Talisman riding high again - 'I hope there's more to go,' says CEO
Talisman CEO Jim Buckee has found value where others no longer care to look
Calgary Herald, Friday, September 12
By Scott Haggett
Jim Buckee, chief executive of Calgary's Talisman Energy Inc., is having a better year than many expected.
Talisman, Canada's third-largest independent oil producer, is once more a stock-market darling, having seen out a controversial foray into Sudan and shocking investors when it warned last year that production wouldn't be as high as expected.
Production, now more than 365,000 barrels of oil equivalent a day, is again satisfying the stock market and the company shares, now at $65.60, are up nearly 27 per cent from the lows set last October.
It's a big jump, but not enough for the company's ever-reaching CEO.
"I hope there's more to go," Buckee told the Herald. "We're still trading at modest (levels) even as there is more comfort among investors that the price of oil will remain strong."
Less than a year ago, things weren't looking quite as good for Talisman. Cutting its production forecast last October set the company's shares plunging by 15 per cent. Its investment in Sudan, where it produced some 60,000 barrels of oil a day, made the company the target of human-rights protesters.
Even though Talisman said it was doing good work in the north-African country, the controversy was enough to steer many investors clear of the stock.
And, despite being one of the company's most profitable investments, Buckee sold the stake for $1.2 billion to a state-controlled Indian oil firm.
Buckee always defended the Sudan foray, but tired of seeing his company's shares trade at a discount to rivals. With the investment gone, the company is getting more respect and now trades at a higher multiple of anticipated earnings than most of its peers.
"I don't think they're totally out of the woods yet," said Brian Prokop, an analyst at Peters & Co. in Calgary, "but they are getting there."
Much of the gains have come as a result of the company's strategy of finding value where others no longer care to look.
Take its properties in the Appalachian mountains in upstate New York, where it explores for natural gas and now produces about 70 million cubic feet a day.
While a small part of the company's daily gas output of more than one billion cubic feet, the New York properties are close to the massive cities of the U.S. northeast, saving on pipeline costs.
Martin Molyneaux, an analyst at FirstEnergy Capital Corp., says Talisman's Appalachian gas is among the most profitable produced in North America.
For his part, Buckee sees the success in the region as part of the reason for the appreciation in the company's stock.
To him, it's the proof that the company's strategy of finding value in areas that other companies have left or ignore is paying off for his shareholders.
"I think the Appalachian success has comforted people and there is a lot more on the come," Buckee said.
Another area that Talisman is making pay is the North Sea.
While bigger companies abandon the once-prolific area as big discoveries become dear, the Calgary operator is making hay from what the supermajors are casting off.
Production from the region averaged out at 117,500 barrels a day during the second quarter. That's forecast to rise to as much as 150,000 barrels a day by the end of December as a drilling program bears fruit.
"We didn't have huge expectations for Talisman in the North Sea," Molyneaux said, "but they've done an amazing job."
The company is also moving to exploit properties in southeast Asia.
It's been working in Indonesia for years and has moved into Malaysia and Vietnam -- where it expects to produce enough oil to replace the production lost when Sudan was sold.
Not all the company's projects have paid off, though.
Earlier this month, it announced that it had joined the string of companies that have come up dry looking for natural gas off the coast of Nova Scotia.
The Balvenie prospect, which was operated by Imperial Oil Ltd., was abandoned after failing to discover any significant reserves.
However, Buckee said he's not yet ready to give up on Canada's eastern frontier.
The Balvenie well didn't reach into areas that Talisman thought were most promising, leaving room for further work in the area.
"It's too early to say that it's the end. I don't think our objectives have been evaluated," he said.
The Balvenie well was rank exploration for Talisman, part of the company's portfolio of high-risk drilling. And while the risk was high, the cost of the multi-million dollar duster was shared with Imperial.
While Buckee takes chances, he also likes to hedge his bets and isn't ready to go it alone in an area where costs are high and failure is the most likely outcome.
"Taking on such projects alone is the gambler's road to ruin," he said.
One year ago, many observers of the company thought the most likely outcome for Talisman would be that its shares would continue to lag its peers and a healthier rival would step in to acquire the firm.
While the rumours have been stilled, Buckee isn't ready to say his company is invulnerable to takeover.
"I think we now have a well-configured company," he said. "It took a long time to put together the package of assets we have. I can see why other people might covet them."
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