EARNINGS - PART 1 / Talisman Energy Lays Foundations for Growth in 1999
and Beyond
CALGARY, Nov. 5 /CNW/ - Talisman Energy Inc. today announced third
quarter results, highlighted by major accomplishments in its three operating
areas and the addition of a new core area. On October 8, 1998, Talisman
completed its acquisition of Arakis Energy Corporation, adding a 25% interest
in a new oilfield development in the Sudan. First production is anticipated
late next year, with Talisman's share expected to be 37,500 bbls/d.
In Canada, the Company has brought on significant new volumes of natural
gas in the Alberta Foothills with the commissioning of the Lovett River
pipeline and continued drilling success. Sales from the region have increased
from an average of 24 mmcf/d for the first eight months of 1998 to 57 mmcf/d
currently. Production next year is expected to exceed 65 mmcf/d.
In the North Sea, a pre-development well at Orion tested 13,300 bbls/d of
oil and 26.5 mmcf/d of natural gas. This test confirmed the commerciality of
the field which is expected to come onstream in late 1999, at a rate of
approximately 9,000 boe/d net to Talisman.
In Indonesia, the Corridor Gas Project started production on October 3.
Volumes are currently about 35 mmcf/d (net to Talisman) and should reach 110
mmcf/d by year end.
''Our financial results continue to be affected by things beyond our
control, like oil prices and the strong pound sterling,'' said Dr. Jim Buckee,
President and Chief Executive Officer. ''Although our 1999 budget will be
constrained by low oil prices, I still expect production growth to average 15%
over the next two years based on projects recently completed or underway.''
Low oil prices continue to impact earnings and cash flow despite growth
in production. Year-to-date production has averaged 228,000 boe/d, an
increase of 19% over the same period in 1997. Cash flow in the third quarter
totalled $126.1 million ($1.15/share), down 26% from $169.9 million
($1.55/share) during the same period last year. Cash flow for the nine months
ending September 30 was $430.9 million ($3.92/share), down 22% from $550.7
million ($5.04/share) in 1997.
Talisman reported a net loss for the first nine months of $25 million
($0.23/share), compared with net income of $66.1 million ($0.60/share) a year
ago. Key statistics for Talisman include:
- Oil and liquids sales for nine months of 148,514 bbls/d, up 20% over
the same period last year.
- Natural gas sales of 718 mmcf/d, a 15% increase over the first nine
months of 1997.
- Year-to-date cash flow per share of $3.92.
- A net loss of $25.0 million.
- Oil prices of $17.29/bbl, down 29% from last year.
- A drilling success rate of 88% on 418 wells in Canada.
- Year-to-date capital expenditures of $758 million.
- Continued progress on the Ross oilfield development, with first
production expected early in the second quarter of next year. A
planned water injector recently tested 11,000 bbls/d of oil.
Financial Highlights
Three months Nine months
ended Sept. 30 ended Sept. 30
----------------- -----------------
1998 1997 1998 1997
-----------------------------------------------------------------------
Cash flow ($ million) 126.1 169.9 430.9 550.7
Cash flow per share ($) 1.15 1.55 3.92 5.04
Net income (loss) ($ million) (32.8) 15.6 (25.0) 66.1
Earnings (loss) per share ($) (0.30) 0.14 (0.23) 0.60
Cash flow for the three months ended September 30 dropped 26% from the
same period in 1997. The decline in cash flow is the result of low oil prices
offsetting Talisman's 17% increase in total production. The Company's third
quarter loss of $32.8 million is a result of continued low oil prices and
higher dry hole costs associated with property relinquishments in Algeria.
Three months Nine months
ended Sept. 30 ended Sept. 30
----------------- -----------------
Average Realized Prices 1998 1997 1998 1997
-----------------------------------------------------------------------
Crude oil and liquids ($/bbl) 17.19 23.35 17.36 24.40
Natural gas ($/mcf) 2.14 1.96 2.19 2.19
Canadian natural gas prices remained high during the third quarter,
buoyed by uncertainty over industry deliverability with new pipeline capacity
coming onstream in November. As at September 30, Talisman has fixed 60% of
its estimated 1999 western Canadian gas production at a price of approximately
$2.40/mcf. The Company's third quarter Canadian gas price averaged $1.88/mcf,
up 14% from the same period last year. North Sea natural gas prices have
remained in the $4.00/mcf range throughout the year. World oil prices
remained low during the third quarter with continuing concerns about inventory
levels and weak demand.
Talisman's average royalty rate has dropped to 14% for the three months
ended September 30, from 18% in the same period a year ago.
Unit operating costs rose to $6.55/boe in the third quarter, from
$6.19/boe last year. This is due to the strengthening British pound pushing
up Talisman's pound sterling denominated North Sea operating costs in Canadian
dollars. Indonesian operating costs are down 25% with higher volumes from
Tanjung Raya and a reduction in pipeline tariffs from the OK Block. Canadian
unit operating costs were down 2% compared to the same quarter last year.
General and administrative expenses are $0.59/boe for the three month
period ended September 30 ($0.77/boe year-to-date), from $0.75/boe in 1997
($0.80/boe year-to-date). Depreciation, depletion and amortization is
$6.87/boe for the third quarter, from $7.41/boe in 1997. Interest costs
capitalized for the third quarter were $13.6 million ($36 million
year-to-date), compared to $8 million in 1997 ($20.5 million year-to-date).
Other expenses of $9.9 million primarily reflect foreign exchange losses.
Exploration & Development Three months Nine months
Expenditures ($ million) ended Sept. 30 ended Sept. 30
----------------- -----------------
1998 1997 1998 1997
-----------------------------------------------------------------------
Canada 84.7 111.5 321.7 291.9
North Sea 102.9 82.8 272.5 168.6
Indonesia 41.4 75.9 135.4 177.7
Other 18.3 7.4 28.6 24.5
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247.3 277.6 758.2 662.7
Higher North Sea exploration and development expenditures are mainly
related to pre-development work on the Orion field and continued development
of Ross. Reduced spending in Indonesia reflects the completion of the
construction phase of the Corridor Gas Project in September of this year.
Year 2000 Systems Preparation
In the first six months of 1998, all departments participated in the
inventory and risk assessment phases of Talisman's Year 2000 program. Each of
these phases is now complete. Talisman's focus over the past quarter has been
on testing and, where necessary, the replacement of high risk systems with
compliant products. Talisman has implemented a corporate-wide awareness
program that will continue to reinforce ongoing product compliance through the
remainder of 1998 and 1999. Talisman will address the Year 2000 issue in
detail in its 1998 annual report.
Production Highlights
Three months Nine months
ended Sept. 30 ended Sept. 30
----------------- -----------------
Oil & Liquids (bbls/d) 1998 1997 1998 1997
-----------------------------------------------------------------------
Canada 56,678 49,565 57,548 47,880
North Sea 57,683 45,832 59,426 47,791
Indonesia 32,468 29,531 31,540 27,737
-----------------------------------------------------------------------
146,829 124,928 148,514 123,408
Oil and liquids production for the quarter averaged 146,829 bbls/d, an
increase of 18% over the same period last year. Production during the third
quarter was up 1% over the second quarter.
Canadian oil production was up 14% from the third quarter of last year
with growth coming from Northern Plains, Chauvin, Greater Arch, Ontario and
Turner Valley. Domestic production was similar to the previous quarter.
North Sea oil production increased 26% from the third quarter of 1997.
Beatrice, Buchan and Clyde have averaged 23,799 bbls/d, up 7% from the same
period last year. Blenheim and Bladon have averaged 9,687 bbls/d. North Sea
volumes were almost unchanged in the third quarter.
Indonesian oil production during the quarter was up 10% from the third
quarter of last year, and up 5% from the previous quarter. Tanjung production
volumes have averaged 7,036 bbls/d year-to-date, compared with 2,551 bbls/d
during the same period last year.
Three months Nine months
ended Sept. 30 ended Sept. 30
----------------- -----------------
Natural Gas (mmcf/d) 1998 1997 1998 1997
-----------------------------------------------------------------------
Canada 604 520 615 530
North Sea 83 80 103 95
-----------------------------------------------------------------------
687 600 718 625
Natural gas production during the quarter averaged 687 mmcf/d, an
increase of 15% over the same period last year. North Sea gas volumes are
essentially unchanged from a year ago.
Domestic production was up 16% over the third quarter of 1997, with
increases coming from the Alberta Foothills, Northern Plains, Greater Arch,
Lac La Biche and Ontario. Production was relatively flat compared with the
second quarter. Plant turnarounds, Nova outages, and declining joint-venture
volumes were offset by increased production from Central Alberta Foothills.
Exploration and Operations Review
Canada
Talisman continued to focus on gas exploration and development in the
first nine months of 1998, with spending on gas development projects up 42%
over 1997. Talisman participated in 418 wells during the first nine months of
1998 with a success rate of 88%, resulting in 192 oil and 175 gas wells. The
number of successful gas wells in the third quarter more than doubled (72 vs.
35) compared to 1997. However, oil drilling was curtailed with continuing low
prices (37 wells vs. 182 in the third quarter of 1997).
Completion of the Lovett River pipeline project and the tie-in of the
recently drilled Cordel 14-13 well (TLM 100%) increased Talisman's gas sales
from the Central Alberta Foothills area, from an average of 24 mmcf/d to 57
mmcf/d in September. In addition, the Talisman Lovett River 3-1 (TLM 100%)
well tested at a rate of 17.4 mmcf/d and commenced production on October 2,
1998.
A total of 10 wells have been drilled in the Alberta Foothills this year
with a 90% success rate and have tested at an average rate of 10.5 mmcf/d. In
Lovett River, a horizontal re-entry of an existing well (TLM 27.5%) is
currently in progress. There are three wells currently drilling in the
Central Alberta Foothills area.
Talisman participated in 28 wells in the third quarter in the Greater
Arch, resulting in 11 gas wells, and eight oil wells for a 68% success rate.
An expansion of the Talisman operated Teepee Gas Plant is under review, as
this plant is at capacity.
In northeast Alberta, six wells were drilled with an 83% success rate
during the third quarter in Lac La Biche. Planning is underway for the 30 well
winter drilling program, which is expected to start in December.
A 40 well infill drilling program commenced in the Monogram Gas Unit in
the third quarter. Talisman has reduced the drilling time in the field by
23%, resulting in a 10% decrease in anticipated drilling costs.
In Central Alberta, the Apetowun 1-3 discovery well was placed onstream
at 20 mmcf/d (TLM 70%). This rate is expected to increase to 30 mmcf/d when
the gathering system to the Edson Gas Plant is commissioned in November. The
Edson Gas Plant LPG expansion project is 95% complete and is expected to be
onstream in December. This expansion will double the gross liquids recovery
to 4,000 bbls/d.
Oil production in the Chauvin area continues to set new production
records, exceeding 9,600 bbls/d. In the third quarter, Talisman drilled five
exploratory wells in Chauvin with a success rate of 83%. In Saskatchewan, two
horizontal wells were drilled in Carlyle during the quarter. A new pool was
discovered which will add several development drilling locations in the
Melrose area.
All six onshore oil wells drilled in Ontario in the third quarter were
successful. Production has increased from 1,500 bbls/d in January 1998 to
2,500 bbls/d at the end of the third quarter. Each of two successful
horizontal re-entries in Turner Valley are producing 125 bbls/d. Turner
Valley reached 2,574 boe/d of production during the third quarter, a level not
seen since March 1994.
Talisman continues to reduce lifting costs on the properties acquired
from Pembina. In West Whitecourt, operating expenditures are $3.33/boe in
1998 compared to $5.10/boe in 1997. Ontario costs are $3.64/boe in 1998
($7.21/boe in 1997) and Turner Valley is $7.38/boe in 1998 ($10.80/boe in
1997).
Sudan
On October 8, Talisman completed the acquisition of Arakis Energy
Corporation, indirectly acquiring a 25% interest in an oil exploration and
development project in Sudan. Under terms of the transaction Arakis
shareholders were issued one Talisman share for every 10 Arakis shares, with a
total of 8.9 million Talisman shares issued. Based on Talisman's share price
at the time of the transaction, the purchase price for Arakis was
approximately $285 million.
The Company acquired 68 mmbls of proved and 45 mmbls of probable reserves
at a cost of less than $3.00/bbl. Recent drilling results indicate that
current proved and probable reserves are approaching 150 mmbls net to
Talisman.
The contract area which covers Blocks 1, 2 and 4 is located 450 miles
southwest of Khartoum and comprised of approximately three million acres net
to Talisman. To date, five oil fields have been discovered and are under
development.
With the start of the rainy season in late May, third quarter drilling
efforts focused on development and appraisal wells in and around the Heglig
and Unity Development Blocks. The four drilling rigs on the concession
completed 15 successful wells, comprised of 12 development wells, two
appraisal wells and one exploration well. To the end of September, there have
been a total of 100 successful oil wells drilled on the concession. Six wells
commenced drilling in October.
For the current exploration drilling season (expected to start in
December) a total of nine exploration wildcat wells and five contingent wells
are planned. At the same time a major seismic program is planned to mature
numerous leads.
During the third quarter, equipment was delivered to Sudan for
construction of the field production facilities. Field facilities and
production equipment will be installed during the dry season which started in
October. More than 680 kms of pipe have been welded of a 1,500 km pipeline
from the concession to a marine terminal at Port Sudan.
First production is expected to start in late 1999 at 150,000 bbls/d
(37,500 bbls/d net to Talisman).
North Sea
An appraisal well on the Orion field in Block 30/18 of the UK Central
North Sea was completed in the quarter and confirmed the commercial viability
of development. A field development plan has been submitted to the UK
government. The Orion development will be a subsea tieback to the
Talisman-operated Clyde platform. First production is expected by the fourth
quarter of 1999 with initial rates of approximately 10,000 boe/d (9,000 boe/d
net to Talisman).
A horizontal well was completed at Clyde during the quarter with an
initial rate of approximately 9,000 bbls/d of oil.
At Ross, subsea work is 93% complete and the leased FPSO is 88% complete.
First production is now expected early in the second quarter of next year with
expected sales of 20,000 bbls/d net to Talisman. A designated Ross water
injector well was completed in October and tested at 11,000 bbls/d.
Indonesia
The Corridor Gas Plant was completed on time and on budget in the
quarter. First gas flowed on October 3 and production is expected to reach
its plateau rate of 110 mmcf/d (net to Talisman) by the end of 1998.
Talisman's indirect wholly-owned subsidiary, Talisman (Corridor) Ltd., holds a
36% interest in the project.
The Suban 2 prospect in the Corridor Block started drilling in the
quarter and was completed in October. An open hole test flowed at 22 mmcf/d
of gas and 250 bbls/d of condensate from a 470-meter gross interval through a
half-inch choke. The gas contained less than 10% carbon dioxide. Testing is
also planned for a second shallower zone. Follow-up drilling to delineate the
Suban structure is planned to start in the fourth quarter.
Four wells were drilled in each of Tanjung and the OK Block during the
quarter and are now on production.
Algeria
A new wildcat discovery well, MLW-1, on the Menzel Lejmat Block 405,
flowed from a single zone in the Devonian with a net pay zone of 5.5 meters
(18 feet), at a rate of 1,545 bbls of 42 degree API gravity oil and 3.3 mmcf/d
of natural gas.
The MLSE-2 well was suspended and will be converted to water disposal.
The Block 405 participants have completed the acreage relinquishment
requirements under the terms of the PSC. This affected the western half of the
Block, including the MLE-1 gas discovery.
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