Talisman hungry to tap oil reserves in Libya - Close to striking exploration deal
The Globe & Mail, Tuesday, May 4
By BRENT JANG
CALGARY -- Talisman Energy Inc., no stranger to tackling risky oil plays, is poised to jump into Libya as the country works to shed its image as a pariah state.
The Calgary-based senior producer is close to striking an exploration deal in Libya, giving it access to valuable oil reserves in North Africa, Talisman chief executive officer James Buckee said in an interview. The company holds its annual meeting today in Calgary.
In the past, Talisman hasn't shied away from controversial investments in places such as Sudan, southeast of Libya.
Talisman has been monitoring improved relations between Libya and the West, notably the easing of U.S. sanctions against Libya, Mr. Buckee said. "We're trying to get signatures on a number of exploration blocks, so that we can go exploring there. It could be potentially a new exploration area."
Libyan leader Moammar Gadhafi, who has ruled the country since 1970, remains powerful and has made efforts in recent years to renounce terrorism.
"It's a transformation that Libya seems to have earned," said Edmonton Southeast MP David Kilgour, who led a Canadian delegation to Libya in 2002.
"Nobody wants to be naive, but there's a feeling that Mr. Gadhafi and the government of Libya have come in from the cold."
Canada lifted its sanctions against Libya in 1999, and opened an embassy in the capital of Tripoli in 2002. And Col. Gadhafi scored points with the United States after his decision last December to abandon Libya's plans for producing weapons of mass destruction, Mr. Kilgour said.
After a historic meeting in late March between British Prime Minister Tony Blair and Col. Gadhafi, Mr. Blair praised the Libyan ruler's willingness to make "common cause with us against al-Qaeda, extremists and terrorists."
Talisman played host to a dinner five weeks ago in Calgary for visiting Libyan energy officials.
"They came in to see us," Mr. Buckee said. "Whatever they've done in the past, they've now opened Libya up. There are favourable noises coming out of the U.S. and the U.K. It appears as if Libya is definitely trying to warm up relations with the West."
While Calgary-based Petro-Canada is already producing oil in Libya, "we don't have any properties there," Mr. Buckee said. "Libya is a pretty prospective place, and we've been thinking about it."
Talisman is fast becoming an important player in Libya's next-door neighbour, Algeria, and North Africa could emerge as a core region. In 2004, Talisman expects to produce 16,000 barrels a day in Algeria.
For Talisman, the lure of Libya is its plentiful reserves of crude oil -- a potential bonanza for the Canadian company since it withdrew from Sudan last year, losing 60,000 barrels a day of production as it sold its Sudanese stake in March, 2003, for $1.1-billion.
Talisman was part of an oil joint venture in Sudan for more than four years, but jettisoned the investment amid pressure from human rights activists, church groups and other critics.
Sudan formerly accounted for 14 per cent of Talisman's total energy production.
While Talisman has already managed to replace its Sudanese oil output by expanding operations elsewhere over the past year, Libya -- a member of the Organization of Petroleum Exporting Countries -- could bolster future growth.
The focus on Libya comes amid speculation that Talisman has been eyeing Iraq as a possible place to do business.
Mr. Buckee, however, dismissed rumours that his company is interested in Iraq more than a year after the U.S.-led war against the Middle East country.
"I don't think it's a reasonable risk at the moment because it's a question of legitimacy and title. So, who is there in Iraq that has the authority to grant you title to oil properties? The provisional government doesn't have that authority."
Officials have visited Iraq in the past on behalf of Talisman, but it would be imprudent to read too much into such fact-finding trips, Mr. Buckee said.
"The situation is too volatile to risk people or money. And unless the people of Iraq consider that the government is the proper government, it won't have any legitimate power to grant properties. I see that as quite a long way off. You can waste a lot of money and time by being premature."
Besides Algeria, Talisman's other energy plays abroad include projects in Trinidad, Malaysia, Vietnam, Indonesia, Colombia and the North Sea. Yesterday, Talisman announced that it boosted its North Sea oil holdings with a $137.5-million (U.S.) purchase of properties.
The producer tends to concentrate on oil for its foreign investments while devoting most of its North American budget to bolstering natural gas production.
Mr. Buckee said Talisman has mature assets in North America that it intends to continue nurturing internally, resisting the temptation to spin off certain properties into an income trust.
While it makes sense for other producers to convert all or part of themselves into trusts, Talisman's cash flow from mature assets helps finance its riskier plays, he said.
Talisman doesn't feel any need to raise cash from either a big property sale or trust conversion of certain assets since "our balance sheet is hugely strong. We don't need any money."
As for the outlook on oil prices, Mr. Buckee pointed to China's voracious appetite for energy.
"The Chinese economy is sucking in lots of oil, and we're seeing tight international oil supplies," said Mr. Buckee, who expects oil prices to stay above $30 a barrel for the foreseeable future. "The era of cheap energy is limited."
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