Talisman's Lundin bid a savvy growth strategy - Dow Jones, 23 June
CALGARY: Talisman Energy's C$529 million bid to take over Lundin Oil enables the Calgary-based company to quickly grow while buffering itself from more controversy over investing in Sudan, analysts have said.
The deal, announced on Thursday, would enable Talisman to take over Lundin's interests in the North Sea, Malaysia, Vietnam and Papua New Guinea, while the Swedish company's Sudanese and Russian assets are spun off into a shareholder company and Lundin's Libyan assets are conditionally sold to PetroCanada.
Lundin's North Sea assets have a 70 per cent overlap with several Talisman offshore interests, which represent about a quarter of the company's 1.2 billion barrels of oil equivalent of proven reserves.
"Talisman has gotten itself into a great growth position," said Martin Molyneaux, analyst with Calgary-based FirstEnergy Capital Corp. "The North Sea assets unto themselves make lots of sense to us."
Malaysia and Vietnam represent key aspects of the acquisition, adding oil and liquids-rich gas reserves forecasted to produce more than 50,000 barrels of oil equivalent per day by 2004.
The Asian parcels have proven reserves and opportunities to develop large probable oil and gas deposits in a region that is politically stable, since Malaysia and Vietnam recently resolved border disputes. The fields also have large potential at less than North American costs.
"The strategic element of this transaction is that it provides another long-term growth vehicle for Talisman shareholders, and we can achieve this at reasonable cost," Jim Buckee, Talisman president and chief executive, said during a conference call with analysts.
Analysts said the complex deal also allows Talisman to bypass Lundin's holdings in Sudan, and avoid additional controversy over Talisman's oil operations in the war-torn country.
"Talisman has been very careful to ring fence its Sudanese operations in order to stay on the right side of US legislation," said Lunde Salami, a UK-based analyst with Wood Mackenzie.
Spinning off the controversial properties as a condition of the Lundin takeover doesn't necessarily point to Talisman selling its own Sudanese assets, Buckee said. But he noted that "having a new area of entry is one of the necessary preconditions" to getting out of the Sudan interests, worth an estimated US$1.5 billion.
The Lundin acquisition would add 51.5 million barrels of oil equivalent in proven reserves, and 138.2 million BOE in probable reserves to Talisman's 1.2 billion BOE in proven reserves.
Including future capital costs, the full exploration-to-sale cycle cost of the acquired reserves translates into about C$5.34 per BOE. But the costs are seen as part of a smart plan to quickly boost Talisman earnings.
"To do a transaction that looks like it will be accretive to cash flow by $2 a share by 2003-2004 is pretty impressive," FirstEnergy's Molyneaux said.
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