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Sinopec buys North Sea stake from Talisman

Customers fill up at a Sinopec gas station in Shanghai, China.

AP

Talisman Energy Inc. is following through on a promise it made to shareholders earlier this year, selling off some of its interests in Britain to focus on higher-growth shale gas projects in North America and Southeast Asia.

On Monday, Calgary-based Talisman announced a joint venture with Chinese company Sinopec International Petroleum Exploration and Production Co. that will see Talisman sell 49 per cent of its Aberdeen, Scotland-based North Sea business to Sinopec for $1.5-billion (U.S.).

This deal brings Talisman's total divestment proceeds to $2.5-billion to date for 2012, the bulk of which will be directed to fund what Talisman's chief executive officer, John Manzoni, calls "growth areas" in the company's portfolio.

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"The U.K. business had provided some challenges to us," said Phoebe Buckland, a spokesperson for Talisman. "Our North Sea [business] … is a mature field and we wanted to move some of those funds into the growth areas of the business."

For the next year at least, one of those areas will be the Eagle Ford shale project in southeast Texas, an 83,000-acre joint venture with Norwegian energy company Statoil to produce natural-gas liquids.

"Given the gas prices in North America, we made a switch to liquids-rich properties," Ms. Buckland said.

The company will also use proceeds from this deal to invest in natural gas in Southeast Asia, where about one-third of Talisman's production is already derived and where the company has long-term exploration plans. Natural gas in Southeast Asia is linked to liquids pricing, so it is higher value, Ms. Buckland said. Talisman averages about $9.50 per thousand cubic feet of gas in Southeast Asia, compared to about $3 per thousand cubic feet in North America.

The company plans to spend $200-million in 2012 on exploration in its Asian and Australian interests, including in countries such as Vietnam and Indonesia.

Talisman said it will use about $500-million from this deal to repurchase shares, an amount that could net up to up to 4.5 per cent of outstanding stock. The deal also allows Talisman to halve its abandonment liability, splitting the $1.6-billion cost with Sinopec to tear down and remove North Sea oil platforms when the undersea oil fields dry up. The terms of the joint venture indicate Talisman will continue to handle operations in the North Sea, but Sinopec will be able to appoint staff to key positions on North Sea projects.

A move to "right size" Talisman's North Sea project was listed as one potential catalyst for Talisman stock in a research note late week from RBC Dominion Securities analyst Greg Pardy. Mr. Pardy downgraded his target price for Talisman last week to $14 (Canadian) from $17, and following Monday's announcement, the company's shares were up about 6.8 per cent to roughly $11.80 a share. An RBC research note released Monday called the joint-venture deal an endorsement of remaining potential in the mature North Sea basin.

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