CORP REPORT / Talisman Energy Announces North Sea Writedowns
CALGARY, Jan. 22 /CNW/ - Talisman Energy Inc. today announced plans to
take writedowns with an after tax effect of $183 million in 1998, associated
with certain North Sea assets. No material writedowns are expected in
Talisman's other operating areas, and no material writedowns in proved
reserves are anticipated.
''Given the prospect of continuing low oil prices and higher costs due to
the strong pound, I believe this is prudent accounting. While we have charted
remedial actions, these writedowns conservatively assume that our actions will
not be completely successful and that oil prices will not recover soon,'' said
Dr. Jim Buckee, President and CEO. ''The fiscal regimes in Canada and
particularly Indonesia cushion the effect of low commodity prices. In
contrast, the North Sea is a high cost region, but with low royalty and tax,
leaving the industry fully exposed to the impact of both high and low
prices.''
The writedowns are associated with the following areas:
C$ million
Pre-tax After-tax
------- ---------
Southern Gas Basin $122 $ 98
Beatrice 52 36
Ross 71 49
---- ----
$245 $183
Writedowns in the Southern Gas Basin are associated with the Trent & Tyne
fields; Blocks 43/22, 43/21 & 42/25 (acquired with Bow Valley Energy) and
Blocks 44/24a & 44/29a (acquired with Goal Petroleum). Reasons for impairment
include significantly lower gas prices at Trent & Tyne due to changed gas
price contract terms from previously announced litigation results and a
reduction in mostly unproved reserves.
Beatrice was acquired in 1996 with the expectation that abandonment could
occur as early as 1998 without additional development work. Over the past two
years, Talisman has enhanced production through infill drilling and waterflood
optimization, and recently initiated a major cost reduction program. However,
at current prices, an element of exploration success is required to extend
production beyond mid-2000.
Talisman plans to drill one sidetrack well and two exploration wells at
Beatrice in 1999. If successful, Beatrice could continue producing for many
more years. Talisman is booking the impairment provision assuming no
exploration success. By recognizing this impairment now, the cost to abandon
Beatrice will be accrued by mid-2000. Major abandonment expenditures will not
be incurred until after 2005.
The impairment on Ross is due to higher capital spending (drilling costs,
higher pound sterling) and lower oil price expectations. The Ross field was
acquired in 1996 and originally scheduled to begin production late last year
using an FPSO (Floating Production Storage and Offloading) vessel. With
delays at the shipyard, first production is now expected early in the second
quarter of 1999. Talisman is also examining opportunities to lower unit costs
by sharing the Ross production facilities with adjacent oil fields.
Notwithstanding these writedowns, the Company's strategy in the North Sea
is to build core areas around infrastructure; adding value by developing
incremental reserves, generating opportunities for third party revenues,
lowering operating costs and thus extending field life. The current level of
oil prices and operating costs reinforces this strategy. Talisman expects to
spend approximately $300 million in the North Sea in 1999, and plans to
participate in six exploration and 29 development wells. Drilling plans
include:
- testing the extension of the Blake field
- two exploration wells adjacent to Beatrice
- an exploration well in the Ross area to test a Blake ''look-a-like''
- Ross development wells
- sidetrack wells at Beatrice and Clyde
- Orion development completion
At Buchan, Talisman plans to replace the existing fixed riser system with
flexible risers, increasing development drilling opportunities and reducing
weather related production outages. The Orion field development (TLM 87.5%)
is on schedule for fourth quarter tie-back to the Talisman operated Clyde
platform. Overall, the Company expects its North Sea oil production to
increase 10-12% in 1999, following an increase of 15% in 1998. North Sea gas
volumes are expected to remain at current levels.
Talisman Energy Inc. is a Canadian-based, international upstream oil and
gas producer with operations in Canada, the North Sea and Indonesia. The
Company is also participating in a major development project in Sudan and is
conducting exploration in Algeria and Trinidad. Talisman's shares are listed
on the Toronto and Montreal stock exchanges in Canada and the New York Stock
Exchange in the United States under the symbol TLM.
This release is available on Talisman's Internet Web Site: --
WWW.TALISMAN-ENERGY.COM
|
