TIDMAN26
TALISMAN ENERGY REPORTS$900 MILLION CASH FLOW IN SECOND QUARTERINCREASED MARCELLUS SHALE DRILLINGEXPLORATION SUCCESSES IN COLOMBIA AND THE NORTH SEA
Talisman Energy Inc. reported its operating and financial results for the second quarter of 2009.
-- Cash flow1 during the quarter was $900 million, a decrease
from $1.7 billion a year ago, primarily due to lower prices.
Year-to-date cash flow was $2.2 billion.
-- Net income was $63 million, down from $426 million a year earlier,
also driven by lower prices.
-- Earnings from continuing operations1 were $135 million,
down from $790 million in the second quarter of 2008.
-- Production averaged 424,000 boe/d, 2% below the second quarter of
2008. Year-to-date, production from continuing operations has averaged
426,000 boe/d, 6% above last year.
-- Netbacks were down 55% from a year earlier, averaging $27.41/boe with
both oil and natural gas prices significantly lower due to the global
economic slowdown.
-- Talisman has continued to strengthen its balance sheet. Net debt1
at quarter end was $2 billion, down from $3.9 billion at December 31,
2008.
-- The Company closed the sale of non-core midstream assets in Alberta
and non-strategic properties in Saskatchewan and Trinidad in the
second quarter, with total proceeds of $1.3 billion.
-- Talisman has made exploration discoveries at Huron-1 (Colombia),
Grevling (Norway) and Shaw (UK).
-- The Company is currently producing 30 mmcf/d from the Marcellus Shale
play and has increased its 2009 drilling program to approximately 50
wells.
"This was a solid quarter for Talisman, both operationally and financially," said John A. Manzoni, President and CEO. "We continue to make excellent progress on the strategy, with notable success in the Marcellus and encouraging exploration results during the quarter. Year-to-date, our production from continuing operations is up 6%, driven by increasing volumes from Southeast Asia, and we are on-track to meet our guidance for the year. As previously disclosed, volumes were down this quarter due to planned maintenance and there were some operational issues in the UK.
"We generated $900 million in cash flow during the second quarter, bringing the total to $2.2 billion for the first six months. Cash flow was down from the first quarter, largely because of decreased proceeds realized from our hedges. Earnings from continuing operations were $135 million for the quarter, which is respectable in a C$48/boe environment.
"We have seen some strengthening in oil prices with growing optimism that the economy is at least stabilizing, although natural gas fundamentals remain weak. This environment demonstrates the value of our diverse portfolio, with a balance between oil and gas, as well as international and domestic production, highlighted by UK liquids netbacks, which increased by 26% compared to the first quarter.
"Overall, we have reduced unit operating costs 7% compared to a year ago as a result of cost reduction programs, higher volumes in some areas and increased operating efficiencies, particularly in the UK, and more savings are planned. We continue to drive capital and operating costs down with new project management systems, the LEAN culture in North America and negotiations with suppliers.
"Talisman's balance sheet is strong with net long-term debt sitting at $2 billion, down from $3.9 billion at year end. This is due in large part to our non-core asset disposition program, which has been very successful, with excellent metrics. From the inception of the strategy in May 2008, we have sold approximately 27,000 boe/d of non-core assets, with proceeds of $2.5 billion.
"We had some exciting exploration news during the quarter. The Grevling discovery in Norway was drilled and sidetracked. The initial test from the Huron well in Colombia has found hydrocarbons and the well is nearing completion. The Shaw well in the UK has also found hydrocarbons and is just south of our recent Godwin discovery. In Peru, the Situche well is drilling in the reservoir. In the Kurdistan region of northern Iraq, we are drilling our second well and have acquired interests in an additional block. In June, we entered into an agreement to acquire the shares of Rift Oil. This is an excellent opportunity to aggregate large volumes of natural gas in Papua New Guinea.
"There is also growing excitement around our Marcellus Shale play in Pennsylvania, where we have decided to increase spending, with approximately 50 wells planned this year, up from 36. The Company is now producing 30 mmcf/d and initial production rates on recent wells have averaged 5 mmcf/d. We have reduced cycle times by 60% and lowered drilling and completion costs to approximately US$4 million for our most recent well.
"We are seeing strong production growth in Southeast Asia. Development drilling is ongoing at PM-3 CAA (Northern and Southern Fields) and we continue to evaluate our offshore discovery in Vietnam. In the North Sea, we have a number of development projects underway and drilling continued during the quarter in the Auk field in the UK and the Yme field in Norway.
"After 23 years with the Company, Ron Eckhardt, Executive Vice President of North American Operations, has decided to retire. Paul Smith, Executive Vice President, International Operations West, will replace Ron, building on the excellent progress on the unconventional natural gas strategy to-date. Nick Walker, who heads our UK operations, will take over from Paul.
"In summary, we are making significant progress towards the objectives set out in the strategy. Southeast Asia is proving to be a reliable low-cost source of growth. We are demonstrating the commercial viability of our unconventional plays. The exploration program is showing signs of delivering material new opportunities. Our strong balance sheet provides us financial flexibility, which we will use prudently. We continue to drive costs out of the system and position the Company for profitable long-term growth."
1 The terms "cash flow", "earnings from continuing operations" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.
Financial Highlights
Three months ended Six months ended
June 30, 2009 2008 2009 2008
Cash flow ($ million) 900 1,691 2,206 2,923
Cash flow per share2 0.89 1.66 2.17 2.87
Cash flow from continuing 864 1,575 2,150 2,721
operations ($ million)
Net income ($ million) 63 426 518 892
Net income per share 0.06 0.42 0.51 0.88
Earnings from continuing 135 790 429 1,223
operations ($ million)
Earnings from continuing 0.13 0.78 0.42 1.20
operations per share2
Average shares outstanding 1,015 1,019 1,015 1,019
(million)
Cash flow during the quarter was $900 million compared to $1,691 million a year earlier. The main reason for the decrease has been a significant fall in oil and gas prices, resulting in a 55% reduction in netbacks. The price impact was partially offset by lower royalties and cash taxes and realized gains on commodity derivatives. Relative to the first quarter, cash flow decreased by $409 million primarily due to reduced proceeds from commodity derivatives. Cash flow numbers for the quarter include a pre-tax cash realization of $191 million from held-for-trading derivatives compared to $584 million in the first quarter.
Year-to-date, Talisman has generated $2.2 billion in cash flow, down from $2.9 billion in 2008, but comparable to the same period in 2007.
Earnings from continuing operations totalled $135 million during the quarter, versus $790 million a year earlier primarily due to reduced commodity prices. Relative to the first quarter, earnings from continuing operations decreased from $294 million, primarily due to reduced realized proceeds from commodity derivatives, which were offset by lower exploration and dry hole costs.
Net income for the quarter was $63 million compared to $426 million a year earlier. The main reason for the difference was the fall in commodity prices.
Total Depreciation, Depletion and Amortization (DD&A) expense from continuing operations was $679 million, an increase of $56 million, which arose largely in the UK as a result of a writedown in reserves due to low oil prices at year end.
Dry hole expense was $51 million during the quarter versus $70 million in the second quarter of 2008 and includes a credit in Alaska. Exploration expense was $58 million compared to $115 million in the previous year. Current income taxes in the quarter were $175 million versus $502 million a year earlier, principally due to decreased revenues from lower commodity prices.
Exploration and development spending was $826 million during the quarter, bringing the total to $1.8 billion for the year.
Talisman's net long-term debt at June 30 was $2 billion, down from $3.9 billion at year end. The reduction was primarily due to proceeds from asset dispositions that closed during the second quarter of 2009. Talisman issued US$700 million 7.75% senior notes in the US public debt market in the second quarter.
2 The terms "cash flow per share" and "earnings from continuing operations per share" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.
Production
Three months ended Six months ended
June 30, 2009 2008 2009 2008
Oil and liquids (bbls/d) 212,149 219,313 223,450 217,969
Natural gas (mmcf/d) 1,271 1,275 1,281 1,245
Total (mboe/d) 424 432 437 426
Continuing operations (mboe/d) 416 408 426 401
Year-to-date, production from continuing operations has averaged 426,000 boe/d, up 6%. Production from continuing operations averaged 416,000 boe/d during the quarter, an increase of 2% over the second quarter of 2008. This was predominantly due to higher volumes in Southeast Asia (record sales at Corridor in Indonesia, Northern Fields commissioning offshore Malaysia/Vietnam) and startup of the Rev Field in Norway.
Total production averaged 424,000 boe/d, down 2% from a year earlier.
Netbacks
Three months ended Six months ended
June 30, 2009 2008 2009 2008
Sales 47.90 94.46 45.99 83.89
Hedging loss - (0.37) - (0.31)
Royalties 6.24 17.23 6.08 15.08
Transportation 1.29 1.52 1.35 1.33
Operating expenses 12.96 14.01 12.64 13.55
Netback ($/boe) 27.41 61.33 25.92 53.62
Oil and liquids netback ($/bbl) 38.37 81.01 33.83 69.95
Natural gas netback ($/mcf) 2.73 6.83 2.93 6.07
WTI oil prices averaged US$60/bbl during the quarter, up from US$43/bbl in the first quarter, but well below US$124/bbl a year ago. North American natural gas prices continued to weaken, with NYMEX averaging US$3.60/mmbtu compared to US$10.80/mmbtu a year ago. North American natural gas prices include the impact of physical commodity contracts.
Netbacks in the second quarter averaged $27.41, down 55% from a year earlier, but up slightly from $24.48/boe in the first quarter. Royalty expenses totalled $221 million (12%) compared to $708 million (19%) in the corresponding quarter for 2008.
Talisman has implemented a global review to identify and implement cost savings and operational efficiencies. Operating costs are starting to be reduced by these initiatives, but the effect can be impacted by the timing of maintenance activities, timing of crude oil liftings and foreign exchange rate changes. Unit operating costs were 7% lower than a year ago, predominantly due to increased efficiency, less maintenance work and the disposition of higher cost properties in the UK and higher volumes in Norway.
North America
Production in North America averaged approximately 171,000 boe/d in the quarter, down 9% from the same period in 2008. Production from continuing operations was down 6% over the same period in 2008, reflecting reduced capital spending and a shift in development focus from conventional areas to unconventional plays. Production from new unconventional areas increased 22% from the first quarter.
On June 1, Talisman closed asset sales in southeast Saskatchewan and Cutbank Midstream with cash proceeds totaling approximately $1 billion. The Saskatchewan production was sold at approximately $85,000 per boe/d and the midstream assets were sold at approximately ten times trailing EBITDA.
Capital spending included $496 million in unconventional natural gas areas and $128 million on conventional properties. During the first six months of the year, Talisman participated in 92 gross wells (50.8 net), with 82 gross wells in unconventional plays.
In the Marcellus Shale, the Company drilled nine gross (nine net) wells during the quarter, for a total of 12 gross (12 net) in the first half of the year. The development plan is ahead of schedule and the Company is now producing at rates in excess of 30 mmcf/d. Talisman currently has two pre-set drilling rigs and two horizontal rigs operating and a third horizontal rig is expected to start in July. Talisman is increasing capital spending in the Marcellus play as a result of recent results and its proximity to premium natural gas markets. The Company now expects to drill approximately 50 wells during the year versus the original plan of 36 wells.
Marcellus wells continue to exceed expectations. The latest wells on production have achieved initial production rates averaging 5 mmcf/d and peak rates above 5 mmcf/d, well above the original 2.5 mmcf/d type curve. Capital costs also continue to improve, with the most recent well achieving drilling and completion costs of approximately US$4 million. Drilling cycle times have been reduced by 60% as a result of Talisman's LEAN Well Delivery initiative. The Company is already drilling on state lands acquired in late 2008.
In the Montney Core, Talisman drilled 12 gross (9.9 net) wells in the first half of the year. The most recent eight horizontal wells have averaged initial 30-day production rates of 3.5 mmcf/d, well above the original target of 2.6 mmcf/d. Talisman has made significant strides in reducing costs in the Montney, targeting a US$4/mcf (NYMEX) breakeven cost by the end of the year.
The Company drilled a total of five wells in the Montney Shale in the quarter, for a total of 12 gross (9.2 net) in the first half of the year. The first horizontal and vertical pilot wells exceeded initial type curve expectations.
In Quebec, the Company is currently testing vertical wells, which were drilled to complete the land earning requirements. Based on encouraging test results from its vertical wells, Talisman intends to begin drilling horizontal pilot wells by the end of the third quarter, with the potential to drill at least two horizontal wells in 2009. To date, three separate pilot areas have been identified next to the vertical test wells.
Talisman's conventional areas continue to perform well even with reduced capital. Base declines are lower than anticipated and many areas continue to report strong production volumes.
UK
Production from continuing operations in the UK averaged approximately 93,000 boe/d during the quarter, unchanged from the same period in 2008 and down 14% from the first quarter. Production during the second quarter was lower due to both planned shutdowns and a number of unplanned events.
Most significantly, there was a compressor failure at Claymore (eight weeks outage with one compressor now online and a second compressor expected online at the end of July) and a well was shut in at the Wood Field due to poor reservoir performance. A well intervention is planned for the first half of 2010.
Tweedsmuir has been performing well, with production very steady at over 25,000 boe/d for the quarter. At Tartan, improved production efficiency has resulted in higher volumes across the fields producing through the Tartan facility, with production in the area averaging over 8,500 boe/d during the quarter.
The Company has made a discovery on the Shaw prospect in Block 22/22a, adjacent to its recently announced Godwin discovery. The well tested at 4,800 boe/d on a restricted choke and Talisman is currently drilling an appraisal sidetrack. Talisman is reviewing options to develop the Godwin discovery via the Montrose - Arbroath facilities.
Talisman continues to progress its developments at Burghley, Auk North and Auk South, which are on schedule and on budget. At Auk North, three batch wells continued drilling during the quarter. Early indications show better than expected performance with an initial free flow rate on the first well of 6,500 boe/d through a restricted choke. However, the non-operated Affleck field continues to experience delays, with first oil now expected later this year.
As part of the ongoing program to manage capital spending levels, Talisman has worked with its rig vendor to renegotiate the terms of its contract, with early release of the Ocean Nomad at the end of the current exploration well, combined with a corresponding extension of the commitment on the Ocean Princess.
Scandinavia
Production from continuing operations in Scandinavia averaged approximately 39,000 boe/d during the quarter, up 18% over the second quarter of 2008 and down 9% from the first quarter of 2009. Production during the second quarter was down due to planned shutdowns and lower than expected operating efficiency for Rev through the non-operated Armada facility in the UK.
The Company made a promising oil discovery on the Grevling prospect, offshore Norway in PL038, Block 15/12. A subsequent sidetrack was drilled down-dip of the structure, which extended the proven oil column with remaining potential untested down-flank. The Company is currently evaluating development options across its Varg facilities. A further appraisal well is planned for early 2010.
Southeast Asia
In Southeast Asia, production averaged approximately 105,000 boe/d, 15% higher than the same period last year and 4% above the last quarter. Indonesian production averaged 65,000 boe/d, 14% higher than the same period last year and 3% higher than the last quarter. In Malaysia/Vietnam, production averaged 35,000 boe/d, 2% above than the same period last year, due to gas and oil production from Northern Fields and the ongoing Bunga Kekwa C infill program, partially offset by a decline in South Angsi production. Volumes were also 15% higher than the previous quarter, mainly due to Northern Fields oil production, which came onstream late in the first quarter of 2009.
Production from Corridor during the quarter reached a record high of 331 mmcf/d (net to Talisman) as sales volumes to both Caltex and PGN continued to increase.
During the second quarter, the Tangguh Liquefied Natural Gas (LNG) facility produced its first LNG and commenced loading operations, with the first cargo shipped on July 6.
A Gas Sales Agreement for the sale of Mandala gas and field solution gas in the Ogan Komering Block was signed in April. The contract will be in place until 2016 at an average rate of 12 mmcf/d gross sales gas.
Gas production from the Northern Fields averaged 119 mmcf/d gross sales during the quarter, with liquids production averaging approximately 12,700 boe/d. To date, 25 wells have been drilled on Northern Fields with 100% success. Production will continue to ramp upwards as additional oil and gas producers are brought onstream and commissioning of compression systems is completed in the third quarter.
In the Southern Fields, a planned shutdown for preventative maintenance was completed in May, with the oil system shut-in for 10 days and the gas processing system shut-in for 13 days. The first infill well in the Improved Oil Recovery Phase 1 program came on production in April at an initial rate of 1,100 bbls/d. The second well of a six well program is currently being drilled.
The Company continued the appraisal of the Hai Su Den (HSD) discovery in Block 15-2/01 in Vietnam. The 3X basement appraisal well flowed oil on drill stem test and was subsequently abandoned. The 4X exploration well spud early in July and a further basement appraisal well (5X) is planned for later in the year.
Production in Australia was approximately 4,700 boe/d, 37% higher than the same period last year and 47% higher than the last quarter, primarily due to the new flowline at Corallina and reinstatement of the Lam-2 well.
Sanction of the field development plan for the Kitan discovery is expected in fourth quarter with first oil planned for mid-2011.
Other Operating Areas
In North Africa, production from continuing operations averaged 13,000 boe/d, down 13% compared to the same period a year ago, mainly due to continued OPEC production restrictions and natural declines. The Company expects these restrictions to continue at this level for the remainder of 2009.
The Company is in negotiations for the sale of its assets in Tunisia. The sale of Talisman's interests in Trinidad and Tobago was completed on May 27.
International Exploration
International exploration spending during the second quarter was approximately $176 million.
In June, Talisman entered an agreement to purchase the issued and outstanding shares of Rift Oil, whose principal assets are highly prospective exploration licences PPL235 and PPL261 in the Foreland Basin of Western Papua New Guinea. This provides the Company with a low cost opportunity to aggregate gas in Southeast Asia, one of the growth areas in Talisman's portfolio. The transaction is subject to a number of conditions.
On the Sageri Production Sharing Contract, processing of 2-D seismic acquired earlier in the year was completed. Talisman submitted bids for blocks in the Sabah bid round in Malaysia and North Sumatra bid round in Indonesia with results expected later in the year.
In the Kurdistan region of northern Iraq, the Kurdamir-1 well spud in early May and is currently drilling. The Company has also agreed to acquire an option on the K9 Block.
In Colombia, Talisman made a significant gas condensate discovery in the Niscota Block in the Andes Foothills. The Huron-1 well, which spud in June last year, encountered several reservoirs and tested one zone at 3,400 boe/d. Further logging and testing is underway. The Situche Central 3X well on Block 64 in Peru, which spud in late December 2008, is currently drilling in the reservoir.
Talisman was also awarded three blocks in Norway, in the Barents Sea, in the 20th Licencing Round.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The Company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York Stock Exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.
For further information,
please contact:
Media and General Inquiries: Shareholder and Investor Inquiries:
David Mann, Vice-President Christopher J. LeGallais,
Vice-President
Corporate & Investor Communications Investor Relations
Phone: 403-237-1196 Phone: 403-237-1957
Fax: 403-237-1210 Fax: 403-237-1210
E-mail: tlm@talisman-energy.com E-mail: tlm@talisman-energy.com
17-09
Forward-Looking Information
This news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding:
-- expected annual production;
-- planned cost savings;
-- expected acquisition of Rift Oil, subject to conditions;
-- planned changes in senior management;
-- business strategy and plans;
-- planned drilling in the Marcellus and increased capital expenditures;
-- target breakeven costs in the Montney;
-- Quebec development program;
-- planned well intervention at the Wood Field;
-- expected first oil at the Affleck field;
-- expected release of the Ocean Nomad and extension on the Ocean
Princess;
-- planned well at the Grevling prospect;
-- planned appraisal well at HSD;
-- expected production from the Northern Fields;
-- expected production restrictions in North Africa;
-- expected sanctioning and first oil at the Kitan discovery;
-- expected results of bid rounds in Southeast Asia; and
-- other expectations, beliefs, plans, goals, objectives, assumptions,
information and statements about possible future events, conditions,
results of operations or performance.
With the exception of the timing of the release and extension of the Ocean Nomad and Ocean Princess, planned changes in senior management and bid round results in Southeast Asia, each of the forward-looking information listed above are based on Talisman's 2009 capital program announced on January 13. The material assumptions supporting the 2009 capital program are: (1) 2009 annual production of approximately 430,000 boe/d; (2) a US $40/bbl WTI oil price for 2009 and (3) a US $5/mmbtu NYMEX natural gas price for 2009. 2009 production estimates are subject to the timing of development activities and include the anticipated completion of planned dispositions. The completion of any planned disposition is contingent on various factors including market conditions, the ability of the Company to negotiate acceptable terms of sale and receipt of any required approvals of such dispositions.
Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this news release. The material risk factors include, but are not limited to:
-- the risks of the oil and gas industry, such as operational risks in
exploring for, developing and producing crude oil and natural gas,
market demand and unpredictable facilities outages;
-- risks and uncertainties involving geology of oil and gas deposits;
-- the uncertainty of reserves and resources estimates, reserves life and
underlying reservoir risk;
-- the uncertainty of estimates and projections relating to production,
costs and expenses;
-- the impact of the economy and credit crisis on the ability of the
counterparties to the Company's commodity price derivative contracts
to meet their obligations under the contracts;
-- potential delays or changes in plans with respect to exploration or
development projects or capital expenditures;
-- fluctuations in oil and gas prices, foreign currency exchange rates
and interest rates;
-- the outcome and effects of any future acquisitions and dispositions;
-- health, safety and environmental risks;
-- uncertainties as to the availability and cost of financing and changes
in capital markets;
-- risks in conducting foreign operations (for example, political and
fiscal instability or the possibility of civil unrest or military
action);
-- changes in general economic and business conditions;
-- the possibility that government policies or laws may change or
governmental approvals may be delayed or withheld; and
-- results of the Company's risk mitigation strategies, including
insurance and any hedging activities.
The foregoing list of risk factors is not exhaustive. Additional information on these and other factors, which could affect the Company's operations or financial results are included in the Company's most recent Annual Information Form. In addition, information is available in the Company's other reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission (SEC).
Forward-looking information is based on the estimates and opinions of the Company's management at the time the information is presented. The Company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law.
Oil and Gas Information
Throughout this news release, the calculation of barrels of oil equivalent (boe) is at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil (bbl). Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.
Talisman makes reference to production volumes throughout this news release. Where not otherwise indicated, such production volumes are stated on a gross basis, which means they are stated prior to the deduction of royalties and similar payments. In the US, net production volumes are reported after the deduction of these amounts.
Canadian Dollars and GAAP
Dollar amounts are presented in Canadian dollars unless otherwise indicated. Unless otherwise indicated, financial information is presented in accordance with Canadian generally accepted accounting principles that may differ from generally accepted accounting principles in the US. Talisman's Consolidated Financial Statements as at and for the year ended December 31, 2008, which were filed with Canadian and US securities authorities on March 5, 2009, contain information concerning differences between Canadian and US generally accepted accounting principles.
Non-GAAP Financial Measures
Included in this news release are references to financial measures commonly used in the oil and gas industry, such as cash flow, cash flow per share, earnings from continuing operations, earnings from continuing operations per share and net debt. These terms are not defined by GAAP in either Canada or the US. Consequently, these are referred to as non-GAAP measures. Talisman's reported cash flow, cash flow per share, earnings from continuing operations, earnings from continuing operations per share and net debt may not be comparable to similarly titled measures by other companies.
Cash flow, as commonly used in the oil and gas industry, represents net income before exploration costs, DD&A, future taxes and other non-cash expenses. Cash flow is used by the Company to assess operating results between years and between peer companies that use different accounting policies. Cash flow should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income as determined in accordance with Canadian GAAP as an indicator of the Company's performance or liquidity. Cash flow per share is cash flow divided by the average number of common shares outstanding during the period. A reconciliation of cash provided by operating activities to cash flow follows.
($ million, except Three months ended Six months ended
per share amount)
June 30, 2009 2008 2009 2008
Cash provided by operating 1,150 1,538 2,236 2,850
activities
Less: Changes in non-cash 250 (153) 27 (73)
working capital
Cash flow2 900 1,691 2,209 2,923
Less: Cash provided 36 116 59 202
by discontinued
operations1
Cash flow from continuing 864 1,575 2,150 2,721
operations1,2
Cash flow per share1 0.89 1.66 2.17 2.87
Cash flow from continuing 0.85 1.55 2.12 2.67
operations1
1. Comparatives restated for operations classified as discontinued since June 30, 2008.
2. This is a non-GAAP measure. Please refer to the section in this news release entitled Non-GAAP Financial Measures for further explanation and details.
Earnings from continuing operations are calculated by adjusting the Company's net income per the financial statements, for certain items of a non-operational nature, on an after-tax basis. The Company uses this information to evaluate performance of core operational activities on a comparable basis between periods. Earnings from continuing operations per share are earnings from continuing operations divided by the average number of common shares outstanding during the period. A reconciliation of net income to earnings from continuing operations follows.
($ million, except per share amounts)
Three months ended Six months ended
June 30, 2009 2008 2009 2008
Net income 63 426 518 892
Operating income from 19 86 48 139
discontinued
operations
Gain (loss) on disposition 477 91 996 88
of discontinued operations
Net income from discontinued 496 177 1,044 227
operations5
Net income (loss) from (433) 249 (526) 665
continuing operations5
Unrealized losses 478 395
on financial 344 865
instruments1(tax adjusted)
Stock-based compensation 84 191 107 184
expense
(recovery)2(tax adjusted)
Future tax recovery 6 6 (17) (21)
of unrealized
foreign exchange
losses on foreign
denominated debt3
Earnings from continuing 135 790 429 1,223
operations4
Per share4 0.13 0.78 0.42 1.20
1. Unrealized losses on financial instruments relate to the change in the period of the mark-to-market value of the Company's outstanding held-for-trading financial instruments
2. Stock-based compensation expense relates principally to the mark-to-market value of the Company's outstanding stock options and cash units at June 30. The Company's stock-based compensation expense is based principally on the difference between the Company's share price and its stock options or cash units exercise price
3. Tax adjustments reflect future taxes relating to unrealized foreign exchange gains and losses associated with the impact of fluctuations in the Canadian dollar on foreign denominated debt.
4. This is a non-GAAP measure.
5. Comparatives restated for operations classified as discontinued subsequent to June 30, 2008.
This calculation does not reflect differing accounting policies and conventions between companies. All amounts are reported on an after-tax basis.
Net debt is calculated by adjusting the Company's long-term debt per the financial statements for bank indebtedness and cash and cash equivalents. The Company uses this information to assess its true debt position since cash could potentially be used to pay down long-term debt.
($ million)
June 30, 2009 2008
Long-term debt 4,329 3,961
Bank indebtedness 2 81
Cash and cash equivalents (2,307) (91)
Net Debt 2,024 3,951
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended Six months ended
June 30 June 30
2009 2008 2009 2008
Financial
(millions of C$ unless otherwise stated)
Cash flow (1) 900 1,691 2,206 2,923
Net income 63 426 518 892
Exploration and development expenditures 826 1,053 1,925 2,067
Per common share (C$)
Cash flow (1) 0.89 1.66 2.17 2.87
Net income 0.06 0.42 0.51 0.88
Production
(daily average)
Oil and liquids (bbls/d)
North America 36,823 40,317 38,780 40,203
UK 89,936 90,709 96,277 87,361
Scandinavia 31,165 32,426 33,009 32,880
Southeast Asia 38,094 35,847 37,719 36,537
Other 16,131 20,014 17,665 20,988
Total oil and liquids 212,149 219,313 223,450 217,969
Natural gas (mmcf/d)
North America 807 887 818 868
UK 21 38 25 37
Scandinavia 43 20 47 19
Southeast Asia 400 330 391 321
Total natural gas 1,271 1,275 1,281 1,245
Total mboe/d (2) 424 432 437 426
Prices (3)
Oil and liquids (C$/bbl)
North America 56.55 105.27 49.29 93.07
UK 67.73 123.25 61.70 110.78
Scandinavia 67.89 129.08 61.91 113.98
Southeast Asia 70.61 136.86 61.79 117.91
Other 69.75 141.12 63.95 120.90
Total oil and liquids 66.48 124.66 59.77 110.16
Natural gas (C$/mcf)
North America 4.37 10.25 4.94 9.08
UK 4.24 9.76 5.22 9.16
Scandinavia 4.22 6.77 7.24 6.28
Southeast Asia 6.01 11.67 5.69 10.41
Total natural gas 4.88 10.55 5.26 9.38
Total (C$/boe) (2) 47.90 94.46 45.99 83.89
(1) Cash flow and cash flow per share are non-GAAP measures.
(2) Barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil.
(3) Prices are before hedging.
Includes the results from continuing and discontinued operations.
Talisman Energy Inc.
Consolidated Balance Sheets
(unaudited)
June 30 December 31
(millions of C$) 2009 2008
(restated)
Assets
Current
Cash and cash equivalents 2,307 91
Accounts receivable 1,588 2,424
Inventories 120 181
Prepaid expenses 19 17
Assets of discontinued operations 18 215
4,052 2,928
Other assets 220 234
Goodwill 1,291 1,260
Property, plant and equipment 19,334 18,984
Assets of discontinued operations 140 869
20,985 21,347
Total assets 25,037 24,275
Liabilities
Current
Bank indebtedness 2 81
Accounts payable and accrued liabilities 1,880 1,876
Income and other taxes payable 441 468
Current portion of long-term debt 186 -
Future income taxes 88 300
Liabilities of discontinued operations 2 93
2,599 2,818
Deferred credits 54 51
Asset retirement obligations 2,128 1,998
Other long-term obligations 313 173
Long-term debt 4,143 3,961
Future income taxes 4,050 4,006
Liabilities of discontinued operations 28 118
10,716 10,307
Shareholders' equity
Common shares, no par value
Authorized: unlimited
Issued and outstanding:
2009 - 1,015 million (December 2008 - 1,015 million) 2,374 2,372
Contributed surplus 119 84
Retained earnings 9,369 8,966
Accumulated other comprehensive loss (140) (272)
11,722 11,150
Total liabilities and shareholders' equity 25,037 24,275
Talisman Energy Inc.
Consolidated Statements
of Income
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2009 2008 2009 2008
(restated) (restated)
Revenue
Gross sales 1,798 3,707 3,637 6,063
Hedging loss - (14) - (24)
Gross sales, net 1,798 3,693 3,637 6,039
of hedging
Less royalties 221 708 521 1,069
Net sales 1,577 2,985 3,116 4,970
Other 26 37 60 59
Total revenue 1,603 3,022 3,176 5,029
Expenses
Operating 504 536 1,025 968
Transportation 50 59 107 101
General and administrative 86 75 167 139
Depreciation, depletion 679 623 1,412 1,132
and amortization
Dry hole 51 70 295 134
Exploration 58 115 126 170
Interest on long-term debt 45 37 90 81
Stock-based compensation 117 270 150 260
Loss on held-for-trading 438 530 365 598
financial instruments
Other, net 88 (6) 103 (22)
Total expenses 2,116 2,309 3,840 3,561
Income (loss) from (513) 713 (664) 1,468
continuing
operations before taxes
Taxes
Current income tax 175 502 307 735
Future income tax (281) (115) (485) (56)
(recovery)
Petroleum revenue tax 26 77 40 124
(80) 464 (138) 803
Net income (loss) from (433) 249 (526) 665
continuing operations
Net income from 496 177 1,044 227
discontinued
operations
Net income 63 426 518 892
Per common share (C$):
Net income (loss) from (0.43) 0.24 (0.52) 0.65
continuing operations
Diluted net income (0.43) 0.24 (0.52) 0.64
(loss) from
continuing operations
Net income from 0.49 0.17 1.03 0.22
discontinued
operations
Diluted net income 0.49 0.17 1.03 0.22
from discontinued
operations
Net income 0.06 0.42 0.51 0.88
Diluted net income 0.06 0.41 0.51 0.86
Average number of 1,015 1,019 1,015 1,019
common shares
outstanding (millions)
Diluted number of 1,015 1,043 1,015 1,040
common shares
outstanding (millions)
Prior period balances have
been restated to reflect
the results of
discontinued
operations
Talisman Energy
Inc.
Consolidated
Statements
of Cash Flows
(unaudited)
Three months ended Six months ended
June 30 June 30
(millions of C$) 2009 2008 2009 2008
(restated) (restated)
Operating
Net income (loss) (433) 249 (526) 665
from
continuing
operations
Items 1,239 1,211 2,550 1,885
not involving
cash
Exploration 58 115 126 170
864 1,575 2,150 2,720
Changes in 250 (153) 27 (73)
non-cash
working capital
Cash provided by 1,114 1,422 2,177 2,647
continuing
operations
Cash provided by 36 116 59 203
discontinued
operations
Cash provided 1,150 1,538 2,236 2,850
by operating
activities
Investing
Capital
expenditures
Exploration, (822) (978) (1,761) (1,944)
development
and other
Property (28) (278) (56) (375)
acquisitions
Proceeds of 27 - 60 -
resource
property
dispositions
Changes in (100) 136 (357) 234
non-cash
working capital
Discontinued 1,268 248 1,850 192
operations,
net
of
capital
expenditures
Cash provided 345 (872) (264) (1,893)
by (used in)
investing
activities
Financing
Long-term debt (106) (1,197) (796) (2,364)
repaid
Long-term debt 879 492 1,249 1,030
issued
Common shares (1) - - -
issued
Common share (115) (102) (115) (102)
dividends
Deferred credits 3 5 7 14
and other
Changes in 1 (3) 2 (3)
non-cash
working capital
Cash provided 661 (805) 347 (1,425)
by (used in)
financing
activities
Effect (10) 10 (24) 20
of translation
on foreign
currency
cash and cash
equivalents
Net increase 2,146 (129) 2,295 (448)
(decrease)
in
cash and cash
equivalents
Cash and cash 159 202 10 521
equivalents
net of bank
indebtedness,
beginning
of period
Cash and cash 2,305 73 2,305 73
equivalents
net of
bank indebtedness,
end of period
Cash and cash 2,307 88 2,307 88
equivalents
Bank indebtedness 2 15 2 15
Cash and cash 2,305 73 2,305 73
equivalents
net of
bank indebtedness,
end of period
Prior period
balances
have
been restated
to reflect
the cash flows of
discontinued
operations
Segmented Information
North America (1) UK Scandinavia Southeast Asia (2) Other (3) Total
Three months ended June 30 Six months ended June 30 Three months ended June 30 Six months ended June 30 Three months ended June 30 Six months ended June 30 Three months ended June 30 Six months ended June 30 Three months ended June 30 Six months ended June 30 Three months ended June 30 Six months ended June 30
(millions of 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
Canadian $)
Revenue
Gross sales 485 1,176 1,025 2,020 592 985 1,121 1,782 212 443 454 647 430 774 819 1,285 79 329 218 329 1,798 3,707 3,637 6,063
Hedging - - - - - (14) - (24) - - - - - - - - - - - - - (14) - (24)
Royalties 55 208 140 362 2 1 2 5 - - - - 132 320 277 523 32 179 102 179 221 708 521 1,069
Net sales 430 968 885 1,658 590 970 1,119 1,753 212 443 454 647 298 454 542 762 47 150 116 150 1,577 2,985 3,116 4,970
Other 21 30 47 46 4 5 11 10 1 - 2 1 - - - - - 2 - 2 26 37 60 59
Total revenue 451 998 932 1,704 594 975 1,130 1,763 213 443 456 648 298 454 542 762 47 152 116 152 1,603 3,022 3,176 5,029
Segmented expenses
Operating 154 158 305 282 216 227 427 443 62 80 137 137 64 56 131 90 8 15 25 16 504 536 1,025 968
Transportation 14 18 26 34 11 12 24 19 13 9 25 18 10 18 28 26 2 2 4 4 50 59 107 101
DD&A 283 269 554 523 218 167 453 310 87 110 190 174 82 63 192 111 9 14 23 14 679 623 1,412 1,132
Dry hole - 46 128 66 (1) 5 30 26 35 18 62 42 - 1 51 - 17 - 24 - 51 70 295 134
Exploration 12 45 35 68 5 7 7 12 6 17 12 24 15 19 30 26 20 27 42 40 58 115 126 170
Other (12) (1) (11) (6) (11) (5) (5) - 5 (1) 5 (2) 2 1 - 2 - (1) 12 (5) (16) (7) 1 (11)
Total segmented 451 535 1,037 967 438 413 936 810 208 233 431 393 173 158 432 255 56 57 130 69 1,326 1,396 2,966 2,494
expenses
Segmented income - 463 (105) 737 156 562 194 953 5 210 25 255 125 296 110 507 (9) 95 (14) 83 277 1,626 210 2,535
(loss)
before taxes
Non-segmented
expenses
General 86 75 167 139
and administrative
Interest 45 37 90 81
Stock-based 117 270 150 260
compensation
Currency translation 104 1 102 (11)
(Gain)/Loss 438 530 365 598
on held-for-trading
financial instruments
Total non-segmented 790 913 874 1,067
expenses
Income (loss) from
continuing
operations before (513) 713 (664) 1,468
taxes
Capital expenditures
Exploration 103 222 308 399 44 28 90 78 69 53 128 90 45 92 126 177 54 35 116 52 315 430 768 796
Development 105 65 210 285 160 186 291 310 133 160 248 301 90 106 286 192 11 (9) 11 1 499 508 1,046 1,089
Midstream (5) 21 30 31 - - - - - - - - - - - - - - - - (5) 21 30 31
Exploration and 203 308 548 715 204 214 381 388 202 213 376 391 135 198 412 369 65 26 127 53 809 959 1,844 1,916
development
Property acquisitions 28 278 56 389
Proceeds (27) - (60) -
on dispositions
Other non-segmented 13 19 23 28
Net 823 1,256 1,863 2,333
capital expenditures
(4)
Property, plant 8,558 8,703 4,988 4,738 1,926 1,745 2,982 2,984 880 814 19,334 18,984
and equipment
Goodwill 223 224 327 306 619 602 122 129 - - 1,291 1,260
Other 2,826 840 414 253 174 153 334 304 97 127 3,845 1,677
Discontinued - 534 - 165 113 93 - - 45 292 158 1,084
operations
Segmented assets 11,607 10,301 5,729 5,462 2,832 2,593 3,438 3,417 1,022 1,233 24,628 23,005
Non-segmented assets 409 1,270
Total assets (5) 25,037 24,275
(1) North America 2009 2008 2009 2008 (2) Southeast Asia 2009 2008 2009 2008
Canada 426 928 873 1,588 Indonesia 166 258 301 460
US 25 70 59 116 Malaysia 86 130 147 226
Total revenue 451 998 932 1,704 Vietnam 22 - 58 11
Canada 7,777 7,903 Australia 24 66 36 65
US 781 800 Total revenue 298 454 542 762
Property, plant and equipment (5) 8,558 8,703 Indonesia 984 990
Malaysia 1,274 1,277
4 Excluding corporate acquisitions. Vietnam 471 470
5 Current year represents balances as at June 30, prior year represents balances as at December 31. Australia 253 247
Property, plant and equipment (5) 2,982 2,984
(3) Other 2009 2008 2009 2008
Algeria 53 152 125 142
Other (6) - (9) 10
Total revenue 47 152 116 152
Algeria 221 249
Other 659 565
Property, plant and equipment (5) 880 814
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