Talisman looks to cut back North Sea assets

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Talisman Energy Inc. may reduce its stake in the North Sea oil fields it once considered a source of stable cash necessary to help fund other projects.

The company is also considering selling or finding other ways to extract value from its conventional natural gas assets in North America in 2012, executives said on the company's third-quarter conference call Wednesday. Other exploration projects could be on the chopping block if they prove unsuccessful, too.

For Talisman, the announcement breaks with the strategy it unveiled three years ago, as John Manzoni, the company's chief executive, reshaped the energy outfit when he took over. The shift reflects Talisman's frustration with its volatile results out of the North Sea, and the emphasis natural gas companies are placing on commodities like propane and butane.

"I think any management team that just sits there and says: 'Well, we determined the strategy three years ago and that's what we're going to continue to blindly implement' – that would be wrong," Mr. Manzoni said on the call. "The world continues to be dynamic and one never wants to be caught in a fixed place if the world conditions change … Gas prices are now very low, much lower than they were when we set out on that original strategy."

Talisman's beef with its North Sea assets in the United Kingdom and Norway is tied to their volatility. It had to trim its 2011 production guidance twice because of troubles linked to a third-party pipeline in the region this year.

"It's a very difficult thing to deal with," Mr. Manzoni said of the market's negative reaction after production expectations fell. "If we can't [consistently execute] that part of the portfolio is no longer playing the role that we wanted it to play and, therefore, we have to reconsider."

Meanwhile, its conventional natural gas projects suffer as gas prices languish for longer than Talisman had anticipated.

Talisman said it will provide more concrete details in January, and Wednesday's remarks were just a glimpse of its thinking. "I'm not signalling radical change but I am signalling that we're looking at various options to reduce the impact of the volatility within our portfolio," Mr. Manzoni said. Like other companies with large positions in unconventional natural gas in North America, Talisman plans to move its focus away from dry natural gas and aims to produce more natural gas liquids, such as propane.

Its Eagle Ford shale properties will be one play where it will increase investment at the expense of dry natural gas wells. While the market likes that these products bring in more cash, Talisman's shift, however gentle, means it will once again have to prove itself to investors.

"Are they getting in to that too late? It almost feels like they are chasing something to give the market what they want rather than just executing," Rob Lauzon, a senior portfolio manager at Middlefield Capital Corp., said.

He noted that while Talisman has been successful in the Marcellus shale play, it has already missed guidance in the Eagle Ford.

"The market still isn't confident they can execute their shale strategy because they've already had a few hiccups," Mr. Lauzon said. "It is really a confidence thing. Management has stumbled over the last few quarters."

Talisman made $521-million (U.S.) in the third quarter or 51 cents per share in the third quarter, up from $352-million or 35 cents per share in the same quarter last year. The company's cash flow rang in at $902-million, compared to $700-million in 2010, with the rise attributed to higher oil prices.