Talisman Energy Inc.
Talisman Energy Generates $1.2 Billion in Cash Flow
Cash Flow Per Share Up 9%
Talisman Energy Inc. today reported its second quarter operating and financial
results.
Cash flow(1) was $1,177 million ($1.13/share), an increase of 3%, compared to
$1,142 million ($1.04/share) a year earlier and $1,004 million ($0.95/share) in
the first quarter of 2007. Cash flow to June 30 was $2,181 million
($2.09/share), compared to $2,486 million ($2.26/share) a year ago.
Net income for the quarter was $550 million ($0.53/share), compared to $686
million ($0.62/share) a year ago. Net income was $520 million ($0.49/share) in
the first quarter of 2007. Net income for the first six months was $1,070
million ($1.02/share), compared to $883 million ($0.80/share) a year earlier.
The main reason for the decrease in second quarter results was a one time gain
of $178 million in 2006 related to Canadian federal and provincial tax rate
reductions.
Production averaged approximately 450,000 boe/d, a decrease of 5% from the
second quarter of 2006 and down from 470,000 boe/d in the first quarter,
principally due to Talisman's ongoing asset rationalization program and planned
maintenance. Oil and liquids production averaged 245,349 bbls/d, down 3%
compared to a year ago. Natural gas production averaged 1,231 mmcf/d in the
quarter, a decrease of 7% from last year.
"Operationally, the quarter met expectations," said Dr. Jim Buckee, President
and Chief Executive Officer. "Production was on target and cash flow per share
was up 9% compared to a year ago, despite lower oil prices and a stronger
Canadian dollar. Year over year comparisons are difficult due to ongoing asset
sales, which have reduced production by about 23,000 boe/d, compared with a year
ago, including the completion of additional North American sales during the
second quarter.
"Agreements are now in place completing the second phase of our non-core asset
sales program in Western Canada. In total, we expect to sell an additional
16,000 boe/d of relatively low working interest, mature properties for
approximately $815 million. The Brae asset sales package (19,000 boe/d) in the
UK is expected to close late in the year. We are also undertaking a review of
our midstream assets, looking for ways to surface value by monetizing a portion
of the assets while maintaining operational control. We have delivered on our
commitment to repurchase shares with proceeds from asset sales, spending
approximately $923 million to buy back 44.5 million shares year-to-date, on the
heels of $660 million spent to repurchase 35 million shares in 2006.
"In North America, Talisman's natural gas production averaged 860 mmcf/d, down
3% from a year ago. However, 32 mmcf/d of the decrease was due to non-core asset
sales and another 37 mmcf/d was due to a planned turnaround at Monkman during
the quarter. I am pleased with our continued success in the Foothills where
Talisman set a new record of 205 mmcf/d in May.
"North Sea volumes were up year over year despite the loss of some 9,200 boe/d
associated with non-core asset sales. This production gain is the result of both
successful development drilling and first volumes from the Tweedsmuir project in
May.
"UK operating costs have shown signs of moderating and were relatively flat
compared to the first quarter, while unit costs in Norway were down 12% from a
year ago. Further unit cost reductions in the UK are expected later in the year
with full volumes from Tweedsmuir. Tweedsmuir reservoir performance is as
expected, however, the topsides modifications at the Piper platform are now
expected to be ready for full production volumes in mid-November.
"The Enoch field also came on production in May and is performing well. First
production from the Blane and Wood fields is expected in August and startup of
production from the Duart field has been brought forward to September.
Production from both the Affleck and Galley fields is still expected in the
fourth quarter. In Norway, the Rev development is underway with first production
scheduled for mid-2008 and first oil from the Yme redevelopment project is
expected in mid-2009.
"In Southeast Asia, we are excited by our earlier Vietnam discovery and expect
to spud our next prospect in Block 15-02/01 in September. Development of the
Northern Fields in the PM-3 CAA block is on schedule with first gas and oil
production expected in the second and fourth quarters of 2008, respectively.
Development of the Song Doc field is underway in Vietnam with a five-well
development program planned to commence in September.
"In Peru, the Company was awarded Block 134 in the 2007 bid round and in
Colombia, Talisman was awarded three exploration blocks. This acreage
complements Talisman's existing asset base in the foothills regions of both
Colombia and Peru. In Trinidad and Tobago, a successful development well came on
production in May at rates of 3,000 bbls/d and pre-development work is
continuing on the Angostura Phase 2 gas development project.
"We now anticipate that production for the year will average 465,000 boe/d, at
the lower end of our guidance range. This is primarily due to tight industry
conditions, which have resulted in delays in bringing the Tweedsmuir field up to
full production rates and slippage of the West Java pipeline in Indonesia. Cash
flow is expected to average $4.7 billion based on expected WTI prices of
US$73/bbl, NYMEX gas prices of US$7.15/ mmbtu and a $C/$US exchange rate of
$0.94 in the second half of the year. The stronger Canadian dollar and weakening
natural gas prices are more than offsetting the strong oil price environment.
"Finally, in my last quarterly report to shareholders, I would like to thank
Talisman employees for their hard work, dedication and efforts, which have
resulted in Talisman becoming one of the world's leading exploration and
production companies. I would also like to thank our shareholders for staying
the course with us through both good and turbulent times. I am leaving the
Company in excellent shape, positioned for significant growth in both 2008 and
2009, with an exciting exploration portfolio, a superb management team and in
the very capable hands of John Manzoni."
(1) The terms "cash flow" and "cash flow per share" are non-GAAP measures.
Please see advisories elsewhere in this news release.
Talisman Second Quarter Summary
-- In North America, Talisman participated in 53 gross wells with a 98%
success rate, resulting in a total of 26 gas and 26 oil wells.
-- In April, Talisman Midstream Operations transported and processed a
record 654 mmcf/d.
-- The Palliser Interconnect Pipeline and Bigstone West Gas Plant were
commissioned in April.
-- In the Alberta Foothills, Talisman achieved a new production record of
205 mmcf/d.
-- The Talisman Ram River plant in the Alberta Foothills was commissioned
with current throughput of 16 mmcf/d gross raw gas.
-- In the UK, Talisman drilled three successful development wells during
the quarter, including one at Scapa, which is producing at a gross rate
of 9,500 bbls/d, one at Arbroath and one at Claymore. The Claymore
development well was the first of Talisman's through tubing drilling
project, a relatively new drilling technology that significantly reduces
the cost of infill drilling.
-- The Tweedsmuir field in the North Sea started production on May 8.
-- The Enoch field, also in the North Sea, commenced production on May 31.
-- The Beatrice Wind Farm Demonstrator project delivered first power on May
8 and the second turbine has been installed.
-- In Scandinavia, Talisman participated in a successful Veslefrikk
development well, which is producing at an initial gross oil rate of
5,000 bbls/d.
-- In Malaysia, the Naga Dalam exploration well spudded in April and was
still drilling at the end of the quarter. The well has since tested oil
from the lower tertiary.
-- In Vietnam, development of the Song Doc field on Block 46/02 is
progressing with a five-well development drilling program planned to
commence in mid-September.
-- Talisman also participated in drilling one infill development well
offshore Trinidad and one horizontal development well in Algeria.
-- In July, Talisman was awarded a 50% working interest in and operatorship
of Block 134 in the 2007 Peru Bid Round.
-- To June 30, Talisman had repurchased 44.5 million common shares under
its normal course issuer bid in 2007 at a total cost of approximately
$923 million.
-- At the end of May, Talisman announced the appointment of John Manzoni as
the Company's President and Chief Executive Officer. Dr. Jim Buckee will
retire as President and Chief Executive Officer on September 1.
Cash Flow
Below is a reconciliation of cash provided by operating activities calculated in
accordance with generally accepted accounting principles (GAAP) to cash flow
(which is a non-GAAP measure of financial performance). Please refer to the
section in this press release entitled Advisory - Non-GAAP measures for further
explanation and details.
($ millions) Three months ended Six months ended
------------------------------------- -----------------------------
June 30, 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 999 998 2,088 2,414
Changes in non-cash working capital 178 144 93 72
------------------------------------------------------------------------------------------------------------------------
Cash flow 1,177 1,142 2,181 2,486
------------------------------------------------------------------------------------------------------------------------
Earnings from Continuing Operations
In order to better illustrate the Company's operating performance on an
internally consistent basis, Talisman has calculated an earnings from continuing
operations number. This is a non-GAAP measure and adjusts for significant
one-time events as well as other non-operational impacts on earnings, such as
the mark-to-market effect of changes in share prices on stock based compensation
expense and changes to tax rates. This calculation does not reflect differing
accounting policies and conventions between companies.
($ millions, except per share amounts)
Three Six months
months ended
ended
---------------------
June 30, 2007 2006 2007 2006
---------------------
Net income 550 686 1,070 883
------------------------------------------------------------------------------------------------------------------------
Operating income from discontinued operations 46 75 88 163
Gain on disposition of discontinued operations 203 78 480 78
------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations 249 153 568 241
------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 301 533 502 642
Unrealized losses on held-for-trading derivatives (tax adjusted) (16) - 1 -
Unrealized gain on COSL units (tax adjusted) (33) - (23) -
Insurance expenses - - - 10
Stock-based compensation (tax adjusted)(1) 30 (32) 59 -
Tax effects of unrealized foreign exchange gains (losses) on foreign denominated debt(2) 64 40 73 32
Tax rate reductions and other(2) (26) (178) (26) 147
------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations(3) 320 363 586 831
------------------------------------------------------------------------------------------------------------------------
Per share(3) 0.31 0.33 0.56 0.76
------------------------------------------------------------------------------------------------------------------------
1. Stock-based compensation expense relates to the appreciated value of the Company's outstanding stock options and cash
units at June 30, 2007. The Company's stock-based compensation expense is based on the difference between the Company's
share price and its stock options or cash units exercise price.
2. Tax adjustments reflect Canadian tax rate decreases in the second quarter of 2007 and 2006 and a 10% supplemental tax
increase in the UK in the first quarter of 2006, as well as future taxes relating in part to unrealized foreign
exchange gains and losses associated with the impact of fluctuations in the Canadian dollar on foreign denominated
debt.
3. This is a non-GAAP measure.
Exploration and Operations Review
North America
During the second quarter of 2007, Talisman participated in 53 gross wells (11
operated), resulting in a total of 26 gas and 26 oil wells for an average
success rate of 98%. Included were 21 exploration wells, with 19 successful gas
wells and two successful oil wells.
Total production from North America was 187,963 boe/d in the second quarter of
2007, 6% above planned rates. Natural gas production averaged 860 mmcf/d, 24
mmcf/d (3%) lower than the same period in 2006 and 63 mmcf/d (7%) below the
previous quarter due to dispositions and plant turnarounds. Liquids production
averaged 44,637 bbls/d, 8,885 bbls/d (17%) lower than the same period last year
and 2,739 bbls/d (6%) lower than the first quarter of 2007. Sales of non-core
assets have reduced volumes by 32 mmcf/d of gas and 7,754 bbls/d of oil and
liquids.
In the Alberta Foothills, Talisman produced 175 mmcf/d during the second
quarter, 52 mmcf/d higher than the same period in 2006 and 7 mmcf/d higher than
the previous quarter. In May, Alberta Foothills set a daily production record of
205 mmcf/d. The Company drilled 10 gross (7.5 net) wells during the quarter and
three wells were drilling at the end of the quarter. The Talisman Ram River
Plant was commissioned in June 2007 and incremental production (net to Talisman)
from this area in June was 16 mmcf/d gross raw gas (15 mmcf/d gross sales gas).
At Monkman, production for the quarter averaged 76 mmcf/d, a decrease of 34%
over the previous quarter and 38% below the same period last year due to the
Pine River Plant turnaround. The turnaround lasted 31 days and the impact on
volumes was approximately 37 mmcf/d for the quarter. The Federal d-28-H/94-B-7
well, which tested at restricted rates of up to 25 mmcf/d, is expected to
commence production by November and pipeline construction started in July 2007.
Talisman participated in one gross well (0.7 net) during the quarter.
Production in the Greater Arch averaged 24,089 boe/d during the second quarter,
15% lower than the second quarter of 2006 and 1,148 boe/d lower than the
previous quarter, due mainly to plant turnarounds (760 boe/d) and asset
dispositions (140 boe/d). The Company participated in three gross (1.5 net)
wells during the quarter.
Production in the Deep Basin averaged 7,687 boe/d during the second quarter, 7%
higher than the second quarter of 2006 and 1,211 boe/d lower than the previous
quarter, due mainly to dispositions in the second quarter of 2007. Talisman
participated in one gross well (0.5 net) during the quarter. The Company has a
50% working interest in a new well that came on production March 26 and is
currently producing at a rate of approximately 15 mmcf/d gross sales gas.
At Edson, production was 15,675 boe/d, an increase of 30% over the same period
last year and relatively flat compared to the previous quarter. Gas production
was 18 mmcf/d (28%) higher than the second quarter of 2006 and relatively flat
compared to the previous quarter.
Production at Bigstone/Wild River was 24,578 boe/d, 3% higher than the same
period last year and 2% lower than the previous quarter. Natural gas production
during the quarter was 135 mmcf/d, 3% higher than the same period in 2006 and 3%
lower than the first quarter of 2007. A new record was set for liquids
production of 2,110 bbls/d in May.
At West Whitecourt, production was 10,467 boe/d, 5% higher than the same period
last year and relatively flat compared to the previous quarter. Talisman
participated in four gross (0.7 net) wells in the area during the quarter.
At Chauvin, production during the quarter was 15,210 boe/d, 14% lower than the
same period last year and relatively flat compared to the previous quarter, due
in part to dispositions in the second quarter of 2006 and natural declines. The
Company participated in five gross (2.3 net) wells in the quarter.
In April, Talisman Midstream Operations transported and processed a record 654
mmcf/d through its systems. Volumes transported and processed during the quarter
averaged 600 mmcf/d, an 8% increase over the preceding quarter. The Palliser
Interconnect Pipeline was commissioned in April and is currently transporting
approximately 35 mmcf/d. The Bigstone West Sweet Plant, which was commissioned
in mid-April is currently processing 50 mmcf/d and is expected to reach 75
mmcf/d by year end. The Cutbank Complex expansion is on schedule and
commissioning is expected in the fourth quarter of 2007.
In Quebec, additional 2-D seismic will be shot later this year to maintain the
option to earn more acreage. Two wells have been drilled to date and natural gas
has been discovered in the Trenton Black River formation in one well, which is
currently being evaluated and the second well has been suspended. Talisman may
commit to drill one additional earning well under each of two farmout agreements
later in 2008.
In Appalachia, production was 95 mmcf/d, 3 mmcf/d lower than the same period
last year and 4 mmcf/d lower than the previous quarter, largely due to natural
declines in new wells brought on production in the previous quarter. Talisman's
wholly-owned subsidiary, Fortuna Energy Inc. (FEI), participated in seven gross
wells (5.2 net) during the quarter. There are currently seven wells waiting to
be tied in.
The Gillis D1 well (FEI 49.25%) commenced production on July 16 at an initial
rate of 8 mmcf/d (gross raw gas). The McNaughton well (FEI 49.5%) commenced
production on July 23 and is currently producing at a constrained rate of 12
mmcf/d and, once the constraints have been resolved, is expected to produce at a
rate of 30 mmcf/d (gross raw gas). The Dzybon A 1 well (FEI 98.5%) is expected
to commence production in August with initial production in the range of 10 to
12 mmcf/d (gross sales gas).
In Alaska, the Company completed the acquisition of a 2-D seismic survey in the
northwest planning area of the NPR-A.
North Sea
United Kingdom
Talisman's UK production averaged 118,458 boe/d over the quarter, up 2% from the
same period in 2006 and slightly below first quarter 2007. The increase over
2006 was due to: first production from the Tweedsmuir field, which came on
production in May, averaging 5,300 boe/d over the quarter; a successful
development well at Scapa; and the acquisition of the Fulmar and Auk assets. The
increases were partly offset by asset sales in the fourth quarter of 2006 and
reduced production at Brae due to lower gas deliverability. An extensive planned
maintenance shutdown was completed at the Tartan platform during the quarter. In
addition, the Auk field was shut down for 10 days in May for essential
maintenance and facilities integrity work.
Second quarter unit operating costs of $22.70/boe were higher than the second
quarter of 2006, largely as a result of the sale of lower operating cost assets
and the purchase of high unit operating cost assets at Fulmar and Auk. However,
operating costs decreased from the first quarter, due in part to favourable
exchange rate movements. Unit operating costs are expected to decline
significantly later in 2007 as additional volumes from Tweedsmuir and other
tiebacks are brought on stream.
Production from the first phase of the Tweedsmuir development project started on
May 8 and is currently utilizing the existing sweetening plant on the Piper
platform. Tweedsmuir production is constrained to approximately 13,000 bbls/d
due to limitations of this plant. Several unplanned outages of the Piper plant
adversely affected production in the second quarter; however, the causes of
these outages have now been rectified. The facilities on Piper for full
Tweedsmuir production are expected to be ready in mid-November.
The Enoch field development, which straddles the UK and Norwegian sectors of the
North Sea, commenced production on May 31. The single horizontal well
development is producing at a stabilized gross rate of 12,000 boe/d. The Duart
field development saw the installation of subsea flowlines and umbilicals during
the quarter, while the production well was successfully tested at expected
rates.
Development is continuing on the Blane, Wood, Duart, Affleck and Galley fields
with first production expected at Blane and Wood in August. Duart first
production has been brought forward to September and production from Affleck and
Galley is still expected in the fourth quarter.
Successful development wells were drilled at Arbroath (3,400 bbls/d), Scapa
(9,500 bbls/d) and at Claymore and Clyde. The Chanter well, which was drilled in
the first quarter, started production at 6,000 bbls/d. Development drilling is
currently progressing at Claymore, Tartan North, Arbroath and Affleck.
The Beatrice Wind Farm Demonstrator project commenced first power on May 8. The
five megawatt turbine, located 25 kilometers off the east coast of Scotland, is
generating electricity for the nearby Beatrice platform. The second 5 megawatt
turbine has been installed. First power from the second turbine is expected
during the third quarter.
Scandinavia
Talisman's Scandinavia production averaged 32,217 boe/d during the quarter, up
1% over the second quarter of 2006 and down 6% from the first quarter of 2007.
Production decreased compared to the first quarter due to extensive planned
maintenance shutdowns at all but one of Talisman's production platforms. Those
second quarter maintenance shutdowns have been completed.
Unit operating costs decreased to $23.01/boe largely as a result of lower well
maintenance work on Gyda and Varg in the second quarter of 2007, compared to
2006, partly offset by the 2% strengthening of the Norwegian kroner against the
Canadian dollar.
Talisman drilled one Gyda injection well during the quarter. In addition,
Talisman participated in drilling a successful Veslefrikk development well (TLM
27%), which started production at an initial oil rate of 5,000 bbls/d (gross).
At the end of the quarter, one development well was drilling at Brage, with a
second Veslefrikk well ready to spud.
Work is continuing on the Rev development (TLM 70%) located on the Norwegian
continental shelf close to the UK Border, with completion of the subsea wells
underway. The field development plan includes two subsea wells tied back to the
Armada host facility on the UKCS. The facilities in the Rev development will
allow the additional tie in of the Rev East discovery, which was evaluated
through appraisal drilling during the first quarter of the year. First
production is expected in mid-2008 averaging approximately 110 mmcf/d of natural
gas (gross, sales) and 3,600 boe/d of condensate.
Development work continues on the Yme field redevelopment project. First oil is
scheduled for mid-2009.
Southeast Asia
Production in Southeast Asia averaged 90,559 boe/d in the second quarter, 14%
lower than the same quarter last year and 4% lower than the previous quarter,
mainly due to three major planned maintenance shutdowns in Malaysia and
Australia, which reduced volumes by an estimated 5,800 boe/d.
Malaysia volumes were impacted by shutdowns in Blocks PM3-CAA and PM 305. During
the scheduled maintenance program, critical tie-ins and facilities upgrades
occurred, which will be required for the Northern Fields development.
Gas sales in Malaysia/Vietnam averaged 63 mmcf/d in the second quarter, with
deliverability now expected to increase with the anticipated full commissioning
of the Bunga Raya-E gas processing facility and the completion of two new gas
wells in the third quarter of 2007. Gas sales to Vietnam, which commenced during
the quarter, are expected to increase as the Vietnamese onshore facilities at
the Ca Mau Power Station are progressively commissioned over 2007 and early
2008. Three development wells in PM3-CAA (including one water injector well and
two gas wells) were drilled in the second quarter.
Development of the Northern Fields is progressing as expected with first gas and
oil production expected in second and fourth quarters of 2008, respectively.
In Malaysia, the Murai South Channel oil pool is being unitized, giving Talisman
15% of the production, which will provide an estimated incremental 300 bbls/d
(net to Talisman) for the remainder of the year for Block PM 305. The
anticipated annualized 2007 impact from this unitization is 800 bbls/d (net
Talisman), which includes the historical reallocation of unit production.
In Vietnam, development of the Song Doc Field in Block 46/02 is progressing with
a five well development drilling program now planned to commence in September
and first oil is still expected in the second quarter of 2008 (14,500 bbls/d
gross peak rate, 4,350 bbls/d net peak rate). Talisman intends to drill three
exploration wells in the second half of 2007 on Block 15-02/01, the first of
which is scheduled to spud in the third quarter of 2007 and will test a large
basement structure.
In this quarter, Australia production was lower than the same period last year
by 24% and lower than last quarter by 41% mainly due to a 16-day shutdown, which
occurs every three years, and ongoing separator repairs in June. The separator
repairs were completed near the end of June and production is back at plan
levels, increasing to over 7,200 bbls/d in the month of July.
Production in Indonesia is 4% higher in this quarter over the same period last
year and 2% higher than last quarter as a result of higher gas nominations from
the Corridor PSC Block. In the Corridor PSC Block, Suban 10 is now flowing at
293 mmcf/d with plans to increase this further to test for reservoir
connectivity and to obtain down hole pressure information. Construction of the
Corridor segment of the natural gas pipeline from South Sumatra to West Java is
progressing slower than expected. Talisman is now expecting to flow its first
gas to the new markets in West Java in the fourth quarter. Talisman participated
in six gross development wells in this quarter.
Other Areas
In Talisman's other areas, production averaged 21,158 boe/d, an increase of 22%
over the same period a year ago and in line with the first quarter of 2007. In
North Africa, production averaged 12,890 bbls/d in Algeria, up 47% from the same
period in 2006 and 1,186 boe/d in Tunisia, up 19% from the second quarter of
2006. Production in Algeria increased over 2006, primarily due to a compressor
failure in 2006, which resulted in an extended facility shutdown last year.
The Greater MLN facility expansion in Algeria continues on schedule with
upgraded gas injection facilities expected to be available in the fourth quarter
of 2007. One horizontal development well was drilled in the quarter in the
Ourhoud Field.
In Colombia, the El Caucho Technical Evaluation Area was converted into several
exploration blocks. Talisman now has a 50% interest in the El Porton, Los
Ocarros and El Paraiso Blocks, adjacent to its other exploration acreage in the
Llanos foothills region.
In Peru, the Company was awarded a 50% interest in and operatorship of Block 134
in Peru's 2007 bid round. This acreage complements Talisman's existing asset
base, which includes high impact, deeper opportunities for light oil
accumulations in the foothills regions of both Colombia and Peru.
In Trinidad and Tobago, production averaged 7,150 bbls/d, down 7% from 2006. A
new development well started production at 3,000 bbls/d. Pre-development
activities continue for the Angostura Phase 2 gas development project.
In Tunisia, the Company's 2-D seismic acquisition commenced on El Hamra and is
expected to be complete by mid-July.
Management's Discussion and Analysis (MD&A) (August 2, 2007)
This discussion and analysis should be read in conjunction with the Unaudited
Interim Consolidated Financial Statements of Talisman Energy Inc. ("Talisman" or
the "Company") as at and for the period ended June 30, 2007 and 2006, and the
2006 Audited Consolidated Financial Statements of the Company. All comparative
percentages are between the quarters ended June 30, 2007 and 2006, unless stated
otherwise. All amounts are in Canadian dollars unless otherwise indicated.
Second Quarter Results Summary
-- Total production of 450 mboe/d, down from 473 mboe/d in the prior year
due principally to Talisman's ongoing asset rationalization program.
Production from continuing operations of 422 mboe/d, 1% above the same
period in 2006.
-- Total net income of $550 million, down from $686 million in the prior
year. Net income from continuing operations of $301 million as compared
to $533 million in 2006.
-- $914 million in capital expenditures.
-- Produced first oil from the Tweedsmuir and Enoch fields in the UK.
-- Sold additional non-core assets in North America for total proceeds of
$516 million, resulting in an after-tax gain of $203 million.
-- Repurchased 29 million shares under the Company's normal course issuer
bid program ("NCIB") at a total cost of approximately $624 million.
Three months Six months
ended ended
-------------------------------
June 30, 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Financial (millions of C$ unless otherwise stated)
Net income from continuing operations 301 533 502 642
Net income from discontinued operations 249 153 568 241
------------------------------------------------------------------------------------------------------------------------
Net income 550 686 1,070 883
C$ per common share
Net income - Basic 0.53 0.62 1.02 0.80
- Diluted 0.52 0.61 1.00 0.78
Net income from continuing operations
- Basic 0.29 0.48 0.48 0.58
- Diluted 0.28 0.47 0.47 0.57
------------------------------------------------------------------------------------------------------------------------
Production (daily average)
Oil and liquids (bbls/d) 234,039 227,303 236,839 250,706
Natural gas (mmcf/d) 1,126 1,146 1,149 1,141
------------------------------------------------------------------------------------------------------------------------
Continuing operations (mboe/d) 422 418 428 441
Discontinued operations (mboe/d) 28 55 32 57
------------------------------------------------------------------------------------------------------------------------
Total mboe/d (6 mcf = 1 boe) 450 473 460 498
------------------------------------------------------------------------------------------------------------------------
Total production (boe) per common share -Basic 0.04 0.04 0.08 0.08
------------------------------------------------------------------------------------------------------------------------
Capital Expenditures(1)(millions of C$) 914 1,062 2,211 2,170
------------------------------------------------------------------------------------------------------------------------
1. Capital expenditures are prior to acquisition and dispositions
Second quarter net income of $550 million and net income from continuing
operations of $301 million decreased by 20% and 44%, respectively, from the same
period of 2006, due principally to a $178 million future tax recovery in the
prior year related to Canadian federal and provincial tax rate reductions. In
addition, operating, depreciation, depletion and amortization ("DD&A"), and dry
hole costs increased in the current quarter. The decline in net income was
partly offset by increased gains on asset sales, totalling $203 million in the
second quarter of 2007 compared to $78 million in the same period in 2006.
Asset Rationalization Program
In 2006, Talisman announced its intention to sell selected non-core assets in
order to rationalize the Company's asset base. In accordance with Canadian
generally accepted accounting principles, Talisman is required to report
separately the results of continuing and discontinued operations. Discontinued
operations include the results from assets the Company expects to sell and the
results, to the transaction closing date, of assets that have been sold. Prior
period results are restated to show both continuing and discontinued operations
for comparative purposes. See note 2 to the Unaudited Interim Consolidated
Financial Statements.
Production from discontinued operations includes both production from sales
completed in the quarter, until the date of closing and production from sales
expected to close in the second half of the year. Of the 28 mboe/d of production
recorded as discontinued operations in the second quarter, 9 mboe/d represents
production from asset sales closed in the quarter, while 19 mboe/d represents
production from asset sales expected to close subsequent to quarter-end.
The majority of North American asset disposals announced in the fourth quarter
of 2006 closed in the second quarter for proceeds of approximately $516 million,
resulting in an after-tax gain of $203 million, which has been recorded in net
income from discontinued operations. The Company's disposition of its indirect
interest in Syncrude closed in the first quarter of 2007 for proceeds of $472
million, resulting in an after-tax gain of $277 million.
During the second quarter of 2007, the Company entered into agreements to sell
two additional North American asset packages which are expected to close in the
third quarter of 2007 for proceeds of approximately $250 million. The Company's
previously announced disposition of its non-operated assets in the Brae area of
the UK North Sea for consideration of US$550 million has an effective date of
January 1, 2007 and is expected to close later in 2007. The resulting gain on
disposition of these assets will be recorded when the respective transactions
close.
Daily Average Production, Before Royalties
Three months ended Six months ended
----------------------------------------------------------------------
2007 vs 2006 2007 vs 2006
June 30, 2007 (%) 2006 2007 (%) 2006
------------------------------------------------------------------------------------------------------------------------
Continuing operations
Oil and liquids (bbls/d)
North America 39,328 (5) 41,195 40,310 (4) 41,980
United Kingdom(1) 99,660 16 85,671 97,641 (1) 98,593
Scandinavia (1) 29,931 1 29,638 30,916 (11) 34,556
Southeast Asia(1) 43,962 (18) 53,471 46,740 (11) 52,662
Other(1) 21,158 22 17,328 21,232 (7) 22,915
------------------------------------------------------------------------------------------------------------------------
234,039 3 227,303 236,839 (6) 250,706
------------------------------------------------------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 793 1 785 821 4 790
United Kingdom 39 15 34 41 8 38
Scandinavia 14 8 13 14 (7) 15
Southeast Asia 280 (11) 314 273 (8) 298
------------------------------------------------------------------------------------------------------------------------
1,126 (2) 1,146 1,149 1 1,141
------------------------------------------------------------------------------------------------------------------------
Continuing operations (mboe/d) 422 1 418 428 (3) 441
------------------------------------------------------------------------------------------------------------------------
Discontinued operations
North America
- oil and liquids (bbls/d) 5,309 12,327 5,690 12,864
- natural gas (mmcf/d) 67 99 70 99
United Kingdom
- oil and liquids (bbls/d) 6,001 12,807 6,074 12,507
- natural gas (mmcf/d)(2) 38 76 50 90
------------------------------------------------------------------------------------------------------------------------
Discontinued operations (mboe/d) 28 55 32 57
------------------------------------------------------------------------------------------------------------------------
Total mboe/d (6 mcf = 1 boe) 450 (5) 473 460 (8) 498
------------------------------------------------------------------------------------------------------------------------
1. Includes oil volumes produced into inventory, excludes oil volumes sold out of inventory, for the three months ended
June 30, 2007 of 5,452 bbls/d, 1,949 bbls/d, 1,131 bbls/d and (1,881) bbls/d in the UK, Scandinavia, Southeast Asia and
Other, respectively, and for the three months ended June 30, 2006 of 1,024 bbls/d, 476 bbls/d, 1,602 bbls/d and 1,432
bbls/d in the UK, Scandinavia, Southeast Asia and Other, respectively. Includes oil volumes produced into inventory,
excludes oil volumes sold out of inventory, for the six months ended June 30, 2007 of (1,799) bbls/d, (963) bbls/d,
2,016 bbls/d and 4,199 bbls/d in the UK, Scandinavia, Southeast Asia and Other, respectively, and for the six months
ended June 30, 2006 of (1,672) bbls/d, (580) bbls/d, 217 bbls/d and 1,280 bbls/d in the UK, Scandinavia, Southeast Asia
and Other, respectively.
2. Includes gas acquired for injection and subsequent resale of 17 mmcf/d and 16 mmcf/d in the second quarter and year-
to-date periods of 2007, respectively, and 28 mmcf/d and 21 mmcf/d in the second quarter and year to date periods of
2006, respectively.
The Company's average oil and liquids production for the quarter was 245,349
bbls/d, 3% below the prior year, while production from continuing operations for
the quarter was 234,039 bbls/d, up 3% from last year. During the quarter, total
natural gas production was 1,231 mmcf/d, 7% below the same period last year,
with production from continuing operations decreasing 20 mmcf/d to an average of
1,126 mmcf/d.
In North America, oil and liquids production from continuing operations was down
slightly from 2006 due primarily to plant turnarounds at Edson and the Greater
Arch combined with natural declines. Natural gas production in North America
increased by 8 mmcf/d due to successful drilling in the Alberta Foothills and
Edson, which increased production by 46 mmcf/d. Realized increases were largely
offset by a planned turnaround at Monkman resulting in a decrease of 37 mmcf/d
in the quarter.
In the UK, oil and liquids production from continuing operations increased by
13,989 bbls/d due principally to 4,466 bbls/d of production from the Auk/Fulmar
acquisition that closed on December 1, 2006 and first production from Tweedsmuir
and Enoch in May, which averaged over 6,000 bbls/d in the quarter. In addition
there were increases from Scapa following a successful infill development well,
and Piper where mechanical failures reduced production in 2006.
In Scandinavia, oil and liquids production was relatively unchanged from 2006 as
the increased rates from the successful infill wells drilled at Brage in the
first quarter of 2007 and Varg late in 2006 were offset by planned shutdowns at
Gyda, Brage and Veslefrikk.
In Southeast Asia, oil and liquids production declined 9,509 bbls/d. Oil and
liquids production in Malaysia/Vietnam was 28,387 bbls/d, down 22% from 2006
mainly due to a planned shutdown to commission the BRE gas processing plant, tie
in the Ca Mau pipeline to Vietnam and other routine maintenance at PM-3 CAA and
PM-305. Talisman recognized 2,600 bbls/d of historical production during the
second quarter related to the unitization of its Murai discovery in PM-305. In
Indonesia, production remained relatively flat over the same period last year,
averaging 11,038 bbls/d in the quarter. Production in Australia averaged 4,537
bbls/d, down 24% as a result of a shutdown at the Laminaria facility in April, a
16 day planned shutdown in May and post-shutdown problems in June, which have
been resolved.
Natural gas production in Malaysia/Vietnam averaged 63 mmcf/d in the quarter, a
decrease of 46 mmcf/d compared to 2006 due to a planned 12 day shutdown at PM-3
CAA. Production in Malaysia/Vietnam included the first natural gas sales from
PM-3 CAA to Vietnam. This gas is sold under the same terms as the existing gas
sales to Malaysia with amounts received offshore in US dollars. Gas sales
increased 6 mmcf/d in the second quarter compared to the first quarter with the
partial commissioning of the Bunga Raya-E gas processing facility. Indonesia gas
production was 6% higher than last year, averaging 216 mmcf/d due to strong gas
nominations at Corridor.
Production from Other areas increased to 21,158 bbls/d principally due to a 47%
increase in production from Algeria to 12,890 bbls/d following the compressor
outage in 2006. Production from Trinidad and Tobago declined to 7,150 bbls/d,
from 7,648 in the same period in 2006, mainly due to natural declines.
Company Netbacks (1, 2)
Three months ended Six months ended
---------------------------------------
June 30, 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Oil and liquids ($/bbl)
Sales price 73.32 74.39 69.36 70.85
Hedging (gain) loss (0.47) 0.37 (0.77) 0.22
Royalties 10.98 13.57 10.81 11.31
Transportation 1.18 1.01 1.23 1.01
Operating costs 17.18 15.74 16.84 13.56
------------------------------------------------------------------------------------------------------------------------
44.45 43.70 41.25 44.75
------------------------------------------------------------------------------------------------------------------------
Natural gas ($/mcf)
Sales price 7.53 6.94 7.43 7.72
Hedging (gain) loss (0.09) (0.19) (0.14) (0.15)
Royalties 1.47 1.36 1.46 1.54
Transportation 0.25 0.22 0.25 0.26
Operating costs 0.99 0.90 1.01 0.87
------------------------------------------------------------------------------------------------------------------------
4.91 4.65 4.85 5.20
------------------------------------------------------------------------------------------------------------------------
Total ($/boe) (6 mcf = 1 boe)
Sales price 60.50 59.01 57.97 59.87
Hedging (gain) loss (0.51) (0.35) (0.80) (0.28)
Royalties 10.01 11.02 9.87 10.39
Transportation 1.32 1.16 1.36 1.25
Operating costs 12.07 10.89 11.88 9.82
------------------------------------------------------------------------------------------------------------------------
37.61 36.29 35.66 38.69
------------------------------------------------------------------------------------------------------------------------
1. Netbacks do not include synthetic oil and pipeline operations. Additional netback information by major product type
and region is included elsewhere in this MD&A.
2. Includes impact of discontinued operations.
During the second quarter, the Company's average netback was $37.61/boe, 4%
higher than in 2006. Talisman's realized price of $60.50/boe was 3% higher than
2006, principally due to higher North American gas prices. Increased operating
costs and transportation expenses were partly offset by lower oil royalties and
increased hedging gains in the quarter.
Prices and Exchange Rates
Three months ended Six months ended
-------------------------------------------------------------------
2007 vs 2006 2007 vs 2006
June 30, 2007 (%) 2006 2007 (%) 2006
------------------------------------------------------------------------------------------------------------------------
Oil and liquids ($/bbl)
North America 56.67 (11) 63.34 55.07 (2) 56.28
United Kingdom 74.89 (1) 75.97 69.93 (4) 73.22
Scandinavia 77.11 - 77.25 70.71 (6) 75.07
Southeast Asia 81.42 3 78.92 79.14 4 76.26
Other 78.45 - 78.60 73.94 1 73.54
------------------------------------------------------------------------------------------------------------------------
73.32 (1) 74.39 69.36 (2) 70.85
------------------------------------------------------------------------------------------------------------------------
Natural gas ($/mcf)
North America 7.65 17 6.52 7.65 - 7.66
United Kingdom 6.47 (25) 8.61 7.19 (24) 9.46
Scandinavia 4.59 (17) 5.54 4.51 2 4.42
Southeast Asia 7.58 - 7.57 6.95 (5) 7.34
------------------------------------------------------------------------------------------------------------------------
7.53 9 6.94 7.43 (4) 7.72
------------------------------------------------------------------------------------------------------------------------
Total $/boe (6 mcf = 1 boe) 60.50 3 59.01 57.97 (3) 59.87
------------------------------------------------------------------------------------------------------------------------
Hedging (gain) loss, not included in the above prices
Oil and liquids ($/bbl) (0.47) 0.37 (0.77) 0.22
Natural gas ($/mcf) (0.09) (0.19) (0.14) (0.15)
Total $/boe (6 mcf = 1 boe) (0.51) (0.35) (0.80) (0.28)
------------------------------------------------------------------------------------------------------------------------
Benchmark prices and foreign exchange rates
WTI (US$/bbl) 65.03 (8) 70.72 61.60 (8) 67.13
Dated Brent (US$/bbl) 68.76 (1) 69.59 63.26 (4) 65.66
Tapis (US$/bbl) 75.02 2 73.87 69.13 (2) 70.72
NYMEX (US$/mmbtu) 7.56 11 6.82 7.26 (9) 7.95
AECO (C$/gj) 6.99 17 5.95 7.03 (5) 7.37
US/Canadian dollar exchange rate 0.91 2 0.89 0.88 - 0.88
Canadian dollar/pound sterling exchange rate 2.18 6 2.05 2.24 10 2.04
------------------------------------------------------------------------------------------------------------------------
Talisman's second quarter realized commodity price increased $1.49/boe from last
year to $60.50/boe as increases in North American gas prices were partially
offset by decreases in oil and liquids and international gas prices.
In the quarter, Dated Brent traded at a premium to WTI as opposed to the
discount experienced historically. WTI has been discounted compared to Dated
Brent, mainly due to reduced demand for WTI and logistics constraints in the
Cushing, Oklahoma region. Other international light crude streams also
experienced improved differentials relative to WTI in the quarter, with a
positive impact on approximately 80% of the Company's crude oil production.
The Company's North American natural gas price increase of 17% was consistent
with the increase in AECO gas prices.
For the quarter ended June 30, Talisman recorded net hedging gains on
commodity-based derivative financial instruments of $21 million, associated with
gains on oil and liquids of $0.47/bbl and on natural gas of $0.09/mcf. This
compares to gains of $15 million associated with gains on natural gas of
$0.19/mcf which more than offset losses on oil and liquids of $0.37/bbl during
the same period in 2006. As of July 1, the Company had derivative and fixed
price physical contracts for approximately 10% of its remaining 2007 estimated
production. A summary of the contracts outstanding is included in notes 11 and
12 to the December 31, 2006 Audited Consolidated Financial Statements and in
note 9 to the June 30, 2007 Unaudited Interim Consolidated Financial Statements.
Royalties
Three months ended
--------------------------------------------------------------
June 30, 2007 2006
------------------------------------------------------------------------------------------------------------------------
% $ millions % $ millions
------------------------------------------------------------------------------------------------------------------------
North America 18 136 20 131
United Kingdom - (1) 2 2
Scandinavia - 1 - 1
Southeast Asia 39 196 44 260
Other 31 53 29 32
------------------------------------------------------------------------------------------------------------------------
17 385 19 426
------------------------------------------------------------------------------------------------------------------------
Six months ended
--------------------------------------------------------------
June 30, 2007 2006
------------------------------------------------------------------------------------------------------------------------
% $ millions % $ millions
------------------------------------------------------------------------------------------------------------------------
North America 19 285 20 293
United Kingdom 1 (1) 2 4
Scandinavia - 2 - 2
Southeast Asia 39 370 40 455
Other 31 74 29 82
------------------------------------------------------------------------------------------------------------------------
17 730 17 836
------------------------------------------------------------------------------------------------------------------------
The Company's royalty expense from continuing operations for the second quarter
was $385 million (17%), down $41 million from $426 million (19%) in 2006. In
North America, the royalty rate decreased due to the booking of deep gas royalty
holidays in the second quarter. In Southeast Asia, the rate decrease related
principally to higher cost recovery associated with the Northern Fields
Development.
Unit Operating Expenses
Three months ended Six months ended
-------------------------------------------------------------------------
June 30, 2007 2007 vs 2006 2006 2007 2007 vs 2006 2006
-------------------------------------------------------------------------
$/boe (%) $/boe $/boe (%) $/boe
------------------------------------------------------------------------------------------------------------------------
North America 7.62 3 7.37 7.56 9 6.96
United Kingdom 22.70 19 19.14 22.79 40 16.30
Scandinavia 23.01 (12) 26.14 22.60 7 21.14
Southeast Asia 5.27 13 4.67 4.75 13 4.20
Other 4.68 (12) 5.33 4.66 12 4.15
------------------------------------------------------------------------------------------------------------------------
12.07 11 10.89 11.88 21 9.82
------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses ($ millions)
Three months ended Six months ended
----------------------------------------------------
June 30, 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
North America 121 118 247 222
United Kingdom 192 162 432 326
Scandinavia 64 72 140 141
Southeast Asia 42 41 78 74
Other 9 7 13 15
------------------------------------------------------------------------------------------------------------------------
428 400 910 778
Pipeline 23 20 43 36
------------------------------------------------------------------------------------------------------------------------
451 420 953 814
------------------------------------------------------------------------------------------------------------------------
During the second quarter, total operating expenses from continuing operations
increased by $31 million to $451 million.
In North America, operating costs were higher than the prior year due primarily
to increases in lease rentals, processing costs and property and pipeline taxes.
The impact of increased expenditures and relatively flat production from
continuing operations resulted in an increase in the unit operating expense. In
the quarter, increases in oil and liquids unit costs more than offset decreases
in natural gas unit costs.
In the UK, operating costs increased $30 million of which $12 million, or
$1.19/boe was due to the 6% strengthening of the pound sterling against the
Canadian dollar. The Auk/Fulmar interests acquired in the fourth quarter of 2006
contributed approximately $30 million and added $2.01/boe to UK unit costs.
These increases were partially offset by a new cost sharing agreement at Ross
and lower workover costs at Claymore relative to the prior year. Unit operating
costs in the UK are expected to decrease with the addition of low cost
production in the fourth quarter of 2007, mainly at Tweedsmuir.
In Scandinavia, operating costs decreased $8 million due to reduced maintenance
at Gyda, Varg and Brage in 2007, partially offset by the 2% strengthening of the
Norwegian kroner against the Canadian dollar. Decreased costs combined with flat
production resulted in a decrease in Scandinavian unit operating costs of 12%.
In Southeast Asia, total operating costs were relatively unchanged from the
prior year as decreases in Australia operating expenses of nearly $7 million
were mostly offset by increases in Malaysia/Vietnam due to the planned shutdowns
in PM-3 CAA and PM 305 for routine maintenance.
Transportation Expenses
Three months ended
-------------------------------------------------------------
June 30, 2007 2006
------------------------------------------------------------------------------------------------------------------------
$/boe $ millions $/boe $ millions
------------------------------------------------------------------------------------------------------------------------
North America 0.91 14 0.94 16
United Kingdom 1.53 16 1.51 12
Scandinavia 2.82 9 1.29 4
Southeast Asia 1.43 12 1.19 11
Other 1.00 2 0.84 2
------------------------------------------------------------------------------------------------------------------------
1.32 53 1.16 45
------------------------------------------------------------------------------------------------------------------------
Six months ended
-------------------------------------------------------------
June 30, 2007 2006
------------------------------------------------------------------------------------------------------------------------
$/boe $ millions $/boe $ millions
------------------------------------------------------------------------------------------------------------------------
North America 0.94 32 1.05 38
United Kingdom 1.65 32 1.51 27
Scandinavia 2.91 18 1.83 12
Southeast Asia 1.37 23 1.20 22
Other 1.10 4 0.89 4
------------------------------------------------------------------------------------------------------------------------
1.36 109 1.25 103
------------------------------------------------------------------------------------------------------------------------
During the current quarter, transportation expenses from continuing operations
increased $8 million to $53 million.
Unit Depreciation, Depletion and Amortization (DD&A) Expense (includes accretion of ARO)
Three months ended Six months ended
-----------------------------------------------------------------
2007 vs 2006 2007 vs 2006
June 30, ($/boe) 2007 (%) 2006 2007 (%) 2006
------------------------------------------------------------------------------------------------------------------------
North America 16.87 14 14.84 16.41 14 14.37
United Kingdom 16.33 19 13.68 15.91 30 12.25
Scandinavia 27.50 31 21.04 27.72 43 19.35
Southeast Asia 7.47 30 5.76 7.94 31 6.08
Other 7.69 (17) 9.24 8.61 (7) 9.25
------------------------------------------------------------------------------------------------------------------------
14.98 19 12.55 15.08 25 12.11
------------------------------------------------------------------------------------------------------------------------
Total Depreciation, Depletion and Amortization (DD&A) Expense (includes accretion of ARO)
Three months ended Six months ended
-------------------------------------------------------
June 30, ($ millions) 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
North America 262 232 525 452
United Kingdom 149 113 305 236
Scandinavia 76 60 172 132
Southeast Asia 61 54 130 112
Other 17 13 27 36
------------------------------------------------------------------------------------------------------------------------
565 472 1,159 968
------------------------------------------------------------------------------------------------------------------------
Second quarter DD&A expense from continuing operations was $565 million, up 20%
from the same quarter in 2006.
The DD&A rate in North America increased due to higher drilling and development
costs, increased capital expenditures on Midstream Operations and increased land
amortization costs.
The total DD&A expense in the UK increased $36 million to $149 million,
principally due to the 6% strengthening of the UK pound sterling against the
Canadian dollar and an increase in the depletable base.
In Scandinavia, total DD&A charges increased $16 million to $76 million,
principally due to an increase in the depletable cost base and a 2%
strengthening of the Norwegian kroner against the Canadian dollar.
The unit DD&A rate for Southeast Asia increased primarily due to an increase in
the depletable cost base.
Other ($ millions)
Three months ended Six months ended
-------------------------------------------
June 30, 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
General and administrative 53 55 113 115
Dry hole expense 113 19 213 83
Stock-based compensation 43 (46) 85 -
Other expense (7) 48 (22) 72
Interest costs capitalized 23 16 51 29
Interest expense 50 43 97 87
Gain on held-for-trading financial instruments (63) - (26) -
Other revenue 41 27 74 55
------------------------------------------------------------------------------------------------------------------------
Dry hole expense for the second quarter of 2007 was up $94 million from the
prior year and includes $57 million in North America, $49 million in
Scandinavia, $5 million in the UK and $2 million in the rest of the world.
Stock-based compensation expense relates to the appreciated value of the
Company's outstanding stock options and cash units as at June 30, 2007. The
Company's stock-based compensation expense is based on the difference between
the Company's share price and the exercise price of its stock options or cash
units. During the second quarter of 2007, $43 million was expensed. The Company
paid cash of $83 million ($40 million in 2006) to employees in settlement of
fully accrued option liabilities for options exercised. Since the introduction
of the cash feature, approximately 97% of options exercised have been exercised
for cash, with only 3% exercised for shares, resulting in reduced common share
dilution.
Capitalized interest expense is associated with the Tweedsmuir, Wood, Blane, Yme
and Rev development projects in the North Sea and the Northern Fields
development in Malaysia. Upon commencement of production, interest is no longer
capitalized. Tweedsmuir commenced production May 8, with Wood and Blane
scheduled to come on production in the third quarter of 2007.
The gain on held-for-trading financial instruments includes the fair value
change in the quarter of commodity price derivatives that are not designated as
hedges and the change in value of the Canadian Oil Sands Units, which the
Company received as partial consideration on disposition of its indirect
interest in Syncrude. See notes 1 and 9 of the Unaudited Interim Consolidated
Financials Statements. Other revenue of $41 million includes $30 million of
pipeline and processing revenue.
Taxes ($ millions)
Effective Income Tax Rate
June 30, Three months ended Six months ended
----------------------------------------------------
2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes 650 737 1,077 1,676
------------------------------------------------------------------------------------------------------------------------
Less PRT
Current 75 65 148 147
Deferred (2) (1) (7) 2
------------------------------------------------------------------------------------------------------------------------
Total PRT 73 64 141 149
------------------------------------------------------------------------------------------------------------------------
577 673 936 1,527
------------------------------------------------------------------------------------------------------------------------
Income tax expense
Current income tax 113 189 286 521
Future income tax 163 (49) 148 364
------------------------------------------------------------------------------------------------------------------------
Total income tax expense 276 140 434 885
------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 48% 21% 46% 58%
------------------------------------------------------------------------------------------------------------------------
The effective tax rate is expressed as a percentage of pre-tax income adjusted
for Petroleum Revenue Tax (PRT), which is deductible in determining taxable
income. The Company's effective tax rate for the current quarter is higher than
in 2006 due primarily to the impact of last year's $178 million recovery of
future taxes related to Canadian federal and provincial tax rate reductions.
Exclusive of this one time non-cash adjustment, the 2006 second quarter's
effective rate was 47%. In the second quarter of 2007, the Company recorded a
$26 million future tax recovery related to further reductions in the Canadian
federal tax rates. The effective tax rate for the six months ended June 30, 2007
is 12% below the comparable period in 2006 due to the impact of a one time
non-cash charge of $325 million in the UK in the first quarter of 2006
associated with an increase in the tax rate from 40% to 50%.
Capital Expenditures(1)
Three months ended Six months ended
----------------------------------------------------------------------
2007 vs 2006 2007 vs 2006
June 30, 2007 (%) 2006 2007 (%) 2006
-----------------------------------------------------------------------------------------------------------------------
(millions of dollars)
-----------------------------------------------------------------------------------------------------------------------
North America 258 (59) 623 877 (30) 1,259
United Kingdom 352 15 306 721 29 557
Scandinavia 117 77 66 242 103 119
Southeast Asia 137 128 60 248 107 120
Other 47 (4) 109 96
Corporate, IS and Administrative 3 11 14 19
-----------------------------------------------------------------------------------------------------------------------
914 (14) 1,062 2,211 2 2,170
Acquisitions - - 4 1
Dispositions (16) - (16) (2)
Discontinued Operations
Proceeds on disposition (516) (228) (746) (228)
Capital expenditures 11 29 22 59
-----------------------------------------------------------------------------------------------------------------------
Total 393 (54) 863 1,475 (26) 2,000
-----------------------------------------------------------------------------------------------------------------------
1. Capital expenditures exclude corporate acquisitions.
North America capital expenditures for the current quarter totalled $258
million, with exploration costs of $124 million and development costs of $134
million (including plant and equipment). These expenditures included the
drilling of 26 gas wells and 26 oil wells.
Expenditures in the UK during the second quarter were comprised of $43 million
on exploration and $309 million on development, which included the ongoing
development of the Tweedsmuir, Enoch, Affleck, Galley, Blane, Wood and Duart
fields.
In Scandinavia, the Company spent $28 million on exploration and $89 million on
development, including the Rev, Blane and Yme development projects.
In Southeast Asia, capital expenditures of $137 million included $38 million on
exploration, principally on the Naga Dalam well in PM 314, and development
spending of $99 million, primarily on the Northern Fields project and the
drilling of three development wells in PM-3 CAA in Malaysia.
In Other, the Company spent $6 million on development activities in North
Africa, $21 million on exploration and $12 million on development in Trinidad
and Tobago and $8 million on exploration activities in the rest of the world.
There have been no significant changes in the Company's outlook for the major
projects underway as discussed in the Outlook for 2007 section of the Company's
MD&A dated March 13, 2007.
Long-term Debt and Liquidity
At June 30, Talisman's long-term debt was $4.9 billion ($4.8 billion net of
cash), up from $4.6 billion ($4.5 billion net of cash) at year-end. During the
first six months of 2007, the Company generated $2.1 billion of cash provided by
operating activities and spent $2.2 billion on exploration and development. It
also received proceeds of $746 million from the disposal of North American
assets and repurchased shares for $923 million.
During the quarter, the Company repaid the US$175 million 7.125% notes on
maturity. At June 30, the Company had $1.8 billion drawn against its available
$2.7 billion of bank lines of credit. In the second quarter, the Company
increased its bank lines by $730 million.
At June 30, the Company had current assets of $2.1 billion and current
liabilities of $2.8 billion, including assets and liabilities related to
discontinued operations. Current assets include 8.2 million units ($270 million
market value at June 30) of Canadian Oil Sands Trust. In July, the Company sold
its units in Canadian Oil Sands Trust for approximately $262 million,
crystallizing a gain of $19 million, net of tax. Working capital movements are
difficult to predict, but management anticipates that accounts receivable will
rise later in the year, due primarily to increasing revenue from incremental gas
sales in Indonesia and increased production at Tweedsmuir.
At quarter-end, debt-to-debt plus book equity was 41%. For the 12 months ended
June 30, 2007, the debt-to-cash provided by operating activities ratio was
1.22:1.
In the first six months of 2007, the Company has repurchased 44,494,100 shares
under the NCIB at a total cost of approximately $923 million. Shareholders may
obtain a copy of the Company's notice of intention to make a normal course
issuer bid, free of charge, by accessing it on www.sedar.com or by emailing the
Company at tlm@talisman-energy.com.
As at June 30 there were 1,019,754,255 common shares outstanding, increasing to
1,019,915,805 at July 31.
As at June 30, there were 66,298,367 stock options and 10,287,453 cash units
outstanding. Subsequent to June 30, 414,415 stock options were exercised for
cash, 161,550 stock options were exercised for shares and 84,170 were cancelled,
with 65,638,232 stock options outstanding at July 31. Subsequent to June 30,
16,850 cash units were exercised and 69,920 cash units were cancelled, with
10,200,683 cash units outstanding at July 31.
Talisman's investment grade senior unsecured long-term debt credit ratings from
Dominion Bond Rating Service ("DBRS"), Moody's Investor Service, Inc.
("Moody's") and Standard & Poor's ("S&P") are BBB (high), Baa2 (stable) and
BBB+, respectively. S&P has assigned a negative outlook to its corporate rating.
Talisman continually investigates strategic acquisitions and opportunities, some
of which may be material. In connection with any such transactions, the Company
may incur debt or issue equity.
Financial Instruments
Effective January 1, 2007, Talisman adopted the new CICA accounting standards
related to Comprehensive Income (section 1530), Financial Instrument Recognition
and Measurement (section 3855), Financial Instruments Disclosure and
Presentation (section 3861) and Hedges (section 3865). These new standards
require that all financial instruments be recorded at fair value on the balance
sheet. As a result of adopting this standard, the Company realized the fair
value of assets of $122 million and the fair value of liabilities of $18 million
related to commodity price derivative contracts. The fair value of derivative
contracts on the balance sheet at June 30 is presented as a current asset of $70
million, a current liability of $43 million and a long-term liability of $13
million.
The Company may use derivative instruments to manage commodity price, foreign
exchange and interest rate risk. The Company may choose to designate derivative
instruments as hedges. All derivative instruments in existence at December 31,
2006 continue to be designated as hedges and, as such, the gains and losses on
the changes in fair value of these contracts are included in other comprehensive
income until realized.
From January 1, 2007, the Company has elected not to designate any commodity
price derivative contracts entered into as hedges for accounting purposes and
consequently realizes changes in the fair value of such contracts in net income
immediately, thereby increasing the volatility of net income. Since January 1,
2007, the Company has entered into several costless collar and swap natural gas
derivative contracts. The change in fair value of these contracts in the period
was a gain of $24 million which has been included in the gain on
held-for-trading financial instruments.
In addition to its commodity derivatives, the Company has a fixed-to-floating
interest rate swap and a cross currency interest rate swap. These interest rate
derivative contracts are designated as fair value hedges of a portion of the
Company's long-term debt. The hedged portion of the long-term debt and hedging
items are remeasured at fair value each reporting period and the respective
changes in fair value are recorded in net income. In the second quarter of 2007,
the changes in fair value in the derivatives and the hedged portion of long-term
debt offset each other and are expected to continue to have no net impact on net
income in future periods. The effect of revaluing the hedged portion of
long-term debt to fair value resulted in a decrease of $19 million in the debt
balance at June 30, 2007, with a corresponding $19 million liability recorded in
other long-term obligations for the fair value of the derivative contracts.
During the first quarter of 2007, the Company settled a portion of its 2007 WTI
costless collar covering a notional volume of 10,000 bbls/d for a gain of $40
million. The gain on settlement, net of tax, is included in accumulated other
comprehensive income and will be realized as a hedging gain in net income over
the period ending December 31, 2007, the term of the original hedge.
See notes 1 and 9 of the Unaudited Interim Consolidated Financial Statements.
Sensitivities
Talisman's financial performance is affected by factors such as changes in
production volumes, commodity prices and exchange rates. The estimated
annualized impact of these factors on the Company's financial performance for
2007 is summarized in the following table and is based on an average WTI oil
price of US$67.30/bbl, a NYMEX natural gas price of US$7.20/mmbtu and exchange
rates of C$1=US$0.91 and �1=C$2.19.
Approximate Impact for 2007
Cash Provided by
Operating
(millions of dollars) Net Income Activities
------------------------------------------------------------------------------------------------------------------------
Volume changes
Oil - 1,000 bbls/d 8 12
Natural gas - 10 mmcf/d 8 16
------------------------------------------------------------------------------------------------------------------------
Price changes(1)
Oil - US$1.00/bbl 43 44
Natural gas (North America)(2) - C$0.10/mcf 12 17
------------------------------------------------------------------------------------------------------------------------
Exchange rate changes
US$ increased by US$0.01 38 63
� increase by C$0.023 (7) 2
------------------------------------------------------------------------------------------------------------------------
1 The impact of commodity contracts outstanding as of July 1 has been included.
2 Price sensitivity on natural gas relates to North American natural gas only. The Company's exposure to changes in the
natural gas prices in UK, Scandinavia and Malaysia/Vietnam is not material. Most of the natural gas price in Indonesia
is based on the price of crude oil and accordingly has been included in the price sensitivity for oil except for a
small portion, which is sold at a fixed price.
Summary of Quarterly Results (millions of C$ unless otherwise stated)
The following is a summary of quarterly results of the Company for the eight
most recently completed quarters.
Three months ended
-----------------------------------------------------------------------------------------
2007 2006(1) 2005(1)
June 30 Mar. 31(1) Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
------------------------------------------------------------------------------------------------------------------------
Gross sales 2,290 2,186 2,132 2,127 2,230 2,561 2,563 2,364
------------------------------------------------------------------------------------------------------------------------
Total revenue 1,967 1,920 1,852 1,820 1,846 2,189 2,138 1,971
Net income from continuing
operations 301 201 338 391 533 109 425 350
------------------------------------------------------------------------------------------------------------------------
Net income 550 520 598 525 686 197 533 430
------------------------------------------------------------------------------------------------------------------------
Per common share ($)(2)
Net income from continuing
operations 0.29 0.19 0.31 0.36 0.48 0.10 0.39 0.32
Diluted net income from
continuing operations 0.28 0.19 0.31 0.35 0.47 0.10 0.39 0.31
Net income 0.53 0.49 0.55 0.48 0.62 0.18 0.48 0.39
Diluted net income 0.52 0.48 0.54 0.47 0.61 0.17 0.47 0.38
------------------------------------------------------------------------------------------------------------------------
1. Prior periods have been restated to reflect the impact of discontinued operations. See note 2 to the Unaudited
Interim Consolidated Financial Statements.
2. All per share amounts have been retroactively restated to reflect the Company's three-for-one split in May 2006. See
note 5 to the Unaudited Interim Consolidated Financial Statements.
The following discussion highlights some of the more significant factors that
impacted the results in the eight most recently completed quarters ended June
30, 2007.
During the second quarter of 2007, gross sales increased by $104 million over
the previous quarter primarily due to increasing commodity prices offset partly
by a strengthening of the Canadian dollar against the US dollar. Net income from
continuing operations increased by $100 million from the prior quarter as
decreases in operating costs and DD&A along with gains on held-for-trading
instruments, more than offset increased tax expenses.
During the first quarter of 2007, gross sales increased by $54 million over the
previous quarter due to the impact of increased commodity prices, which more
than offset the 3% decrease in total production. Net income from continuing
operations decreased $137 million from the previous quarter as the impact of the
increase in gross revenue and decrease in dry hole and stock-based compensation
expense was more than offset by increases in DD&A, operating costs and taxes and
the gain on sale of a royalty interest in an undeveloped lease in the previous
quarter.
During the fourth quarter of 2006, gross sales increased by $5 million over the
previous quarter as the impact of reduced oil prices offset the 6% increase in
total production. Net income from continuing operations decreased $53 million
from the third quarter as increases in charges for dry holes, exploration,
stock-based compensation, DD&A and operating costs more than offset the impact
of reduced taxes and the gain on sale of a royalty interest in an undeveloped
lease.
During the third quarter of 2006, gross sales decreased by $103 million over the
previous quarter due to decreased natural gas prices and reduced production. Net
income from continuing operations for the quarter decreased by $142 million,
primarily due to the $178 million recovery of future taxes related to Canadian
federal and provincial tax rate reductions recorded in the second quarter.
During the second quarter of 2006, gross sales decreased by $331 million over
the previous quarter due to decreased production. Net income from continuing
operations for the quarter increased by $424 million, primarily due to the
impact of a $178 million recovery of future taxes related to Canadian federal
and provincial tax rate reductions and the $325 million future tax charge in the
first quarter.
In the first quarter of 2006, gross sales decreased by $2 million over the
previous quarter. Net income from continuing operations for the quarter
decreased by $316 million, primarily due to the impact of a one-time non-cash
adjustment of $325 million related to a UK income tax rate increase.
During the fourth quarter of 2005, gross sales increased by $199 million over
the previous quarter due to increased natural gas prices in North America and
increased production in the North Sea. Net income from continuing operations for
the quarter increased by $75 million as the increased revenue combined with
reduced stock-based compensation charges more than offset the impact of
increases in operating, DD&A, royalty and tax expenses.
During the third quarter of 2005, higher commodity prices and production
increased gross sales by $526 million. Net income from continuing operations for
the quarter increased by $90 million as the increased revenue more than offset
the impact of increases in stock-based compensation, royalty and tax expenses.
New Accounting Pronouncements
In December 2006, the Canadian Accounting Standards Board (AcSB) issued two new
Sections in relation to financial instruments: Section 3862, Financial
Instruments - Disclosures, and Section 3863, Financial Instruments -
Presentation. Both sections will become effective for Talisman's 2007 year end
disclosure and will require increased disclosure regarding financial
instruments.
In December 2006, the AcSB issued Section 1535, Capital Disclosures. This
standard requires disclosure regarding what the Company defines as capital and
its objectives, policy and processes for managing capital. This standard will be
effective for Talisman's 2007 year end disclosure.
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes an
interpretation of FASB 109. This interpretation prescribes a recognition
threshold and measurement attributed for the financial statement recognition and
measurement of a tax position taken, or expected to be taken, in a tax return.
This interpretation will become effective for Talisman's 2007 year end
disclosure. The Company is currently evaluating the impact of FIN 48 on its
Consolidated Financial Statements and currently does not expect it to have a
material impact on its results of operations or financial position.
Internal Controls over Financial Reporting
There were no changes in Talisman's internal controls over financial reporting
during the second quarter of 2007 that materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
Litigation
On September 12, 2006, the United States District Court for the Southern
District of New York (the Court) granted Talisman's Motion for Summary Judgment,
dismissing the lawsuit brought against Talisman by the Presbyterian Church of
Sudan and others, under the Alien Tort Claims Act. The lawsuit alleged that the
Company conspired with, or aided and abetted, the Government of Sudan to commit
violations of international law in connection with the Company's now disposed of
interest in oil operations in Sudan. The plaintiffs have twice attempted to
certify the lawsuit as a class action. In March 2005 and in September 2005, the
Court rejected the plaintiffs' effort to certify two different classes (or
groups) of plaintiffs. On July 19, 2006, the Second Circuit Court of Appeals
denied the plaintiffs' request to appeal the Court's refusal to certify the
lawsuit as a class action. The plaintiffs have appealed to the Second Circuit
Court of Appeals, the Court's decision granting Talisman's Motion for Summary
Judgment, its denial of class certification and its refusal to consider the
plaintiffs' proposed third amended complaint. Talisman believes the lawsuit is
entirely without merit and will continue to vigorously defend itself. Talisman
does not expect the lawsuit to have a material adverse effect on it.
Talisman Energy Inc. is an independent upstream oil and gas company
headquartered in Calgary, Alberta, Canada. Talisman has operations in Canada and
its subsidiaries operate in the North Sea, Southeast Asia, Australia, North
Africa, the United States and Trinidad and Tobago. Talisman's subsidiaries are
also active in a number of other international areas. Talisman is committed to
conducting its business in an ethically, socially and environmentally
responsible manner. The Company is a participant in the United Nations Global
Compact and included in the Dow Jones Sustainability (North America) Index, as
well as the Jantzi Social Index. Talisman's shares are listed on the Toronto
Stock Exchange in Canada and the New York Stock Exchange in the United States
under the symbol TLM.
For further information, please contact:
David Mann, Senior Manager, Corporate Christopher J. LeGallais
& Investor Communications Senior Manager, Investor Relations
Phone: 403-237-1196 Fax: 403-237-1210 Phone: 403-237-1957 Fax: 403-237-1210
E-mail: tlm@talisman-energy.com Email: tlm@talisman-energy.com
26-07
Forward-looking Statements
This news release contains statements that constitute forward-looking statements
and forward-looking information (collectively, "forward looking statements")
within the meaning of applicable securities legislation. These forward-looking
statements include, among others, statements regarding: future production,
future cash flow, future cash provided by operating activities, anticipated
asset dispositions, estimated timing of production, expected royalty rates and
taxes, the Company's outlook for major projects, business strategy and plans,
impact of new accounting pronouncements, outcome of litigation, and other
expectations, beliefs, plans, goals, objectives, assumptions, information and
statements about possible future events, conditions, results of operations or
performance. Often, but not always, forward-looking statements use words or
phrases such as: "expects", "does not expect" or "is expected", "anticipates" or
"does not anticipate", "plans" or "planned", "estimates" or "estimated",
"projects" or "projected", "forecasts" or "forecasted", "believes", "intends",
"likely", "possible", "probable", "scheduled", "positioned", "goal", "objective"
or state that certain actions, events or results "may", "could", "would",
"might" or "will" be taken, occur or be achieved.
Various assumptions were used in drawing the conclusions or making the forecasts
and projections contained in the forward-looking statements throughout this news
release. Statements which discuss future business plans for drilling,
exploration and development assume that the extraction of crude oil, natural gas
and natural gas liquids remains economic. For the purposes of preparing this
document, Talisman assumed a US$67.30/bbl West Texas Intermediate oil price, a
US$7.20/mmbtu New York Mercantile Exchange natural gas price, a US$/C$ exchange
rate of $0.91 and a C$/British � rate of $2.19 for full year 2007.
Forecasted production volumes are based on the mid-point of the estimated
production range. Statements regarding estimated future production and
production growth, as well as estimated financial results that are derived from
or depend upon future production estimates (such as cash provided by operating
activities) incorporate the anticipated completion of the UK Brae asset sale and
the non-core asset disposition program in Canada. The completion of any
contemplated asset disposition is contingent on various factors including
favourable market conditions, the ability of the Company to negotiate acceptable
terms of sale and receipt of any required approvals for such dispositions. With
respect to estimates of future cash provided by operating activities, the amount
of taxes and cash payments made upon surrender of existing stock options
incorporated therein are inherently difficult to predict.
Undue reliance should not be placed on forward-looking statements.
Forward-looking statements are based on current expectations, estimates and
projections that involve a number of risks and uncertainties which could cause
actual results to differ materially from those anticipated by the Company and
described in the forward-looking statements. These risks and uncertainties
include:
-- the risks of the oil and gas industry, such as operational risks in
exploring for, developing and producing crude oil and natural gas, and
market demand, including unpredictable facilities outages;
-- risks and uncertainties involving geology of oil and gas deposits;
-- uncertainty of reserves estimates, reserves life and underlying
reservoir risk;
-- uncertainty of estimates and projections relating to production, costs
and expenses;
-- 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 completed acquisitions, as well as any future
acquisitions and dispositions;
-- health, safety and environmental risks;
-- uncertainties as to the availability and cost of financing and changes
in capital markets;
-- uncertainties related to the litigation process, such as possible
discovery of new evidence of acceptance of novel legal theories and
difficulties in predicting the decisions of judges and juries;
-- risks in conducting foreign operations (for example, political and
fiscal instability or the possibility of civil unrest or military
action);
-- competitive actions of other companies, including increased competition
from other oil and gas companies or companies providing alternative
sources of energy;
-- changes in general economic and business conditions;
-- the effect of acts of, or actions against, international terrorism;
-- the possibility that government policies or laws may change or
governmental approvals may be delayed or withheld;
-- results of the Company's risk mitigation strategies, including insurance
and any hedging programs; and
-- the Company's ability to implement its business strategy.
Readers are cautioned that the foregoing list of risks and uncertainties is not
exhaustive. Additional information on these and other factors which could affect
the Company's operations or financial results are included: (1) under the
heading "Risk Factors" in the Company's Annual Information Form; and (2) under
the heading "Management's Discussion and Analysis - Risk Factors" and elsewhere
in the Company's 2006 Annual Financial Report. Additional information may also
be found in the Company's other reports on file with Canadian securities
regulatory authorities and the United States Securities and Exchange Commission.
Forward-looking statements are based on the estimates and opinions of the
Company's management at the time the statements are made. The Company assumes no
obligation to update forward-looking statements should circumstances or
management's estimates or opinions change, except as required by law.
Advisories
Oil and Gas Information
Throughout this news release, the Company makes reference to production volumes.
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.
Use of BOE Equivalents
Throughout this news release, the calculation of 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 and is based on an energy equivalence conversion
method. BOEs may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 mcf:1 bbl is based on an approximate energy equivalence
conversion method primarily applicable at the burner tip and does not represent
a value equivalence at the wellhead.
Non-GAAP measures
This news release includes references to financial measures commonly used in the
oil and gas industry such as cash flow, cash flow per share, earnings from
continuing operations and earnings from continuing operations per share. These
terms are not defined by Generally Accepted Accounting Principles (GAAP) in
either Canada or the US. Consequently, these are referred to as non-GAAP
measures. Talisman's reported results of cash flow, cash flow per share and
earnings from operations may not be comparable to similarly titled measures by
other companies.
Cash flow, as commonly used in the oil and gas industry, is captioned as funds
from operating activities on the Company's cash flow statement and 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 with 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.
Earnings from continuing operations is 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. This term is not defined by GAAP in either Canada
or the US. The Company uses this information to evaluate performance of core
operational activities on a comparable basis between periods.
Additional information related to the Company can be found on SEDAR at
www.sedar.com.
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Financial
(millions of C$ unless otherwise stated)
Cash flow 1,177 1,142 2,181 2,486
Net income 550 686 1,070 883
Exploration and development expenditures 943 1,007 2,240 2,210
Per common share (C$)
Cash flow 1.13 1.04 2.09 2.26
Net income 0.53 0.62 1.02 0.80
------------------------------------------------------------------------------------------------------------------------
Production
(daily average)
Oil and liquids (bbls/d)
North America 44,637 50,205 46,000 51,842
United Kingdom 105,661 98,478 103,715 111,100
Scandinavia 29,931 29,638 30,916 34,556
Southeast Asia 43,962 53,471 46,740 52,662
Other 21,158 17,328 21,232 22,915
Synthetic oil - 3,317 - 3,002
------------------------------------------------------------------------------------------------------------------------
Total oil and liquids 245,349 252,437 248,603 276,077
------------------------------------------------------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 860 884 891 889
United Kingdom 77 110 91 128
Scandinavia 14 13 14 15
Southeast Asia 280 314 273 298
------------------------------------------------------------------------------------------------------------------------
Total natural gas 1,231 1,321 1,269 1,330
------------------------------------------------------------------------------------------------------------------------
Total mboe/d 450 473 460 498
------------------------------------------------------------------------------------------------------------------------
Prices (1)
Oil and liquids ($/bbl)
North America 56.67 63.34 55.07 56.28
United Kingdom 74.89 75.97 69.93 73.22
Scandinavia 77.11 77.25 70.71 75.07
Southeast Asia 81.42 78.92 79.14 76.26
Other 78.45 78.60 73.94 73.54
------------------------------------------------------------------------------------------------------------------------
Crude oil and natural gas liquids 73.32 74.39 69.36 70.85
Synthetic oil - 72.43 - 68.38
------------------------------------------------------------------------------------------------------------------------
Total oil and liquids 73.32 74.36 69.36 70.82
------------------------------------------------------------------------------------------------------------------------
Natural gas ($/mcf)
North America 7.65 6.52 7.65 7.66
United Kingdom 6.47 8.61 7.19 9.46
Scandinavia 4.59 5.54 4.51 4.42
Southeast Asia 7.58 7.57 6.95 7.34
------------------------------------------------------------------------------------------------------------------------
Total natural gas 7.53 6.94 7.43 7.72
------------------------------------------------------------------------------------------------------------------------
Total ($/boe) (includes synthetic) 60.50 59.10 57.97 59.92
------------------------------------------------------------------------------------------------------------------------
(1) 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$) 2007 2006
----------------------------------------------------------------------------------
Assets (restated -
Current see notes 1 and 2)
Cash and cash equivalents 104 103
Accounts receivable 1,217 1,116
Inventories 142 185
Prepaid expenses 26 25
Held-for-trading securities (note 1) 270 -
Assets of discontinued operations (note 2) 344 786
----------------------------------------------------------------------------------
2,103 2,215
----------------------------------------------------------------------------------
Accrued employee pension benefit asset 46 50
Other assets 279 284
Goodwill (note 3) 1,456 1,522
Property, plant and equipment 17,408 17,390
----------------------------------------------------------------------------------
19,189 19,246
----------------------------------------------------------------------------------
Total assets 21,292 21,461
----------------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness 46 39
Accounts payable and accrued liabilities (notes
4, 6 and 7) 2,130 2,472
Income and other taxes payable 381 412
Liabilities of discontinued operations (note 2) 203 257
----------------------------------------------------------------------------------
2,760 3,180
----------------------------------------------------------------------------------
Deferred credits 51 59
Asset retirement obligations (note 4) 1,777 1,848
Other long-term obligations (note 7) 133 157
Long-term debt (note 8) 4,948 4,560
Future income taxes 4,406 4,350
----------------------------------------------------------------------------------
11,315 10,974
----------------------------------------------------------------------------------
Contingencies and commitments (note 13)
Shareholders' equity
Common shares (note 5) 2,434 2,533
Contributed surplus 64 67
Cumulative foreign currency translation (1,894) (1,204)
Retained earnings 4,756 4,584
Accumulated other comprehensive income (note 1,
12) 1,857 1,327
----------------------------------------------------------------------------------
7,217 7,307
----------------------------------------------------------------------------------
Total liabilities and shareholders' equity 21,292 21,461
----------------------------------------------------------------------------------
See accompanying notes.
Talisman Energy Inc.
Consolidated Statements of Income
(unaudited)
Three months ended Six months ended
(millions of C$ June 30 June 30
except per share amounts) 2007 2006 2007 2006
---------------------------------------------------------------------------------------- -----------------------
(restated - (restated -
Revenue see note 2) see note 2)
Gross sales 2,290 2,230 4,476 4,791
Hedging (gain) loss (21) (15) (67) (25)
---------------------------------------------------------------------------------------- -----------------------
Gross sales, net of hedging 2,311 2,245 4,543 4,816
Less royalties 385 426 730 836
---------------------------------------------------------------------------------------- -----------------------
Net sales 1,926 1,819 3,813 3,980
Other 41 27 74 55
---------------------------------------------------------------------------------------- -----------------------
Total revenue 1,967 1,846 3,887 4,035
---------------------------------------------------------------------------------------- -----------------------
Expenses
Operating 451 420 953 814
Transportation 53 45 109 103
General and administrative 53 55 113 115
Depreciation, depletion and amortization 565 472 1,159 968
Dry hole 113 19 213 83
Exploration 59 53 129 117
Interest on long-term debt 50 43 97 87
Stock-based compensation (note 6) 43 (46) 85 -
Gain on held-for-trading financial instruments (note 1) (63) - (26) -
Other (7) 48 (22) 72
---------------------------------------------------------------------------------------- -----------------------
Total expenses 1,317 1,109 2,810 2,359
---------------------------------------------------------------------------------------- -----------------------
Income from continuing operations before taxes 650 737 1,077 1,676
---------------------------------------------------------------------------------------- -----------------------
Taxes
Current income tax 113 189 286 521
Future income tax 163 (49) 148 364
Petroleum revenue tax 73 64 141 149
---------------------------------------------------------------------------------------- -----------------------
349 204 575 1,034
---------------------------------------------------------------------------------------- -----------------------
Net income from continuing operations 301 533 502 642
---------------------------------------------------------------------------------------- -----------------------
Net income from discontinued operations (note 2) 249 153 568 241
---------------------------------------------------------------------------------------- -----------------------
Net income 550 686 1,070 883
---------------------------------------------------------------------------------------- -----------------------
Per common share (C$)
Net income from continuing operations 0.29 0.48 0.48 0.58
Diluted net income from continuing operations 0.28 0.47 0.47 0.57
Net income from discontinued operations 0.24 0.14 0.54 0.22
Diluted net income from discontinued operations 0.24 0.14 0.53 0.21
Net income 0.53 0.62 1.02 0.80
Diluted net income 0.52 0.61 1.00 0.78
---------------------------------------------------------------------------------------- -----------------------
Average number of common shares outstanding (millions) 1,040 1,098 1,046 1,098
Diluted number of common shares outstanding (millions) 1,066 1,127 1,072 1,129
---------------------------------------------------------------------------------------- -----------------------
See accompanying notes.
Talisman Energy Inc.
Consolidated Statements of Comprehensive Income
(unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
(millions of C$) 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Net income 550 686 1,070 883
Foreign currency translation (1) 426 239 507 224
Mark to market gains and (losses) on derivatives designated as cash flow hedges
Unrealized gains (losses) arising during the period (2) 14 - (14) -
Realized gains recognized in net income (3) (14) - (45) -
------------------------------------------------------------------------------------------------------------------------
- - (59) -
------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 426 239 448 224
------------------------------------------------------------------------------------------------------------------------
Comprehensive income 976 925 1,518 1,107
------------------------------------------------------------------------------------------------------------------------
1 Includes net investment hedging loss of $92 million and $104 million for the three and six months ended
June 30, 2007 respectively (2006 - $51 million and $55 million respectively)
2 Three and six months ended June 30, 2007 net of tax of $4 million and ($11) million
3 Three and six months ended June 30, 2007 net of tax of $5 million and $20 million
See accompanying notes.
Talisman Energy Inc.
Consolidated Statements of Changes in Shareholders' Equity
(unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
(millions of C$) 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Common shares
Balance at beginning of period 2,499 2,610 2,533 2,609
Issued on exercise of stock options 4 3 7 4
Shares purchased for cancellation (69) (7) (106) (7)
------------------------------------------------------------------------------------------------------------------------
Balance at end of period 2,434 2,606 2,434 2,606
------------------------------------------------------------------------------------------------------------------------
Contributed surplus
Balance at beginning of period 66 69 67 69
Purchase of common shares (2) - (3) -
------------------------------------------------------------------------------------------------------------------------
Balance at end of period 64 69 64 69
------------------------------------------------------------------------------------------------------------------------
Cumulative foreign currency translation
Balance at beginning of period (1,280) (1,363) (1,204) (1,413)
Current period foreign currency translation (614) (123) (690) (73)
------------------------------------------------------------------------------------------------------------------------
Balance at end of period (1,894) (1,486) (1,894) (1,486)
------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance at beginning of period 4,850 3,513 4,584 3,316
Transitional adjustment on adoption of new accounting policies (note 1) - - 7 -
Net income 550 686 1,070 883
Common Share Dividends (91) (82) (91) (82)
Purchase of common shares (553) (47) (814) (47)
------------------------------------------------------------------------------------------------------------------------
Balance at end of period 4,756 4,070 4,756 4,070
------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income
Balance at beginning of period 1,431 1,133 1,327 1,148
Transitional adjustment on adoption of new accounting policies (note 1) - - 82 -
Other comprehensive income 426 239 448 224
------------------------------------------------------------------------------------------------------------------------
Balance at end of period 1,857 1,372 1,857 1,372
------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
Talisman Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
(restated -see (restated -see
Operating note 2) note 2)
Net income from continuing operations 301 533 502 642
Items not involving cash (note 11) 737 379 1,450 1,333
Exploration 59 53 129 117
------------------------------------------------------------------------------------------------------------------------
1,097 965 2,081 2,092
Changes in non-cash working capital (178) (144) (93) (72)
------------------------------------------------------------------------------------------------------------------------
Cash provided by continuing operations 919 821 1,988 2,020
Cash provided by discontinued operations 80 177 100 394
------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 999 998 2,088 2,414
------------------------------------------------------------------------------------------------------------------------
Investing
Corporate acquisitions - - - (66)
Capital expenditures
Exploration, development and corporate (919) (925) (2,238) (2,167)
Acquisitions - - (4) (1)
Proceeds of resource property dispositions 16 - 16 2
Changes in non-cash working capital (356) (169) (317) 11
Discontinued operations 489 137 729 168
------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (770) (957) (1,814) (2,053)
------------------------------------------------------------------------------------------------------------------------
Financing
Long-term debt repaid (459) (773) (1,035) (3,448)
Long-term debt issued 820 568 1,776 3,250
Common shares purchased (624) (54) (921) (54)
Common share dividends (91) (82) (91) (82)
Deferred credits and other 12 (7) (6) (34)
Changes in non-cash working capital - - - -
------------------------------------------------------------------------------------------------------------------------
Cash used in financing activities (342) (348) (277) (368)
------------------------------------------------------------------------------------------------------------------------
Effect of translation on foreign currency cash and cash equivalents (2) (5) (3) 9
------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (115) (312) (6) 2
Cash and cash equivalents, beginning of period 173 444 64 130
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 58 132 58 132
------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(tabular amounts in millions of Canadian dollars ("$") except as noted)
The Interim Consolidated Financial Statements of Talisman Energy Inc.
("Talisman" or the "Company") have been prepared by management in accordance
with Canadian generally accepted accounting principles. Certain information and
disclosures normally required to be included in notes to Annual Consolidated
Financial Statements have been condensed or omitted. The Interim Consolidated
Financial Statements should be read in conjunction with the audited Annual
Consolidated Financial Statements and the notes thereto in Talisman's Annual
Financial Report for the year ended December 31, 2006.
1. Significant Accounting Policies
The Interim Consolidated Financial Statements have been prepared following the
same accounting policies and methods of computation as the Annual Consolidated
Financial Statements for the year ended December 31, 2006, except for the
following:
a) Changes in Accounting Policies
Effective January 1, 2007, Talisman adopted the new CICA accounting standards
related to Comprehensive Income (section 1530), Equity (section 3251), Financial
Instruments Recognition and Measurement (section 3855), Financial Instruments
Disclosure and Presentation (section 3861) and Hedges (section 3865). As
required by the standards prior periods have not been restated except to
reclassify the foreign currency translation adjustment and related net
investment hedges as described under Comprehensive Income and Equity.
Financial Instruments
The Company classifies its financial instruments into one of the following
categories: held-for-trading (assets and liabilities), assets
available-for-sale, loans and receivables, assets held-to-maturity and other
financial liabilities. All financial instruments are measured at fair value on
initial recognition. Transaction costs are included in the initial carrying
amount of financial instruments except for held-for-trading items in which case
they are expensed as incurred. Measurement in subsequent periods depends on the
classification of the financial instrument.
Financial assets and liabilities "held-for-trading" are subsequently measured at
fair value with changes in fair value recognized in net income. Financial assets
"available-for-sale" are subsequently measured at fair value with changes in
fair value recognized in other comprehensive income, net of tax.
Financial assets "held-to-maturity", "loans and receivables", and financial
liabilities "other financial liabilities" are, as appropriate, subsequently
amortized using the effective interest rate method.
Cash equivalents are classified as "held-for-trading" and are measured at
carrying value which approximates fair value due to the short-term nature of
these instruments. Accounts receivable and certain other assets that are
financial instruments are classified as "loans and receivables". Accounts
payable and accrued liabilities, other long-term obligations and current and
long-term debt are classified as "other financial liabilities". Financial
instruments that are derivative contracts are considered "held-for-trading"
unless they are designated as a hedge.
Hedges
The Company may use derivative instruments to manage commodity price, foreign
exchange and interest rate risk. The Company may choose to designate derivative
instruments as hedges. Cash flow hedges - The effective portion of changes in
the fair value of financial instruments designated as cash flow hedges is
recognized in other comprehensive income, net of tax, with any ineffective
portion being recognized immediately in net income. Gains and losses are
recovered from other comprehensive income and recognized in net income in the
same period as the hedged item. Fair value hedges - Both the financial
instrument designated as the hedging item, and the underlying hedged asset or
liability are measured at fair value. Changes in the fair value of both the
hedging and hedged item are reflected in net income immediately. Net investment
hedges - Foreign exchange gains and losses on debt designated as a net
investment hedge are recognized in other comprehensive income, net of tax. These
gains and losses are recovered from other comprehensive income and recognized in
net income if the net investment is reduced below the value of such debt.
Comprehensive Income and Equity Section 1530 provides for a new statement of
Comprehensive Income and establishes accumulated other comprehensive income
(AOCI) as a separate component of shareholders' equity. The statement of
Comprehensive Income reflects the changes in AOCI in the period. Changes in AOCI
are comprised of changes in the fair value of financial instruments designated
as cash flow or net investment hedges, to the extent they are effective, and
foreign currency translation gains or losses arising from the translation of the
Company's self-sustaining foreign operations. The Company's operations in
Canada, the UK and Norway are self-sustaining and their economic exposure is
more closely tied to their respective domestic currencies. Accordingly, these
operations are measured in Canadian dollars (C$), UK pounds sterling (UK�) and
Norwegian kroner (NOK), respectively and translated to the Company's functional
currency US dollars (US$) using the current rate method. The translation of
self-sustaining foreign operations into the Company's functional currency is
recorded in other comprehensive income. The effect of translating the financial
statements from the Company's functional currency US$ into its presentation
currency C$ continues to be included in a separate component of shareholder's
equity described as cumulative foreign currency translation.
Initial Adoption of Standards
These accounting standards require prospective adoption with the exception of
the translation of self-sustaining foreign operations and the related impact of
net investment hedges. Accordingly the prior period cumulative foreign currency
translation and AOCI balances have been restated as follows:
As at December 31, As at June Three months Six months
30, ended, ended,
Increase (decrease) 2006 2005 2006 June 30, 2006 June 30, 2006
------------------------------------------------------------------------------------------------------------------------
Cumulative foreign currency translation (1,327) (1,148) (1,372) (239) (224)
Accumulated other comprehensive income 1,327 1,148 1,372 239 224
------------------------------------------------------------------------------------------------------------------------
Section 3855 requires that embedded derivatives be recognized by separating them
from their host contracts and measuring them at fair value. Talisman has elected
the beginning of its fiscal year-end December 31, 2003 as the effective date to
recognize embedded derivatives. No adjustments were required for embedded
derivatives on the adoption of this standard. On adoption, Talisman did not have
any held-for-trading or available-for-sale financial instruments. On January 1,
2007 all of Talisman's derivative contracts were designated as hedges. The
adjustment required to the January 1, 2007 balance sheet to implement the change
in accounting standards is as follows:
Impact increase/(decrease) January 1, 2007
------------------------------------------------------------------------------------------------------------------------
To recognize mark-to-market gains and losses on cash flow hedges
Accounts receivable 122
Accounts payable and accrued liabilities 11
Other long-term obligations (12)
Future income tax liabilities 34
Retained earnings 7
Accumulated other comprehensive income 82
To include unamortized transaction costs with long-term debt
Long-term debt (41)
Other assets (41)
To revalue hedged debt as part of fair value hedges
Long-term debt (14)
Other long-term obligations 14
------------------------------------------------------------------------------------------------------------------------
Also effective January 1, 2007, Talisman adopted the new CICA accounting
standards related to Accounting Changes (1506). This standard requires that
changes in accounting policy may be made only if they result in more reliable
and relevant information. Accounting policy changes and correction of prior
period errors must be applied retrospectively, with a provision to apply
accounting policy changes prospectively if it is impractical to determine prior
period amounts. Changes in accounting estimates are applied prospectively. The
Canadian Accounting Standards Board (AcSB) issued two new Sections in relation
to financial instruments: Section 3862, Financial Instruments - Disclosures, and
Section 3863, Financial Instruments - Presentation. Both sections will become
effective for Talisman's 2007 year-end disclosure and will require increased
disclosure regarding financial instruments. The AcSB issued Section 1535,
Capital Disclosures. This standard requires disclosure regarding what the
Company defines as capital and its objectives, policy and processes for managing
capital. This standard will be effective for Talisman's 2007 year-end
disclosure.
b) Reclassification
During the first quarter, the Company reclassified inventory that is expected to
be capitalized when consumed, from inventory to other long-term assets, with
prior period balances reclassified accordingly. The impact on the December 31,
2006 Consolidated Balance Sheet is an increase of $182 million to other assets
and a decrease of $182 million to inventories.
2. Discontinued Operations The assets and liabilities related to discontinued
operations have been reclassified as assets or liabilities of discontinued
operations on the Consolidated Balance Sheets. Operating results related to
these assets and liabilities have been included in net income from discontinued
operations on the Consolidated Statements of Income. Comparative periods for
both North America and UK segments have been restated.
United Kingdom
During the second quarter of 2006, Talisman entered into agreements to dispose
of certain non-core oil and gas producing assets in the UK for proceeds of $392
million. These sales closed in the fourth quarter of 2006 for a gain of $209
million net of tax ($nil). Also, during the fourth quarter of 2006, Talisman
entered into an agreement to dispose of additional non-core oil and gas
properties for consideration of US$550 million with an effective date of January
1, 2007. Completion is expected in the fourth quarter of 2007. The proceeds of
sale will be adjusted for net cash flow from the properties from January 1, 2007
until closing.
North America
During 2006, Talisman entered into agreements to dispose of certain non-core oil
and gas producing assets in Western Canada for proceeds of $361 million. These
sales closed in the second and third quarters of 2006 for combined gains of $147
million, net of tax of $61 million. Also during 2006, Talisman announced its
intention to sell its 1.25% indirect interest in Syncrude Canada. The sale
closed in the first quarter of 2007 for proceeds of $472 million, consisting of
cash of $229 million, net of adjustments and 8.2 million units of Canadian Oil
Sands Trust, for a gain of $277 million, net of tax of $33 million. During the
fourth quarter of 2006, Talisman announced plans to sell oil and gas producing
assets in Western Canada. These sales closed in the second quarter of 2007 for
proceeds of $516 million resulting in a gain of $203 million, net of tax of $82
million. During the second quarter of 2007, Talisman entered into agreements to
sell additional oil and gas producing assets in Western Canada, which are
expected to close in the third quarter.
------------------------------------------------------------------------------------------------------------------------
For the three months ended June 30,
-----------------------------------------------------
North America United Kingdom Total
-----------------------------------------------------
2007 2006 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Revenue
Gross sales (1) 71 128 60 151 131 279
Royalties 17 28 8 12 25 40
------------------------------------------------------------------------------------------------------------------------
Revenues, net of royalties 54 100 52 139 106 239
Expenses
Operating, marketing and general 7 26 16 19 23 45
Interest - 2 - 3 - 5
Depreciation, depletion and amortization 4 28 3 27 7 55
------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations before income taxes 43 44 33 90 76 134
Taxes 12 13 18 46 30 59
Gain on disposition, net of tax of $82 million 203 78 - - 203 78
------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations 234 109 15 44 249 153
------------------------------------------------------------------------------------------------------------------------
1. Gross sales includes $12 million and $21 million in 2007 and 2006, respectively, of other revenue related to tariff
and pipeline income.
------------------------------------------------------------------------------------------------------------------------
For the six months ended June 30,
-----------------------------------------------------------------
North America United Kingdom Total
-----------------------------------------------------------------
2007 2006 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Revenue
Gross sales (1) 143 284 143 326 286 610
Royalties 34 63 17 26 51 89
------------------------------------------------------------------------------------------------------------------------
Revenues, net of royalties 109 221 126 300 235 521
Expenses
Operating, marketing and general 19 50 37 43 56 93
Interest - 6 - 7 - 13
Depreciation, depletion and amortization 24 59 4 66 28 125
------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations before income
taxes 66 106 85 184 151 290
Taxes 19 31 44 96 63 127
Gain on disposition, net of tax of $115 million 480 78 - - 480 78
------------------------------------------------------------------------------------------------------------------------
Net income from discontinued operations 527 153 41 88 568 241
------------------------------------------------------------------------------------------------------------------------
1. Gross sales includes $26 million and $38 million in 2007 and 2006, respectively, of other revenue related to tariff
and pipeline income.
As at June 30, 2007 As at December 31, 2006
-------------------------------------------------------------------------
North United North United
America Kingdom Total America Kingdom Total
-------------------------------------------------------------------------
Assets
Current assets 10 29 39 29 30 59
Property, plant and equipment, net 62 208 270 450 213 663
Goodwill 8 27 35 35 29 64
------------------------------------------------------------------------------------------------------------------------
Total assets 80 264 344 514 272 786
------------------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities 3 21 24 8 53 61
Asset retirement obligation 7 75 82 18 78 96
Future income taxes - 97 97 - 100 100
------------------------------------------------------------------------------------------------------------------------
Total liabilities 10 193 203 26 231 257
------------------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations 70 71 141 488 41 529
------------------------------------------------------------------------------------------------------------------------
3. Goodwill
Continuity of goodwill Six months ended 12 months ended
June 30, 2007 December 31, 2006
(restated, see note 2)
------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period (1) 1,522 1,413
Foreign currency translation effect(2) (66) 109
------------------------------------------------------------------------------------------------------------------------
Balance, end of period (1) 1,456 1,522
------------------------------------------------------------------------------------------------------------------------
1. At June 30, 2007, $35 million (December 31, 2006 - $64 million; January 1, 2006 - $91 million) has been reclassified
to assets of discontinued operations.
2. Effect of discontinued operations on foreign currency translation is $2 million ($9 million for year ended December
31, 2006).
Goodwill has no tax basis.
4. Asset Retirement Obligations (ARO)
------------------------------------------------------------------------------------------------------------------------
Continuity of ARO Six months ended 12 months ended
June 30, 2007 December 31, 2006
(restated, see note 2)
------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period (1, 2) 1,879 1,234
Liabilities incurred during period - 324
Liabilities settled during period (17) (51)
Accretion expense 52 74
Revisions in estimated future cash flows - 171
Foreign currency translation (106) 127
------------------------------------------------------------------------------------------------------------------------
Balance, end of period (1, 2) 1,808 1,879
------------------------------------------------------------------------------------------------------------------------
1. Included in December 31, 2006 and June 30, 2007 liabilities are $31 million of short-term reclamation costs recorded
in accounts payable on the balance sheet for a net long-term ARO liability of $1,848 million and $1,777 million
respectively.
2. At June 30, 2007, $82 million (December 31, 2006 - $96 million; January 1, 2006 - $114 million) has been reclassified
to assets of discontinued operations.
5. Share Capital
Talisman's authorized share capital consists of an unlimited number of common
shares without nominal or par value and first and second preferred shares. No
preferred shares have been issued.
------------------------------------------------------------------------------------------------------------------------
Six months ended 12 months ended
Continuity of common shares June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------------------------
Balance, beginning of period 1,063,928,405 2,533 1,098,783,945 2,609
Issued on exercise of options 319,950 7 438,860 8
Purchased during the period (44,494,100) (106) (35,294,400) (84)
------------------------------------------------------------------------------------------------------------------------
Balance, end of period 1,019,754,255 2,434 1,063,928,405 2,533
------------------------------------------------------------------------------------------------------------------------
In March 2007, the Company renewed its normal course issuer bid (NCIB) with the
Toronto Stock Exchange (TSX). Pursuant to the NCIB, the Company may repurchase
up to 104,732,244 of its common shares (representing 10% of the public float
outstanding at the time the normal course issuer bid was renewed) during the
12-month period commencing March 28, 2007 and ending March 27, 2008. During the
first six months of 2007, the Company repurchased 44,494,100 common shares for a
total cost of $923 million (2006 - 3,000,000 shares). Of the total purchased
year-to-date, 28,980,700 common shares were purchased under the March 2007 NCIB
and the remaining 15,513,400 common shares were purchased under the Company's
previous NCIB.
Subsequent to June 30, 2007, 161,550 stock options were exercised for shares,
resulting in 1,019,915,805 shares outstanding at July 31, 2007.
6. Stock Option Plans All options issued by the Company permit the holder to
purchase one common share of the Company at the stated exercise price or to
receive a cash payment equal to the appreciated value of the stock option. Cash
Unit plans are similar except that the holder does not have the right to
purchase the underlying share of the Company.
------------------------------------------------------------------------------------------------------------------------
Six months ended 12 months ended
------------------------------------------------------------------------------------------------------------------------
Continuity of stock options June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Number of Weighted-average Number of Weighted-average
Options exercise price ($) options exercise price ($)
------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 63,921,148 10.79 64,485,717 8.71
Granted during the period 11,930,015 20.34 10,496,690 19.67
Exercised for common shares (319,950) 6.34 (438,860) 6.55
Exercised for cash payment (8,905,601) 7.65 (9,439,024) 6.12
Forfeited (327,245) 16.86 (1,183,375) 15.04
------------------------------------------------------------------------------------------------------------------------
Outstanding, end of period 66,298,367 12.93 63,921,148 10.79
------------------------------------------------------------------------------------------------------------------------
Exercisable, end of period 29,102,786 7.10 27,606,033 6.45
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Six months ended 12 months ended
Continuity of cash units June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Number of Weighted-average Number of Weighted-average
units exercise price ($) units exercise price ($)
------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 8,352,328 12.68 7,351,065 9.90
Granted during the period 2,677,070 20.26 2,107,215 19.67
Exercised (705,920) 7.33 (1,006,652) 6.61
Forfeited (36,025) 17.17 (99,300) 16.44
------------------------------------------------------------------------------------------------------------------------
Outstanding, end of period 10,287,453 15.00 8,352,328 12.68
------------------------------------------------------------------------------------------------------------------------
Exercisable, end of period 2,752,973 7.44 2,411,293 6.93
------------------------------------------------------------------------------------------------------------------------
Stock-based Compensation
For the three months ended June 30, 2007, the Company paid cash of $83 million
(2006 - $40 million) to employees in settlement of fully accrued liabilities and
recorded stock-based compensation expense of $43 million (2006 - $46 million
recovery) relating to its stock option and cash unit plans. For the six months
ended June 30, 2007, the Company paid cash of $131 million (2006 - $108 million)
to employees in settlement of fully accrued liabilities and recorded stock-based
compensation expense of $85 million (2006 - $nil) relating to its stock option
and cash unit plans.
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Average exercise price $21.91 $21.80 $21.29 $21.97
Average grant price $7.85 $6.36 $7.63 $6.19
------------------------------------------------------------------------------------------------------------------------
Average gain per exercise $14.06 $15.44 $13.66 $15.78
Number of options and cash units exercised 5,915,982 2,106,788 9,611,521 6,828,278
------------------------------------------------------------------------------------------------------------------------
Cash expense ($millions) 83 40 131 108
------------------------------------------------------------------------------------------------------------------------
Of the combined mark-to-market liability for stock option and cash unit plans of
$542 million as at June 30, 2007 (December 31, 2006 - $596 million), $539
million (December 31, 2006 - $554 million) is included in accounts payable and
accrued liabilities.
7. Other Long-Term Obligations
------------------------------------------------------------------------------------------------------------------------
June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Pensions and other post retirement benefits 54 51
Mark-to-market liability for stock-based compensation 3 42
Commodity price derivative contracts (note 9) 13 (3)
Interest rate derivative contracts (notes 8,9) 19 -
Discounted obligations on capital leases(1) 35 37
Other 9 30
------------------------------------------------------------------------------------------------------------------------
133 157
------------------------------------------------------------------------------------------------------------------------
1. Of the total discounted liability of $38 million (December 31, 2006 - $43 million), $3 million (December 31, 2006 -
$6 million) is included in accounts payable and accrued liabilities.
8. Long-Term Debt
------------------------------------------------------------------------------------------------------------------------
June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Bank Credit Facilities 1,793 494
Debentures and Notes (unsecured)
US$ denominated (US$2,334 million, 2006 - US$2,519 million) 2,486 2,937
Canadian $ denominated 174 559
� denominated (�250 million) 533 570
------------------------------------------------------------------------------------------------------------------------
4,986 4,560
------------------------------------------------------------------------------------------------------------------------
Unamortized transaction costs (38) -
------------------------------------------------------------------------------------------------------------------------
4,948 4,560
------------------------------------------------------------------------------------------------------------------------
Upon adoption of CICA 3855 on January 1, 2007 (see note 1), unamortized
transaction costs related to long-term debt that were previously included in
other assets are now included in the carrying value of long-term debt. In
addition, a portion of the value of the Company's debt is hedged and as such is
re-measured at fair value each reporting period (see notes 1,9). The adjustment
to fair value at June 30, 2007 increased the carrying value of debt by $4
million. Prior periods are not retroactively restated for the adoption of the
new standards.
During the second quarter, the Company negotiated increases in the amounts
available under its revolving credit facilities with several of its banks to an
aggregate of $2,731 million (December 31, 2006 - $2,018 million). The Company
also repaid the US$175 million 7.125% notes on maturity, as well as $10 million
of its US$ denominated notes.
9. Financial Instruments
Carrying Value and Estimated Fair Value of Financial Instruments
------------------------------------------------------------------------------------------------------------------------
Asset (liability) at June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Carrying Value Fair Value Unrecognized Carrying Fair Unrecognized
Gain/(Loss) Value Value Gain/(Loss)
------------------------------------------------------------------------------------------------------------------------
Long-term debt (4,948) (4,911) 37 (4,560) (4,436) 124
------------------------------------------------------------------------------------------------------------------------
Discounted obligations under capital leases (35) (35) - (37) (37) -
Securities held-for-trading 270 270 - - - -
Cross currency and interest rate swaps 4 4 - - (14) (14)
Natural gas derivatives 31 31 - - 55 55
Crude oil derivatives (40) (40) - (39) 10 49
------------------------------------------------------------------------------------------------------------------------
Borrowings under bank credit facilities are for short terms and are market rate
based; thus, carrying value approximates fair value. The fair value of
debentures and notes is based on market quotations, which reflect the discounted
present value of the principal and interest payments using the effective yield
at June 30 for instruments having the same term and risk characteristics.
Discounted obligations under capital leases are valued at amortized cost using
the effective interest rate method. Securities held-for-trading are valued based
on market quotations as at June 30, 2007; thus carrying value approximates fair
value. Fair values for interest rate derivative instruments are determined based
on the estimated cash payment or receipt necessary to settle the contract at
June 30. Cash payments or receipts are based on discounted cash flow analysis
using current market rates and prices. Fair values for commodity and foreign
exchange derivatives are based on option pricing models using forward pricing
curves and implied volatility as at June 30, as appropriate. The fair values of
other financial instruments, including cash and cash equivalents, accounts
receivable and accounts payable approximate their carrying values.
Commodity Price Derivative Contracts
A portion of the Company's outstanding commodity price derivative contracts at
June 30, 2007 has been designated as hedges of the Company's anticipated future
commodity sales. For new commodity price derivative contracts entered into since
January 1, 2007 the company has elected not to designate these as cash flow
hedges and consequently these derivatives have been classified as
held-for-trading. At June 30, 2007, $70 million was included in accounts
receivable, $43 million in accounts payable and $13 million in other long-term
obligations related to the fair value of commodity price derivative contracts.
For the six months ended June 30, 2007, the ineffective portion of derivatives
designated as cash flow hedges that was recognized in net income was a loss of
$1 million. The Company also recorded unrealized gains of $1 million on its
held-for-trading commodity price derivative contracts. During the first quarter
of 2007, the Company settled a portion of its 2007 WTI costless collar covering
a notional volume of 10,000 bbls/d for a gain of $40 million. The gain on
settlement, net of tax, is included in accumulated other comprehensive income
and is being realized as a hedging gain in net income over the period ending
December 31, 2007, the term of the original hedge.
The Company had the following commodity price derivative contracts outstanding
at June 30, 2007:
Commodity Contracts designated as Hedges
Fixed price swaps Hedge type Term bbls/d US$/bbl Fair value
--------------------------------- ----------------- ----------------- ---------- ----------------- ---------------------
Dated Brent oil index Cash flow 2007 Jul-Dec 5,707 40.31 (36)
Dated Brent oil index Cash flow 2008 Jan-Jun 2,473 59.63 (7)
Dated Brent oil index Cash flow 2008 Jul-Dec 815 60.00 (2)
Floor/Ceiling
Two-way collars Hedge type Term bbls/d US$/bbl Fair value
--------------------------------- ----------------- ----------------- ---------- ----------------- ---------------------
WTI Cash flow 2007 Jul-Dec 10,000 70.00/90.54 6
Floor/Ceiling
Two-way collars Hedge type Term mcf/d C$/mcf Fair value
--------------------------------- ----------------- ----------------- ---------- ----------------- ---------------------
AECO index Cash flow 2007 Jul-Dec 59,633 8.18/12.20 14
AECO index Cash flow 2007 Jul-Oct 68,807 8.91/9.97 14
Fixed price swaps Hedge type Term mcf/d C$/mcf Fair value
--------------------------------- ----------------- ----------------- ---------- ----------------- ---------------------
AECO index Cash flow 2007 Jul-Oct 32,110 7.64 3
Commodity Contracts not designated as Hedges
Financial instrument Floor/Ceiling
Two-way collars Classification Term mcf/d C$/mcf Fair value
----------------------- ----------------------------- ----------------- ---------- ------------- -----------------------
AECO index Held-for-trading 2007 Jul-Oct 27,523 7.63/8.68 3
Fixed price swaps Hedge type Term mcf/d C$/mcf Fair value
----------------------- ----------------------------- ----------------- ---------- ------------- -----------------------
AECO index Held-for-trading 2007 Jul-Oct 36,697 8.32 7
ICE index Held-for-trading 2008 Jul - Sep 25,156 7.10 -
ICE index Held-for-trading 2008 Oct- Mar 09 24,188 9.86 (2)
ICE index Held-for-trading 2009 Apr - Sep 24,188 7.50 (1)
ICE index Held-for-trading 2009 Oct -Mar 10 21,286 9.52 (3)
ICE index Held-for-trading 2010 Apr - Sep 21,286 7.82 (1)
ICE index Held-for-trading 2010 Oct - Mar 11 18,383 9.20 (4)
ICE index Held-for-trading 2011 Apr - Jun 17,416 8.39 -
Physical commodity contracts
The Company enters into fixed price sales contracts for the physical delivery of
commodities. These contracts are in the regular course of business and are not
intended to be settled for net cash payment. As such, these contracts are not
recognized on the financial statements and future revenues are recognized as
earned over the term of the contract.
Interest Rate and Foreign Exchange Derivative Contracts
The Company has fixed to floating interest rate swap contracts with a total
notional amount of US$300 million that expire on May 15, 2015. These contracts
have been designated as a hedge of the fair value of a portion (US$300 million)
of the total US$375 million notes due May 2015. The Company also has cross
currency interest rate swap contracts, that effectively swap the 4.44% C$350
million medium term notes into US$304 million at an interest rate of 5.05%. The
ineffectiveness recorded in net income was $nil in the quarter.
Foreign Exchange Risk and Net Investment Hedges
The Company's operations in Canada, the UK and Norway are largely
self-sustaining and their economic exposure is more closely tied to their
respective domestic currencies. Accordingly, these operations are measured in
C$, UK� and NOK, respectively. Currently, the Company's foreign exchange
translation exposure principally relates to US$ denominated UK, Norwegian and
Canadian oil sales. The Eurobond debt denominated in UK� and the Company's C$
debt are designated as hedges of the Company's net investments in the UK and
Canadian self-sustaining operations, respectively. As such, the unrealized
foreign exchange gains and losses resulting from the translation of this debt
are recorded in other comprehensive income net of tax.
Other Held-for-Trading Financial Instruments
On January 2, 2007, the Company acquired 8.2 million units of Canadian Oil Sands
Trust on the disposition of its indirect interest in Syncrude. These trust units
have been classified as held-for-trading securities and as such are re-measured
at fair value each reporting period. The movement in fair value of these units
to June 30, 2007 resulted in a gain of $26 million and is included in the gain
on held-for-trading financial instruments in the period. Subsequent to June 30,
2007 these units in the Canadian Oil Sands Trusts were sold for approximately
$262 million, crystallizing a gain of $19 million, net of tax.
10. Employee Benefits
The Company's net pension benefit plan expense is as follows:
------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Current service cost 3 3 6 5
Interest cost 2 2 5 5
Expected return on assets (6) (3) (12) (6)
Actuarial loss 8 - 16 1
Defined contribution expense 3 3 6 5
------------------------------------------------------------------------------------------------------------------------
10 5 21 10
------------------------------------------------------------------------------------------------------------------------
For the six months ended June 30, 2006 and 2007, there were no contributions to
the defined benefit pension plans.
11. Selected Cash Flow Information
------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Items not involving cash
Depreciation, depletion and amortization 565 472 1,159 968
Dry hole 113 19 213 83
Net gain on asset disposals - 6 - 4
Stock-based (recovery) compensation (note 6) (39) (86) (46) (108)
Future taxes and deferred petroleum revenue tax 160 (49) 141 367
Unrealized gains on risk management (63) - (26) -
Other 1 17 9 19
------------------------------------------------------------------------------------------------------------------------
737 379 1,450 1,333
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Interest paid 38 44 82 74
Income taxes paid 264 307 429 549
------------------------------------------------------------------------------------------------------------------------
12. Accumulated Other Comprehensive Income
The balance in accumulated other comprehensive income consists of the following:
------------------------------------------------------------------------------------------------------------------------
June 30, 2007 December 31, 2006
------------------------------------------------------------------------------------------------------------------------
Unrealized foreign currency translation gains on self-sustaining foreign
operations, net of hedges 1,834 1,327
Net unrealized gains on derivatives designated as cash flow hedges (1) 23 -
------------------------------------------------------------------------------------------------------------------------
1,857 1,327
------------------------------------------------------------------------------------------------------------------------
1. Net of tax of $1 million
Of the total balance of net unrealized gains and losses on derivatives, the
Company expects to reclassify all but $1 million of net losses to net income
within the next 12 months.
13. Contingencies and Commitments
From time to time, Talisman is the subject of litigation arising out of the
Company's operations. Damages claimed under such litigation, including the
litigation discussed below may be material or may be indeterminate and the
outcome of such litigation may materially impact the Company's financial
condition or results of operations. While Talisman assesses the merits of each
lawsuit and defends itself accordingly, the Company may be required to incur
significant expenses or devote significant resources to defending itself against
such litigation. These claims are not currently expected to have a material
impact on the Company's financial position.
On September 12, 2006, the United States District Court for the Southern
District of New York (the Court) granted Talisman's Motion for Summary Judgment,
dismissing the lawsuit brought against Talisman by the Presbyterian Church of
Sudan and others under the Alien Tort Claims Act. The lawsuit alleged that the
Company conspired with, or aided and abetted, the Government of Sudan to commit
violations of international law in connection with the Company's now disposed of
interest in oil operations in Sudan. The plaintiffs have twice attempted to
certify the lawsuit as a class action. In March 2005 and in September 2005, the
Court rejected the plaintiffs' effort to certify two different classes (or
groups) of plaintiffs. On July 19, 2006, the Second Circuit Court of Appeals
denied the plaintiffs' request to appeal the Court's refusal to certify the
lawsuit as a class action. The plaintiffs have appealed to the Second Circuit
Court of Appeals, the Court's decision granting Talisman's Motion for Summary
Judgment, its denial of class certification, and its refusal to consider the
plaintiffs' proposed third amended complaint. Talisman believes the lawsuit is
entirely without merit and will continue to vigorously defend itself. Talisman
does not expect the lawsuit to have a material adverse effect on it.
14. Segmented Information
North America (1) United Kingdom (2) Scandinavia (3)
---------------------------- ----------------------------- --------------------------
Three months Six months Three months Six months Three months Six months
ended ended ended ended ended ended
June 30 June 30 June 30 June 30 June 30 June 30
(millions of C$) 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Revenue
Gross sales 759 710 1,549 1,520 666 613 1,312 1,384 198 209 415 485
Hedging (gain) loss (19) (23) (53) (35) (2) 8 (14) 10 -
Royalties 136 131 285 293 (1) 2 (1) 4 1 1 2 2
------------------------------------------------------------------------------------------------------------------------
Net sales 642 602 1,317 1,262 669 603 1,327 1,370 197 208 413 483
Other 26 17 53 36 8 7 14 13 5 3 6 6
------------------------------------------------------------------------------------------------------------------------
Total revenue 668 619 1,370 1,298 677 610 1,341 1,383 202 211 419 489
------------------------------------------------------------------------------------------------------------------------
Segmented expenses
Operating 123 120 250 226 213 180 472 358 64 72 140 141
Transportation 14 16 32 38 16 12 32 27 9 4 18 12
DD&A 262 232 525 452 149 113 305 236 76 60 172 132
Dry hole 57 11 97 29 5 - 46 6 49 - 49 7
Exploration 34 42 66 67 4 6 10 10 7 5 13 9
Other (18) 2 (46) (2) - 10 8 20 - 1 - 1
------------------------------------------------------------------------------------------------------------------------
Total segmented expenses 472 423 924 810 387 321 873 657 205 142 392 302
------------------------------------------------------------------------------------------------------------------------
Segmented income before taxes 196 196 446 488 290 289 468 726 (3) 69 27 187
------------------------------------------------------------------------------------------------------------------------
Non-segmented expenses
General and administrative
Interest
Stock-based compensation
Currency translation
Loss on held-for-trading financial instruments
------------------------------------------------------------------------------------------------------------------------
Total non-segmented expenses
------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before taxes
------------------------------------------------------------------------------------------------------------------------
Capital expenditures
Exploration 124 331 393 637 43 57 86 68 28 34 76 65
Development 108 234 397 520 309 249 635 489 89 2 166 54
Midstream 26 58 87 102 - - - - - - - -
------------------------------------------------------------------------------------------------------------------------
Exploration and development 258 623 877 1,259 352 306 721 557 117 66 242 119
Property acquisitions
Midstream acquisitions
Proceeds on dispositions
Other non-segmented
------------------------------------------------------------------------------------------------------------------------
Net capital expenditures (6)
------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 7,801 7,656 6,104 6,131 1,500 1,558
Goodwill 249 248 420 450 671 697
Other 970 673 492 479 125 139
Discontinued operations 80 514 264 272 - -
------------------------------------------------------------------------------------------------------------------------
Segmented assets 9,100 9,091 7,280 7,332 2,296 2,394
Non-segmented assets
------------------------------------------------------------------------------------------------------------------------
Total assets (7)
------------------------------------------------------------------------------------------------------------------------
(1) North America (3) Scandinavia
-------------------------------------------------------------------- ------------------------------------------------
Canada 604 619 1,244 1,233 Norway 188 211 384 465
US 64 - 126 65 Denmark 14 - 35 24
-------------------------------------------------------------------- ------------------------------------------------
Total revenue 668 619 1,370 1,298 Total revenue 202 211 419 489
-------------------------------------------------------------------- ------------------------------------------------
Canada 7,380 7,210 Norway 1,312 1,321
US 421 446 Denmark 188 237
-------------------------------------------------------------------- ------------------------------------------------
Property, plant and
Property, plant and equipment (7) 7,801 7,656 equipment (7) 1,500 1,558
-------------------------------------------------------------------- ------------------------------------------------
(2) United Kingdom
--------------------------------------------------------------------
United Kingdom 660 610 1,303 1,363
Netherlands 17 - 38 20
--------------------------------------------------------------------
Total revenue 677 610 1,341 1,383
--------------------------------------------------------------------
United Kingdom 6,053 6,081
Netherlands 51 50
--------------------------------------------------------------------
Property, plant and equipment (7) 6,104 6,131
--------------------------------------------------------------------
(6) Excluding corporate acquisitions.
(7) Current year represents balances as at June 30, prior year represents balances as at December 31.
(8) Prior year figures have been restated to conform to the method of presentation adopted in 2006. See note 1 to the
Interim Consolidated Financial Statements.
Southeast Asia (4) Other (5) Total
-------------------------------------------------- ------------------------------------ --------------------------------
Three months Six months Three months Six months Three months Six months
ended ended ended ended ended ended
June 30 June 30 June 30 June 30 June 30 June 30
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
508 588 974 1,118 159 110 226 284 2,290 2,230 4,476 4,791
- - - - - - - - (21) (15) (67) (25)
196 260 370 455 53 32 74 82 385 426 730 836
------------------------------------------------------------------------------------------------------------------------
312 328 604 663 106 78 152 202 1,926 1,819 3,813 3,980
1 - 1 - 1 - - - 41 27 74 55
------------------------------------------------------------------------------------------------------------------------
313 328 605 663 107 78 152 202 1,967 1,846 3,887 4,035
------------------------------------------------------------------------------------------------------------------------
42 41 78 74 9 7 13 15 451 420 953 814
12 11 23 22 2 2 4 4 53 45 109 103
61 54 130 112 17 13 27 36 565 472 1,159 968
- - 10 - 2 8 11 41 113 19 213 83
6 3 9 8 8 (3) 31 23 59 53 129 117
1 (1) (1) 2 - - 11 10 (17) 12 (28) 31
------------------------------------------------------------------------------------------------------------------------
122 108 249 218 38 27 97 129 1,224 1,021 2,535 2,116
------------------------------------------------------------------------------------------------------------------------
191 220 356 445 69 51 55 73 743 825 1,352 1,919
------------------------------------------------------------------------------------------------------------------------
53 55 113 115
50 43 97 87
43 (46) 85 -
10 36 6 41
(63) - (26) -
------------------------------------------------------------------------------------------------------------------------
93 88 275 243
------------------------------------------------------------------------------------------------------------------------
650 737 1,077 1,676
------------------------------------------------------------------------------------------------------------------------
38 5 96 21 29 (20) 71 54 262 407 722 845
99 55 152 99 18 16 38 42 623 586 1,388 1,204
- - - - - - - - 26 58 87 102
------------------------------------------------------------------------------------------------------------------------
137 60 248 120 47 (4) 109 96 911 1,051 2,197 2,151
- - 4 1
- - - -
(16) - (16) (2)
3 11 14 19
------------------------------------------------------------------------------------------------------------------------
898 1,062 2,199 2,169
------------------------------------------------------------------------------------------------------------------------
1,525 1,561 478 484 17,408 17,390
112 123 4 4 1,456 1,522
353 351 98 71 2,038 `1,713
- - - - 344 786
------------------------------------------------------------------------------------------------------------------------
1,990 2,035 580 559 21,246 21,411
46 50
------------------------------------------------------------------------------------------------------------------------
21,292 21,461
------------------------------------------------------------------------------------------------------------------------
(4) Southeast Asia
------------------------------------------------------------------------------------------------------------------------
Indonesia 144 328 261 458
Malaysia 127 - 237 166
Vietnam 3 - 10 9
Australia 39 - 97 30
------------------------------------------------------------------------------------------------------------------------
Total revenue 313 328 605 663
------------------------------------------------------------------------------------------------------------------------
Indonesia 389 417
Malaysia 870 879
Vietnam 94 54
Australia 172 211
------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (7) 1,525 1,561
------------------------------------------------------------------------------------------------------------------------
(5) Other
------------------------------------------------------------------------------------------------------------------------
Trinidad & Tobago 40 78 60 134
Algeria 60 - 84 63
Tunisia 7 - 8 5
------------------------------------------------------------------------------------------------------------------------
Total revenue 107 78 152 202
------------------------------------------------------------------------------------------------------------------------
Trinidad & Tobago 253 246
------------------------------------------------------------------------------------------------------------------------
Algeria 187 199
------------------------------------------------------------------------------------------------------------------------
Tunisia 14 15
Other 24 24
------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (7) 478 484
------------------------------------------------------------------------------------------------------------------------
Talisman Energy Inc.
Product Netbacks
(unaudited)
Three months ended June 30 Six months ended June 30
--------------------------------------- ------------------------------
(C$ - production before royalties) 2007 2006 2007 2006 2007 2006 2007 2006
------------------------------------------------- --------- ----------------------------- ------------------------------
Oil and liquids Natural gas Oil and liquids Natural gas
($/bbl) ($/mcf) ($/bbl) ($/mcf)
--------------------- ----------------- --------------- --------------
North Sales price 56.67 63.34 7.65 6.52 55.07 56.28 7.65 7.66
America Hedging (gain) (2.10) - (0.13) (0.29) (2.50) - (0.20) (0.22)
Royalties 11.84 13.56 1.31 1.21 11.44 12.04 1.38 1.51
Transportation 0.45 0.56 0.18 0.18 0.46 0.58 0.18 0.20
Operating costs 9.83 8.64 1.15 1.16 9.32 8.19 1.17 1.09
---------------------------- --------- ----------------------------- ------------------------------
36.65 40.58 5.14 4.26 36.35 35.47 5.12 5.08
-------------------- ---------------------------- --------- ------------------------------------------------------------
United Sales price 74.89 75.97 6.47 8.61 69.93 73.22 7.19 9.46
Kingdom Hedging (gain) (0.20) 0.95 - - (0.75) 0.54 - -
Royalties 0.47 1.05 0.42 0.41 0.62 0.85 0.33 0.56
Transportation 1.46 1.52 0.35 0.24 1.58 1.44 0.36 0.31
Operating costs 24.50 22.01 1.31 0.63 24.94 18.60 1.35 0.71
---------------------------- --------- ----------------------------- ------------------------------
48.66 50.44 4.39 7.33 43.54 51.79 5.15 7.88
-------------------- ---------------------------- --------- ------------------------------------------------------------
Scandinavia Sales price 77.11 77.25 4.59 5.54 70.71 75.07 4.51 4.42
Royalties 0.34 0.31 - - 0.33 0.31 - -
Transportation 2.51 1.60 1.14 (0.48) 2.55 1.57 1.28 0.91
Operating costs 24.77 28.06 - - 24.30 22.63 - -
---------------------------- --------- ----------------------------- ------------------------------
49.49 47.28 3.45 6.02 43.53 50.56 3.23 3.51
-------------------- ---------------------------- --------- ------------------------------------------------------------
Southeast Sales price 81.42 78.92 7.58 7.57 79.14 76.26 6.95 7.34
Asia Royalties 36.03 40.90 2.33 2.17 34.19 35.55 2.17 2.15
Transportation 0.43 0.20 0.40 0.37 0.40 0.21 0.39 0.37
Operating costs 7.90 7.41 0.46 0.31 6.86 6.33 0.43 0.32
---------------------------- --------- ----------------------------- ------------------------------
37.06 30.41 4.39 4.72 37.69 34.17 3.96 4.50
-------------------- ---------------------------- --------- ------------------------------------------------------------
Other Sales price 78.45 78.60 - - 73.94 73.54 - -
Royalties 24.68 23.03 - - 22.97 21.20 - -
Transportation 1.00 0.84 - - 1.11 0.90 - -
Operating costs 4.69 5.35 - - 4.68 4.16 - -
---------------------------- --------- ----------------------------- ------------------------------
48.08 49.38 - - 45.18 47.28 - -
-------------------- ---------------------------- --------- ------------------------------------------------------------
Total Company Sales price 73.32 74.39 7.53 6.94 69.36 70.85 7.43 7.72
Hedging (gain) (0.47) 0.37 (0.09) (0.19) (0.77) 0.22 (0.14) (0.15)
Royalties 10.98 13.57 1.47 1.36 10.81 11.31 1.46 1.54
Transportation 1.18 1.01 0.25 0.22 1.23 1.01 0.25 0.26
Operating costs 17.18 15.74 0.99 0.90 16.84 13.56 1.01 0.87
---------------------------- --------- ----------------------------- ------------------------------
44.45 43.70 4.91 4.65 41.25 44.75 4.85 5.20
-------------------- ---------------------------- --------- ------------------------------------------------------------
Unit operating costs include pipeline operations for the United Kingdom.
Netbacks do not include synthetic oil.
Talisman Energy Inc.
Production net of royalties (1)
(unaudited)
Three months ended Six months ended
June 30 June 30
2007 2006 2007 2006
------------------------------------------------------------------------------------------------------------------------
Oil and liquids (bbls/d)
North America 35,395 39,455 36,442 40,749
United Kingdom 104,999 97,118 102,795 109,810
Scandinavia 29,801 29,519 30,773 34,411
Southeast Asia 24,506 25,759 26,550 28,114
Other 14,503 12,251 14,637 16,309
Synthetic oil (Canada) - 3,209 - 2,902
------------------------------------------------------------------------------------------------------------------------
Total oil and liquids 209,204 207,311 211,197 232,295
------------------------------------------------------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 713 721 729 714
United Kingdom 72 105 87 120
Scandinavia 14 13 14 15
Southeast Asia 194 224 188 211
------------------------------------------------------------------------------------------------------------------------
Total natural gas 993 1,063 1,018 1,060
------------------------------------------------------------------------------------------------------------------------
Total mboe/d 374 384 381 409
------------------------------------------------------------------------------------------------------------------------
(1) Information provided per US reporting practice of calculating production after deduction of royalty volumes.
Talisman Energy Inc.
Product Netbacks (1)
(unaudited)
Three months ended Six months ended
June 30 June 30
(US$ - production net of royalties) 2007 2006 (2) 2007 2006 (2)
------------------------------------------------------------------------------------------------------------------------
North Oil and liquids (US$/bbl)
America Sales price 51.59 56.45 48.58 49.52
Hedging (gain) (2.42) - (2.77) -
Transportation 0.52 0.64 0.51 0.64
Operating costs 11.35 9.78 10.40 9.15
----------------------------------------------------------------------------------------
42.14 46.03 40.44 39.73
----------------------------------------------------------------------------------------
Natural gas (US$/mcf)
Sales price 6.96 5.81 6.74 6.71
Hedging (gain) (0.14) (0.32) (0.21) (0.25)
Transportation 0.19 0.20 0.19 0.22
Operating costs 1.27 1.27 1.26 1.19
----------------------------------------------------------------------------------------
5.64 4.66 5.50 5.55
------------------------------------------------------------------------------------------------------------------------
United Kingdom Oil and liquids (US$/bbl)
Sales price 68.26 67.61 61.92 64.21
Hedging (gain) (0.18) 0.86 (0.65) 0.48
Transportation 1.34 1.37 1.40 1.28
Operating costs 22.44 19.89 22.19 16.55
----------------------------------------------------------------------------------------
44.66 45.49 38.98 45.90
----------------------------------------------------------------------------------------
Natural gas (US$/mcf)
Sales price 5.88 7.65 6.29 8.28
Transportation 0.34 0.23 0.33 0.29
Operating costs 1.26 0.59 1.24 0.66
----------------------------------------------------------------------------------------
4.28 6.83 4.72 7.33
------------------------------------------------------------------------------------------------------------------------
Scandinavia Oil and liquids (US$/bbl)
Sales price 69.99 68.72 62.39 65.80
Transportation 2.29 1.42 2.26 1.38
Operating costs 22.69 25.14 21.55 20.00
----------------------------------------------------------------------------------------
45.01 42.16 38.58 44.42
----------------------------------------------------------------------------------------
Natural gas (US$/mcf)
Sales price 4.15 4.93 3.97 3.89
Transportation 1.04 (0.40) 1.12 0.80
----------------------------------------------------------------------------------------
3.11 5.33 2.85 3.09
------------------------------------------------------------------------------------------------------------------------
Southeast Asia Oil and liquids (US$/bbl)
Sales price 74.23 70.34 69.80 67.07
Transportation 0.71 0.38 0.62 0.35
Operating costs 12.95 13.78 10.70 10.44
----------------------------------------------------------------------------------------
60.57 56.18 58.48 56.28
----------------------------------------------------------------------------------------
Natural gas (US$/mcf)
Sales price 6.90 6.75 6.16 6.46
Transportation 0.52 0.46 0.50 0.46
Operating costs 0.61 0.39 0.55 0.40
----------------------------------------------------------------------------------------
5.77 5.90 5.11 5.60
------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
(US$ - production net of royalties) 2007 2006 (2) 2007 2006 (2)
------------------------------------------------------------------------------------------------------------------------
Other Oil (US$/bbl)
Sales price 71.59 69.63 65.44 64.16
Transportation 1.34 1.06 1.41 1.10
Operating costs 6.23 6.79 5.98 5.10
---------------------------------------------------------------------------------------------------
64.02 61.78 58.05 57.96
------------------------------------------------------------------------------------------------------------------------
Total Company Oil and liquids (US$/bbl)
Sales price 66.79 66.22 61.29 62.17
Hedging (gain) (0.50) 0.41 (0.79) 0.23
Transportation 1.26 1.09 1.28 1.05
Operating costs 18.37 17.14 17.50 14.19
---------------------------------------------------------------------------------------------------
47.66 47.58 43.30 46.70
---------------------------------------------------------------------------------------------------
Natural gas (US$/mcf)
Sales price 6.85 6.18 6.55 6.77
Hedging (gain) (0.10) (0.22) (0.15) (0.17)
Transportation 0.28 0.25 0.28 0.29
Operating costs 1.13 1.00 1.11 0.96
---------------------------------------------------------------------------------------------------
5.54 5.15 5.31 5.69
------------------------------------------------------------------------------------------------------------------------
(1) Per US reporting practice, netbacks calculated using US$ and production after deduction of royalty volumes.
(2) Unit operating costs include pipeline operations for the North Sea. Prior years have been restated accordingly.
Netbacks do not include synthetic oil.
Talisman Energy Inc.
Consolidated Financial Ratios
June 30, 2007
(unaudited)
The following financial ratio is provided in connection with the Company's shelf prospectus, filed with
Canadian and US securities regulatory authorities, and is based on the Company's Consolidated
Financial Statements that are prepared in accordance with accounting principles generally accepted in Canada.
The interest coverage ratio is for the 12 month period ended June 30, 2007.
-----------------------------------------------------------------------------------------------------------------------
Interest coverage (times)
Income (1) 12.63
Income from continuing operations (2) 7.87
------------------------------------------------------------------------------------------------------------------------
1 Net income plus income taxes and interest expense; divided by the sum of interest expense and capitalized interest.
2 Net income from continuing operations plus income taxes and interest expense from continuing operations; divided
by the sum of interest expense and capitalized interest from continuing operations.
Citi Fun 25 (LSE:AN26)
Historical Stock Chart
From Jun 2024 to Jul 2024
Citi Fun 25 (LSE:AN26)
Historical Stock Chart
From Jul 2023 to Jul 2024
