Talisman to ‘live within means’ going ahead
The writing that was on the wall for Talisman Energy when chief executive John Manzoni was shown the door in September showed up Tuesday in huge writedowns and red ink on the company’s third-quarter financial results.
New CEO Hal Kvisle laid out his vision for the Calgary-based global oil and gas producer that will see it refocus and “live within our means.”
Talisman’s issues go well beyond $1 billion in “impairment” charges or a $731 million quarterly loss.
“We need to focus our operations and we need to energize and motivate our people,” Kvisle told investors and analysts after the company announced another writedown on a troubled North Sea oil platform as well as plans to abandon operations in Quebec and Peru.
While committing Talisman to remain in its three core operating areas — the Americas, Southeast Asia and the North Sea — Kvisle acknowledged “we are reviewing and ranking our assets through a number of lenses.”
More than a dozen countries where Talisman operates around the world were cited at some point in its news release or conference call, including Papua New Guinea in Asia, Sierra Leone in Africa, Kurdistan in the Middle East and Poland in Europe.
Kvisle strongly hinted its shale gas exploration in Poland will soon be history.
Other assets will also go on the block and production, currently 415,000 barrels of oil equivalent a day, could decline by 10 or 15 per cent.
Talisman’s treks to far flung corners of the globe in search of oil and gas have taken it to places such as Sudan and Ecuador previously that proved challenging and controversial. The fearless attitude — best embodied by founding CEO Jim Buckee — could also be a thing of the past.
As part of living on its cash flow, Talisman will cut capital expenditures by 25 per cent to $3 billion in 2013. Its spending will also be less adventurous.
“An exploration budget that is 10 or 15 per cent of total capital spending is about right and Talisman had been up in the 25 or 30 per cent level,” Kvisle said in an interview. “It will naturally force people to focus on the better projects rather than drilling as many as we have.”
It’s evident where Kvisle is focused to return Talisman to profitability and it isn’t based on geography or even geology.
“We will do things better, faster and at lower cost,” Kvisle said.
The key word is the first one … we.
When Kvisle listed Talisman’s four go-forward priorities each started with the same word … we.
Kvisle is making Talisman’s 3,600 employees a priority. In his first eight weeks as CEO, he has visited the company’s prized operations in Southeast Asia as well as the prolific Eagle Ford shale in Texas and met hundreds of staff members in Houston and Calgary.
Trips to Scotland, Norway and Colombia are planned for the next month.
In his commitment to improve profitability on each unit of oil and gas produced to add shareholder value, Kvisle’s focus is in-house.
“The difference between an employee team that is highly organized and motivated and one that’s not is the difference between success and failure,” Kvisle said. “We need our employees to be enthused about the direction of the company.”
The obvious direction for the company will be up, at least on the stock markets. Talisman shares lost 55 cents to $11.50 on the Toronto Stock Exchange after its results were announced to lower its market capitalization below $12 billion.
In a world of employee stock options and bonuses, few things generate enthusiasm for the company like a robust share price.
As recently as two years ago, Talisman traded above $24 a share.
Kvisle — who was chief executive for pipeline giant TransCanada Corp. until 2010 — served on Talisman’s board for two and a half years when Manzoni abruptly resigned in September amid growing shareholder complaints over the stock price.
His return to the executive suite marked a turning point for Talisman. As CIBC World Markets’ Andrew Potter said in research note: ”Q3 was likely a cleanup quarter for the company as the new CEO, Hal Kvisle, begins to move the company forward.”
Kvisle cautioned that time frame is too narrow.
“This business is too big and too complex to turn around in a quarter,” he said. “I prefer to look at 2012 as a turnaround year. As we come out of 2012 and go into 2013 we’re going to do things differently.”
One notable difference, despite spending cuts, is Talisman will put funds into to its North Sea operations Kvisle said had been mistakenly deemed “over the hill” by the previous regime. The sale of a 49 per cent stake in its UK North Sea assets to Sinopec will allow more capital to go toward the costly-to-operate assets.
After he gets a first-hand view of its field locations, offshore platforms, processing facilities and people around the world, expect Kvisle’s vision for Talisman’s future to become clearer to employees and investors alike.