TLM

Canadian energy explorer Talisman Energy Inc. (TLM) reported weak third-quarter 2012 results due to lower price realizations.

Alberta-based Talisman announced loss per share from continuing operations (excluding non-operating items) of 4 cents, as against the Zacks Consensus Estimate of earnings of 6 cents. In the year-ago period, Talisman earned 16 cents per share. The company decided to reduce its capital expenditure in 2013 and will keep it within $3.0 billion.

Quarterly total revenue of $1,722.0 million declined 12.0% from $1,956.0 million in the third quarter of 2011 but was ahead of the Zacks Consensus Estimate of $1,707.0 million owing to improved production.

Volume Analysis

Total production during the quarter, at 415 thousand barrels of oil equivalent per day (MBOE/d), was up 3.7% from the year-ago level, supported by higher activity in Southeast Asia, Colombia and the Eagle Ford shale. This was partially offset by low North Sea production and low natural gas prices in North America.

Oil & liquids production during the quarter was down 1.0% to 159,048 barrels per day (Bbl/d). Volumes were down due to maintenance activity in the North Sea and in Southeast Asia.

Talisman’s natural gas volumes in the quarter were up 6.8% to 1,533 million cubic feet per day (MMcf/d), mainly attributable to increases in North America.

Realized Prices

During the quarter, Talisman’s realized commodity prices dropped 12.50% from the year-ago quarter to $57.19 per barrel of oil equivalent (BOE) mainly on account of sharply lower North American realizations.

Overall, natural gas prices declined 19.2% year over year to $4.89 per Mcf, while oil and liquids realizations averaged $101.89 per barrel, down 6.3% from the year-ago level.

Cash Flow and Capital Expenditure

Cash flow from continuing operations during the quarter totaled $693.0 million, down 23.2% from the third quarter of 2011. Talisman spent $812.0 million on exploration and development activities.

Balance Sheet

As of September 30, 2012, Talisman had cash and cash equivalents of approximately $496.0 million and long-term debt of $5,012.0 million (including current portion) with a debt-to-capitalization ratio of 34.40%.

Our Recommendation

We maintain our long-term Neutral recommendation on the stock. Talisman – which entered into an agreement with China Petroleum & Chemical Corp. (SNP) in July to sell off its 49% equity stake in UK North Sea assets for $1.5 billion – currently has a Zacks #3 Rank (Hold rating) in the short run.

Over the last few years, Talisman has been disposing off its non-core oil and gas properties around the world, thereby freeing up capital to concentrate on longer-term oil and gas prospects in prolific regions across the globe such as Canada, the U.S. and the Southeast Asian belt.

Additionally, concerned by the continuing weakness in gas prices, Talisman’s capital program – since last year – specifically focuses on the promising North American oil and liquids rich areas in a major shift away from dry natural gas development. We believe the company’s strategic realignment will lead to a highly visible and cost-effective production-growth profile in fiscal 2012.

While subscribing to management’s outlook, we believe the realignment of Talisman will take some time to bear results. Questions about the company’s sustainable operational efficiency and execution abilities also remain key areas of concern, in our view.

As such, we see the stock performing in line with the broader market.

 

 
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