Talisman Energy is holding meetings today and tomorrow in Toronto and New York to update investors on progress against its strategy.

"We believe our transition to long-term, profitable growth is progressing better and faster than we had imagined two years ago," said John A. Manzoni, President and CEO. "We have sold $5 billion of non-core assets and have created a platform for a decade of reliable, sustainable production in the North Sea. Both Southeast Asia and our North American shale business are now set up to deliver low-cost, long-term growth. Our exploration portfolio is being repositioned to focus on material prospects, which have the potential to renew the company."

Key messages from the presentation are:

The strategy is robust to volatile natural gas prices in North America. Approximately 60% of the company's production is linked to oil prices. Talisman's shale developments are economic in a US$4/mcf environment, with relatively low lease retention requirements. Approximately half of Talisman's 2010 North American natural gas production is hedged at a floor of $6/mcf.

2010 will be a critical transition year for the company. In the first quarter, growth from Talisman's shale business offset conventional natural gas declines in North America for the first time. Talisman has achieved excellent operational results from its shale business and now has an additional growth platform with the recent Eagle Ford entry. The company is on track to meet its planned exit rate of 250-300 mmcf/d from the Pennsylvania Marcellus shale.

Talisman expects to see underlying growth from the third quarter of this year going forward. The company expects absolute production growth of 5-10% in 2011, with approximately half of this growth from liquids.

The company has significant flexibility in its shale gas investments due to relatively low lease retention requirements. If the low natural gas price environment persists, Talisman anticipates adjusting its gas directed shale spending in North America down by one-third next year. Based on this scenario, indicative capital spending for 2011 has been set at $4 billion, which will drive the outlined production growth of 5-10%.

Talisman reduced its reserve replacement costs by 40% in 2009 and expects a further 20-25% reduction in 2010, as well as a 30-50% reduction in drill bit replacement costs (i.e. proved, developed, producing).

Talisman also has substantial balance sheet strength and financial flexibility. Net debt at March 31, 2010 was $1.8 billion, down from $3.6 billion a year earlier.

The company operates in three core areas: the North Sea, Southeast Asia and North America, with an international exploration portfolio designed to support existing areas and provide opportunities for renewal.

The North Sea

Talisman believes that its North Sea assets are positioned to provide reliable, sustainable cash flow for at least a decade from the existing asset base. These are high value barrels (90% of production is oil and liquids) and highly leveraged to oil prices. Operating efficiency and reliability continue to improve as a result of measures put in place over the past two years.

The company has set a production range target of 110,000-140,000 boe/d in the North Sea for the next 10 years. In the short-term, incremental production will come from new field developments at Burghley, Yme, Auk North and Auk South. In the medium term, the company is looking to tie-back recent exploration discoveries and continuing additional near-field exploration activities.

At $70-$80 oil prices, the North Sea is expected to generate significant free cash flow to fund growth options elsewhere in Talisman.

North America

In North America, the company is transforming its business from conventional operations towards becoming a leading, returns focused shale gas producer.

The company operates four shale plays in North America with interests in 1.8 million net acres of land. Within these core areas, lease retention commitments are relatively low, which provides the company with significant flexibility to adjust drilling programs.

In the Pennsylvania Marcellus, Talisman has 2,000 top tier drilling locations and is on track to exit 2010 with production of 250-300 mmcf/d, up from 65 mmcf/d at the end of 2009. The company has reached agreement to acquire 37,000 net acres in the liquids transition window of the Eagle Ford shale in south Texas, with an estimated 400 drilling locations.

In the Montney shale, Talisman also has 10 years worth of drilling opportunities and is successfully developing the Farrell Creek area and de-risking the Greater Cypress area. The company recently announced encouraging results from its first horizontal pilot test in Quebec, where it holds interests in approximately 760,000 net acres.

Talisman expects to spend approximately $1.0 billion on gas-focused shale activities in North America in 2011, down from $1.6 billion in 2010. This is dependent on natural gas prices and will be reviewed later in 2010, and excludes the liquids rich Eagle Ford shale play (expected spending of $150 million in 2011). Shale gas is expected to grow from 3% of Talisman's North American production in 2009 to 25% in 2010, and approximately 50% in 2011.

Southeast Asia

In Southeast Asia, Talisman continues to set new production records. Production in the first quarter was 118,000 boe/d, up 17% from a year earlier. Talisman's production in the region is 80% oil and liquids or natural gas linked to oil, and future growth is expected to be self-funding.

The company anticipates the region will deliver 8-10% annual growth for 4-5 years from projects already in the portfolio, including Corridor gas, Jambi Merang, PM-3 CAA incremental oil and the HSD/HST field developments. Talisman has tripled its exploration footprint in Southeast Asia over the past year, with new exploration blocks in Papua New Guinea and offshore Indonesia, Vietnam and Malaysia.

International Exploration

Talisman is building a world-class exploration portfolio, more than doubling its net exploration acreage over the past two years, and increasing its net unrisked, prospective resource potential to approximately 10 billion boe.

Exploration is focused regionally in the North Sea, to underpin long-term sustainable production; in Southeast Asia, to extend growth; in Latin America, to build an oil-focused, new core region; as well as future growth options in European shale and the Kurdistan region of northern Iraq.

Talisman has set a target of 600-700 million boe of resource additions over a five-year period, at a finding cost of less than $5/boe

Tags: Talisman Energy