Talisman Energy Reports $838 Million Cash Flow in Third Quarter
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CALGARY, ALBERTA--(Marketwire - Nov. 3, 2009) - Talisman Energy Inc. (TSX: TLM) (NYSE: TLM) reported its operating and financial results for the third quarter of 2009.
- Cash flow(1) during the quarter was $838 million, a decrease from $1.7 billion a year ago, primarily due to lower prices. Year-to-date cash flow was $3 billion.
- Net income was $30 million, down from $1.4 billion a year earlier, also driven by lower commodity prices and the impact of prior year hedging gains.
- Earnings from continuing operations were $155 million, compared to $125 million in the second quarter and $654 million in the third quarter of 2008.
- Production averaged 401,000 boe/d, 9% below the third quarter of 2008. Year-to-date, production from continuing operations averaged 412,000 boe/d, 2% above last year.
- Netbacks were down 52% from a year earlier, averaging $27.16/boe, with both oil and natural gas prices significantly lower due to the global economic slowdown.
- Net debt(1) at quarter end was $1.9 billion, down from $3.9 billion at December 31, 2008.
- The Company has added over 170,000 net acres of high quality land in the Pennsylvania Marcellus and Montney shale plays, investing approximately $570 million, the majority of it subsequent to September 30.
- Production from the Pennsylvania Marcellus shale play was over 50 mmcf/d at the end of October. A total of 31 gross wells have been drilled year-to-date and a third rig has been added, with plans to move to six rigs by year end.
- The Company intends to move segments of its Montney shale play into commercial development early next year.
- In Southeast Asia, the Northern Fields dry gas system was fully commissioned and 30 successful development wells have been drilled year-to-date.
- Talisman drilled two successful appraisal sidetrack wells in the Shaw oil discovery in the North Sea and successfully appraised the Situche discovery in Peru.
- Talisman has completed a number of transactions towards expanding its exploration position in Papua New Guinea.
- Talisman declared a semi-annual dividend of 11.25 cents per share, payable on December 31, 2009 to shareholders of record at the close of business on December 11.
(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.
"The Company made significant advances in strategy implementation during the quarter," said John A. Manzoni, President and Chief Executive Officer. "We have added substantial amounts of high quality unconventional acreage in North America. In Southeast Asia, we have taken our first steps towards building a material onshore natural gas position in Papua New Guinea.
"We continue to be very excited by results from our unconventional gas programs, particularly in the Pennsylvania Marcellus, where we will increase to six rigs toward year end. Production is currently over 50 mmcf/d and, on average, our expected ultimate recovery estimate has increased to 3.5 bcf per well. We are drilling and completing wells at US$4.3 million per well.
"We have doubled our Tier 1 acreage position, which we define as having an expected full cycle breakeven of approximately $4/mcf. We have added 90,000 acres in the Marcellus in Pennsylvania at a cost of approximately US$3,250 per acre, bringing our Tier 1 position to 180,000 net acres with about 1,800 net drilling locations.
"In the Montney shale, we expect to drill 20 pilot wells this year and are now ready to move segments of our Montney shale play to commercial development early next year. We have also doubled our Tier 1 landholdings in the Montney shale adding over 80,000 net acres at a cost of about C$3,500 per net acre. We now hold 166,000 net Tier 1 acres with approximately 3,000 net drilling locations.
"As part of our program to accelerate the transition into unconventional gas we are restructuring our North American organization into separate Conventional and Shale divisions, recognizing the different strategic objectives and different business models for each. We will continue to review options to release capital from our portfolio of conventional assets, including additional sales, depending on market conditions.
"Founded on our continued success and results to date, these steps represent an important milestone in the implementation of our unconventional gas strategy in North America.
"The other major strategic initiative during the quarter was the acquisition of a number of onshore blocks in Papua New Guinea where the Company sees opportunities to add substantial discovered and prospective gas resources. Talisman now has interests in eight blocks covering in excess of five million gross acres both onshore and offshore, containing several significant gas discoveries.
"Other highlights for the quarter include the acquisition of highly prospective exploration acreage in Indonesia (offshore North Sumatra) and Malaysia (offshore Sabah). We have successfully sidetracked a well to appraise our previously announced Shaw discovery in the UK and have successfully appraised the Situche discovery in Peru.
"Production in Southeast Asia was up 22% over a year ago with new production records continuing to be set at the Corridor operation in Indonesia. We have successfully commissioned the dry gas and compression systems in our Northern Fields project offshore Malaysia/Vietnam and have completed 30 development wells in the project. Development planning for the early production scheme in Vietnam is progressing well.
"North Sea volumes were affected by a number of planned, as well as some unplanned, shutdowns for maintenance during the quarter. The Affleck field came onstream during the quarter and several successful development wells were completed. Progress continues on the Auk North, Auk South, Burghley and Yme development projects.
"Year to date, Talisman's total production from continuing operations is up 2% over 2008. As expected, production was lower in the quarter, which is typical during a period of high plant turnarounds for maintenance. Production is expected to increase in the fourth quarter.
"Production guidance for the year was 430,000 boe/d, with downside limited to 5%. The reason for the downside was the uncertainty associated with estimating the impact of ongoing non-core asset sales. Excluding asset sales in Trinidad and the Netherlands, which were included in our guidance estimates, we expect to sell an additional 8,000 boe/d on an annualized basis. We now expect overall production for the year will average between 423,000 - 426,000 boe/d.
"The financial results in this quarter reflect a substantially lower price environment than a year ago. We generated approximately $840 million in cash flow and net income was $30 million. Earnings from continuing operations, which strips out certain non-operational items, were $155 million, up from $125 million in the second quarter, but down from $654 million a year earlier.
"As a result of land acquisition and accelerated drilling programs in North America, and successful sidetracks and testing in several of our exploration wells, total cash capital spending this year is expected to be approximately $4.5 billion, versus an original plan of $3.6 billion. Our cash position allows us to move forward with this accelerated program and I am very comfortable we will continue to maintain a very strong financial position going forward.
"In summary, we are continuing to make good progress in our strategy implementation and have now secured sufficient running room in our unconventional acreage for Talisman to grow sustainably into the future. We are making good progress on building our Southeast Asian portfolio and the international exploration strategy is also showing early signs of success."
Financial Highlights
Three months ended Nine months ended
September 30, 2009 2008 2009 2008
----------------------------------------
Cash flow ($ million) 838 1,675 3,042 4,598
----------------------------------------
Cash flow per share(2) 0.83 1.65 3.00 4.52
----------------------------------------
Cash flow from continuing operations
($ million) 828 1,551 2,959 4,231
----------------------------------------
----------------------------------------
Net income ($ million) 30 1,425 548 2,317
----------------------------------------
Net income per share 0.03 1.40 0.54 2.28
----------------------------------------
----------------------------------------
Earnings from continuing operations
($ million) 155 654 564 1,850
----------------------------------------
Earnings from continuing operations
per share (2) 0.15 0.64 0.55 1.82
----------------------------------------
----------------------------------------
Average shares outstanding (million) 1,015 1,018 1,015 1,018
----------------------------------------
(2) The terms "cash flow per share" and "earnings from continuing operations
per share" are non-GAAP measures. Please see the advisories and
reconciliations elsewhere in this news release.
Cash flow during the quarter was $838 million compared to $1,675 million a year earlier. The main reason for the decrease has been a significant fall in oil and gas prices, resulting in a 52% reduction in netbacks. The price impact was partially offset by lower royalties and cash taxes and realized gains on commodity derivatives. Relative to the second quarter, cash flow decreased by $62 million primarily due to production decreases.
Year-to-date, Talisman has generated $3 billion in cash flow, down from $4.6 billion in 2008.
Earnings from continuing operations totalled $155 million during the quarter, versus $654 million a year earlier primarily due to reduced commodity prices. By way of comparison, earnings from continuing operations were $125 million in the second quarter.
Net income for the quarter was $30 million compared to $1.4 billion a year earlier. The main reason for the difference was the fall in commodity prices, lower production, increased stock-based compensation expense and higher unrealized gains on commodity derivatives in the previous year.
Dry hole expense was $84 million during the quarter, a $53 million decrease compared to the same period of 2008. Exploration and development spending was $889 million during the quarter, bringing the total to $2.7 billion for the year.
Talisman's net long-term debt at September 30 was $1.9 billion, down from $3.9 billion at year end. The reduction was primarily due to proceeds from asset dispositions that closed during the first half of 2009. The majority of the $570 million spent on unconventional land is not reflected in Talisman's net debt or cash position at September 30.
Production
Three months ended Nine months ended
September 30, 2009 2008 2009 2008
----------------------------------------
Oil and liquids (bbls/d) 192,293 231,420 212,949 222,486
----------------------------------------
Natural gas (mmcf/d) 1,253 1,268 1,271 1,253
----------------------------------------
Total (mboe/d) 401 443 425 431
----------------------------------------
----------------------------------------
Continuing operations (mboe/d) 395 419 412 402
----------------------------------------
Year-to-date, production from continuing operations averaged 412,000 boe/d, an increase of 2%, as a result of higher volumes in Southeast Asia and Scandinavia. Production from continuing operations averaged 395,000 boe/d during the quarter, a decrease of 6% over the third quarter of 2008, due principally to decreased liquids volumes in the UK.
Netbacks
Three months ended Six months ended
September 30, 2009 2008 2009 2008
----------------------------------------
Sales 50.29 88.00 47.36 85.31
----------------------------------------
Hedging loss - (0.11) - (0.24)
----------------------------------------
Royalties 8.16 16.26 6.74 15.49
----------------------------------------
Transportation 1.41 1.56 1.37 1.41
----------------------------------------
Operating expenses 13.56 13.88 12.93 13.66
----------------------------------------
Netback ($/boe) 27.16 56.19 26.32 54.51
----------------------------------------
----------------------------------------
Oil and liquids netback ($/bbl) 38.20 71.88 35.17 70.63
----------------------------------------
Natural gas netback ($/mcf) 2.82 6.51 2.90 6.22
----------------------------------------
WTI oil prices averaged US$68.30/bbl during the quarter, up from US$59.62/bbl in the second quarter, but well below US$118/bbl a year ago. North American natural gas prices continued to weaken, with NYMEX averaging US$3.41/mmbtu compared to US$10.09/mmbtu a year ago.
Netbacks in the third quarter averaged $27.16, down 52% from a year earlier. Royalty expenses totalled $264 million (15%), down $318 million from $582 million (18%) in the corresponding quarter for 2008, due to reduced commodity prices.
North America
Production in North America averaged approximately 163,000 boe/d in the quarter, down 11% from the same period in 2008 and 5% lower than the previous quarter, largely due to dispositions, as well as planned maintenance and an unplanned shutdown at Monkman. Production from continuing operations was down 7% over the same period in 2008, reflecting a shift in development focus from conventional areas to unconventional plays, as well as natural declines. Production from new shale areas increased 40% from the second quarter.
Talisman's non-core asset sales in Western Canada during the quarter are expected to generate proceeds of approximately C$300 million when the transactions close.
During the quarter, North America capital expenditures totaled $366 million, with $357 million focused on unconventional natural gas areas. During the first nine months of the year, Talisman participated in 116 gross wells (75 net), with 106 gross wells in unconventional plays.
The Company has invested approximately $570 million over the past few months, doubling its Tier 1 landholdings in the Pennsylvania Marcellus and Montney shale plays. Talisman defines Tier 1 properties as high quality acreage, with an expected full cycle breakeven of approximately $4/ mcf. The Company currently holds approximately 350,000 net acres of Tier 1 acreage in the Pennsylvania Marcellus and Montney shale plays with the potential for 4,800 net drilling locations.
In the Pennsylvania Marcellus shale, nine wells were brought on during the quarter, bringing the total to 17 operated wells on production. Talisman currently has three horizontal rigs operating, with plans to increase this to six rigs by year end. The Company has drilled 31 gross wells (27 net) in the first nine months of the year and expects to drill approximately 60 horizontal wells this year.
Marcellus wells continue to exceed expectations, with current production volumes over 50 mmcf/d (sales gas) and 30 day initial production rates from the last six wells averaging 5 mmcf/d or greater.
Drilling and completion (D&C) costs are down to US$4.3 million per well and average expected ultimate recovery rates (EURs) have increased to 3.5 bcf per well, with the last five wells displaying EURs of 6 bcf.
In New York, draft guidelines dealing with horizontal natural gas wells have been issued. The Company is currently reviewing these guidelines.
The Company expects to drill 20 pilot wells (11 horizontal) in the Montney shale this year. As a result of the successful pilot program, Talisman expects to move segments of the Montney shale play to commercial development early next year.
In the Montney Core, Talisman has drilled 27 Montney/Doig horizontal wells to date. In the Pouce Coupe area, two pads have been completed and one pad brought onstream in the third quarter. The Company's well execution performance continues to improve, with D&C costs for the last two wells averaging $3.7 million each.
In Quebec, Talisman spudded its first horizontal pilot well and is on track to spud an additional horizontal well before year end. Vertical wells drilled to complete the land earning requirements tested with encouraging results.
In October, the decision was made to reorganize Talisman's North American business into two main businesses, Shale and Conventional. This will help Talisman accelerate its transition towards becoming a major North American unconventional natural gas producer. As part of this acceleration process, the Company is considering additional sales of conventional assets, depending on market conditions.
UK
Production from continuing operations in the UK averaged approximately 74,000 boe/d during the quarter, down 33% from the same period in 2008 and down 21% from the second quarter. A number of major planned shutdowns were completed, reducing UK production by approximately 14,000 boe/d during the third quarter. There were also a number of unplanned shutdowns due to operational issues, which have now been resolved.
At Burghley, Auk North and Auk South, Talisman continues to progress its developments on schedule and on budget. At Burghley, a development well commenced drilling in the quarter. At Auk North, a second development well was completed. The non-operated Affleck field came onstream in mid-August.
Scandinavia
Production from continuing operations in Scandinavia averaged approximately 36,000 boe/d during the quarter, up 6% over the third quarter of 2008 and down 5% from the second quarter of 2009. Production during the third quarter was down due to planned shutdowns at Armada, the host facility for Rev, and at Gyda. Rev East came onstream at the end of the quarter and Rev is now at full gross production capacity of approximately 22,000 boe/d.
Successful development wells were drilled at Brage and Veslefrikk. A successful infill well was also completed at Varg, with a further well to be drilled before the end of the year.
Work continues to progress at the Yme project. Two successful development wells were completed during the quarter and installation of the subsea facilities was completed in October. First oil from the field is expected in the second half of 2010.
Southeast Asia
In Southeast Asia, production averaged 114,000 boe/d, 22% higher than the same period last year and 8% above the last quarter. Indonesian production averaged 66,900 boe/d, 18% higher than the same period last year and 3% higher than the last quarter, driven primarily by increased gas sales from the Corridor Block. In Malaysia/Vietnam, production averaged 36,100 boe/d, 8% above than the same period last year and 17% higher than the previous period, mainly due to increased oil and dry gas volumes from Northern Fields and the successful incremental oil recovery (IOR) program in Southern Fields.
Production from Corridor reached a new record high of 333 mmcf/d (net to Talisman) during the quarter as demand continues to grow in several key sales markets.
At the Tangguh Liquefied Natural Gas (LNG) facility, commissioning continued throughout the quarter.
In Malaysia, commissioning of the dry gas and compression systems in the Northern Fields was completed during the quarter. Gas production from the Northern Fields averaged 55 mmcf/d gross sales during the quarter, with liquids production averaging approximately 9,700 bbls/d. To date, 30 development wells have been drilled on Northern Fields with 100% success.
In the Southern Fields, the fifth of six wells in the IOR Phase One program is currently being drilled. The IOR program contributed approximately 3,000 bbls/d during the quarter.
In Vietnam, production averaged 3,600 bbls/d, 19% lower than the previous period, due to natural declines and one shut-in well. The Company continued the appraisal of the HSD discovery in Block 15-2/01 in Vietnam. The HST/HSD early production scheme field development plan is currently being progressed for sanctioning in the first half of 2010 and the Outline Development Plan has been submitted to the government for approval.
Production in Australia was approximately 7,100 bbls/d, 126% higher than the same period last year and 52% higher than the last period, due to riser and flowline repairs being completed and a new infill well drilled in the Corallina field.
Sanction of the field development plan for the Kitan discovery in the Australia/East Timor area is expected in fourth quarter with first oil planned for the second half of 2011.
Other Operating Areas
In North Africa, production from continuing operations averaged 13,800 boe/d, down 13% compared to the same period a year ago, mainly due to continued OPEC production restrictions. Two development wells at EMK were drilled during the quarter.
The Company is in negotiations for the sale of its assets in Tunisia.
International Exploration
International exploration spending during the third quarter was approximately $144 million.
The Company drilled two successful appraisal sidetracks to its Shaw oil discovery well in Block 22/22a, in the UK, the first of which tested at 7,700 boe/d. Shaw is estimated to contain discovered oil initially in place in excess of 100 million barrels. Talisman is reviewing options for a development via its operated Montrose/Arbroath facilities. The development will likely include upgrades to the host facility to improve operating efficiency and to enhance recovery from the Montrose-Arbroath reservoirs.
In Malaysia, Talisman was recently awarded two highly prospective exploration blocks offshore Sabah. The blocks, SB 309 and SB 310, cover 5,815 square kilometres and 7,271 square kilometres, respectively, and are located in water depth less than 100 metres. The blocks give Talisman exposure to under-explored, shallow water acreage in a proven petroleum system.
In Indonesia, Talisman was awarded the Andaman III Block, offshore North Sumatra. This is an under-explored, deep water block, which offers material gas and condensate potential. 3D seismic will be acquired prior to drilling in 2012.
In Vietnam, the HSD-4X well has recently finished drilling. The well was production tested in the basement and a second test was conducted in the Oligocene. The HSD basement appraisal program will continue with the HSD-5X well, which is expected to spud in November
In June, Talisman announced the acquisition of Rift Oil PLC, whose main interests are two exploration licences in the Foreland Basin in Papua New Guinea (PNG). This acquisition is a key component of our gas aggregation strategy for PNG, where the Company sees the opportunity to add significant discovered and prospective onshore gas resources to its existing Pandora gas discovery offshore in the Gulf of Papua.
In September, Talisman completed the acquisition of a subsidiary of Horizon Oil Limited for interests in Blocks PRL 4 and 5 in the PNG Foreland gas fairway. Since quarter end, Talisman completed a farm-in with New Guinea Energy on two neighbouring, highly prospective exploration blocks, PPL 268 and PPL 269, adjacent to both the Rift and Horizon acreage.
In the Kurdistan region of northern Iraq, the Kurdamir-1 well, which spud in early May, is currently drilling. Talisman has signed an agreement for an operated interest in Block K9, located north of Block K44 and adjacent to Heritage Oil's Miran West well. Talisman is committed to a 2D seismic program, with an option to exit in 18 months.
In Colombia, following the successful testing campaign on Huron-1 in the Niscota Block, the well has been suspended and the Company is currently acquiring 3D seismic over the discovery.
The Situche discovery on Block 64 in Peru was successfully appraised with the Situche Central 3X well. The well encountered oil shows in the upper reservoir and a sidetrack well was recently commenced. The Company has also started acquisition of a 3D seismic program in Block 101.
Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The Company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York Stock Exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.
Forward-Looking Information
This news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding:
- business strategy and plans;
- expected production;
- planned capital spending;
- planned drilling, expected recovery estimates and drilling locations in the Marcellus;
- target breakeven costs, planned drilling, expected timing of development and drilling locations in the Montney;
- planned drilling in Quebec;
- expected first oil from Yme;
- HST/HSD development plan;
- plans in PNG;
- expected production restrictions in North Africa;
- planned sale of assets in Tunisia;
- planned timing of seismic and drilling in Indonesia;
- expected sanctioning and first oil at the Kitan discovery;
- expected proceeds from planned dispositions of non-core assets; and
- other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.
Each of the forward-looking information listed above are based on Talisman's 2009 capital program announced on January 13, with the revisions described herein. The material assumptions supporting the 2009 capital program, as revised, are: (1) 2009 annual production between 423,000 - 426,000 boe/d; (2) a US$60/bbl WTI oil price for 2009, and (3) a US$4/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
In this news release, Talisman also discloses discovered oil initially in place. Discovered oil initially in place is that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of gas that is estimated, as of a given date, to be contained in known accumulations, prior to production. There is no certainty that it will be commercially viable to produce any portion of the discovered oil initially in place.
Gross Production
Where not otherwise indicated, 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. US readers may refer to the table headed "Continuity of Proved Net Reserves" in Talisman's Annual Information Form dated March 9, 2009 for a statement of Talisman's net production volumes.
Boe conversion
Throughout this news release, barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and do not represent a value equivalency at the wellhead.
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 per share
amount) Three months ended Nine months ended
----------------------------------------
September 30, 2009 2008 2009 2008
----------------------------------------------------------------------------
Cash provided by operating activities 747 1,735 2,977 4,585
Changes in non-cash working capital 91 (60) 65 13
----------------------------------------------------------------------------
Cash flow(2) 838 1,675 3,042 4,598
Less: Cash provided by discontinued
operations(1) 10 124 83 367
----------------------------------------------------------------------------
Cash flow from continuing
operations(1,2) 828 1,551 2,959 4,231
----------------------------------------------------------------------------
Cash flow per share(1,2) 0.83 1.65 3.00 4.52
----------------------------------------------------------------------------
Cash flow from continuing
operations per share(1,2) 0.82 1.52 2.92 4.16
----------------------------------------------------------------------------
1. Comparatives restated for operations classified as discontinued since
September 30, 2008.
2. This is a non-GAAP measure.
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 Nine months ended
September 30, 2009 2008 2009 2008
----------------------------------------------------------------------------
Net income 30 1,425 548 2,317
----------------------------------------------------------------------------
Operating income from discontinued
operations 6 87 56 253
Gain (loss) on disposition of
discontinued operations 11 (5) 1,007 83
----------------------------------------------------------------------------
Net income from discontinued
operations(5) 17 82 1,063 336
----------------------------------------------------------------------------
Net income (loss) from continuing
operations(5) 13 1,343 (515) 1,981
Unrealized (gains) losses on financial
instruments (1)(tax adjusted) 33 (467) 884 (72)
Stock-based compensation expense
(recovery)(2) (tax adjusted) 71 (214) 174 (33)
Future tax (recovery) of unrealized
foreign exchange losses on net
foreign denominated debt (3) 38 (8) 21 (26)
----------------------------------------------------------------------------
Earnings from continuing operations (4) 155 654 564 1,850
----------------------------------------------------------------------------
Per share (4) 0.15 0.64 0.55 1.82
----------------------------------------------------------------------------
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 September 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 net foreign denominated debt.
4. This is a non-GAAP measure.
5. Comparatives restated for operations classified as discontinued
subsequent to September 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) September 30 December 31
2009 2008
----------------------------------------------------------------------------
Long-term debt 3,851 3,961
Bank indebtedness 69 81
Cash and cash equivalents (2,007) (91)
----------------------------------------------------------------------------
Net Debt 1,913 3,951
----------------------------------------------------------------------------
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Financial
(millions of C$ unless otherwise
stated)
Cash flow(1) 838 1,675 3,042 4,598
Net income 30 1,425 548 2,317
Exploration and development
expenditures 889 1,426 2,814 3,493
Per common share (C$)
Cash flow(1) 0.83 1.65 3.00 4.52
Net income 0.03 1.40 0.54 2.28
----------------------------------------------------------------------------
Production
(daily average)
Oil and liquids (bbls/d)
North America 31,372 40,971 36,283 40,461
UK 71,300 103,644 87,859 92,828
Scandinavia 30,067 31,451 32,018 32,401
Southeast Asia 45,145 34,623 40,222 35,894
Other 14,409 20,731 16,567 20,902
----------------------------------------------------------------------------
Total oil and liquids 192,293 231,420 212,949 222,486
----------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 790 860 808 865
UK 14 37 21 37
Scandinavia 38 18 44 19
Southeast Asia 411 353 398 332
----------------------------------------------------------------------------
Total natural gas 1,253 1,268 1,271 1,253
----------------------------------------------------------------------------
Total mboe/d(2) 401 443 425 431
----------------------------------------------------------------------------
Prices(3)
Oil and liquids (C$/bbl)
North America 60.17 104.10 52.46 96.82
UK 74.59 115.11 65.22 112.41
Scandinavia 76.53 112.39 66.53 113.47
Southeast Asia 74.30 117.52 66.52 117.78
Other 71.45 115.24 66.15 119.02
----------------------------------------------------------------------------
Total oil and liquids 72.24 113.17 63.56 111.21
----------------------------------------------------------------------------
Natural gas (C$/mcf)
North America 4.05 9.18 4.65 9.11
UK 3.24 10.06 4.80 9.47
Scandinavia 4.83 7.72 6.54 6.73
Southeast Asia 6.92 12.37 6.12 11.11
----------------------------------------------------------------------------
Total natural gas 5.01 10.08 5.18 9.62
----------------------------------------------------------------------------
Total (C$/boe)(2) 50.29 88.00 47.36 85.31
----------------------------------------------------------------------------
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)
September 30 December 31
(millions of C$) 2009 2008
----------------------------------------------------------------------------
(restated)
Assets
Current
Cash and cash equivalents 2,007 91
Accounts receivable 1,133 2,419
Inventories 141 181
Prepaid expenses 24 17
Assets of discontinued operations 21 220
----------------------------------------------------------------------------
3,326 2,928
----------------------------------------------------------------------------
Other assets 260 234
Goodwill 1,256 1,251
Property, plant and equipment 18,569 18,636
Assets of discontinued operations 493 1,226
----------------------------------------------------------------------------
20,578 21,347
----------------------------------------------------------------------------
Total assets 23,904 24,275
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness 69 81
Accounts payable and accrued liabilities 1,926 1,875
Income and other taxes payable 282 468
Current portion of long-term debt 11 -
Future income taxes 50 300
Liabilities of discontinued operations 2 94
----------------------------------------------------------------------------
2,340 2,818
----------------------------------------------------------------------------
Deferred credits 54 51
Asset retirement obligations 1,948 1,954
Other long-term obligations 235 173
Long-term debt 3,840 3,961
Future income taxes 3,933 4,007
Liabilities of discontinued operations 81 161
----------------------------------------------------------------------------
10,091 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 134 84
Retained earnings 9,399 8,966
Accumulated other comprehensive loss (434) (272)
----------------------------------------------------------------------------
11,473 11,150
----------------------------------------------------------------------------
Total liabilities and shareholders' equity 23,904 24,275
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the financial position
of discontinued operations.
Talisman Energy Inc.
Consolidated Statements of Income and Loss
(unaudited)
Three months ended Nine months ended
September 30 September 30
(millions of C$) 2009 2008 2009 2008
----------------------------------------------------------------------------
(restated) (restated)
Revenue
Gross sales 1,771 3,219 5,371 9,203
Hedging loss - (4) - (28)
----------------------------------------------------------------------------
Gross sales, net of hedging 1,771 3,215 5,371 9,175
Less royalties 264 582 777 1,634
----------------------------------------------------------------------------
Net sales 1,507 2,633 4,594 7,541
Other 29 28 89 84
----------------------------------------------------------------------------
Total revenue 1,536 2,661 4,683 7,625
----------------------------------------------------------------------------
Expenses
Operating 494 494 1,506 1,449
Transportation 51 62 158 163
General and administrative 79 58 242 195
Depreciation, depletion and
amortization 610 595 2,005 1,713
Dry hole 84 137 380 272
Exploration 74 101 202 272
Interest on long-term debt 54 45 144 125
Stock-based compensation (recovery) 98 (297) 249 (37)
(Gain) loss on held-for-trading
financial instruments (98) (567) 270 31
Other, net (79) (109) 25 (131)
----------------------------------------------------------------------------
Total expenses 1,367 519 5,181 4,052
----------------------------------------------------------------------------
Income (loss) from continuing
operations before taxes 169 2,142 (498) 3,573
----------------------------------------------------------------------------
Taxes
Current income tax 161 409 468 1,133
Future income tax (recovery) (26) 354 (511) 299
Petroleum revenue tax 21 36 60 160
----------------------------------------------------------------------------
156 799 17 1,592
----------------------------------------------------------------------------
Net income (loss) from continuing
operations 13 1,343 (515) 1,981
----------------------------------------------------------------------------
Net income from discontinued operations 17 82 1,063 336
----------------------------------------------------------------------------
Net income 30 1,425 548 2,317
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Per common share (C$):
Net income (loss) from continuing
operations 0.01 1.32 (0.51) 1.95
Diluted net income (loss) from
continuing operations 0.01 1.30 (0.51) 1.91
Net income from discontinued operations 0.02 0.08 1.05 0.33
Diluted net income from discontinued
operations 0.02 0.08 1.05 0.32
Net income 0.03 1.40 0.54 2.28
Diluted net income 0.03 1.38 0.54 2.23
----------------------------------------------------------------------------
Average number of common shares
outstanding (millions) 1,015 1,018 1,015 1,018
Diluted number of common shares
outstanding (millions) 1,035 1,033 1,015 1,037
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the results of
discontinued operations.
Talisman Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)
Three months ended Nine months ended
September 30 September 30
(millions of C$) 2009 2008 2009 2008
----------------------------------------------------------------------------
(restated) (restated)
Operating
Net income (loss) from continuing
operations 13 1,343 (515) 1,981
Items not involving cash 741 107 3,272 1,978
Exploration 74 101 202 272
----------------------------------------------------------------------------
828 1,551 2,959 4,231
Changes in non-cash working capital (91) 60 (65) (13)
----------------------------------------------------------------------------
Cash provided by continuing operations 737 1,611 2,894 4,218
Cash provided by discontinued
operations 10 124 83 367
----------------------------------------------------------------------------
Cash provided by operating activities 747 1,735 2,977 4,585
----------------------------------------------------------------------------
Investing
Capital expenditures
Exploration, development and other (882) (1,375) (2,644) (3,320)
Property acquisitions (222) (64) (278) (439)
Proceeds of resource property
dispositions 44 38 104 38
Changes in non-cash working capital 197 (221) (157) 13
Discontinued operations, net of capital
expenditures - (65) 1,850 128
----------------------------------------------------------------------------
Cash used in investing activities (863) (1,687) (1,125) (3,580)
----------------------------------------------------------------------------
Financing
Long-term debt repaid (174) (766) (970) (3,130)
Long-term debt issued - 844 1,249 1,874
Common shares purchased - - - 1
Acquisition of common shares for
performance share plan - (68) - (68)
Common share dividends - - (115) (102)
Deferred credits and other 7 (2) 14 12
Changes in non-cash working capital (1) (1) 1 (4)
----------------------------------------------------------------------------
Cash provided by (used in) financing
activities (168) 7 179 (1,417)
----------------------------------------------------------------------------
Effect of translation on foreign
currency cash and cash equivalents (73) 5 (93) 24
----------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (357) 60 1,938 (388)
Cash and cash equivalents net of bank
indebtedness, beginning of period 2,305 73 10 521
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents net of bank
indebtedness, end of period 1,948 133 1,948 133
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents 2,007 154 2,007 154
Cash and cash equivalents reclassified
to discontinued operations 10 - 10 -
Bank indebtedness 69 21 69 21
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents net of bank
indebtedness, end of period 1,948 133 1,948 133
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Prior period balances have been restated to reflect the cash flows of
discontinued operations.
Segmented Information
North America(1) UK
------------------------------------------------------------
Three months Nine months Three months Nine months
ended ended ended ended
September 30 September 30 September 30 September 30
------------------------------------------------------------
(millions of C$) 2009 2008 2009 2008 2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
Gross sales 445 1,052 1,432 2,993 484 970 1,606 2,753
Hedging - - - - - (4) - (28)
Royalties 54 186 186 530 1 6 4 11
----------------------------------------------------------------------------
Net sales 391 866 1,246 2,463 483 960 1,602 2,714
Other 22 22 69 67 6 7 17 15
----------------------------------------------------------------------------
Total revenue 413 888 1,315 2,530 489 967 1,619 2,729
----------------------------------------------------------------------------
Segmented expenses
Operating 131 140 422 409 226 236 655 681
Transportation 17 17 44 51 10 16 33 34
DD&A 269 280 807 790 165 162 618 473
Dry hole 36 102 165 169 - 33 30 59
Exploration 29 48 65 112 6 11 13 23
Other (17) (78) (25) (84) 11 6 6 6
----------------------------------------------------------------------------
Total segmented
expenses 465 509 1,478 1,447 418 464 1,355 1,276
----------------------------------------------------------------------------
Segmented income
(loss) before
taxes (52) 379 (163) 1,083 71 503 264 1,453
----------------------------------------------------------------------------
Non-segmented
expenses
General and
administrative
Interest
Stock-based
compensation
Currency
translation
(Gain) loss on
held-for-trading
financial
instruments
----------------------------------------------------------------------------
Total non-segmented
expenses
----------------------------------------------------------------------------
Income (loss) from
continuing
operations before
taxes
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration 254 555 562 954 40 26 130 104
Development 114 188 324 473 135 153 425 463
Midstream (2) 3 28 34 - - - -
----------------------------------------------------------------------------
Exploration and
development 366 746 914 1,461 175 179 555 567
Property
acquisitions
Proceeds on
dispositions
Other non-segmented
----------------------------------------------------------------------------
Net capital
expenditures(4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property, plant and
equipment 8,171 8,357 4,490 4,738
Goodwill 214 215 293 306
Other 2,421 835 224 253
Discontinued
operations 347 896 - 165
----------------------------------------------------------------------------
Segmented assets 11,153 10,303 5,007 5,462
Non-segmented
assets
----------------------------------------------------------------------------
Total assets(5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Scandinavia Southeast Asia(2)
------------------------------------------------------------
Three months Nine months Three months Nine months
ended ended ended ended
September 30 September 30 September 30 September 30
------------------------------------------------------------
(millions of C$) 2009 2008 2009 2008 2009 2008 2009 2008
----------------------------------------------------------------------------
Revenue
Gross sales 224 347 678 993 555 803 1,375 2,088
Hedging - - - - - - - -
Royalties - - - - 189 365 466 889
----------------------------------------------------------------------------
Net sales 224 347 678 993 366 438 909 1,199
Other - 1 2 2 - - - -
----------------------------------------------------------------------------
Total revenue 224 348 680 995 366 438 909 1,199
----------------------------------------------------------------------------
Segmented expenses
Operating 79 64 215 200 54 54 185 143
Transportation 11 10 36 28 11 17 39 44
DD&A 77 88 266 261 93 63 285 174
Dry hole (2) 1 61 43 40 1 90 1
Exploration 4 18 16 43 16 11 44 37
Other 1 - 5 3 3 1 3 4
----------------------------------------------------------------------------
Total segmented
expenses 170 181 599 578 217 147 646 403
----------------------------------------------------------------------------
Segmented income
(loss) before
taxes 54 167
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