Talisman Energy Inc. (TLM) Message Board

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Gold/Mining/Energy : Talisman Energy Inc. (TLM)

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From: Dennis Roth	2/29/2008 6:16:32 AM
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Talisman Energy Inc. (TLM): Valuation discounted, but 4Q results weak and reserve report mixed - Goldman Sachs - 02/28/2008 News Talisman reported 4Q2007 adjusted EPS of US$0.13 versus our $0.44 and the First Call consensus of $0.34. Net production of 365 MBOE/d was below our estimate of 369 MBOE/d, and operating cash flow of $1.02 billion was lower than our $1.25 billion. All-in unit operating costs were $49.31 per BOE versus our estimate $38.44, with dry hole costs driving the majority of variance. Talisman also reported 2007 Y-E gross reserves of 1,660 mn BOE, implying organic reserve replacement of 102%. Analysis Talisman's 4Q results were weaker than expected; production was close to in line with a pre-announced guidance released with management's 2008 guidance in January. Operating costs increased at a greater rate than expected which drove both EPS and cash flow lower than we had forecast. The reserve report in our view was mixed. Headline reserve replacement of greater than 100% was positive, especially given the production issues that Talisman had in 2007. However, the report benefited from a significant positive oil reserve revision in the North Sea, without which the replacement ratio would have been 66%. At the same time, the report did not include reserve additions from Talisman's successful Vietnam exploration program, which will likely be booked in the coming years as a more certain development plan in established. Implications At 4.2X 2008E EV/DACF, Talisman shares continue to trade at a meaningful discount to the large-cap E&P peer group average of 6.4X. While we believe this compressed valuation and Talisman's leverage to crude oil limits relative downside, the weak 4Q results and mixed reserve report highlight in our view the ongoing operational volatility the company is experiencing as management evaluates strategic options. We remain Neutral rated relative to our Attractive coverage view. Our price target is under review.

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