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Betting With Icahn on a Talisman Energy Turnaround

NEW YORK (TheStreet) -- It sounds strange but Talisman Energy (TLM) is eying growth by shrinking its asset base.

Talisman is one of the leading independent oil and gas producers from Canada. Billionaire activist investor Carl Icahn of Icahn Enterprises (IEP) owns 7.4% of the company. Talisman has delivered a poor performance at the stock markets; its shares have dropped by 9.8% over the last 12 months and closed at $10.65 on Wednesday. Over the last two years, Talisman has not reported any revenue or earnings growth.

All of that, however, can change in the near future. Amid the management shuffle, with the entry of Icahn's representatives on the board and a CEO change due in the current year, the company is readjusting its portfolio. Talisman is selling its non-core assets and investing heavily in its high value projects in the Americas and Asia Pacific. The company's lucrative assets in Southeast Asia and its oil-rich acreage in Colombia can drive its growth over the coming years.

In 2012, Talisman sold its 49% interest in its North Sea business to China Petroleum and Chemical  (SNP) for $1.5 billion. The deal, which closed by the end of 2012, caused a significant drop in Talisman's production in 2013 as the company swung to a loss of $1.2 billion, or 24 cents per share, from a profit of $132 million a year earlier. The 2012 results also included an $860 million non-taxable gain from the asset sale.

In 2013, the company sold more than $2 billion of its assets, which mainly includes the sale of its 75% stake in Montney for $1.3 billion. Talisman's total production fell 12.4% to 373,000 barrels of oil equivalents per day, driven by 18.5% drop in liquids production.

Moreover, Talisman has also agreed to sell some of its assets in Indonesia and its Monkman properties in Western Canada. Through divestments, Talisman will raise more than $2 billion within the next 18 months.

But divestments will also cause a drop in production. The Monkman asset sale alone will bring down the company's output by 75 million cubic feet per day. Talisman's total production could fall. The company has forecast between 6.17% and 2.14% drop in production in 2014.

Talisman's focus has been on selling its non-core assets, such as those in North Sea, which includes assets in U.K. and Norway and Kurdistan. The North Sea assets in particular were a headache for the company, which is evident in their considerably lower netbacks. The priority will be to sell the less lucrative and mature assets that have substantial capital requirements.

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