NEW YORK (TheStreet) -- Oil producers have been focusing on preserving their financial strength in order to prepare for what could be a tough crude pricing environment next year. Even so, Canada's Talisman Energy (TLM) could struggle beyond pricing as it does not generate enough cash to meet its capital requirements.
Talisman operates in several oil and gas producing regions of Canada, South America and Asia Pacific where it has been reporting exploration success. Last week, Talisman and its Colombian partner Ecopetrol (EC) reported their second oil find in Colombia after a gap of nearly four years.
Must Read: Warren Buffett's Top 10 Dividend StocksDuring the third quarter conference call earlier this month, Talisman's CEO Harold Kvisle said that he was "excited" about the new well results coming from the ongoing drilling activities in Alberta's Greater Edson and the Duvernay region. Prior to this, Talisman said on the backdrop of a conference in September that it was ramping up the development of its Kinabalu oilfield in Malaysia and Red Emperor project in Vietnam.
Overall, Talisman plans to grow production by 5% per year between 2013 and 2018 from its core assets. Consequently, the company forecast between 10% and 12% growth in annual cash flows from these assets in the corresponding period.
Yet, despite the optimism, crude prices have fallen by more than 20% in the last three months and Talisman is not in an ideal position to deal with this challenge.
The size of the company's long term debt of $4.7 billion is not alarming. Talisman's debt-to-equity ratio, which is often used to measure leverage, is higher than that of some of its Canadian competitors such as Penn West Petroleum (PWE) , Cenovus Energy (CVE) and Suncor Energy (SU) , but lies within the industry's average, as per data compiled by Thomson Reuters.
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