Talisman Energy Reports $900 Million Cash Flow in Second Quarter
Increased Marcellus Shale Drilling
Exploration Successes in Colombia and the North Sea
- Press Release
- Source: Talisman Energy Inc.
- On 5:00 am EDT, Wednesday July 29, 2009
CALGARY, ALBERTA--(Marketwire - 07/29/09) - Talisman Energy Inc. (TSX:TLM - News) (NYSE:TLM - News) reported its operating and financial results for the second quarter of 2009.
- Cash flow(1) during the quarter was $900 million, a decrease from $1.7 billion a year ago, primarily due to lower prices. Year-to-date cash flow was $2.2 billion.
- Net income was $63 million, down from $426 million a year earlier, also driven by lower prices.
- Earnings from continuing operations(1) were $135 million, down from $790 million in the second quarter of 2008.
- Production averaged 424,000 boe/d, 2% below the second quarter of 2008. Year-to-date, production from continuing operations has averaged 426,000 boe/d, 6% above last year.
- Netbacks were down 55% from a year earlier, averaging $27.41/boe with both oil and natural gas prices significantly lower due to the global economic slowdown.
- Talisman has continued to strengthen its balance sheet. Net debt(1) at quarter end was $2 billion, down from $3.9 billion at December 31, 2008.
- The Company closed the sale of non-core midstream assets in Alberta and non-strategic properties in Saskatchewan and Trinidad in the second quarter, with total proceeds of $1.3 billion.
- Talisman has made exploration discoveries at Huron-1 (Colombia), Grevling (Norway) and Shaw (UK).
- The Company is currently producing 30 mmcf/d from the Marcellus Shale play and has increased its 2009 drilling program to approximately 50 wells.
(1) The terms "cash flow", "earnings from continuing operations" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.
"This was a solid quarter for Talisman, both operationally and financially," said John A. Manzoni, President and CEO. "We continue to make excellent progress on the strategy, with notable success in the Marcellus and encouraging exploration results during the quarter. Year-to-date, our production from continuing operations is up 6%, driven by increasing volumes from Southeast Asia, and we are on-track to meet our guidance for the year. As previously disclosed, volumes were down this quarter due to planned maintenance and there were some operational issues in the UK.
"We generated $900 million in cash flow during the second quarter, bringing the total to $2.2 billion for the first six months. Cash flow was down from the first quarter, largely because of decreased proceeds realized from our hedges. Earnings from continuing operations were $135 million for the quarter, which is respectable in a C$48/boe environment.
"We have seen some strengthening in oil prices with growing optimism that the economy is at least stabilizing, although natural gas fundamentals remain weak. This environment demonstrates the value of our diverse portfolio, with a balance between oil and gas, as well as international and domestic production, highlighted by UK liquids netbacks, which increased by 26% compared to the first quarter.
"Overall, we have reduced unit operating costs 7% compared to a year ago as a result of cost reduction programs, higher volumes in some areas and increased operating efficiencies, particularly in the UK, and more savings are planned. We continue to drive capital and operating costs down with new project management systems, the LEAN culture in North America and negotiations with suppliers.
"Talisman's balance sheet is strong with net long-term debt sitting at $2 billion, down from $3.9 billion at year end. This is due in large part to our non-core asset disposition program, which has been very successful, with excellent metrics. From the inception of the strategy in May 2008, we have sold approximately 27,000 boe/d of non-core assets, with proceeds of $2.5 billion.
"We had some exciting exploration news during the quarter. The Grevling discovery in Norway was drilled and sidetracked. The initial test from the Huron well in Colombia has found hydrocarbons and the well is nearing completion. The Shaw well in the UK has also found hydrocarbons and is just south of our recent Godwin discovery. In Peru, the Situche well is drilling in the reservoir. In the Kurdistan region of northern Iraq, we are drilling our second well and have acquired interests in an additional block. In June, we entered into an agreement to acquire the shares of Rift Oil. This is an excellent opportunity to aggregate large volumes of natural gas in Papua New Guinea.
"There is also growing excitement around our Marcellus Shale play in Pennsylvania, where we have decided to increase spending, with approximately 50 wells planned this year, up from 36. The Company is now producing 30 mmcf/d and initial production rates on recent wells have averaged 5 mmcf/d. We have reduced cycle times by 60% and lowered drilling and completion costs to approximately US$4 million for our most recent well.
"We are seeing strong production growth in Southeast Asia. Development drilling is ongoing at PM-3 CAA (Northern and Southern Fields) and we continue to evaluate our offshore discovery in Vietnam. In the North Sea, we have a number of development projects underway and drilling continued during the quarter in the Auk field in the UK and the Yme field in Norway.
"After 23 years with the Company, Ron Eckhardt, Executive Vice President of North American Operations, has decided to retire. Paul Smith, Executive Vice President, International Operations West, will replace Ron, building on the excellent progress on the unconventional natural gas strategy to-date. Nick Walker, who heads our UK operations, will take over from Paul.
"In summary, we are making significant progress towards the objectives set out in the strategy. Southeast Asia is proving to be a reliable low-cost source of growth. We are demonstrating the commercial viability of our unconventional plays. The exploration program is showing signs of delivering material new opportunities. Our strong balance sheet provides us financial flexibility, which we will use prudently. We continue to drive costs out of the system and position the Company for profitable long-term growth."
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Financial Highlights
Three months ended Six months ended
June 30, 2009 2008 2009 2008
----------------------------------------
Cash flow ($ million) 900 1,691 2,206 2,923
----------------------------------------
Cash flow per share(2) 0.89 1.66 2.17 2.87
----------------------------------------
Cash flow from continuing operations
($ million) 864 1,575 2,150 2,721
----------------------------------------
----------------------------------------
Net income ($ million) 63 426 518 892
----------------------------------------
Net income per share 0.06 0.42 0.51 0.88
----------------------------------------
----------------------------------------
Earnings from continuing operations
($ million) 135 790 429 1,223
----------------------------------------
Earnings from continuing operations
per share(2) 0.13 0.78 0.42 1.20
----------------------------------------
Average shares outstanding (million) 1,015 1,019 1,015 1,019
----------------------------------------
(2) The terms "cash flow per share" and "earnings from continuing operations
per share" are non-GAAP measures. Please see the advisories and
reconciliations elsewhere in this news release.
Cash flow during the quarter was $900 million compared to $1,691 million a year earlier. The main reason for the decrease has been a significant fall in oil and gas prices, resulting in a 55% reduction in netbacks. The price impact was partially offset by lower royalties and cash taxes and realized gains on commodity derivatives. Relative to the first quarter, cash flow decreased by $409 million primarily due to reduced proceeds from commodity derivatives. Cash flow numbers for the quarter include a pre-tax cash realization of $191 million from held-for-trading derivatives compared to $584 million in the first quarter.
Year-to-date, Talisman has generated $2.2 billion in cash flow, down from $2.9 billion in 2008, but comparable to the same period in 2007.
Earnings from continuing operations totalled $135 million during the quarter, versus $790 million a year earlier primarily due to reduced commodity prices. Relative to the first quarter, earnings from continuing operations decreased from $294 million, primarily due to reduced realized proceeds from commodity derivatives, which were offset by lower exploration and dry hole costs.
Net income for the quarter was $63 million compared to $426 million a year earlier. The main reason for the difference was the fall in commodity prices.
Total Depreciation, Depletion and Amortization (DD&A) expense from continuing operations was $679 million, an increase of $56 million, which arose largely in the UK as a result of a writedown in reserves due to low oil prices at year end.
Dry hole expense was $51 million during the quarter versus $70 million in the second quarter of 2008 and includes a credit in Alaska. Exploration expense was $58 million compared to $115 million in the previous year. Current income taxes in the quarter were $175 million versus $502 million a year earlier, principally due to decreased revenues from lower commodity prices.
Exploration and development spending was $826 million during the quarter, bringing the total to $1.8 billion for the year.
Talisman's net long-term debt at June 30 was $2 billion, down from $3.9 billion at year end. The reduction was primarily due to proceeds from asset dispositions that closed during the second quarter of 2009. Talisman issued US$700 million 7.75% senior notes in the US public debt market in the second quarter.
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Production
Three months ended Six months ended
June 30, 2009 2008 2009 2008
----------------------------------------
Oil and liquids (bbls/d) 212,149 219,313 223,450 217,969
----------------------------------------
Natural gas (mmcf/d) 1,271 1,275 1,281 1,245
----------------------------------------
Total (mboe/d) 424 432 437 426
----------------------------------------
----------------------------------------
Continuing operations (mboe/d) 416 408 426 401
----------------------------------------
Year-to-date, production from continuing operations has averaged 426,000 boe/d, up 6%. Production from continuing operations averaged 416,000 boe/d during the quarter, an increase of 2% over the second quarter of 2008. This was predominantly due to higher volumes in Southeast Asia (record sales at Corridor in Indonesia, Northern Fields commissioning offshore Malaysia/Vietnam) and startup of the Rev Field in Norway.
Total production averaged 424,000 boe/d, down 2% from a year earlier.
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Netbacks
Three months ended Six months ended
June 30, 2009 2008 2009 2008
----------------------------------------
Sales 47.90 94.46 45.99 83.89
----------------------------------------
Hedging loss - (0.37) - (0.31)
----------------------------------------
Royalties 6.24 17.23 6.08 15.08
----------------------------------------
Transportation 1.29 1.52 1.35 1.33
----------------------------------------
Operating expenses 12.96 14.01 12.64 13.55
----------------------------------------
Netback ($/boe) 27.41 61.33 25.92 53.62
----------------------------------------
----------------------------------------
Oil and liquids netback ($/bbl) 38.37 81.01 33.83 69.95
----------------------------------------
Natural gas netback ($/mcf) 2.73 6.83 2.93 6.07
----------------------------------------
WTI oil prices averaged US$60/bbl during the quarter, up from US$43/bbl in the first quarter, but well below US$124/bbl a year ago. North American natural gas prices continued to weaken, with NYMEX averaging US$3.60/mmbtu compared to US$10.80/mmbtu a year ago. North American natural gas prices include the impact of physical commodity contracts.
Netbacks in the second quarter averaged $27.41, down 55% from a year earlier, but up slightly from $24.48/boe in the first quarter. Royalty expenses totalled $221 million (12%) compared to $708 million (19%) in the corresponding quarter for 2008.
Talisman has implemented a global review to identify and implement cost savings and operational efficiencies. Operating costs are starting to be reduced by these initiatives, but the effect can be impacted by the timing of maintenance activities, timing of crude oil liftings and foreign exchange rate changes. Unit operating costs were 7% lower than a year ago, predominantly due to increased efficiency, less maintenance work and the disposition of higher cost properties in the UK and higher volumes in Norway.
North America
Production in North America averaged approximately 171,000 boe/d in the quarter, down 9% from the same period in 2008. Production from continuing operations was down 6% over the same period in 2008, reflecting reduced capital spending and a shift in development focus from conventional areas to unconventional plays. Production from new unconventional areas increased 22% from the first quarter.
On June 1, Talisman closed asset sales in southeast Saskatchewan and Cutbank Midstream for cash proceeds totaling approximately $1 billion. The Saskatchewan production was sold at approximately $85,000 per boe/d and the midstream assets were sold at approximately ten times trailing EBITDA.
Capital spending included $496 million in unconventional natural gas areas and $128 million on conventional properties. During the first six months of the year, Talisman participated in 92 gross wells (50.8 net), with 82 gross wells in unconventional plays.
In the Marcellus Shale, the Company drilled nine gross (nine net) wells during the quarter, for a total of 12 gross (12 net) in the first half of the year. The development plan is ahead of schedule and the Company is now producing at rates in excess of 30 mmcf/d. Talisman currently has two pre-set drilling rigs and two horizontal rigs operating and a third horizontal rig is expected to start in July. Talisman is increasing capital spending in the Marcellus play as a result of recent results and its proximity to premium natural gas markets. The Company now expects to drill approximately 50 wells during the year versus the original plan of 36 wells.
Marcellus wells continue to exceed expectations. The latest wells on production have achieved initial production rates averaging 5 mmcf/d and peak rates above 5 mmcf/d, well above the original 2.5 mmcf/d type curve. Capital costs also continue to improve, with the most recent well achieving drilling and completion costs of approximately US$4 million. Drilling cycle times have been reduced by 60% as a result of Talisman's LEAN Well Delivery initiative. The Company is already drilling on state lands acquired in late 2008.
In the Montney Core, Talisman drilled 12 gross (9.9 net) wells in the first half of the year. The most recent eight horizontal wells have averaged initial 30-day production rates of 3.5 mmcf/d, well above the original target of 2.6 mmcf/d. Talisman has made significant strides in reducing costs in the Montney, targeting a US$4/mcf (NYMEX) breakeven cost by the end of the year.
The Company drilled a total of five wells in the Montney Shale in the quarter, for a total of 12 gross (9.2 net) in the first half of the year. The first horizontal and vertical pilot wells exceeded initial type curve expectations.
In Quebec, the Company is currently testing vertical wells, which were drilled to complete the land earning requirements. Based on encouraging test results from its vertical wells, Talisman intends to begin drilling horizontal pilot wells by the end of the third quarter, with the potential to drill at least two horizontal wells in 2009. To date, three separate pilot areas have been identified next to the vertical test wells.
Talisman's conventional areas continue to perform well even with reduced capital. Base declines are lower than anticipated and many areas continue to report strong production volumes.
UK
Production from continuing operations in the UK averaged approximately 93,000 boe/d during the quarter, unchanged from the same period in 2008 and down 14% from the first quarter. Production during the second quarter was lower due to both planned shutdowns and a number of unplanned events.
Most significantly, there was a compressor failure at Claymore (eight weeks outage with one compressor now online and a second compressor expected online at the end of July) and a well was shut in at the Wood Field due to poor reservoir performance. A well intervention is planned for the first half of 2010.
Tweedsmuir has been performing well, with production very steady at over 25,000 boe/d for the quarter. At Tartan, improved production efficiency has resulted in higher volumes across the fields producing through the Tartan facility, with production in the area averaging over 8,500 boe/d during the quarter.
The Company has made a discovery on the Shaw prospect in Block 22/22a, adjacent to its recently announced Godwin discovery. The well tested at 4,800 boe/d on a restricted choke and Talisman is currently drilling an appraisal sidetrack. Talisman is reviewing options to develop the Godwin discovery via the Montrose - Arbroath facilities.
Talisman continues to progress its developments at Burghley, Auk North and Auk South, which are on schedule and on budget. At Auk North, three batch wells continued drilling during the quarter. Early indications show better than expected performance with an initial free flow rate on the first well of 6,500 boe/d through a restricted choke. However, the non-operated Affleck field continues to experience delays, with first oil now expected later this year.
As part of the ongoing program to manage capital spending levels, Talisman has worked with its rig vendor to renegotiate the terms of its contract, with early release of the Ocean Nomad at the end of the current exploration well, combined with a corresponding extension of the commitment on the Ocean Princess.
Scandinavia
Production from continuing operations in Scandinavia averaged approximately 39,000 boe/d during the quarter, up 18% over the second quarter of 2008 and down 9% from the first quarter of 2009. Production during the second quarter was down due to planned shutdowns and lower than expected operating efficiency for Rev through the non-operated Armada facility in the UK.
The Company made a promising oil discovery on the Grevling prospect, offshore Norway in PL038, Block 15/12. A subsequent sidetrack was drilled down-dip of the structure, which extended the proven oil column with remaining potential untested down-flank. The Company is currently evaluating development options across its Varg facilities. A further appraisal well is planned for early 2010.
Southeast Asia
In Southeast Asia, production averaged approximately 105,000 boe/d, 15% higher than the same period last year and 4% above the last quarter. Indonesian production averaged 65,000 boe/d, 14% higher than the same period last year and 3% higher than the last quarter. In Malaysia/Vietnam, production averaged 35,000 boe/d, 2% above than the same period last year, due to gas and oil production from Northern Fields and the ongoing Bunga Kekwa C infill program, partially offset by a decline in South Angsi production. Volumes were also 15% higher than the previous quarter, mainly due to Northern Fields oil production, which came onstream late in the first quarter of 2009.
Production from Corridor during the quarter reached a record high of 331 mmcf/d (net to Talisman) as sales volumes to both Caltex and PGN continued to increase.
During the second quarter, the Tangguh Liquefied Natural Gas (LNG) facility produced its first LNG and commenced loading operations, with the first cargo shipped on July 6.
A Gas Sales Agreement for the sale of Mandala gas and field solution gas in the Ogan Komering Block was signed in April. The contract will be in place until 2016 at an average rate of 12 mmcf/d gross sales gas.
Gas production from the Northern Fields averaged 119 mmcf/d gross sales during the quarter, with liquids production averaging approximately 12,700 boe/d. To date, 25 wells have been drilled on Northern Fields with 100% success. Production will continue to ramp upwards as additional oil and gas producers are brought onstream and commissioning of compression systems is completed in the third quarter.
In the Southern Fields, a planned shutdown for preventative maintenance was completed in May, with the oil system shut-in for 10 days and the gas processing system shut-in for 13 days. The first infill well in the Improved Oil Recovery Phase 1 program came on production in April at an initial rate of 1,100 bbls/d. The second well of a six well program is currently being drilled.
The Company continued the appraisal of the Hai Su Den (HSD) discovery in Block 15-2/01 in Vietnam. The 3X basement appraisal well flowed oil on drill stem test and was subsequently abandoned. The 4X exploration well spud early in July and a further basement appraisal well (5X) is planned for later in the year.
Production in Australia was approximately 4,700 boe/d, 37% higher than the same period last year and 47% higher than the last quarter, primarily due to the new flowline at Corallina and reinstatement of the Lam-2 well.
Sanction of the field development plan for the Kitan discovery is expected in fourth quarter with first oil planned for mid-2011.
Other Operating Areas
In North Africa, production from continuing operations averaged 13,000 boe/d, down 13% compared to the same period a year ago, mainly due to continued OPEC production restrictions and natural declines. The Company expects these restrictions to continue at this level for the remainder of 2009.
The Company is in negotiations for the sale of its assets in Tunisia. The sale of Talisman's interests in Trinidad and Tobago was completed on May 27.
International Exploration
International exploration spending during the second quarter was approximately $176 million.
In June, Talisman entered an agreement to purchase the issued and outstanding shares of Rift Oil, whose principal assets are highly prospective exploration licences PPL235 and PPL261 in the Foreland Basin of Western Papua New Guinea. This provides the Company with a low cost opportunity to aggregate gas in Southeast Asia, one of the growth areas in Talisman's portfolio. The transaction is subject to a number of conditions.
On the Sageri Production Sharing Contract, processing of 2-D seismic acquired earlier in the year was completed. Talisman submitted bids for blocks in the Sabah bid round in Malaysia and North Sumatra bid round in Indonesia with results expected later in the year.
In the Kurdistan region of northern Iraq, the Kurdamir-1 well spud in early May and is currently drilling. The Company has also agreed to acquire an option on the K9 Block.
In Colombia, Talisman made a significant gas condensate discovery in the Niscota Block in the Andes Foothills. The Huron-1 well, which spud in June last year, encountered several reservoirs and tested one zone at 3,400 boe/d. Further logging and testing is underway. The Situche Central 3X well on Block 64 in Peru, which spud in late December 2008, is currently drilling in the reservoir.
Talisman was also awarded three blocks in Norway, in the Barents Sea, in the 20th Licencing Round.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The Company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York Stock Exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.
Forward-Looking Information
This news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding:
- expected annual production;
- planned cost savings;
- expected acquisition of Rift Oil, subject to conditions;
- planned changes in senior management;
- business strategy and plans;
- planned drilling in the Marcellus and increased capital expenditures;
- target breakeven costs in the Montney;
- Quebec development program;
- planned well intervention at the Wood Field;
- expected first oil at the Affleck field;
- expected release of the Ocean Nomad and extension on the Ocean Princess;
- planned well at the Grevling prospect;
- planned appraisal well at HSD;
- expected production from the Northern Fields;
- expected production restrictions in North Africa;
- expected sanctioning and first oil at the Kitan discovery;
- expected results of bid rounds in Southeast Asia; and
- other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.
With the exception of the timing of the release and extension of the Ocean Nomad and Ocean Princess, planned changes in senior management and bid round results in Southeast Asia, each of the forward-looking information listed above are based on Talisman's 2009 capital program announced on January 13. The material assumptions supporting the 2009 capital program are: (1) 2009 annual production of approximately 430,000 boe/d; (2) a US $40/bbl WTI oil price for 2009 and (3) a US $5/mmbtu NYMEX natural gas price for 2009. 2009 production estimates are subject to the timing of development activities and include the anticipated completion of planned dispositions. The completion of any planned disposition is contingent on various factors including market conditions, the ability of the Company to negotiate acceptable terms of sale and receipt of any required approvals of such dispositions.
Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this news release. The material risk factors include, but are not limited to:
- the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages;
- risks and uncertainties involving geology of oil and gas deposits;
- the uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk;
- the uncertainty of estimates and projections relating to production, costs and expenses;
- the impact of the economy and credit crisis on the ability of the counterparties to the Company's commodity price derivative contracts to meet their obligations under the contracts;
- potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
- fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;
- the outcome and effects of any future acquisitions and dispositions;
- health, safety and environmental risks;
- uncertainties as to the availability and cost of financing and changes in capital markets;
- risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action);
- changes in general economic and business conditions;
- the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; and
- results of the Company's risk mitigation strategies, including insurance and any hedging activities.
The foregoing list of risk factors is not exhaustive. Additional information on these and other factors, which could affect the Company's operations or financial results are included in the Company's most recent Annual Information Form. In addition, information is available in the Company's other reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission (SEC).
Forward-looking information is based on the estimates and opinions of the Company's management at the time the information is presented. The Company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law.
Oil and Gas Information
Throughout this news release, the calculation of barrels of oil equivalent (boe) is at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil (bbl). Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.
Talisman makes reference to production volumes throughout this news release. Where not otherwise indicated, such production volumes are stated on a gross basis, which means they are stated prior to the deduction of royalties and similar payments. In the US, net production volumes are reported after the deduction of these amounts.
Canadian Dollars and GAAP
Dollar amounts are presented in Canadian dollars unless otherwise indicated. Unless otherwise indicated, financial information is presented in accordance with Canadian generally accepted accounting principles that may differ from generally accepted accounting principles in the US. Talisman's Consolidated Financial Statements as at and for the year ended December 31, 2008, which were filed with Canadian and US securities authorities on March 5, 2009, contain information concerning differences between Canadian and US generally accepted accounting principles.
Non-GAAP Financial Measures
Included in this news release are references to financial measures commonly used in the oil and gas industry, such as cash flow, cash flow per share, earnings from continuing operations, earnings from continuing operations per share and net debt. These terms are not defined by GAAP in either Canada or the US. Consequently, these are referred to as non-GAAP measures. Talisman's reported cash flow, cash flow per share, earnings from continuing operations, earnings from continuing operations per share and net debt may not be comparable to similarly titled measures by other companies.
Cash flow, as commonly used in the oil and gas industry, represents net income before exploration costs, DD&A, future taxes and other non-cash expenses. Cash flow is used by the Company to assess operating results between years and between peer companies that use different accounting policies. Cash flow should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income as determined in accordance with Canadian GAAP as an indicator of the Company's performance or liquidity. Cash flow per share is cash flow divided by the average number of common shares outstanding during the period. A reconciliation of cash provided by operating activities to cash flow follows.
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($ million, except per share amount)
Three months ended Six months ended
----------------------------------------
June 30, 2009 2008 2009 2008
----------------------------------------------------------------------------
Cash provided by operating activities 1,150 1,538 2,236 2,850
Less: Changes in non-cash working
capital 250 (153) 27 (73)
----------------------------------------------------------------------------
Cash flow(2) 900 1,691 2,209 2,923
Less: Cash provided by discontinued
operations(1) 36 116 59 202
----------------------------------------------------------------------------
Cash flow from continuing
operations(1)(2) 864 1,575 2,150 2,721
----------------------------------------------------------------------------
Cash flow per share(1) 0.89 1.66 2.17 2.87
----------------------------------------------------------------------------
Cash flow from continuing operations(1) 0.85 1.55 2.12 2.67
----------------------------------------------------------------------------
(1) Comparatives restated for operations classified as discontinued since
June 30, 2008.
(2) This is a non-GAAP measure. Please refer to the section in this news
release entitled Non-GAAP Financial Measures for further explanation
and details.
Earnings from continuing operations are calculated by adjusting the Company's net income per the financial statements, for certain items of a non-operational nature, on an after-tax basis. The Company uses this information to evaluate performance of core operational activities on a comparable basis between periods. Earnings from continuing operations per share are earnings from continuing operations divided by the average number of common shares outstanding during the period. A reconciliation of net income to earnings from continuing operations follows.
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($ million, except per share amounts)
Three months ended Six months ended
June 30, 2009 2008 2009 2008
----------------------------------------------------------------------------
Net income 63 426 518 892
----------------------------------------------------------------------------
Operating income from discontinued
operations 19 86 48 139
Gain (loss) on disposition of
discontinued operations 477 91 996 88
----------------------------------------------------------------------------
Net income from discontinued
operations(5) 496 177 1,044 227
----------------------------------------------------------------------------
Net income (loss) from continuing
operations(5) (433) 249 (526) 665
Unrealized losses on financial
instruments(1) (tax adjusted) 478 344 865 395
Stock-based compensation expense
(recovery)(2) (tax adjusted) 84 191 107 184
Future tax recovery of unrealized
foreign exchange losses on foreign
denominated debt(3) 6 6 (17) (21)
----------------------------------------------------------------------------
Earnings from continuing operations(4) 135 790 429 1,223
----------------------------------------------------------------------------
Per share(4) 0.13 0.78 0.42 1.20
----------------------------------------------------------------------------
(1) Unrealized losses on financial instruments relate to the change in the
period of the mark-to-market value of the Company's outstanding
held-for-trading financial instruments
(2) Stock-based compensation expense relates principally to the
mark-to-market value of the Company's outstanding stock options and cash
units at June 30. The Company's stock-based compensation expense is
based principally on the difference between the Company's share price
and its stock options or cash units exercise price
(3) Tax adjustments reflect future taxes relating to unrealized foreign
exchange gains and losses associated with the impact of fluctuations in
the Canadian dollar on foreign denominated debt.
(4) This is a non-GAAP measure.
(5) Comparatives restated for operations classified as discontinued
subsequent to June 30, 2008.
This calculation does not reflect differing accounting policies and conventions between companies. All amounts are reported on an after-tax basis.
Net debt is calculated by adjusting the Company's long-term debt per the financial statements for bank indebtedness and cash and cash equivalents. The Company uses this information to assess its true debt position since cash could potentially be used to pay down long-term debt.
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($ million)
June 30, 2009 2008
----------------------------------------------------------------------------
Long-term debt 4,329 3,961
Bank indebtedness 2 81
Cash and cash equivalents (2,307) (91)
----------------------------------------------------------------------------
Net Debt 2,024 3,951
----------------------------------------------------------------------------
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Financial
(millions of C$ unless otherwise
stated)
Cash flow (1) 900 1,691 2,206 2,923
Net income 63 426 518 892
Exploration and development
expenditures 826 1,053 1,925 2,067
Per common share (C$)
Cash flow (1) 0.89 1.66 2.17 2.87
Net income 0.06 0.42 0.51 0.88
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Production
(daily average)
Oil and liquids (bbls/d)
North America 36,823 40,317 38,780 40,203
UK 89,936 90,709 96,277 87,361
Scandinavia 31,165 32,426 33,009 32,880
Southeast Asia 38,094 35,847 37,719 36,537
Other 16,131 20,014 17,665 20,988
----------------------------------------------------------------------------
Total oil and liquids 212,149 219,313 223,450 217,969
----------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 807 887 818 868
UK 21 38 25 37
Scandinavia 43 20 47 19
Southeast Asia 400 330 391 321
----------------------------------------------------------------------------
Total natural gas 1,271 1,275 1,281 1,245
----------------------------------------------------------------------------
Total mboe/d (2) 424 432 437 426
----------------------------------------------------------------------------
Prices (3)
Oil and liquids (C$/bbl)
North America 56.55 105.27 49.29 93.07
UK 67.73 123.25 61.70 110.78
Scandinavia 67.89 129.08 61.91 113.98
Southeast Asia 70.61 136.86 61.79 117.91
Other 69.75 141.12 63.95 120.90
----------------------------------------------------------------------------
Total oil and liquids 66.48 124.66 59.77 110.16
----------------------------------------------------------------------------
Natural gas (C$/mcf)
North America 4.37 10.25 4.94 9.08
UK 4.24 9.76 5.22 9.16
Scandinavia 4.22 6.77 7.24 6.28
Southeast Asia 6.01 11.67 5.69 10.41
----------------------------------------------------------------------------
Total natural gas 4.88 10.55 5.26 9.38
----------------------------------------------------------------------------
Total (C$/boe) (2) 47.90 94.46 45.99 83.89
----------------------------------------------------------------------------
(1) Cash flow and cash flow per share are non-GAAP measures.
(2) Barrels of oil equivalent (boe) is calculated at a conversion rate of
six thousand cubic feet (mcf) of natural gas for one barrel of oil.
(3) Prices are before hedging.
Includes the results from continuing and discontinued operations.
Talisman Energy Inc.
Consolidated Balance Sheets
(unaudited)
June 30 December 31
(millions of C$) 2009 2008
----------------------------------------------------------------------------
(restated)
Assets
Current
Cash and cash equivalents 2,307 91
Accounts receivable 1,588 2,424
Inventories 120 181
Prepaid expenses 19 17
Assets of discontinued operations 18 215
----------------------------------------------------------------------------
4,052 2,928
----------------------------------------------------------------------------
Other assets 220 234
Goodwill 1,291 1,260
Property, plant and equipment 19,334 18,984
Assets of discontinued operations 140 869
----------------------------------------------------------------------------
20,985 21,347
----------------------------------------------------------------------------
Total assets 25,037 24,275
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness 2 81
Accounts payable and accrued liabilities 1,880 1,876
Income and other taxes payable 441 468
Current portion of long-term debt 186 -
Future income taxes 88 300
Liabilities of discontinued operations 2 93
----------------------------------------------------------------------------
2,599 2,818
----------------------------------------------------------------------------
Deferred credits 54 51
Asset retirement obligations 2,128 1,998
Other long-term obligations 313 173
Long-term debt 4,143 3,961
Future income taxes 4,050 4,006
Liabilities of discontinued operations 28 118
----------------------------------------------------------------------------
10,716 10,307
----------------------------------------------------------------------------
Shareholders' equity
Common shares, no par value
Authorized: unlimited
Issued and outstanding:
2009 - 1,015 million (December 2008 - 1,015 million) 2,374 2,372
Contributed surplus 119 84
Retained earnings 9,369 8,966
Accumulated other comprehensive loss (140) (272)
----------------------------------------------------------------------------
11,722 11,150
----------------------------------------------------------------------------
Total liabilities and shareholders' equity 25,037 24,275
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the financial position
of discontinued operations.
Talisman Energy Inc.
Consolidated Statements of Income
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2009 2008 2009 2008
----------------------------------------------------------------------------
(restated) (restated)
Revenue
Gross sales 1,798 3,707 3,637 6,063
Hedging loss - (14) - (24)
----------------------------------------------------------------------------
Gross sales, net of hedging 1,798 3,693 3,637 6,039
Less royalties 221 708 521 1,069
----------------------------------------------------------------------------
Net sales 1,577 2,985 3,116 4,970
Other 26 37 60 59
----------------------------------------------------------------------------
Total revenue 1,603 3,022 3,176 5,029
----------------------------------------------------------------------------
Expenses
Operating 504 536 1,025 968
Transportation 50 59 107 101
General and administrative 86 75 167 139
Depreciation, depletion and
amortization 679 623 1,412 1,132
Dry hole 51 70 295 134
Exploration 58 115 126 170
Interest on long-term debt 45 37 90 81
Stock-based compensation 117 270 150 260
Loss on held-for-trading financial
instruments 438 530 365 598
Other, net 88 (6) 103 (22)
----------------------------------------------------------------------------
Total expenses 2,116 2,309 3,840 3,561
----------------------------------------------------------------------------
Income (loss) from continuing
operations before taxes (513) 713 (664) 1,468
----------------------------------------------------------------------------
Taxes
Current income tax 175 502 307 735
Future income tax (recovery) (281) (115) (485) (56)
Petroleum revenue tax 26 77 40 124
----------------------------------------------------------------------------
(80) 464 (138) 803
----------------------------------------------------------------------------
Net income (loss) from continuing
operations (433) 249 (526) 665
----------------------------------------------------------------------------
Net income from discontinued operations 496 177 1,044 227
----------------------------------------------------------------------------
Net income 63 426 518 892
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per common share (C$):
Net income (loss) from continuing
operations (0.43) 0.24 (0.52) 0.65
Diluted net income (loss) from
continuing operations (0.43) 0.24 (0.52) 0.64
Net income from discontinued operations 0.49 0.17 1.03 0.22
Diluted net income from discontinued
operations 0.49 0.17 1.03 0.22
Net income 0.06 0.42 0.51 0.88
Diluted net income 0.06 0.41 0.51 0.86
----------------------------------------------------------------------------
Average number of common shares
outstanding (millions) 1,015 1,019 1,015 1,019
Diluted number of common shares
outstanding (millions) 1,015 1,043 1,015 1,040
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the results of
discontinued operations
Talisman Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2009 2008 2009 2008
----------------------------------------------------------------------------
(restated) (restated)
Operating
Net income (loss) from continuing
operations (433) 249 (526) 665
Items not involving cash 1,239 1,211 2,550 1,885
Exploration 58 115 126 170
----------------------------------------------------------------------------
864 1,575 2,150 2,720
Changes in non-cash working capital 250 (153) 27 (73)
----------------------------------------------------------------------------
Cash provided by continuing operations 1,114 1,422 2,177 2,647
Cash provided by discontinued
operations 36 116 59 203
----------------------------------------------------------------------------
Cash provided by operating activities 1,150 1,538 2,236 2,850
----------------------------------------------------------------------------
Investing
Capital expenditures
Exploration, development and other (822) (978) (1,761) (1,944)
Property acquisitions (28) (278) (56) (375)
Proceeds of resource property
dispositions 27 - 60 -
Changes in non-cash working capital (100) 136 (357) 234
Discontinued operations, net of capital
expenditures 1,268 248 1,850 192
----------------------------------------------------------------------------
Cash provided by (used in) investing
activities 345 (872) (264) (1,893)
----------------------------------------------------------------------------
Financing
Long-term debt repaid (106) (1,197) (796) (2,364)
Long-term debt issued 879 492 1,249 1,030
Common shares issued (1) - - -
Common share dividends (115) (102) (115) (102)
Deferred credits and other 3 5 7 14
Changes in non-cash working capital 1 (3) 2 (3)
----------------------------------------------------------------------------
Cash provided by (used in) financing
activities 661 (805) 347 (1,425)
----------------------------------------------------------------------------
Effect of translation on foreign
currency cash and cash equivalents (10) 10 (24) 20
----------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,146 (129) 2,295 (448)
Cash and cash equivalents net of bank
indebtedness, beginning of period 159 202 10 521
----------------------------------------------------------------------------
Cash and cash equivalents net of bank
indebtedness, end of period 2,305 73 2,305 73
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents 2,307 88 2,307 88
Bank indebtedness 2 15 2 15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents net of bank
indebtedness, end of period 2,305 73 2,305 73
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the cash flows of
discontinued operations
Segmented Information
North America (1) UK
--------------------------------------------------------------
Three months Six months Three months Six months
ended ended ended ended
June 30 June 30 June 30 June 30
--------------------------------------------------------------
(millions of
Canadian $) 2009 2008 2009 2008 2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
Gross sales 485 1,176 1,025 2,020 592 985 1,121 1,782
Hedging - - - - - (14) - (24)
Royalties 55 208 140 362 2 1 2 5
----------------------------------------------------------------------------
Net sales 430 968 885 1,658 590 970 1,119 1,753
Other 21 30 47 46 4 5 11 10
----------------------------------------------------------------------------
Total revenue 451 998 932 1,704 594 975 1,130 1,763
----------------------------------------------------------------------------
Segmented
expenses
Operating 154 158 305 282 216 227 427 443
Transportation 14 18 26 34 11 12 24 19
DD&A 283 269 554 523 218 167 453 310
Dry hole - 46 128 66 (1) 5 30 26
Exploration 12 45 35 68 5 7 7 12
Other (12) (1) (11) (6) (11) (5) (5) -
----------------------------------------------------------------------------
Total
segmented
expenses 451 535 1,037 967 438 413 936 810
----------------------------------------------------------------------------
Segmented
income (loss)
before taxes - 463 (105) 737 156 562 194 953
----------------------------------------------------------------------------
Non-segmented
expenses
General and
administrative
Interest
Stock-based
compensation
Currency
translation
(Gain)/Loss on
held-for-trading
financial
instruments
----------------------------------------------------------------------------
Total
non-segmented
expenses
----------------------------------------------------------------------------
Income (loss)
from
continuing
operations
before taxes
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration 103 222 308 399 44 28 90 78
Development 105 65 210 285 160 186 291 310
Midstream (5) 21 30 31 - - - -
----------------------------------------------------------------------------
Exploration
and
development 203 308 548 715 204 214 381 388
Property
acquisitions
Proceeds on
dispositions
Other
non-segmented
----------------------------------------------------------------------------
Net capital
expenditures(4)
----------------------------------------------------------------------------
Property,
plant and
equipment 8,558 8,703 4,988 4,738
Goodwill 223 224 327 306
Other 2,826 840 414 253
Discontinued
operations - 534 - 165
----------------------------------------------------------------------------
Segmented
assets 11,607 10,301 5,729 5,462
Non-segmented
assets
----------------------------------------------------------------------------
Total assets(5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Scandinavia Southeast Asia (2)
-------------------------------------------------------------
Three months Six months Three months Six months
ended ended ended ended
June 30 June 30 June 30 June 30
-------------------------------------------------------------
(millions of
Canadian $) 2009 2008 2009 2008 2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
Gross sales 212 443 454 647 430 774 819 1,285
Hedging - - - - - - - -
Royalties - - - - 132 320 277 523
----------------------------------------------------------------------------
Net sales 212 443 454 647 298 454 542 762
Other 1 - 2 1 - - - -
----------------------------------------------------------------------------
Total revenue 213 443 456 648 298 454 542 762
----------------------------------------------------------------------------
Segmented
expenses
Operating 62 80 137 137 64 56 131 90
Transportation 13 9 25 18 10 18 28 26
DD&A 87 110 190 174 82 63 192 111
Dry hole 35 18 62 42 - 1 51 -
Exploration 6 17 12 24 15 19 30 26
Other 5 (1) 5 (2) 2 1 - 2
----------------------------------------------------------------------------
Total segmented
expenses 208 233 431 393 173 158 432 255
----------------------------------------------------------------------------
Segmented income
(loss) before
taxes 5 210 25 255 125 296 110 507
----------------------------------------------------------------------------
Non-segmented
expenses
General and
administrative
Interest
Stock-based
compensation
Currency
translation
(Gain)/Loss on
held-for-trading
financial
instruments
----------------------------------------------------------------------------
Total
non-segmented
expenses
----------------------------------------------------------------------------
Income (loss)
from continuing
operations before
taxes
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration 69 53 128 90 45 92 126 177
Development 133 160 248 301 90 106 286 192
Midstream - - - - - - - -
----------------------------------------------------------------------------
Exploration and
development 202 213 376 391 135 198 412 369
Property
acquisitions
Proceeds on
dispositions
Other
non-segmented
----------------------------------------------------------------------------
Net capital
expenditures(4)
----------------------------------------------------------------------------
Property, plant
and equipment 1,926 1,745 2,982 2,984
Goodwill 619 602 122 129
Other 174 153 334 304
Discontinued
operations 113 93 - -
----------------------------------------------------------------------------
Segmented assets 2,832 2,593 3,438 3,417
Non-segmented
assets
----------------------------------------------------------------------------
Total assets(5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other (3) Total
--------------------------------------------------------------
Three months Six months Three months Six months
ended ended ended ended
June 30 June 30 June 30 June 30
--------------------------------------------------------------
(millions of
Canadian $) 2009 2008 2009 2008 2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
Gross sales 79 329 218 329 1,798 3,707 3,637 6,063
Hedging - - - - - (14) - (24)
Royalties 32 179 102 179 221 708 521 1,069
----------------------------------------------------------------------------
Net sales 47 150 116 150 1,577 2,985 3,116 4,970
Other - 2 - 2 26 37 60 59
----------------------------------------------------------------------------
Total revenue 47 152 116 152 1,603 3,022 3,176 5,029
----------------------------------------------------------------------------
Segmented
expenses
Operating 8 15 25 16 504 536 1,025 968
Transportation 2 2 4 4 50 59 107 101
DD&A 9 14 23 14 679 623 1,412 1,132
Dry hole 17 - 24 - 51 70 295 134
Exploration 20 27 42 40 58 115 126 170
Other - (1) 12 (5) (16) (7) 1 (11)
----------------------------------------------------------------------------
Total segmented
expenses 56 57 130 69 1,326 1,396 2,966 2,494
----------------------------------------------------------------------------
Segmented income
(loss) before
taxes (9) 95 (14) 83 277 1,626 210 2,535
----------------------------------------------------------------------------
Non-segmented
expenses
General and
administrative 86 75 167 139
Interest 45 37 90 81
Stock-based
compensation 117 270 150 260
Currency
translation 104 1 102 (11)
(Gain)/Loss on
held-for-trading
financial
instruments 438 530 365 598
----------------------------------------------------------------------------
Total
non-segmented
expenses 790 913 874 1,067
----------------------------------------------------------------------------
Income (loss)
from continuing
operations before
taxes (513) 713 (664) 1,468
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration 54 35 116 52 315 430 768 796
Development 11 (9) 11 1 499 508 1,046 1,089
Midstream - - - - (5) 21 30 31
----------------------------------------------------------------------------
Exploration and
development 65 26 127 53 809 959 1,844 1,916
Property
acquisitions 28 278 56 389
Proceeds on
dispositions (27) - (60) -
Other
non-segmented 13 19 23 28
----------------------------------------------------------------------------
Net capital
expenditures (4) 823 1,256 1,863 2,333
----------------------------------------------------------------------------
Property, plant
and equipment 880 814 19,334 18,984
Goodwill - - 1,291 1,260
Other 97 127 3,845 1,677
Discontinued
operations 45 292 158 1,084
----------------------------------------------------------------------------
Segmented assets 1,022 1,233 24,628 23,005
Non-segmented
assets 409 1,270
----------------------------------------------------------------------------
Total assets(5) 25,037 24,275
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) North America 2009 2008 2009 2008
----------------------------------------------------------------------------
Canada 426 928 873 1,588
US 25 70 59 116
----------------------------------------------------------------------------
Total revenue 451 998 932 1,704
----------------------------------------------------------------------------
Canada 7,777 7,903
US 781 800
----------------------------------------------------------------------------
Property, plant and equipment (5) 8,558 8,703
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(2) Southeast Asia 2009 2008 2009 2008
----------------------------------------------------------------------------
Indonesia 166 258 301 460
Malaysia 86 130 147 226
Vietnam 22 - 58 11
Australia 24 66 36 65
----------------------------------------------------------------------------
Total revenue 298 454 542 762
----------------------------------------------------------------------------
Indonesia 984 990
Malaysia 1,274 1,277
Vietnam 471 470
Australia 253 247
----------------------------------------------------------------------------
Property, plant and equipment (5) 2,982 2,984
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(3) Other 2009 2008 2009 2008
----------------------------------------------------------------------------
Algeria 53 152 125 142
Other (6) - (9) 10
----------------------------------------------------------------------------
Total revenue 47 152 116 152
----------------------------------------------------------------------------
Algeria 221 249
Other 659 565
----------------------------------------------------------------------------
Property, plant and equipment (5) 880 814
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4 Excluding corporate acquisitions.
5 Current year represents balances as at June 30, prior year represents
balances as at December 31.
Contact:
Contacts:
Talisman Energy Inc. - Media and General Inquiries
David Mann, Vice-President,
Corporate & Investor Communications
(403) 237-1196
(403) 237-1210 (FAX)
Email: tlm@talisman-energy.com
Website: www.talisman-energy.com
Talisman Energy Inc. - Shareholder and Investor Inquiries
Christopher J. LeGallais, Vice-President,
Investor Relations
(403) 237-1957
(403) 237-1210 (FAX)
Email: tlm@talisman-energy.com
Website: www.talisman-energy.com
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