Talisman Fails To Charm - Analyst Blog
02 August 2011 - 12:15AM
Zacks
Canadian energy explorer
Talisman Energy Inc. (TLM) came
out with weaker-than-expected second quarter 2011 results, hampered
by the imposition of higher taxes on North Sea oil production by
the U.K. and lower liquids production.
Alberta-based Talisman – which
recently changed its reporting currency to U.S. dollars – announced
earnings per share from continuing operations (excluding
non-operating items) of 16 cents, significantly below the Zacks
Consensus Estimate of 33 cents.
However, compared with the year-ago
period, Talisman’s earnings per share improved 14.3% (from 14 cents
to 16 cents), while revenues were up 39.6% to $2,234.0 million,
reflecting higher oil prices.
Volume
Analysis
Total production during the quarter
was up 2.2% from the year-ago level to 420 thousand barrels of oil
equivalent per day (MBOE/d), driven by rapidly growing North
American shale volumes. Production from continuing operations rose
12.9% from 372 MBOE/d a year ago.
Oil & liquids production during
the quarter was down 3.9% to 174,731 barrels per day (Bbl/d), or
42% of total volumes. Volumes were down in North America, Southeast
Asia, and North Sea regions, which were partially offset by
improved oil & liquids production from other international
regions.
Talisman’s natural gas volumes in
the quarter were up approximately 6.8% to 1,470 million cubic feet
per day (MMcf/d), attributable to increases in North America and
Southeast Asia.
Realized
Prices
During the quarter, Talisman’s
realized commodity prices were up 33.0% from the year-ago quarter
to $68.47 per barrel of oil equivalent (BOE), mainly on the back of
healthy increases in commodity prices in North Sea and Southeast
Asia.
Overall, natural gas prices rose
approximately 16.4% year over year to $6.25 per Mcf, while oil
& liquids realizations averaged $111.88 per barrel, up 47.7%
from the year-ago level.
Cash Flows and Capital
Expenditure
Cash flows from continuing
operations during the quarter totaled $897 million. Talisman spent
$997 million on exploration and development activities.
Balance
Sheet
As of June 30, 2011, Talisman had
cash and cash equivalents of approximately $860.0 million and
long-term debt of $3,858.0 million (including current portion),
with a debt-to-capitalization ratio of 28.7%.
Production Guidance
Cut
As a result of slowdown in several
of the company’s producing assets for varied reasons, Talisman cut
its 2011 volume guidance to a range of 430 – 440 MBOE/d, much lower
than its originally projected absolute growth of 5% for the
year.
Our
Recommendation
Talisman Energy – which has
recently signed two transactions with South African petrochemicals
group Sasol Ltd. (SSL) to sell
its interests in North American shale assets – has repositioned its
portfolio for a robust growth profile.
Taking a cautious view of gas
prices, Talisman’s capital program this year specifically focuses
on the promising North American liquids rich areas in a major shift
away from dry natural gas development. The company has taken a vow
to keep capex steady at around $4 billion in 2011, while still
managing an improvement of around 10% in its oil and gas
production.
While subscribing to management’s
outlook, we believe the realignment and Talisman’s strategy will
take some time to bear results. The company’s exposure to the
highly cyclical and capital-intensive E&P sector also remains a
key area of concern, in our view. As such, we see the stock
performing in line with the broader market.
Talisman shares currently retain a
Zacks #3 Rank, which translates into a short-term Hold rating.
SASOL LTD -ADR (SSL): Free Stock Analysis Report
TALISMAN ENERGY (TLM): Free Stock Analysis Report
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