Talisman Energy Inc.
TALISMAN ENERGY REPORTS A RECORD $1.7 BILLION IN CASH FLOW FIRST GAS FROM
NORTHERN FIELDS PROJECT
Talisman Energy Inc. reported its operating and financial results for the second
quarter of 2008.
-- Cash flow(1) during the quarter was a record $1.7 billion, an increase
of 44% from a year ago and up 37% from the first quarter of 2008. Cash
flow from continuing operations(1) was also $1.7 billion.
-- Net income was $426 million, down 23% from a year earlier, largely due
to gains on asset sales in 2007, increased charges for stock-based
compensation and mark-to-market losses on derivative contracts during
the quarter.
-- Earnings from continuing operations(1) were $846 million, also a record,
up 167% compared to the second quarter in 2007, largely driven by higher
commodity prices.
-- Production averaged 432,000 boe/d, 4% below the second quarter of 2007,
mainly due to the sale of non-core assets, but 3% above the previous
quarter.
-- Production from continuing operations averaged 425,000 boe/d, 3% above
the same quarter of last year and 3% higher than the previous quarter.
-- Netbacks were up 63% from a year earlier, reaching a record $61.33/boe.
-- Net debt(1) at quarter end was $3.6 billion, down from $4.3 billion at
December 31, 2007.
-- The Company announced a new strategy in May and has made significant
progress in the intervening two months, notably in its unconventional
oil and natural gas programs in North America.
-- First gas from Northern Fields in PM-3 CAA in Malaysia/Vietnam was
achieved in July as planned.
-- Talisman closed the sale of non-strategic assets in Denmark and Canada
in the second quarter.
"This was a very successful quarter, highlighted by exceptional cash flow
generation," said John A. Manzoni, President and Chief Executive Officer. "We
generated a record $1.7 billion in cash flow, an increase of 37% over the first
quarter of 2008, on the back of a 29% increase in prices over the past three
months.
"As a result of a very promising start for our North American unconventional
strategy, we are increasing our capital spending plans. Total Company spending
for 2008 is now expected to be approximately $5.5 billion, an increase of $500
million, with the final amount dependent on continuing the success we have had
in accelerating the unconventional programs. Of the total, $2.5 billion has been
allocated to North America, of which $1.5 billion will be spent on
unconventional programs. The Company expects to fund the 2008 capital program
from cash flow.
"Earnings from continuing operations also reached a new record of $846 million.
Net income was down, with higher gains on asset sales in 2007, the effect of
stock-based compensation charges and the mark-to-market impact of derivative
contracts. The majority of the mark-to-market losses relate to commodity
derivative contracts put in place in 2007 to lock in natural gas prices for the
Rev development in Norway and, in the first quarter of 2008, to ensure the
Company would be in a position to fund higher capital spending levels associated
with its new strategy.
"Production for the quarter came in slightly higher than expected and we expect
continuing growth in the second half despite the impact of asset sales. Much of
the growth will come from Southeast Asia with the startup of the Northern Fields
gas development and strong sales from the Corridor field. UK liquids volumes
will increase with higher Tweedsmuir production. The Rev development in Norway,
which was on schedule until very recently, has been delayed until early 2009. We
still believe our production guidance to be achievable for the year, but given
the impact of the Rev delay, it will likely be closer to the lower end of the
range.
"I am very pleased with the execution of our North American unconventional oil
and gas programs, our ability to quickly scale up drilling in some areas and the
transition from pilots to development. When we rolled the strategy out in May,
we expected to drill up to 130 wells this year. Plans have now been expanded and
we currently expect to drill over 160 wells.
"In June, we announced a strategic partnership with a US company, Hallwood
Energy L.P. This provides Talisman with unconventional opportunities in West
Texas and Arkansas, as well as access to Hallwood's renowned expertise, and the
relationship is working very well.
"In the Hinton area of the Outer Foothills, Talisman recently acquired 25,000
net acres of land and now has 190 drilling locations. We have drilled eight
successful Hinton wells this year, including a recent gas discovery, which
tested at 15 mmcf/d. We are now developing the area with four active rigs and
looking to expand further.
"In the Montney area, we drilled 18 wells to date and are expanding our drilling
program significantly. We now expect to expand to nine rigs and plan to drill
over 30 wells in the second half of the year.
"In the Bakken light oil play, we have three rigs running and drilled 11 wells
year- to-date. Four wells came on production at average initial rates of 190
bbls/d.
"In Appalachia, we are mobilizing our first dedicated shale rig. We have also
participated in a number of promising non-operated wells.
In Quebec, we have a rig on location recompleting the Gentilly well and are
preparing to drill the first of up to four wells planned for this year.
"Another commitment in the strategy was to focus the portfolio. As part of this
effort, we recently completed the sale of assets in Denmark, as well as our Lac
La Biche assets in Canada and our remaining oil sands leases. We also announced
the sale of our Beatrice oil field in the UK, which is expected to close later
this year. Preparations are underway to sell our assets in the Netherlands and
Trinidad and Tobago, in addition to further sales of non-core UK assets.
"In line with the objective of increasing the quality of our global exploration
portfolio, we added a world class opportunity with the recently announced entry
into the Kurdistan region within northern Iraq. In Colombia, we were successful
in acquiring acreage in a recent bid round. In Vietnam, the appraisal of the Hai
Su Den Field will commence with the first of two back-to-back wells on Block
15-2/01 expected to spud in September.
"In terms of growing our existing asset base, a number of projects are expected
to deliver additional production volumes in 2008, 2009 and beyond. First gas
from the Northern Fields development in PM-3 CAA in Malaysia/Vietnam was
achieved in July as planned, with production expected to increase as three
pre-drilled wells are brought onstream. In Vietnam, Song Doc will come onstream
later this year. The Northern Fields oil development and Yme project in Norway
are on track to startup in 2009. We also signed a memorandum of understanding
with the Indonesian national oil company to look at improving oil recoveries
from older fields.
"We are also making changes to the organization to underpin implementation of
the strategy, including expanding and reorganizing our North American business
as we grow our unconventional programs. We recently announced the addition of
Scott Thomson as Chief Financial Officer to bring together the various financial
functions, including capital management. Scott has settled in very well with the
team and is already making a strong contribution.
"We have made substantial progress in line with our new strategy this quarter
and I am looking forward to building on these early steps."
(1) The terms "cash flow", "cash flow from continuing operations", "earnings
from continuing operations" and "net debt" are non-GAAP measures. Please see the
advisories and reconciliations elsewhere in this press release.
Talisman Generates a Record $1.7 Billion in Cash Flow
Three months ended Six months ended
June 30, 2008 2007 2008 2007
---------------------------------------------
Cash flow ($ million) 1,691 1,177 2,923 2,181
---------------------------------------------
Cash flow per share(2) 1.66 1.13 2.87 2.09
---------------------------------------------
Cash flow from continuing operations ($ million) 1,656 1,079 2,865 2,052
---------------------------------------------
Net income ($ million) 426 550 892 1,070
---------------------------------------------
Net income per share 0.42 0.53 0.88 1.02
---------------------------------------------
Earnings from continuing operations ($ million) 846 317 1,322 587
---------------------------------------------
Earnings from continuing operations per share (2) 0.83 0.30 1.30 0.56
---------------------------------------------
Average shares outstanding (million) 1,019 1,040 1,019 1,046
---------------------------------------------
(2) The terms "cash flow per share" and "earnings from continuing operations per
share" are non-GAAP measures. Please see the advisories and reconciliations
elsewhere in this press release.
Cash flow for the quarter was $1.7 billion, an increase of 44% from a year
earlier. Significant increases in both oil and natural gas prices more than
offset the impact of a stronger Canadian dollar, lower production volumes
(reflecting asset sales) and higher operating costs and taxes. Cash flow per
share increased 47%, reflecting the impact of share repurchases in 2007.
Cash flow from continuing operations was also $1.7 billion, up 53% from 2007.
Earnings from continuing operations totalled $846 million, an increase from $317
million a year earlier and $476 million in the first quarter. This metric
adjusts net income for significant one time events and non-operational items
such as the mark-to-market effect of changes in share prices on stock-based
compensation expense, unrealized mark-to-market gains and losses on commodity
derivatives and changes to tax rates. The Company uses this information to
evaluate performance of core operational activities on a comparable basis
between periods.
Net income was $426 million, down from $550 million a year ago, in part due to
gains on asset sales of $203 million in the prior year.
Total Depreciation, Depletion and Amortization (DD&A) expense from continuing
operations was $653 million, up 19% from the same period last year, principally
related to increased production, higher drilling and development costs and
increased capital expenditure. However, unit DD&A costs from continuing
operations increased 8%, averaging $16/boe. Talisman recorded an expense of $270
million relating to its stock option and cash unit plans. The 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 at the end of
the quarter.
The Company's after-tax realized loss on commodity derivatives for the quarter
was $52 million. Talisman also recorded an unrealized after-tax loss of $344
million. As of July 25, the total mark-to-market after tax loss on
held-for-trading financial instruments had fallen by approximately $180 million
from the end of the quarter as a result of lower commodity prices.
The Company's effective tax rate averaged 58% during the quarter, compared to
48% in the same period of 2007, mainly due to increased stock-based compensation
expense and mark-to-market losses on commodity derivative contracts in Canada,
which has a lower tax rate than other jurisdictions. A normalized tax rate for
the quarter (excluding the effect of mark-to-market losses on commodity
derivatives) would have been 44%.
The average number of shares outstanding was down 2%, reflecting share
repurchases in 2007. The Company did not buy back shares in the first half of
2008.
At June 30, Talisman's long-term debt was $3.6 billion, down from $4.9 billion
($4.3 billion net of cash) at December 31, 2007. The Company spent $1.1 billion
on exploration and development during the quarter, up from the $1.0 billion
spent in the previous quarter and approximately $950 million in the same quarter
of the previous year.
Production from Continuing Operations Up 3%
Three months ended Six months ended
June 30, 2008 2007 2008 2007
---------------------------------------------
Oil and liquids (bbls/d) 219,307 245,349 217,966 248,603
---------------------------------------------
Natural gas (mmcf/d) 1,276 1,231 1,246 1,270
---------------------------------------------
Total (mboe/d) 432 450 426 460
---------------------------------------------
Continuing operations (mboe/d) 425 411 418 419
---------------------------------------------
Production for the quarter averaged 432,000 boe/d, 4% below the same quarter of
2007, mainly due to the sale of non-core assets, which produced 29,000 boe/d in
the second quarter of 2007; however, volumes were 3% above the previous quarter.
Production from continuing operations (excluding production from assets sold or
held for sale) averaged 425,000 boe/d during the quarter, up 3% from both the
previous quarter and a year ago. Of note, natural gas volumes were up 18% in
Southeast Asia and 13% in North America. Oil and liquids volumes in Scandinavia
were up 9%.
Netbacks Reach a Record $61.33/boe
Three months ended Six months ended
June 30, 2008 2007 2008 2007
---------------------------------------------
Sales 94.46 60.50 83.89 57.97
---------------------------------------------
Hedging gain (loss) (0.37) 0.51 (0.31) 0.80
---------------------------------------------
Royalties 17.23 10.01 15.08 9.87
---------------------------------------------
Transportation 1.52 1.32 1.33 1.36
---------------------------------------------
Operating expenses 14.01 12.07 13.55 11.88
---------------------------------------------
Netback ($/boe) 61.33 37.61 53.62 35.66
---------------------------------------------
Oil and liquids netback ($/bbl) 81.01 44.45 69.95 41.25
---------------------------------------------
Natural gas netback ($/mcf) 6.83 4.91 6.07 4.85
---------------------------------------------
Netbacks increased to a record $61.33/boe, up 63% from the second quarter of
2007. The main reason was a 90% increase in the benchmark WTI oil price, which
averaged US$124 /bbl in the quarter. A stronger Canadian dollar versus the US$
(up 9%) mitigated the effect of oil prices somewhat. NYMEX and AECO natural gas
prices were approximately 40% higher than a year ago.
Talisman's royalty rate averaged 19% during the quarter, up from 17% a year
earlier, with increases in Southeast Asia and North Africa due to higher
commodity prices.
Unit operating costs increased 16% compared to the previous year. UK unit
operating costs were up 29% year over year, primarily reflecting lower volumes
from both scheduled and unplanned shutdowns. However, UK unit operating costs
were relatively unchanged versus the first quarter of 2008. Unit costs were
lower in Scandinavia as volumes increased and higher in North America with
processing fees and property taxes. In Southeast Asia, unit costs increased due
to the timing of liftings and replacement costs of a riser in Australia. The
Company expects unit operating costs to fall in the second half of 2008 as
production volumes increase.
North America
In North America, Talisman's production averaged approximately 188,000 boe/d in
the quarter, unchanged from the same period in 2007 and a 4% increase over the
previous quarter. North American natural gas production was 888 mmcf/d, up 3%
from a year ago and 5% from the first quarter, with new production coming on in
the latter part of the first and second quarters of 2008.
Production from continuing operations was up 11% from the same period in 2007,
largely due to development success in Monkman, the Alberta Foothills and
Bigstone/Wild River and up 3% from the previous quarter.
On July 11th, Talisman completed the sale of Leases 10 and 6 in the Athabasca
oil sands region.
Conventional
New production records were set in Monkman, reaching 142 mmcf/d (sales gas) in
May with production in the quarter averaging 137 mmcf/d, 80% above the second
quarter of 2007. Half of the increase over last year was due to new wells coming
on production and the remainder reflects a turnaround in 2007. The Brazion
a-26-E well came on production in mid-April at a constrained rate of 40 mmcf/d
sales gas (80% working interest).
In the Alberta Foothills, production averaged 193 mmcf/d in the quarter, an
increase of 10% over the same period in 2007. A Cabin Creek well (100% Talisman)
tested at 14 mmcf/d (gross raw gas) and is expected to come on production in the
third quarter of 2008.
Talisman's Midstream Operations transported and processed 637 mmcf/d in the
quarter, 15% above the second quarter of 2007.
In June, Talisman closed an agreement to sell its interest in its non-strategic
Lac La Biche property in northeast Alberta for $247 million. Production from the
property in 2007 averaged 4,712 boe/d.
In Wyoming, the Bear Canyon well reached total depth on March 28th. The rig has
been moved off the location and will be brought back to test later in 2008. The
next well in the program, Hogback Ridge in Utah, is currently drilling.
Unconventional
Talisman has achieved significant progress in implementing and executing its
recently announced unconventional strategy in North America. The Company
continued to build on its 2.5 million net acre unconventional land base and is
expanding and accelerating a number of drilling programs. As a result, spending
on unconventional programs increased by $500 million and is now expected to
total approximately $1.5 billion in 2008, with the final amount dependent on the
success of continuing to accelerate the unconventional program.
In May, the Company set out plans to drill up to 130 wells in new unconventional
areas. In the first six months of the year, the Company completed 34 development
wells and eight Talisman operated pilot wells. With continuing success in a
number of areas, this program has been expanded to over 50 pilot wells and
approximately 110 development wells for the year.
The Company increased production by 25% over the same period in 2007 in
Bigstone/Wild River. A new production record was set in April, reaching 172
mmcf/d, with production averaging 168 mmcf/d in the quarter.
In the Outer Foothills, the Company recently acquired 25,000 net acres of land
in the Hinton region and now holds over 80,000 net acres with 190 identified
drilling locations. A total of eight successful wells have been drilled at
Hinton year-to-date, with a recent discovery testing at 15 mmcf/d (gross raw
gas). Talisman moved from two zone to five zone completions. The Company has
four drilling rigs in the area and is looking to expand this.
The Company is also expanding its Montney program. A total of 18 wells have been
drilled to date, including two pilots, and Talisman plans to drill over 30 wells
in the second half of the year (up from a plan of 19) and expects to expand to
nine rigs.
In the Bakken light oil play, Talisman has three drilling rigs operating and
drilled 11 of a planned 56 wells in 2008. Four wells are on production with
initial rates averaging 190 bbls/d per well.
In Appalachia, Talisman is mobilizing its first dedicated shale rig. Partner
operated results from one horizontal and two vertical wells in the shale are
very promising, but still in the cleanup phase. In New York State, new
legislation has been signed that permits conforming spacing units up to 640
acres for horizontal drilling into the Marcellus Shale. The State has also
undertaken to update its Environmental Quality Review Act to facilitate
increased activity in the shale.
In Quebec, a rig is recompleting the Gentilly well and the Company is planning
to drill up to four wells by the end of the year.
UK
Production from continuing operations in the UK averaged 96,303 boe/d during the
quarter, down 7% from the same period in 2007 and up 9% from the first quarter
2008. Production during the second quarter was impacted by scheduled maintenance
shutdowns at the Blake, Ross, Auk, Fulmar and Clyde platforms, as well as
unplanned shutdowns at the Piper and Claymore platforms. These reductions were
offset by improved throughput at Tweedsmuir following production facility
modifications and new production from Enoch, Duart and Blane, which came
onstream in 2007.
Tweedsmuir production averaged 22,235 boe/d (net) during the quarter, an
increase of 68% over the first quarter, as commissioning of the Tweedsmuir Phase
2 project neared completion. By the end of June, a peak daily production rate of
33,000 boe/d (net) had been attained. Final commissioning of the platform gas
plant is continuing. The Company now expects Tweedsmuir to average 23,000 boe/d
(net) for the year.
During the quarter, an appraisal drilling program was carried out in the
Burghley field, which is planned as a tieback to the Balmoral platform. Also
during the quarter, development wells were drilled in the Andrew field and in
the Netherlands. At the end of the quarter, development drilling was progressing
at Claymore and Ross.
Scandinavia
Production from continuing operations in Scandinavia averaged 33,042 boe/d
during the quarter, up 11% over the second quarter of 2007 and down 4% from the
first quarter of 2008. The production increase over 2007 was due to new
production from Blane, which came onstream in the third quarter 2007, and good
performance of development wells drilled at Gyda and the Brage fields. The
increase was partially offset by natural declines at Varg and Veslefrikk.
During the quarter, a successful long-reach development well was drilled at Gyda
and had an initial gross production rate of 3,500 bbls/d. A successful well was
also drilled adjacent to Varg and started production at 3,600 bbls/d. In
addition, development wells were drilled at Brage and Veslefrikk. At the end of
the quarter, development drilling was progressing at Gyda, Varg, Brage and
Veslefrikk.
Development of the Rev Field, located on the Norwegian continental shelf close
to the UK Border, continued. During the quarter, Rev subsea wells were tied back
to the third-party operated Armada platform and the Rev module was lifted onto
Armada in April. Progress towards the planned August 2008 production startup
continued until the end of June. At the end of June, the operator of Armada
informed Talisman that safety critical maintenance work at Armada would take
priority over the Rev work until the temporary floating accommodation unit
finishes its contract in early August. Although there is only limited work
remaining on Rev, it will not be possible to complete Rev until the floating
accommodation unit returns in the fourth quarter of 2008. As a consequence,
first production from Rev is now expected in early 2009.
First oil is expected from the Yme redevelopment project in the second half of
2009.
In April 2008, Talisman announced the sale of the non-strategic Siri assets in
Denmark for $95 million. The transaction closed on June 18, 2008. During the
quarter, Talisman participated in the Yoda and Trow exploration wells, both of
which were plugged and abandoned.
Southeast Asia
In Southeast Asia, production averaged 90,847 boe/d, comparable to the same
period last year and slightly above the last quarter. Indonesian production
averaged 57,242 boe/d, 22% higher than the same period last year and 8% higher
than the previous quarter, primarily due to increased West Java natural gas
sales and higher Singapore gas takes. In Malaysia/Vietnam, production averaged
30,172 boe/d, 23% lower than the same period last year and 12% lower than the
previous quarter, mainly due to natural declines and a scheduled maintenance
shutdown at PM-3 CAA.
Natural gas volumes from PM-3 CAA are expected to increase from approximately
175 mmcf/d to 250 mmcf/d as development drilling continues for the remainder of
2008 and into 2009. Three gas wells were successfully drilled in the Northern
Fields, with all wells meeting or exceeding expectations. A second rig commenced
drilling in May. Drilling operations and progress on the Bunga Orkid-A
processing and accommodation platform to be installed later this year are on
schedule for first oil in the first half of 2009.
In Indonesia, natural gas sales to West Java increased from 80 mmcf/d to an
average of 100 mmcf/d in line with plan. Talisman's gas sales in Indonesia
averaged 271 mmcf/d, up 26% from a year ago and Indonesia set a new weekly
production record of 64,321 boe/d in this quarter.
Talisman also signed a memorandum of understanding with Pertamina, the national
oil company, that provides the opportunity to evaluate and participate in two
enhanced oil recovery projects. In addition, a 3D seismic survey was completed
at Pasangkayu in preparation for the first exploration well to be drilled in
2009. Talisman was also awarded two Joint Study Agreements in the Sageri area
and bid on a new exploration licence in a recent bid round.
In Vietnam, Phase 2 drilling operations for the Song Doc development will
commence at the beginning of the third quarter with the completion of the five
pre-drilled wells. First oil is expected with the arrival of the Floating
Production and Storage Offloading vessel at the beginning of the fourth quarter
of 2008. The Hai Su Bac well was drilled in the quarter and was a small oil
discovery. The Hai Su Nau exploration well was drilled to a total depth of 4,644
meters and was suspended. The well will be subject to further testing in the
fourth quarter of 2008.
Production in Australia was 3,414 bbls/d, 25% lower than the same period last
year primarily due to riser failures and 72% higher than the last quarter due to
reconfiguration of the Corallina gas lift. The failed Corallina riser will be
replaced in the third quarter, which is expected to restore full production by
the fourth quarter. Following the successful Kitan exploration program in the
first quarter and a successful appraisal well in the second quarter, a
Declaration of Commerciality was made for the discovery and a Development Plan
is currently being prepared.
Other Areas
In Talisman's other areas, production was down 5% compared to the same period a
year ago, averaging 20,113 boe/d. Production in Algeria was 14,754 boe/d, an
increase of 14% from the same period in 2007, due to Greater MLN development
drilling in 2007, and a facility maintenance shutdown that reduced rates in
April 2007.
In Trinidad and Tobago, production averaged 4,470bbls/d, down 37% from the same
period a year earlier due to a scheduled maintenance shutdown in April 2008.
Progress continued towards sanction of the Angostura gas project, with sanction
expected in the third quarter of 2008. Talisman has initiated the sale of the
Trinidad and Tobago assets. The sale is expected to be completed in early 2009.
In Colombia, the Huron-1 well on the Niscota Block spud in mid-June. The Company
also acquired 3D seismic in the El Caucho Block. A Talisman subsidiary was a
joint bidder in the winning bids on two large Technical Evaluation Agreement
areas. Talisman's subsidiary will operate one of the blocks. In Peru,
preparations continue towards drilling an appraisal well at the Situche
discovery, which is expected to spud at the end of 2008.
Two of Talisman's wholly-owned subsidiaries have entered into agreements with
the Kurdistan Regional Government (KRG) within Iraq for Blocks K44 and K39.
Talisman has a 40% interest in Block K44, with WesternZagros Limited holding 40%
as operator and the KRG retaining 20%. The Sarqala well spudded on May 8 and is
currently drilling on Block K44. On Block K39, Talisman has entered into a
seismic option agreement with the KRG for two years, following which it will
have the option to enter into a Production Sharing Contract as operator of the
block with a 60% working interest and a one well commitment in the first year.
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 UK, Norway, Southeast Asia, North Africa and the
United States. 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. 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:
Media and General Inquiries: Shareholder and Investor Inquiries:
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
18-08
Early Successes on the New Strategy
On May 20th, the Company announced a new strategy with a four-part action plan,
details of which can be found on Talisman's website. Significant progress has
been made, including:
1. Focusing the Portfolio
-- In North America, the Company sold assets at Lac La Biche and its
remaining oil sands leases.
-- In the North Sea, the sale of its Siri assets (Denmark) has been
completed. The sale of the Beatrice field (UK) is expected to close
later in the year.
-- The Company has initiated the sale of its assets in Trinidad and Tobago
and the Netherlands.
2. Grow Existing Areas
-- Natural gas production has started at the Northern Fields in Southeast
Asia. Oil production is on schedule for the first half of 2009.
-- Natural gas volumes in Indonesia reached a new record, up 26% from a
year ago.
-- North America gas volumes (from continuing operations) were up 13% and
Scandinavia oil and liquids volumes were up 9%.
-- The Company signed a memorandum of understanding with Pertamina to
examine opportunities for enhanced oil recovery in Indonesia.
3. New Growth Opportunities
-- Talisman increased spending on unconventional oil and natural gas
programs in North America to approximately $1.5 billion.
-- The Company entered into an agreement with Hallwood Energy L.P., which
provides entry into US unconventional plays and augments the Company's
technical expertise.
-- Talisman drilled eight operated pilot and 34 unconventional development
wells, year- to- date, and plans to at least triple this drilling level
in the second half of the year.
-- The Company has mobilized drilling rigs in both Quebec and Appalachia.
4. Optimize Global Exploration
-- During the quarter, two wholly-owned subsidiaries of Talisman entered
into agreements with the Kurdistan Regional Government within Iraq for
interests in two exploration blocks. This is a world class hydrocarbon
basin and fits well with Talisman's global expertise and exploration
strategy. The region has the potential to become a core producing area
for the Company.
-- The Company is drilling a well in Colombia and was recently awarded two
blocks in the heavy oil bid round.
-- The Company is finalizing plans for preparations to drill an appraisal
well at the Situche discovery in Peru, which is expected to spud prior
to year end.
-- In Indonesia, Talisman was awarded two Joint Study Agreements in the
offshore Sageri area.
Earnings from Continuing Operations
Earnings from operations adjusts for significant one-time events as well as
other non-operational impacts on earnings, such as the mark-to-market effect of
changes in share prices on stock based compensation expense, unrealized
mark-to-market gains and losses on commodity derivatives and changes to tax
rates. This calculation does not reflect differing accounting policies and
conventions between companies. All amounts are reported on an after-tax basis.
($ million, except per share amounts)
June 30, Three months ended Six months ended
2008 2007 2008 2007
-----------------------------------------
Net income 426 550 892 1,070
-----------------------------------------
Operating income from discontinued operations 30 49 40 87
-----------------------------------------
Gain on disposition of discontinued
operations 91 203 88 480
-------------------------------------------------------------------------------------------------
Net income from discontinued operations 121 252 128 567
-------------------------------------------------------------------------------------------------
Net income from continuing operations 305 298 764 503
-----------------------------------------
Unrealized loss (gain) on commodity derivatives(1)(tax
adjusted) 344 (16) 395 1
-----------------------------------------
Unrealized gain on Canadian Oil Sands Trust units (tax
adjusted) - (33) - (23)
-----------------------------------------
Stock- based compensation(2) (tax adjusted) 191 30 184 59
-----------------------------------------
Future tax charge (recovery) of unrealized foreign
exchange gains (losses) on foreign denominated debt(3) 6 64 (21) 73
-----------------------------------------
Tax rate reductions and other(3) - (26) - (26)
-------------------------------------------------------------------------------------------------
Earnings from continuing operations(4) 846 317 1,322 587
-------------------------------------------------------------------------------------------------
Earnings from continuing operations per share(4) 0.83 0.30 1.30 0.56
-------------------------------------------------------------------------------------------------
1. Unrealized loss on commodity derivatives relates to the change in the period of the mark-to-
market value of the Company's outstanding commodity derivatives.
2. Stock-based compensation expense relates to the mark-to-market value of the Company's
outstanding stock options and cash units at June 30. The Company's stock-based compensation
expense is based on the difference between the Company's share price and its stock options or
cash units exercise price.
3. Tax adjustments reflect a Canadian tax rate decrease in the second quarter of 2007, as well as
future taxes relating to unrealized foreign exchange gains and losses associated with the impact
of fluctuations in the Canadian dollar on foreign denominated debt.
4. This is a non-GAAP measure. Please refer to the section in this press release entitled Non-GAAP
Financial Measures for further explanation and details.
Cash Flow
Below is a reconciliation of cash provided by operating activities calculated in
accordance with generally accepted accounting principles (GAAP) to cash flow and
cash flow from continuing operations (which are non-GAAP measures of financial
performance).
($ million, except per share amounts)
June 30, Three months ended Six months ended
2008 2007 2008 2007
------------------------------------------
Cash provided by operating activities 1,538 999 2,850 2,088
Changes in non-cash working capital 153 178 73 93
------------------------------------------------------------------------------------------------
Cash flow(1) 1,691 1,177 2,923 2,181
Cash provided by discontinued operations (35) (98) (58) (129)
------------------------------------------------------------------------------------------------
Cash flow from continuing operations 1,656 1,079 2,865 2,052
------------------------------------------------------------------------------------------------
Cash flow per share(1) 1.66 1.13 2.87 2.09
------------------------------------------------------------------------------------------------
Cash flow from continuing operations per share(1) 1.63 1.04 2.81 1.96
------------------------------------------------------------------------------------------------
1. This is a non-GAAP measure. Please refer to the section in this press release entitled Non-
GAAP Financial Measures for further explanation and details.
Forward-Looking Information
This press release contains information that constitutes "forward-looking
information" or "forward-looking statements" (collectively "forward-looking
information") within the meaning of applicable securities legislation. This
forward-looking information includes, among others, statements regarding:
-- estimated amounts and sources of capital expenditures;
-- estimates of future sales, production, production growth and operations
performance;
-- business plans for drilling, exploration, development, redevelopment and
estimated timing;
-- business strategy, business strategy review and plans;
-- estimated timing and results of new projects, including the timing of
new production;
-- expected dispositions and timing;
-- estimates of unit operating costs; 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 information uses 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 states
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 information contained in this
press release. Information regarding oil and gas reserves, business plans for
drilling, exploration, development and appraisal assumes that the extraction of
crude oil, natural gas and natural gas liquids remains economic.
Undue reliance should not be placed on forward-looking information.
Forward-looking information is based on current expectations, estimates and
projections that involve a number of risks which could cause actual results to
vary and in some instances to differ materially from those anticipated by
Talisman and described in the forward-looking information contained in this
press release. The material risk factors include, but are not limited to:
-- the risks of the oil and gas industry, such as operational risks in
exploring for, developing and producing crude oil and natural gas,
market demand and unpredictable facilities outages;
-- risks and uncertainties involving geology of oil and gas deposits;
-- the uncertainty of reserves and resources estimates, reserves life and
underlying reservoir risk;
-- the uncertainty of estimates and projections relating to production,
costs and expenses;
-- potential delays or changes in plans with respect to exploration or
development projects or capital expenditures;
-- the risk that adequate pipeline capacity to transport gas to market may
not be available;
-- fluctuations in oil and gas prices, foreign currency exchange rates and
interest rates;
-- the outcome and effects of any future acquisitions and dispositions;
-- health, safety and environmental risks;
-- uncertainties as to the availability and cost of financing and changes
in capital markets;
-- risks in conducting foreign operations (for example, political and
fiscal instability or the possibility of civil unrest or military
action);
-- competitive actions of other companies, including increased competition
from other oil and gas companies;
-- 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 hedging activities; and
-- the Company's ability to implement its business strategy.
The foregoing list of risk factors is not exhaustive. Additional information on
these and other factors which could affect the Company's operations or financial
results are included in the Company's most recent Annual Information Form. In
addition, information is available in the Company's other reports on file with
Canadian securities regulatory authorities and the United States Securities and
Exchange Commission (SEC).
Forward-looking information is based on the estimates and opinions of the
Company's management at the time the information is presented. The Company
assumes no obligation to update forward-looking information should circumstances
or management's estimates or opinions change, except as required by law.
Oil and Gas Information
Throughout this press release, the calculation of barrels of oil equivalent
(boe) is at a conversion rate of six thousand cubic feet (mcf) of natural gas
for one barrel of oil and is based on an energy equivalence conversion method.
Boe may be misleading, particularly if used in isolation. A boe conversion ratio
of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily
applicable at the burner tip and does not represent a value equivalence at the
wellhead.
Talisman makes reference to production volumes throughout this press release.
Where not otherwise indicated, such production volumes are stated on a gross
basis, which means they are stated prior to the deduction of royalties and
similar payments. In the US, net production volumes are reported after the
deduction of these amounts.
Canadian Dollars and GAAP
Dollar amounts are presented in Canadian dollars unless otherwise indicated.
Unless otherwise indicated, financial information is presented in accordance
with Canadian generally accepted accounting principles that may differ from
generally accepted accounting principles in the US. Talisman's Consolidated
Financial Statements as at and for the year ended December 31, 2007, which were
filed with Canadian and US securities authorities on March 7, 2008, contain
information concerning differences between Canadian and US generally accepted
accounting principles.
Non-GAAP Financial Measures
Included in this press release are references to financial measures commonly
used in the oil and gas industry, such as cash flow, cash flow per share, cash
flow from continuing operations, earnings from continuing operations, earnings
from continuing operations per share and net debt. These terms are not defined
by GAAP in either Canada or the US. Consequently, these are referred to as
non-GAAP measures. Talisman's reported results of cash flow, cash flow from
continuing operations, earnings from continuing operations and net debt may not
be comparable to similarly titled measures by other companies.
Cash flow, as commonly used in the oil and gas industry, represents net income
before exploration costs, DD&A, future taxes and other non-cash expenses. Cash
flow is used by the Company to assess operating results between years and
between peer companies that use different accounting policies. Cash flow should
not be considered an alternative to, or more meaningful than, cash provided by
operating, investing and financing activities or net income as determined in
accordance with Canadian GAAP as an indicator of the Company's performance or
liquidity.
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. The Company uses this information to evaluate
performance of core operational activities on a comparable basis between
periods.
Net debt is calculated by adjusting the Company's long-term debt per the
financial statements for bank indebtedness, cash and cash equivalents. The
Company uses this information to assess its true debt position since cash could
potentially be used to pay down long-term debt.
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
---------------------------------------------------------------------------------------------------
Financial
(millions of C$ unless otherwise stated)
Cash flow (1) 1,691 1,177 2,923 2,181
Net income 426 550 892 1,070
Exploration and development expenditures 1,053 943 2,066 2,240
Per common share (C$)
Cash flow (1) 1.66 1.13 2.87 2.09
Net income 0.42 0.53 0.88 1.02
---------------------------------------------------------------------------------------------------
Production
(daily average)
Oil and liquids (bbls/d)
North America 40,311 44,637 40,200 46,000
UK 90,709 105,661 87,361 103,715
Scandinavia 32,426 29,931 32,880 30,916
Southeast Asia 35,847 43,962 36,537 46,740
Other 20,014 21,158 20,988 21,232
---------------------------------------------------------------------------------------------------
Total oil and liquids 219,307 245,349 217,966 248,603
---------------------------------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 888 860 868 891
UK 38 77 37 91
Scandinavia 20 14 20 14
Southeast Asia 330 280 321 274
---------------------------------------------------------------------------------------------------
Total natural gas 1,276 1,231 1,246 1,270
---------------------------------------------------------------------------------------------------
Total mboe/d (2) 432 450 426 460
---------------------------------------------------------------------------------------------------
Prices (3)
Oil and liquids (C$/bbl)
North America 105.27 56.67 93.07 55.07
UK 123.25 74.89 110.78 69.93
Scandinavia 129.08 77.11 113.98 70.71
Southeast Asia 136.86 81.42 117.91 79.14
Other 141.12 78.45 120.90 73.94
---------------------------------------------------------------------------------------------------
Total oil and liquids 124.66 73.32 110.16 69.36
---------------------------------------------------------------------------------------------------
Natural gas (C$/mcf)
North America 10.25 7.65 9.08 7.65
UK 9.76 6.47 9.16 7.19
Scandinavia 6.77 4.59 6.28 4.51
Southeast Asia 11.67 7.58 10.41 6.95
---------------------------------------------------------------------------------------------------
Total natural gas 10.55 7.53 9.38 7.43
---------------------------------------------------------------------------------------------------
Total (C$/boe) (2) 94.46 60.50 83.89 57.97
---------------------------------------------------------------------------------------------------
(1) Cash flow and cash flow per share are non-GAAP measures.
(2) Barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet
(mcf) of natural gas for one barrel of oil.
(3) Prices are before hedging.
Includes the results from continuing and discontinued operations.
Talisman Energy Inc.
Consolidated Balance Sheets
(unaudited)
June 30 December 31
(millions of C$) 2008 2007
------------------------------------------------------------------------------------
(restated)
Assets
Current
Cash and cash equivalents 88 536
Accounts receivable 1,713 1,143
Inventories 174 107
Prepaid expenses 27 12
Assets of discontinued operations 55 335
------------------------------------------------------------------------------------
2,057 2,133
------------------------------------------------------------------------------------
Other assets 156 171
Goodwill 1,489 1,406
Property, plant and equipment 19,339 17,710
------------------------------------------------------------------------------------
20,984 19,287
------------------------------------------------------------------------------------
Total assets 23,041 21,420
------------------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness 15 15
Accounts payable and accrued liabilities 2,875 1,889
Income and other taxes payable 742 388
Liabilities of discontinued operations 18 128
------------------------------------------------------------------------------------
3,650 2,420
------------------------------------------------------------------------------------
Deferred credits 35 21
Asset retirement obligations 2,041 1,915
Other long-term obligations 283 140
Long-term debt 3,639 4,862
Future income taxes 4,430 4,099
------------------------------------------------------------------------------------
10,428 11,037
------------------------------------------------------------------------------------
Contingencies
Shareholders' equity
Common shares 2,439 2,437
Contributed surplus 64 64
Retained earnings 6,441 5,651
Accumulated other comprehensive income (loss) 19 (189)
------------------------------------------------------------------------------------
8,963 7,963
------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 23,041 21,420
------------------------------------------------------------------------------------
Prior period balances have been restated to reflect the financial position of
discontinued operations and the reclassification of certain amounts to conform to
current year presentation.
Talisman Energy Inc.
Consolidated Statements of Income
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2008 2007 2008 2007
-------------------------------------------------------------------------------- --------------------
(restated) (restated)
Revenue
Gross sales 3,861 2,234 6,329 4,380
Hedging (loss)/gain (14) 21 (24) 67
-------------------------------------------------------------------------------- --------------------
Gross sales, net of hedging 3,847 2,255 6,305 4,447
Less royalties 732 380 1,109 720
-------------------------------------------------------------------------------- --------------------
Net sales 3,115 1,875 5,196 3,727
Other 41 44 76 74
-------------------------------------------------------------------------------- --------------------
Total revenue 3,156 1,919 5,272 3,801
-------------------------------------------------------------------------------- --------------------
Expenses
Operating 549 424 991 904
Transportation 60 52 103 108
General and administrative 75 53 139 113
Depreciation, depletion and amortization 653 547 1,185 1,116
Dry hole 70 113 140 213
Exploration 115 59 172 129
Interest on long-term debt 35 52 79 97
Stock-based compensation 270 43 260 85
Loss/(gain) on held-for-trading financial instruments 530 (63) 598 (26)
Other (11) (8) (24) (22)
-------------------------------------------------------------------------------- --------------------
Total expenses 2,346 1,272 3,643 2,717
-------------------------------------------------------------------------------- --------------------
Income from continuing operations before taxes 810 647 1,629 1,084
-------------------------------------------------------------------------------- --------------------
Taxes
Current income tax 538 109 804 279
Future income tax (recovery) (110) 166 (63) 160
Petroleum revenue tax 77 74 124 142
-------------------------------------------------------------------------------- --------------------
505 349 865 581
-------------------------------------------------------------------------------- --------------------
Net income from continuing operations 305 298 764 503
-------------------------------------------------------------------------------- --------------------
Net income from discontinued operations 121 252 128 567
-------------------------------------------------------------------------------- --------------------
Net income 426 550 892 1,070
-------------------------------------------------------------------------------- --------------------
Per common share (C$)
Net income from continuing operations 0.30 0.29 0.75 0.48
Diluted net income from continuing operations 0.29 0.28 0.73 0.47
Net income from discontinued operations 0.12 0.24 0.13 0.54
Diluted net income from discontinued operations 0.12 0.24 0.12 0.53
Net income 0.42 0.53 0.88 1.02
Diluted net income 0.41 0.52 0.86 1.00
-------------------------------------------------------------------------------- --------------------
Average number of common shares outstanding (millions) 1,019 1,040 1,019 1,046
Diluted number of common shares outstanding (millions) 1,043 1,066 1,040 1,072
-------------------------------------------------------------------------------- --------------------
Prior period balances have been restated to reflect the results of discontinued operations.
Talisman Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2008 2007 2008 2007
-------------------------------------------------------------------------------------------------------
(restated) (restated)
Operating
Net income from continuing operations 305 298 764 503
Items not involving cash 1,236 722 1,929 1,420
Exploration 115 59 172 129
-------------------------------------------------------------------------------------------------------
1,656 1,079 2,865 2,052
Changes in non-cash working capital (153) (178) (73) (93)
-------------------------------------------------------------------------------------------------------
Cash provided by continuing operations 1,503 901 2,792 1,959
Cash provided by discontinued operations 35 98 58 129
-------------------------------------------------------------------------------------------------------
Cash provided by operating activities 1,538 999 2,850 2,088
-------------------------------------------------------------------------------------------------------
Investing
Capital expenditures
Exploration, development and other (1,056) (920) (2,052) (2,182)
Property acquisitions (278) - (375) (4)
Proceeds of resource property dispositions - 16 - 16
Changes in non-cash working capital 136 (356) 234 (317)
Discontinued operations, net of capital expenditures 326 490 300 673
-------------------------------------------------------------------------------------------------------
Cash used in investing activities (872) (770) (1,893) (1,814)
-------------------------------------------------------------------------------------------------------
Financing
Long-term debt repaid (1,197) (459) (2,364) (1,035)
Long-term debt issued 492 820 1,030 1,776
Common shares purchased - (624) - (921)
Common share dividends (102) (91) (102) (91)
Deferred credits and other 5 12 14 (6)
Changes in non-cash working capital (3) - (3) -
-------------------------------------------------------------------------------------------------------
Cash used in financing activities (805) (342) (1,425) (277)
-------------------------------------------------------------------------------------------------------
Effect of translation on foreign currency cash and cash
equivalents 10 (2) 20 (3)
-------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (129) (115) (448) (6)
Cash and cash equivalents, net, beginning of period 202 173 521 64
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents, net, end of period 73 58 73 58
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents 88 104 88 104
Bank Indebtedness 15 46 15 46
-------------------------------------------------------------------------------------------------------
73 58 73 58
-------------------------------------------------------------------------------------------------------
Prior period balances have been restated to reflect the cash flows of discontinued operations.
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