Talisman Energy, Inc. ( TLM)

Q3 2010 Earnings Conference Call

November 2, 2010 1:00 PM ET


John Manzoni – CEO

L. Scott Thomson – CFO and EVP - Finance

Paul Smith – EVP, North American Operations

Richard Herbert – EVP, Exploration

Paul Blakeley – President, Operations


Greg Pardy – RBC Capital Markets Toronto

Brian Singer – Goldman Sachs New York

Mark Polak – Scotia Capital Markets Calgary

George Toriola – UBS Securities Canada Calgary

Andrew Potter – CIBC World Markets Calgary

John Herrlin – Societe Generale

Andrew Fairbanks – Bank of America

Brian Dutton – Credit Suisse

Minu Hulsa (ph) – TE Securities

Mike Dunn – FirstEnergy Capital

Scott Haggett – Reuters

Palo Rasvel (ph) – Veritas Investment Research

Scott Polster – Calgary Herald

Cam Sandhar – Peters & Company



Good morning ladies and gentlemen, thank you for standing by. Welcome to the Talisman Energy Inc. Q3 results conference call. (Operator Instructions.)

This call contains forward-looking information. Certain material factors and assumptions were applied in making the forecast and projections to be discussed in this call and actually results could differ materially from those anticipated by Talisman and described in the forward looking information. Please refer to the cautionary advisories in the November 2, 2010 news release in Talisman’s most recent annual information form which contain official information about the applicable risk factors and assumptions.

I would like to remind everyone that this conference call is being recorded on Tuesday, November 2 nd at 11 am Mountain Time. I will not turn the conference over to Mr. John Manzoni. Please go ahead.

John Manzoni

Thank you Ron. Ladies and gentlemen, good morning and thank you for joining our Q3 conference call. As usual I’m joined here in Calgary by the management team who will be very happy to help answer your questions after Scott and I have run through the highlights of the quarter for you.

The quarter turned out very much as expected in terms of commodity prices; with gas prices in North America now reflecting the underlying fundamentals of very strong supply. We remain relatively cautious on North American gas prices for the remainder of this year and indeed into next year since it could take through next year for the market to rebalance. Gas prices today, we believe, are below marginal cost and therefore in the long term we do see them being slightly stronger.

Oil prices have also reflected more or less what we believed, which is basically underlying stability with a gentle upward pressure. The most recent move above $80 may not yet represent a sustained rally and could be impacted by economic sentiment as Q4 progresses. Although there does seem to be building evidence that demand continues to be robust even in OECD economies. But even if we do see a slight cooling, we think oil prices above $75 are well supported and will continue to have upward momentum over time.

We had quite a busy summer and I’ll outline a few highlights for you before turning to the financials. (Inaudible) of course, we made several acquisitions. We moved very quickly on these, used our balance sheet which had been strengthened over the last 12 months and targeted liquids rich opportunities.

First we made two relatively small acquisitions in Norway for a total of around $200 million dollars and bought into two licenses containing the (inaudible) discoveries. One of those deals was closed, the other is waiting on regulatory approval.

Next we purchased BP Columbia’s assets with (inaudible) patrol. This provides a fabulous under pitting to our explorations program in Columbia, which itself is looking very promising with several successful wells over the last few months. The transaction includes about $12,000 barrels of oil equivalent per day of production which we expect to grow over the next two years towards about 20,000 BOE a day and, of course, will establish a cash flow base for us in Columbia. We can now being to see a path towards a material business in Columbia.

And then recently we deepened our position in the (inaudible) in South Texas and at the same time created a joint venture with Stratoil including our existing landholdings in the play. That transaction both deepened our overall land position; so we now own about 70,000 net acres and enhanced the overall quality of the land in terms of liquid content.

Each of these transactions offers significant value going forward and strengthens our portfolio in line with strategy. And as I mentioned, they’re all liquids, which of course gives us more liquids options for capital deployment next year.

We also continued to execute our disposal program in North America, closing three small deals over the quarter and reaching agreement on a forth. I’ll explain the production for the quarter in a bit more detail for you in a moment. But it’s reflecting what I said last time we talked, which is under lying growth from the previous quarter is up about 4% on 2Q and about 12% on the prior year on a continuing operations basis. This gives us confidence to raise our guidance for the year to 415,000 barrels a day.

I think the fact that the production is now growing quarter on quarter is an important point in our portfolio transition. And of course an important contributor to the production goals is the Marcellus, which continues to move forward as we’ve promised. Today we’re producing about 270 million cubic feet a day and we’re confident to reiterate our outlook for the end of the year to be at the upper end of the 250 to 300 million cubic feet a day range we’ve held all year.

The continuing good results from these wells have also given us confidence to increase our EUR assumptions in the Marcellus, which will now move to 5 BCF a well from our previous assumption of three and a half BCF per well.

We’ve also initiated a process to look for a partner in the Ferrell Creek area of our (inaudible) asset. This is not focused on drilling to hold land since the lease terms are about ten years in the (inaudible) but we believe the overall value of the assets will be higher if we develop it with a partner since we have so much contingent resource in the area. We’re very pleased with the level of interest in the process and will progress the conversations over the next few months.

In terms of expiration, as always, some good news and some disappointments. Our more recent Peru well, called Runsastaffer (ph) which drilled a small structure in block 101 was not successful. Although we were carried for a large part of it. And we drilled one of the Halley Terraces in the North Sea which was also dry. But on the other hand, we’ve drilled two stratographic (ph) wells with our partner Pacific Rubiales in block six in Columbia, which have been very encouraging in terms of showing oil and are currently drilling a third. Of course we’ll have to test them, which will be done next year, but so far the signs are very encouraging.

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