Talisman Energy takes writedowns before Repsol vote
CALGARY • In what is expected to be its last major financial accounting, Talisman Energy Inc. took a US$1.37-billion writedown Tuesday on some of its highest-profile assets, including the troubled North Sea partnership that depressed its share price and led to its US$8.3-billion takeover by Spain’s Repsol SA.
Large asset impairments — in Talisman’s case they contributed to a US$1.6-billion loss for the fourth quarter, compared to a loss of US$1billion in the year-ago period — are a big theme this results season as low energy oil prices make oil and gas properties less valuable.
Talisman said it took a US$633-million impairment on its North Sea joint venture with China’s Sinopec Group, whose mature assets have low earnings potential at low oil prices, while facilities face large decommissioning costs.
Talisman’s large financial obligations to the joint venture, negotiated by previous CEO John Manzoni, now head of the British civil service, depressed its share price and hampered the senior oil and gas producer’s efforts to restructure itself or find a corporate buyer. The partnership announced 300 layoffs last month.
In addition, Calgary-based Talisman wrote off its North Sea goodwill balance of US$287 million; took a partial, US$617-million impairment on the Eagle Ford shale play in the United States; fully impaired its investment in Block K44 in the Kurdistan region of Iraq by US$234 million after determining that future investment in a capital-constrained environment was unlikely; and partially wrote down its investment in the Equion joint venture with Colombia’s Ecopetrol SA by US$133 million.
Talisman, which warned late last year that it expected substantial writedowns, accepted an offer from Repsol at US$8 a share, or US$8.3 billion excluding debt, in mid-December.
Repsol started negotiations to take over Talisman last spring, but twice backed away from its own proposals over concerns about the North Sea and as low prices kept declining.
Hal Kvisle, president and CEO, said the results show Talisman’s strategy of reducing costs and focusing its operations into two main areas, the Americas and the Asia Pacific, was bearing fruit.
“Our 2014 results reflect the significant progress we made throughout the year to improve the reliability and predictability of our company,” he said in a statement.
Production from ongoing operations averaged 357,000 barrels of oil equivalent a day, up 6% over 2013; capital spending was approximately US$3 billion in 2014, down 5% from 2013; cash flow was US$2.2 billion in 2014, in line with 2013, despite the significant decline of the global commodity price environment in the second half of last year, he said.
The company cancelled its quarterly analyst call in anticipation of finalizing the Repsol takeover in the second quarter, which it said is on track.
Talisman is holding a meeting of its shareholders Feb. 18 in Calgary to approve the transaction.
Spokesman Brent Anderson said the company is optimistic shareholders will see value in the transaction, which requires two-thirds approval.
Mr. Kvisle said Repsol is promising a strong commitment to Canada and to the company’s global operations.
“Talisman’s assets and people will have an important place in the combined enterprise, as we will roughly double Repsol’s upstream business,” he said.
Talisman had 2,809 employees at the end of 2013. It will update that number in March.
Mr. Anderson said Repsol is expected to keep a significant presence in Calgary.
The two companies are continuing to operate as separate entities while making the case for regulatory approvals in many jurisdictions. Depending on the date of the closing, Talisman may have to post one more financial report in early May for the first quarter.