Tal­is­man says Kur­dis­tan oil dis­cov­ery “gi­ant,” may seek joint-ven­ture part­ner

The Kurdish Globe - - EDITORIAL -

Tal­is­man En­ergy Inc. said Wed­nes­day it has no in­ten­tion of ditch­ing its po­ten­tially "gi­ant" oil dis­cov­ery in the Iraqi re­gion of Kur­dis­tan as it pares other high-risk ex­plo­ration projects from its port­fo­lio.

Some ob­servers have pressed Tal­is­man (TSX: TLM) to shed Kur­dis­tan, but CEO Hal Kvisle said the com­pany will take its time to ex­plore its op­tions, one of which could be bring­ing on new part­ners to help de­velop the re­source.

"This is a tremen­dously ex­cit­ing dis­cov­ery and I'm really look­ing for­ward to the re­sults of the two wells that we've got planned for the rest of this year," said Kvisle, who has held the CEO role for five months.

Tal­is­man and Cal­gar­y­based ju­nior WesternZa­gros Re­sources Ltd. (TSXV:WZR) each own 40 per cent of the Kur­damir block, with the Kur­dis­tan Re­gional Government hold­ing the rest.

In Novem­ber, Tal­is­man an­nounced it had found a "sig­nif­i­cant ac­cu­mu­la­tion of light oil" in its Kur­damir-2 well and that more tests were planned.

Tal­is­man also holds 60 per cent in the ad­ja­cent Top­khana block. The KRG owns the other 40 per cent.

There could be any­where be­tween a few hun­dred mil­lion and sev­eral bil­lion bar­rels of crude re­cov­er­able.

"The range is really that wide," said Kvisle. "Un­til we do more drilling and get a bet­ter sense for what ex­actly is in the rocks on the dif­fer­ent parts of th­ese big struc­tures, we really don't know."

Tal­is­man's ex­pe­ri­ence in deal­ing with reg­u­la­tors in the semi-au­tonomous re­gion have been good, but op­er­at­ing there does have its chal­lenges, Kvisle said.

"The ter­rain that we work in is rugged and the re­gions are re­mote and if you sud­denly de­cide you need a par­tic­u­lar piece of equip­ment, it's usu­ally not avail­able the way it would be in Al­berta."

Mov­ing and set­ting up a drilling rig in Al­berta takes a few days, whereas in Kur­dis­tan it might take weeks. Fig­ur­ing out the best way to get oil out of the coun­try via pipe­line is also a chal­lenge.

In ad­di­tion to safety con­cerns in­her­ent to the oil and gas busi­ness, there are ad­di­tional risks in Kur­dis­tan "which in­volve guns and things like that," said Kvisle.

"We have to be very care­ful," he said. "We've got peo­ple run­ning that op­er­a­tion that un­der­stand this kind of stuff really well and I think we're able to run a safe op­er­a­tion, not­with­stand­ing the part of the world that we're in."

While global ex­plo­ration spend­ing has tra­di­tion­ally made up 20 per cent of Tal­is­man's cap­i­tal spend­ing, it's at just over 10 per cent now.

The com­pany is pulling out of Poland and Peru and is re­duc­ing its ex­po­sure to the U.K. North Sea. Its po­si­tion in Colom­bia is a "good keeper," Kvisle said, and off­shore Nor­way still has a lot of value de­spite ma­jor headaches get­ting its Yme project there on stream.

Ac­tive sales pro­cesses are un­der­way to whit­tle down Tal­is­man's North Amer­i­can un­con­ven­tional nat­u­ral gas busi­ness, but there are no de­tails yet on where those as­sets are or who the buyer might be.

Ear­lier Wed­nes­day, Tal­is­man said it recorded net in­come of US$367 mil­lion, or 37 cents per share, dur­ing the last three months of 2012, the first full quar­ter un­der Kvisle's lead­er­ship.

That's a re­ver­sal of the $117 mil­lion, or 11 cents per share, it lost in the same quar­ter of 2011.

The im­prove­ment was mainly due to $862 mil­lion in gains from as­set sales. Dur­ing the quar­ter, Tal­is­man com­pleted a $1.5-bil­lion joint-ven­ture with Sinopec that gives the Chi­nese com­pany a 49 per cent stake in its North Sea op­er­a­tions.

With­out those one-time items, Tal­is­man would have posted a $107-mil­lion loss from op­er­a­tions, or 10 cents per share, com­pared with a $114-mil­lion profit from op­er­a­tions or 11 cents per share in the year-ear­lier pe­riod.

Rev­enue was down sub­stan­tially as well, drop­ping to $1.6 bil­lion in the quar­ter from $2.1 bil­lion a year ear­lier.

An­a­lysts had been look­ing for US$1.9 bil­lion in rev­enue and an op­er­at­ing profit of $148 mil­lion, or 10 cents per share, ac­cord­ing to es­ti­mates com­piled by Thom­son Reuters.

Tal­is­man shares closed up two per cent to $12.82 on the Toronto Stock Ex­change.

Lanny Pendill, an an­a­lyst at Ed­ward Jones, said he was sur­prised by the stock jump.

"I guess peo­ple are pleased that the (joint ven­ture) with Sinopec was fi­nally com­pleted, be­cause the quar­ter was a lousy quar­ter as a whole," he said.

An 11 per cent drop in pro­duc­tion does not bode well for a com­pany look­ing to get its op­er­a­tions back on track, he said. Higher op­er­at­ing costs and de­pre­ci­a­tion charges were also un­pleas­ant sur­prises.

The clos­ing of the Sinopec joint ven­ture was one bright spot.

"If you think about it, the North Sea has kind of been the com­pany's prob­lem child. It's what's caused most of the pro­duc­tion volatil­ity," said Pendill.

Less­en­ing Tal­is­man's ex­po­sure to this re­gion is a good thing, while at the same time Sinopec's in­vest­ment may help im­prove re­li­a­bil­ity and sta­bi­lize pro­duc­tion rates.

"You've ba­si­cally taken the weak­est part of their busi­ness and put it in a po­si­tion to where, hopefully, it can get health­ier and at least quit be­ing the Achilles heel," said Pendill.

Kvisle, the re­tired CEO of pipe­line gi­ant Tran­sCanada Corp., took the helm of the trou­bled in­ter­na­tional oil and gas pro­ducer in Septem­ber.

A month later, com­pany an­nounced four strate­gic pri­or­i­ties: re­duc­ing in­vest­ment to live within cash flow, in­vest­ing in a smaller num­ber of highvalue projects, build­ing a com­pet­i­tive po­si­tion in all core re­gions and im­prov­ing op­er­a­tions.

Tal­is­man has set a 2013 cap­i­tal bud­get of about $3 bil­lion, a 25 per cent drop from 2012.

At an in­vestor con­fer­ence last month, Tal­is­man said it was aim­ing to cut gen­eral and ad­min­is­tra­tive costs by 20 per cent over the year. Some jobs will be cut through­out the year as Tal­is­man ex­its or re­duces its pres­ence in cer­tain re­gions and re­tir­ing em­ploy­ees are not re­placed.

The com­pany will also take a hard look at travel, real es­tate and other costs.

This WesternZa­gros Re­sources Ltd. handout photo taken in 2009 shows drilling ex­plo­ration ac­tiv­i­ties in Kur­dis­tan.

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