Talisman to Reduce Spending, Rig Count in Marcellus for 2012

Talisman Energy announced yesterday that it plans to spend 11 percent less on capital projects in 2012 than it did in 2011. They also announced they would reduce the number of Marcellus drilling rigs from 11 in use during 2011 down to between five and seven for 2012.The reason? Low natural gas prices. Talisman expects natural gas prices in North America to remain low for the foreseeable future. Although they are decreasing overall spending, Talisman will increase spending, and shifting their focus, to shale gas liquids.

From the Talisman press release:

Talisman Energy Inc. has announced its capital spending plans for 2012. The company expects to spend slightly over $4 billion this year, a decrease of approximately $500 million over 2011, although it will increase spending on liquids opportunities within the portfolio. Talisman will release its year-end 2011 results on February 15. All values in this release are in US$ unless otherwise stated.

"Our plans for 2012 have been shaped by low North American natural gas prices and a cautious view of the economic landscape in general," said John A. Manzoni, President & Chief Executive Officer. "Fortunately, our portfolio provides lots of optionality. At the same time as we trim short-term capital spending, we are investing more into profitable liquids projects, and strengthening and focusing our portfolio.

"We expect to spend approximately $4 billion in cash capital expenditures this year. We are reducing capital spending in dry gas plays in North America, which accounts for the majority of the decrease over 2011. Underpinning this is a belief that North American gas prices will remain low for some time; we have also assumed a relatively conservative oil price forecast.

"Production from ongoing operations averaged approximately 425,000 boe/d in 2011, an increase of 9%. We expect production growth of up to 5% in 2012. Had we maintained spending into dry gas, we could have achieved our medium-term target of 5 – 10% growth in 2012. However, given the current gas price environment, we believe value will be maximized by focusing on profitability rather than headline production growth.

"Strategic repositioning of the portfolio will continue in 2012, through high grading the North American portfolio, seeking to reduce our interest in some North Sea assets over time, and focusing the exploration portfolio. To that end, Talisman is looking to sell between $1 billion – $2 billion of non-core assets this year.

"We will reduce our exploration spending in 2012, with greater emphasis on oil and oil linked opportunities, with shorter term monetization options. As an example, exploration and follow-up development spending in Colombia will almost double this year to $300 million.

"The diversity of our portfolio gives us the ability to redirect capital towards higher-return opportunities. Our three-year reserve replacement cost continues to show an improving trend as the underlying efficiency of our capital spending improves over time. We are continuing to invest to maintain our 5 – 10% medium-term growth target, and as a result of the shift in capital, we expect to see liquids volumes grow at more than double the rate of natural gas volumes over the next few years.

"Over the course of the past few years, we have transitioned our portfolio to secure long-term growth potential. In 2012 we are continuing to invest into this potential."

North America

We are shifting our focus to the liquids-rich parts of our portfolio. We expect to grow our liquids production in North America from approximately 25,000 bbl/d in 2012 to over 60,000 bbl/d by 2015.

Capital spending in North America is expected to be approximately $1.8 billion in 2012, which is approximately $400 million lower than 2011, primarily as a result of reducing expenditures on dry gas plays. Over 40% of the program will focus on liquids-rich opportunities. Production from the shale portfolio is expected to range between 630 – 660 mmcfe/d (105,000 – 110, 000 boe/d).

Spending in the liquids-rich Eagle Ford play will increase from $350 million last year to $500 million in 2012. The company expects to exit 2012 with 14 rigs, up from 10 at the end of 2011.

In the Marcellus, in light of current gas prices, we will reduce activity from 11 rigs at year-end to between five and seven rigs in 2012. Talisman achieved record production of approximately 485 mmcf/d in the fourth quarter of 2011. Even with five rigs, we expect to be able to hold 2012 production in the play to about 500 mmcf/d. Spending in the Marcellus is expected to be upwards of $600 million, with significant investment in infrastructure in new parts of the play.

With a four-rig program planned this year, we will also reduce activity in the Montney. This is due to gas prices, as well as efforts to build a better understanding of the different zones which make up the thick Montney shale. We have also planned a six-well program to continue piloting the liquids-rich Duvernay shale.

Spending in the conventional portfolio is expected to range between $300 million – $350 million, with production relatively flat at 80,000 boe/d, of which 25% will be liquids. Roughly one-third of spending will be in the liquids-rich Wild River play.

We will continue to actively focus our North American conventional portfolio. Some assets are non-core to Talisman and should be sold. In other areas, we will seek to use third-party expertise or resources to accelerate activity and optimize value.*

*Talisman Energy (Jan 9, 2012) – Talisman Energy 2012 Capital Plan