Exploration & Production | Production | Capital Markets | Capital Expenditure

Talisman Energy Increases Liquids Production

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Talisman Energy Inc. has reported its operating and unaudited financial results for the first quarter of 2014. All values are in US$ unless otherwise stated.

Hal Kvisle, President and CEO said: "Talisman is a more focused company with stronger performance compared to one year ago.

We continue to deliver against our objectives. On a year-over-year basis, production from ongoing operations is up 6% and North American liquids volumes are up 45%. We are progressing non-core asset sales and have applied proceeds from previously announced dispositions to maintain a strong balance sheet.

We grew cash flow(1)19% compared to the same period last year as a result of our solid operating performance, increased liquids volumes and stronger natural gas prices. We are steadily improving capital efficiency and reducing costs, and are on track to meet our guidance for 2014."

First Quarter Highlights

Cash flow was $616 million, up 19% year-over-year and 6% from the previous quarter.

Production from ongoing operations was 360,000 boe/d, up 6% compared to the first quarter of 2013.

Liquids production is up 10% year-over-year to 142,000 boe/d, with North American liquids up 45% to 42,000 boe/d over the same period.Completed the sale of 75% of the company's Montney assets for C$1.5 billion, with proceeds used to reduce net debt by approximately $1 billion.

In 2013, Talisman reset its strategy and made significant progress against its four key priorities. In 2014, Talisman's objective is to position the company to deliver sustainable shareholder value by growing cash flow from its best assets in its two core regions: the Americas and Asia-Pacific.

To achieve this, Talisman expects to:

• Hold capital spending(2) flat compared to 2013;
• Grow near-term, high-margin production;
• Improve operating performance to improve cash margins;
• Dispose of long-dated, non-core capital-intensive assets; and,
• Maintain a strong balance sheet.

First Quarter Summary

The company continued to make progress in the first quarter, growing liquids volumes, increasing operating margins and lowering net debt. Supported by stronger natural gas prices in North America, cash flow was up to $616 million. Capital spending during the quarter was $768 million.

Talisman's North America portfolio delivered steady year-over-year liquids growth, driven by strong growth in the Eagle Ford and Greater Edson areas.

Despite slightly lower natural gas production compared to the first quarter last year (due to natural declines and the decision to direct capital towards liquids opportunities), higher natural gas prices have resulted in an approximately $120 million increase in natural gas revenues. As a result of the company's strong competitive position in the North American gas sector, Talisman retains the option to ramp up production in the Marcellus to capitalize on rising longer term natural gas prices.

In Colombia, Talisman and its partners have completed substantial activity on Block CP0-9 and Block CPE-6 over the past 12 months.

Production for the quarter was up 18% over the same period last year to 20,000 boe/d. In Block CP0-9, eight of 10 wells have been placed on long-term test, with peak production of 10,500 bbls/d (gross, with Talisman at 45%) of 8° API oil. In Block CPE-6, appraisal drilling and testing will continue through the year to determine future development plans.

Talisman's Southeast Asia business continues to provide high margin production and free cash flow.

Production was flat compared to the previous quarter, while year-over-year liquids volumes grew around 7%, offset by year-over-year gas declines and fluctuations in demand impacting Corridor and PM-3 CAA output.

In Indonesia, Talisman received government approval to obtain a 90% working interest in the Sakakemang PSC, located between our existing high-margin Corridor and Jambi Merang PSCs.

In Malaysia, two successful development wells were completed at Kinabalu, contributing an additional 1,200 boe/d compared to the previous quarter.

In the North Sea, production averaged 35,000 boe/d, up 21% over the previous quarter, due to the restart of Claymore, increased up time at Piper and Tweedsmuir and new production coming onstream from the Varg gas export project. North Sea cash flow grew compared the previous quarter on increased production and lower operating costs.

Financial Results

Net income was $491 million, compared to a net loss of $213 million in the first quarter last year, mainly due to higher gas and liquids prices in North America, increased liquids volumes and the sale of part of the company's Montney acreage which closed in the first quarter.

Capital spending for the quarter was $768 million, compared to $775 million in the first quarter last year and $744 million the previous quarter.

Net debt at March 31, 2014 was $3.8 billion, down from $4.8 billion in the previous quarter. Talisman has delivered on its commitment to dispose of $2-3 billion of non-core assets before March 2014, and aims to divest a further $2 billion of long dated, non-core, capital intensive assets over the next 12-18 months.

Production

Production averaged 384,000 boe/d in the quarter, up 3% year-over-year. Production from Talisman's core Americas and Asia-Pacific businesses was 349,000 boe/d, up 5% over the same period last year. North American production was 186,000 boe/d, up 6% year-over-year, and Southeast Asia production was 131,000 boe/d, up 2% over the same period. Production from ongoing operations averaged 360,000 boe/d, in line with the previous quarter and up 6% year-over-year.

Liquids production averaged 142,000 bbls/d, up 4% from the previous quarter and 10% year-over-year, reflecting the company's continued focus on growing higher value liquids.

Algeria

In Algeria, production averaged 12,000 boe/d, in line with the previous quarter. Production was slightly higher than the same period last year with EMK commencing production in 2013, offset by production restrictions at other fields by the regulator last year.

Other Operating Areas

North Sea

Talisman's share of UK production averaged 18,000 boe/d, up 29% from the previous quarter, largely due to increased uptime at Piper and Tweedsmuir and the early restart of production from the Claymore platform.

In Norway, first quarter average daily production was 17,000 boe/d, 13% higher than the fourth quarter, primarily due to the Varg gas export project coming onstream in early February.

Kurdistan Region of Iraq

In the Topkhana Block, the T-2 well reached total depth at the end of April. Early results are encouraging, and testing will commence shortly with rig release planned in July. In the Kurdamir Block, the company completed the Kurdamir-2 extended test after more than 40 days of continuous light oil and gas flow. Talisman will continue to evaluate results and expects the combined final results of Kurdamir-2 and T-2 testing will significantly enhance the knowledge of the fields.