TALISMAN SHARES RISE AMID TALKS
SPANISH GIANT SEEKS TO PURCHASE ASSETS
Shares in Talisman Energy Inc. closed more than 13 per cent higher Wednesday after it confirmed it had been talking about selling assets to Spanish energy giant Repsol SA.
The stock rose to $11.97, up $1.40, but still well below its 52-week high of $14.05 set in October.
Meanwhile, financial analysts disagreed in speculative reports about which of Talisman’s assets scattered around the world — including a huge stake in the Alberta Duvernay play for which it is seeking a partner — might be the ones Repsol is interested in buying.
Calgary-based Talisman confirmed media reports Wednesday morning that it has been “approached by Rep-
We suspect that the (Alberta) Duvernay, and perhaps the (Texas) Eagle Ford, are Talisman assets that Repsol has expressed interest in
MICHAEL DUNN
sol with regards to various transactions” but no deals have been struck, nor will it comment further.
On its website, Repsol posted a note at the request of regulators that said it is studying “a number of different transactions in the area of exploration and production, which include possible transactions with Talisman.”
Repsol is valued at about $34 billion U.S. Talisman’s market capitalization at Tuesday’s close was about $10 billion. Analysts said Repsol management has indicated the company is looking for acquisitions in OECD countries that could offer a growth platform. The OECD countries that Talisman operates in include Canada, the United States, the U.K., Norway and Australia.
“A corporate acquisition of Talisman by Repsol would seem inconsistent with Repsol management’s recent statements about seeking acquisition(s) in OECD countries with growth platforms, unless the plan is to subsequently spin out most of the non-OECD assets (i.e. Asia),” Michael Dunn, an analyst for FirstEnergy Capital of Calgary, wrote in a note to shareholders.
“We suspect that the (Alberta) Duvernay, and perhaps the (Texas) Eagle Ford, are Talisman assets that Repsol has expressed interest in.”
Richard Griffith, a European analyst for Canaccord Genuity who covers Repsol, said in a note that it’s more likely the company would be interested in Talisman’s North Sea or Eagle Ford assets.
“Given Repsol’s previous comments around M&A (OECD, new play types to the group) we would assume the U.S. and North Sea components of Talisman hold more appeal and particularly the new entry opportunity in the Eagle Ford,” he wrote.
Griffith added that Talisman’s market value could be a problem as it would exceed the $7 billion Repsol raised from Argentina’s YPF after the Argentine government’s seized a 51 per cent stake in 2012.
“So we would be surprised if Repsol were to bid for all of TLM. It’s also worth noting that at the first quarter results, Repsol commented that it may take two or three independent deals for it to achieve its strategic goal,” he pointed out.
U.S.-based analyst Phil Skolnick of Canaccord Genuity, who covers Talisman, said Repsol is interested in buying assets that have existing production, which would leave out the Duvernay but could include the Eagle Ford.
He said his target price for Talisman of $14.50 would render a sales price of about $14 billion, which would be a “fair price.”
Talisman has been selling assets over the past two years since it an- nounced it would narrow its focus to two main areas — North America and Asia Pacific.
It has been seeking a joint venture partner to help it develop its enormous position in the Alberta Duvernay, an early stage play that is found extensively throughout central Alberta and is now being developed though horizontal drilling and multistage hydraulic fracturing.
Talisman has 140,000 net hectares of drilling rights in the Duvernay and, during 2013, drilled three wells.
Dunn said Repsol may have been part of the Duvernay partnership discussions but the use of the word “various” suggests that its interests extend to more than the Duvernay joint venture, possibly to a corporate takeover.
In the U.S., Talisman has about 24,000 net hectares in the Eagle Ford liquids-rich shale play and 77,000 net hectares in the Marcellus shale gas play of Pennsylvania and New York.
Dunn noted that Talisman’s Australia assets are small and the U.K. and Norway assets don’t offer much of a growth platform.
“We see Talisman’s management and board as being more willing to enter takeover discussions than many of its peer companies, given the crossroads the company is at regarding its leadership, its lack of success to date at exiting the North Sea, the presence of Carl Icahn’s firm on the board, and a shareholder base that now has lower expectations for TLM’s ultimate value potential relative to years past,” he wrote.
Hal Kvisle, a director of Talisman, replaced John Manzoni as CEO in 2012 and pledged to boost profits by refocusing the company. He is expected to step down this year.
Bloomberg reported Tuesday afternoon that Repsol was working with JPMorgan Chase & Co. on a bid for Talisman, citing unnamed sources.
Laura Lau, senior vice-president and portfolio manager with the Brompton Group in Toronto, told The Canadian Press the best case scenario for Talisman would be to sell the whole company.
“But I’m not sure that’s going to occur,” she said, noting potential buyers may be turned off by underperforming North Sea assets.
“The Asian assets are the Crown jewel of Talisman. And those are not in OECD countries and that’s what Repsol said that they don’t want,” she said.
If Talisman does end up doing a deal with Repsol or another international player, Lau said there’d be little reason for the federal government to reject it.
A large portion of Talisman’s operations are outside of Canada and it has no holdings in Alberta’s oilsands. In late 2012, Ottawa announced new rules to limit foreign state-owned control in the oilsands in response to China’s CNOOC Ltd.’s deal to buy Nexen.