1,919 5,272 3,801
----------------------------------------------------------------------------
Expenses
Operating 549 424 991 904
Transportation 60 52 103 108
General and administrative 75 53 139 113
Depreciation, depletion and
amortization 653 547 1,185 1,116
Dry hole 70 113 140 213
Exploration 115 59 172 129
Interest on long-term debt 35 52 79 97
Stock-based compensation 270 43 260 85
Loss(gain) on held-for-trading
financial instruments 530 (63) 598 (26)
Other (11) (8) (24) (22)
----------------------------------------------------------------------------
Total expenses 2,346 1,272 3,643 2,717
----------------------------------------------------------------------------
Income from continuing operations
before taxes 810 647 1,629 1,084
----------------------------------------------------------------------------
Taxes
Current income tax 538 109 804 279
Future income tax (recovery) (110) 166 (63) 160
Petroleum revenue tax 77 74 124 142
----------------------------------------------------------------------------
505 349 865 581
----------------------------------------------------------------------------
Net income from continuing operations 305 298 764 503
----------------------------------------------------------------------------
Net income from discontinued operations 121 252 128 567
----------------------------------------------------------------------------
Net income 426 550 892 1,070
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per common share (C$)
Net income from continuing operations 0.30 0.29 0.75 0.48
Diluted net income from continuing
operations 0.29 0.28 0.73 0.47
Net income from discontinued
operations 0.12 0.24 0.13 0.54
Diluted net income from discontinued
operations 0.12 0.24 0.12 0.53
Net income 0.42 0.53 0.88 1.02
Diluted net income 0.41 0.52 0.86 1.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average number of common shares
outstanding (millions) 1,019 1,040 1,019 1,046
Diluted number of common shares
outstanding (millions) 1,043 1,066 1,040 1,072
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the results of
discontinued operations.
Talisman Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2008 2007 2008 2007
----------------------------------------------------------------------------
(restated) (restated)
Operating
Net income from continuing operations 305 298 764 503
Items not involving cash 1,236 722 1,929 1,420
Exploration 115 59 172 129
----------------------------------------------------------------------------
1,656 1,079 2,865 2,052
Changes in non-cash working capital (153) (178) (73) (93)
----------------------------------------------------------------------------
Cash provided by continuing
operations 1,503 901 2,792 1,959
Cash provided by discontinued
operations 35 98 58 129
----------------------------------------------------------------------------
Cash provided by operating activities 1,538 999 2,850 2,088
----------------------------------------------------------------------------
Investing
Capital expenditures
Exploration, development and other (1,056) (920) (2,052) (2,182)
Property acquisitions (278) - (375) (4)
Proceeds of resource property
dispositions - 16 - 16
Changes in non-cash working capital 136 (356) 234 (317)
Discontinued operations, net of
capital expenditures 326 490 300 673
----------------------------------------------------------------------------
Cash used in investing activities (872) (770) (1,893) (1,814)
----------------------------------------------------------------------------
Financing
Long-term debt repaid (1,197) (459) (2,364) (1,035)
Long-term debt issued 492 820 1,030 1,776
Common shares purchased - (624) - (921)
Common share dividends (102) (91) (102) (91)
Deferred credits and other 5 12 14 (6)
Changes in non-cash working capital (3) - (3) -
----------------------------------------------------------------------------
Cash used in financing activities (805) (342) (1,425) (277)
----------------------------------------------------------------------------
Effect of translation on foreign
currency cash and cash equivalents 10 (2) 20 (3)
----------------------------------------------------------------------------
Net increase in cash and cash
equivalents (129) (115) (448) (6)
Cash and cash equivalents, net,
beginning of period 202 173 521 64
----------------------------------------------------------------------------
Cash and cash equivalents, net, end of
period 73 58 73 58
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents 88 104 88 104
Bank Indebtedness 15 46 15 46
----------------------------------------------------------------------------
----------------------------------------------------------------------------
73 58 73 58
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the cash flows of
discontinued operations.
Contacts: Talisman Energy Inc. - Media and General Inquiries
David Mann, Senior Manager, Corporate & Investor Communications
(403) 237-1196 (403) 237-1210 (FAX) Email: tlm@talisman-energy.com
Website: www.talisman-energy.com Talisman Energy Inc. - Shareholder
and Investor Inquiries Christopher J. LeGallais, Senior Manager,
Investor Relations (403) 237-1957 (403) 237-1210 (FAX) Email:
tlm@talisman-energy.com Website: www.talisman-energy.com
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