Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) has reported its
operating and financial results for the first quarter of 2013. All
values in this release are in US$ unless otherwise stated.
Effective January 1, 2013, Talisman adopted new rules under IFRS
for investments in its UK and Equion joint ventures. The after tax
operating results of these joint ventures are now disclosed as a
single line "income (loss) from joint ventures and associates." For
more information, please see notes 4 and 8 to the company's
Financial Statements and the Adoption of New Accounting Standards
section in the interim MD&A. For comparative purposes, Talisman
has included non-GAAP figures in this press release, which include
results from the UK and Equion joint ventures.
2013 First Quarter Overview
-- Production was 372,000 boe/d, relatively flat versus the fourth quarter,
after adjusting for the sale of a 49% equity interest in Talisman's UK
North Sea business in December 2012. The 2013 production guidance range
is unchanged, with liquids volumes expected to rise in the second half
of 2013 in North America (Eagle Ford), Colombia, Malaysia (Kinabalu) and
Vietnam (HST/HSD).
-- Cash flow(1) was $517 million, down from the fourth quarter largely as a
result of the UK transaction, lower production and netbacks in North
America and higher royalties in Asia. The company expects to meet its
2013 cash flow guidance, based on growth in higher margin liquids
production in the second half of the year.
-- The company recorded a net loss of $213 million in the quarter, compared
to net income of $376 million in the fourth quarter. This was due to
significant gains recorded in the previous quarter on the sale of a 49%
equity interest in its UK North Sea business, and the revaluation of
Talisman's interest in the Ocensa pipeline.
-- Capital spending(1) during the quarter averaged $775 million, down
approximately 25% compared to both the prior year and the fourth
quarter. Talisman has set its 2013 capital budget at approximately $3
billion, with 90% of spending directed at high netback liquids and
international gas opportunities.
-- In Colombia, the company successfully completed the Akacias-18 well, the
first of a seven-well, two-rig appraisal program in the heavy oil Block
CPO-9. The company plans to bring in a third rig later this year to
drill an exploration well.
-- The Kurdamir-3 appraisal well is currently drilling in Kurdistan. The 3D
seismic acquisition program over the Topkhana and Kurdamir blocks is
proceeding.
(1) The terms "cash flow" and "capital spending" are non-GAAP
measures. Please see the advisories and reconciliations elsewhere
in this news release.
"Talisman set out four strategic priorities last October, which
we have translated into goals for 2013. As I discussed at our
investor open house in March, we are transforming Talisman, with a
strong focus on two core regions: the Americas and Asia-Pacific,"
said Hal Kvisle, President and CEO.
"We have stabilized our financial position and constrained
capital spending to live within our means. We are more focused,
having completed the sale of a 49% equity interest in our UK
business. Nearly 90% of our assets are now in the Americas and
Asia-Pacific core regions. We are taking steps to exit a number of
non-core countries, and actively working to unlock $2-3 billion in
net asset value through sales or joint ventures. We expect to see
significant growth in higher margin liquids production in the
second half of this year and into 2014. And finally, we are taking
steps to improve operating efficiency and lower costs.
"Our first priority is to live within our means, allocating
capital to our best opportunities in the Americas and Asia-Pacific.
We set out capital spending guidance of approximately $3 billion,
against a cash flow forecast of approximately $2.5 billion for
2013. We are still on track to meet both goals. Our capital run
rate in the first quarter was $775 million. Cash flow was down
relative to the fourth quarter of last year, largely due to the
impact of the UK transaction, and lower netbacks and natural gas
production in North America. Our cash flow forecast is expected to
meet guidance, predicated on higher-margin volume growth in the
second half of this year from the Eagle Ford, Kinabalu, Vietnam and
Colombia.
"Production for the quarter, adjusting for the UK transaction,
was essentially flat, compared to the fourth quarter of 2012. North
American natural gas volumes continue to decline, reflecting
limited investment in the current price environment. This decline
was largely offset by growth in Norway and Asia-Pacific.
"Eagle Ford production was flat during the quarter; however, we
have increased the number of completion crews and expect to see
production build in the second quarter as newly completed wells
come on stream.
"Our second priority is to focus our capital program on
opportunities that bring high margin production on stream more
quickly. Approximately 90% of our capital spending this year is
directed at growing near-term, high margin production.
"Our third priority is to improve operational performance. In
the Eagle Ford, we reduced drilling cycle times to less than 25
days in the first quarter, and lowered average drilling and
completion costs. We will drill, complete and tie in more wells for
less capital, aiming to meet or exceed top performance benchmarks
in our parts of the Eagle Ford play.
"Cost reduction and performance improvement programs have been
initiated in all parts of Talisman. During the quarter, we
announced staff reductions as part of our plan to reduce our annual
G&A run rate by $100-150 million by the end of the year.
"Our fourth priority is to unlock value within our portfolio
through divestments or joint ventures. Our target is to realize
$2-3 billion in proceeds through the sale or joint venture of
non-core assets over the next 12-18 months. We are making progress
on the divestment of assets outside of our core regions as well as
the divestment of minor assets within our core regions.
"In Kurdistan, following the Kurdamir-2 oil discovery in 2012,
our objective this year is to understand the extent of the resource
in the Kurdamir and Topkhana blocks. In the first quarter, we began
drilling Kurdamir-3, which is expected to reach target depth in the
third quarter.
"We are making progress. We will improve profitability by
focusing on high margin production and controlling costs in all
parts of our business. We will sustain and grow our two core
regions through production optimization, cost management and astute
capital investments. We are taking measurable steps to build
shareholder value, and this progress will continue over the course
of the year."
Financial Results
Table includes results from Talisman Sinopec Energy UK Limited
(TSEUK) and Equion Energia Limited (Equion)
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March 31 Q1 13 Q4 12 Q1 12
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Cash flow ($ million) 517 675 851
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Cash flow per share 0.50 0.66 0.83
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Earnings (loss) from operations(2)($million) (60) (107) 167
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Earnings (loss) from operations per share(2) (0.06) (0.10) 0.16
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Net income (loss) ($ million) (213) 376 291
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Net income (loss) per share (0.21) 0.37 0.28
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Average shares outstanding - basic (million) 1,027 1,025 1,023
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(2) The terms "earnings (loss) from operations" and "earnings (loss) from
operations per share" are non-GAAP measures. Please see the advisories
and reconciliations elsewhere in this news release.
Cash flow was down $158 million, compared to the fourth quarter
of 2012. Approximately $70 million of this reduction relates to the
sale of a 49% equity interest in Talisman's UK North Sea business
in December 2012.
Cash flow in North America was down approximately $60 million,
due to lower natural gas volumes (as a result of a strategic
reduction in dry gas spend), decreased wellhead prices in Chauvin
driven by higher differentials, increased transportation costs in
the Montney, higher processing and transportation costs in the
Eagle Ford in anticipation of a production ramp-up, and prior
period adjustments. Cash flow from North America is expected to
increase with higher Eagle Ford volumes in the second quarter.
In Southeast Asia, despite higher production and revised
Corridor gas prices, cash flow was down slightly relative to the
fourth quarter. Production at Kinabalu averaged 4,000 boe/d;
however, the company did not ship any cargoes to market until after
the end of the quarter and no revenue or cash flow was recorded
during the period. Cash flow was also affected by a one-time
investment credit settlement in Indonesia and short-term increases
in Malaysian royalty rates due to low current capital spending.
Going forward, Talisman expects to see higher incremental cash flow
from Southeast Asia with increased liquids production at HST/HSD
and Kinabalu, the effect of the revised gas price agreement in
Indonesia, and lower royalty rates in Malaysia as drilling activity
ramps up.
Cash flow was also impacted by higher finance costs of $26
million. Interest costs are no longer capitalized on Auk South and
Yme as the company is now considering alternative development
options.
Year over year, cash flow is down due to lower volumes and
netbacks. Talisman's cash flow guidance for 2013 is unchanged at
approximately $2.5 billion, with expected growth in liquids
production in the second half of the year.
The company recorded a loss of $60 million (on a non-GAAP basis)
from operations, excluding non-operational items, compared to a
loss of $107 million in the fourth quarter of 2012.
Talisman recorded a net loss of $213 million in the first
quarter, compared to net income of $376 million in the fourth
quarter of 2012. The prior quarter included a number of significant
one-time gains, including the sale of a 49% equity interest in the
UK North Sea business and the revaluation of Talisman's interest in
the Ocensa pipeline in Colombia.
DD&A charges, including Talisman's share of the UK and
Equion joint ventures, were $260 million lower than the previous
quarter as a result of the UK sale ($117 million) and as a result
of one-off charges in the fourth quarter associated with reserves
write downs in the UK and North America. During the first quarter,
the UK joint venture recorded an impairment charge of $68 million
after-tax (net to Talisman) relating to the impact on reserves from
the unsuccessful Tweedsmuir TP-3 well.
Capital spending totalled $775 million during the quarter.
Talisman's capital spending guidance of approximately $3 billion
for 2013 is unchanged. Net debt(3) at March 31, 2013 was $4.1
billion.
(3) The term "net debt" is a non-GAAP measure. Please see the
advisories and reconciliations elsewhere in this news release.
Netbacks
The North Sea results include Talisman Sinopec Energy UK Limited
(TSEUK), and "Other" results include Equion Energia Limited
(Equion).
March 31 Q1 13 Q4 12 Q1 12
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WTI benchmark ($/bbl) 94.37 88.18 102.93
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Brent benchmark ($/bbl) 112.55 110.02 118.49
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NYMEX benchmark ($/mmbtu) 3.35 3.36 2.77
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Oil and liquids netback ($/bbl)
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North America 37.69 44.17 53.26
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Southeast Asia 28.06 36.31 56.76
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North Sea 45.05 33.43 78.37
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Other 63.02 58.72 66.88
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Total oil and liquids ($/bbl) 41.02 40.09 68.02
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Natural gas netback ($/mcf)
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North America 1.21 1.50 0.62
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Southeast Asia 5.70 4.85 5.83
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North Sea 6.04 4.67 7.97
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Other 2.24 1.36 3.15
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Total natural gas ($/mcf) 2.93 2.69 2.61
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Total company netback ($/boe) 25.67 24.82 36.79
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WTI prices were up 7% over the previous quarter, averaging
$94.37/bbl, but are down year over year. NYMEX natural gas prices
were essentially flat compared to the fourth quarter, although in
recent weeks they have climbed to over $4.40/mmbtu, reflecting a
more balanced North America supply-demand picture.
Oil and liquids netbacks are up slightly over the quarter, as a
result of lower unit operating costs due to the UK transaction.
Year over year, oil and liquids netbacks are down significantly,
reflecting lower benchmark prices.
Average royalty rates increased principally due to the UK
transaction, which reduced the company's exposure to low UK royalty
rates, and higher short-term rates in Southeast Asia. Royalty rates
in Southeast Asia are expected to fall as the company increases
capital spending in the region over the course of the year.
Gas netbacks are up from the previous quarter and year over
year. In North America, netbacks have doubled, compared to a year
ago with strengthening NYMEX prices. However, they are down
relative to the fourth quarter, due to higher unit operating
costs.
In Southeast Asia, gas netbacks are up significantly versus the
fourth quarter, primarily due to higher price realizations. During
the quarter, gas prices in Indonesia increased as a result of
previously announced revisions to gas pricing agreements at
Corridor coming into effect. This includes retroactive adjustments
for prior periods.
Production
Table includes Talisman's share of production from subsidiaries
and equity-accounted entities.
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March 31 Q1 13 Q4 12 Q1 12
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Oil and liquids (mbbls/d)
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North America 29 29 28
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Southeast Asia 41 40 45
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North Sea 37 53 89
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Other (including Colombia and Algeria) 22 21 25
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Total oil and liquids (mbbls/d) 129 143 187
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Natural gas (mmcf/d)
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North America 875 924 1,024
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Southeast Asia 531 511 548
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North Sea 16 20 43
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Other (including Colombia and Algeria) 39 43 37
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Total natural gas (mmcf/d) 1,461 1,498 1,652
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Total (mboe/d) 372 392 462
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Assets sold (mboe/d)
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North America - - 7
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North Sea - 17 31
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Production from ongoing operations (mboe/d) 372 375 424
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Production averaged 372,000 boe/d, down 5% from the previous
quarter and 19% year over year. Lower production volumes in the
quarter were essentially the result of the sale of a 49% equity
interest in Talisman's UK North Sea business in December 2012, with
an impact of approximately 17,000 boe/d.
Natural gas volumes in North America were lower relative to the
fourth quarter (8,000 boe/d), reflecting limited capital spending
in the current price environment. However these declines were
largely offset by growth in Southeast Asia and Norway liquids.
Talisman continues to direct its capital program to projects
that will grow higher margin production in the near to medium term.
Accordingly, liquids volumes are expected to increase significantly
in the second half of 2013 with growth in North America (Eagle
Ford), Colombia, Malaysia (Kinabalu) and Vietnam (HST/HSD). The
company's production guidance range for 2013 remains unchanged.
The Americas
North America
Production
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March 31 Q1 13 Q4 12 Q1 12
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Gas
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Edson-Duvernay-Montney 360 382 407
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Marcellus 442 475 529
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Eagle Ford 51 48 36
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Other 22 19 27
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Gas from ongoing operations (mmcf/d) 875 924 999
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Liquids
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Edson-Duvernay-Montney 6 6 5
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Eagle Ford 12 11 7
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Chauvin 11 12 13
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Liquids from ongoing operations (mbbls/d) 29 29 25
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Assets sold (mboe/d) - - 7
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Total North America gas production (mmcf/d) 875 924 1,024
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Total North America liquids production
(mbbls/d)) 29 29 28
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Total North America production (mboe/d) 175 183 198
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Production in North America averaged 175,000 boe/d, a 4%
decrease from the previous quarter and down 12% from a year ago.
Talisman continues to shift to higher value liquids, with the
majority of capital directed towards oil and liquids rich plays.
Natural gas volumes were down 5% relative to the fourth quarter,
reflecting natural declines in the Marcellus and Canada Foothills.
Liquids production (which represents approximately 17% of total
North America production) remained flat quarter over quarter.
The company remains on target to deliver full year production
guidance of 170-176 mboe/d, including 30-35 mbbls/d of liquids.
In the Eagle Ford, production was up 58% year over year, and
liquids volumes have increased more than 70%. For the quarter,
Talisman's share of production (50% working interest) averaged
21,000 boe/d, up slightly from the previous quarter.
The company increased the number of full-time completion crews
from one to three at the end of the first quarter. Talisman expects
to increase the number of gross operated wells on stream from 18 in
the first quarter to more than 50 in the second quarter. In
addition, four new facilities will be brought on stream during the
second quarter, with total gross processing capacity of 37,000
bbls/d liquids and 190 mmcf/d of gas. As a result, we remain
confident of reaching our full-year production target in the Eagle
Ford of approximately 30,000 boe/d.
Talisman continues to make significant improvements in Eagle
Ford capital investment efficiency. Drilling cycle times have been
reduced to less than 25 days, with drilling and completion costs
down to approximately $8 million per well. During the quarter,
Talisman began transferring the first of three rigs in the eastern
part of the play to Statoil, in accordance with the
Talisman-Statoil joint venture agreement.
In the Marcellus, production averaged 442 mmcf/d, down from 475
mmcf/d in the previous quarter. Production optimization activities
have successfully reduced base decline from approximately 10% per
quarter to less than 7% per quarter. One rig is currently operating
in the Marcellus, focused on land retention and lease obligations.
Talisman has an inventory of approximately 50 drilled but
uncompleted Marcellus wells that can be completed and tied in.
In the southern portion of the liquids-rich Duvernay play, three
short-lateral wells have been drilled to evaluate fracture
effectiveness and assess production characteristics. The first
short-lateral well was fracked with five effective stages, and came
on stream with an initial production rate of over 350 bbls/d of
condensate. The second short-lateral well was fracked with seven
effective stages and tested 1.1 mmcf/d with 120 bbls/d of
condensate. Based on learnings from these initial wells, Talisman's
most recent well was drilled with a 5,400 foot lateral and will be
completed with 12 frack stages during the second quarter.
In the Montney, production averaged approximately 12,000 boe/d,
down nearly 8% from the previous quarter, reflecting natural
declines and limited capital spending. The company is running a
three-rig program in 2013, focusing on the early development of its
joint venture position in the eastern liquids-rich part of the
Farrell Creek play. Together with the company's partner Sasol,
appraisal activity has commenced on the large adjacent Cypress A
acreage position.
In Edson, the third party deep cut processing plant is ahead of
schedule, and is expected to be on-stream in the third quarter.
Talisman operated two drilling rigs over the first quarter in Wild
River to develop incremental gas volumes for the deep cut plant. In
Edson, a horizontal drilling program targeting the liquids-rich
Wilrich formation is on track to begin in the third quarter, with
volumes processed through the Talisman-owned Edson facility.
As part of efforts to focus and unlock value from the North
America portfolio, the company has commenced a process to joint
venture or divest its North Duvernay holdings and parts of its
Montney holdings. A data room is expected to open in the second
quarter for the North Duvernay, and targeted discussions continue
with respect to the company's large Montney holdings.
Colombia
First quarter production remained flat quarter over quarter at
an average of 17,000 boe/d. The company successfully drilled and
completed the Akacias-18 well, and has two rigs operating as part
of the planned seven-well appraisal program on the CPO-9 heavy oil
block. A third rig has been mobilized to drill an exploration well
in block CPO-9 later in the year. In the foothills region, Talisman
completed and is testing the Huron-2 appraisal well in the Niscota
block. Drilling of the Huron-3 well is ongoing, and the company
expects to reach target depth by the end of the year. At
Piedemonte, phase one of the facilities expansion project is
progressing to plan.
In January 2013, the shareholders and regulators in Colombia
converted the Ocensa pipeline from a cost centre to a profit
centre, allowing owners to market spare capacity (Talisman's
ownership position in the pipeline is approximately 12%). As
Talisman's production from blocks CPO-9, CPE-6 and the Niscota
Block ramp up, the company's long-term capacity in Ocensa will
provide access to export facilities on the Caribbean coast. The
company is evaluating the sale of all or part of its Ocensa
ownership, while retaining rights to pipeline capacity.
Asia-Pacific
Production
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March 31 Q1 13 Q4 12 Q1 12
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Malaysia liquids (mbbls/d) 20 17 18
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Malaysia gas (mmcf/d) 132 132 128
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Malaysia total (mboe/d) 42 39 39
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Indonesia liquids (mbbls/d) 11 11 12
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Indonesia gas (mmcf/d) 397 379 420
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Indonesia total (mboe/d) 77 74 82
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Vietnam liquids (mbbls/d) 2 2 2
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Vietnam gas (mmcf/d) 2 - -
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Vietnam (mboe/d) 2 2 2
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Australia (mboe/d) 8 10 13
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Total (mboe/d) 129 125 136
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Production averaged 129,000 boe/d, up 3% from the previous
quarter following the Kinabalu PSC transfer of operatorship to
Talisman. Compared to the same quarter last year, production fell
by 5%, principally due to short-term fluctuations in demand at
Corridor and natural declines at Kitan.
Natural gas production for the quarter averaged 531 mmcf/d, with
prices averaging $10.22/mcf. This is up 15% from the fourth quarter
and is primarily due to a previously announced gas pricing
agreement at Corridor taking effect, including retroactive revenue
adjustments from prior periods.
In Malaysia, production averaged 42,000 boe/d, up 8% over the
previous quarter. This was primarily due to a full quarter of
production from Kinabalu, averaging 4,000 boe/d, and is expected to
increase significantly during 2013 as initial platform upgrades are
completed and a workover program commences. The addition of
Kinabalu to the portfolio provides near-term exploration synergies
and development upside in the Sabah basin. The company began
drilling its first Sabah exploration well in mid-April.
In Indonesia, production for the quarter averaged 77,000 boe/d,
up 4% over the previous quarter following the completion of planned
maintenance at Corridor and Tangguh. First quarter production year
over year is down 6%, due to higher nominations for gas from
Corridor in the same period last year, and a working interest
repayment in 2012 at Jambi Merang.
The HST/HSD development offshore Vietnam is progressing on
schedule and on budget, with both jackets installed and topsides
now in place. All drilling and completion activities are finished.
First oil is expected around mid-year, and the company aims to
deliver near-term peak net production of approximately 12,000
boe/d.
Production in Australia/Timor Leste for the quarter was 8,000
boe/d, down 20% from the previous quarter primarily due to natural
declines.
In Papua New Guinea, acquisition of 440 kilometres of 2D seismic
data was successfully completed in three exploration licenses.
Prospects generated from this data will support a multi-well
exploration drilling program, commencing in the second half of this
year.
Other Operating Areas
The North Sea
In December 2012, Talisman sold a 49% equity interest in its UK
business to Sinopec for $1.5 billion and established the Talisman
Sinopec Energy UK Limited (TSEUK) joint venture.
Talisman's share of UK production averaged 21,000 boe/d,
essentially flat over the fourth quarter after accounting for the
sale. Operational issues at Bleo Holm, Claymore and Auk North were
largely offset by the completion of planned turnarounds at Buchan,
Monarb and Blane.
In the UK, a drilling rig has been secured, with drilling
operations to commence in the second half of 2013. The Montrose
Area Redevelopment project is underway, with major contracts now in
place.
The company's TP-3 development well at Tweedsmuir was
unsuccessful, resulting in a reserves write down and an impairment
of $68 million after tax, representing Talisman's share.
In Norway, average daily production was 19,000 boe/d, up 6% over
the previous quarter due to a successful Varg drilling campaign. In
March, the company, on behalf of its joint venture partners,
reached an agreement with SBM Offshore to terminate the existing
Yme project, including scrapping the existing above-surface
structure and terminating all existing contracts and arbitration.
The agreement includes an upfront payment of $470 million ($282
million net) to Talisman and partners, which will be used to pay
for decommissioning of the topside unit.
Kurdistan Region of Iraq
In Kurdistan, the company spudded the Kurdamir-3 appraisal well
in February, and expects to reach target depth in the third
quarter. The 3D seismic acquisition program over the Topkhana and
Kurdamir blocks is progressing, and the company plans to drill the
Topkhana-2 appraisal well later this year. Talisman is also
reviewing options for field development so it can begin to generate
cash flow from Kurdistan.
Common Share and Preferred Share Dividend Declaration
The company has declared a quarterly dividend on the company's
common shares of US$0.0675 per share. The dividend will be paid on
June 28, 2013 to shareholders of record at the close of business on
May 15, 2013.
The company has also declared a quarterly dividend of C$0.2625
on its Cumulative Redeemable Rate Reset First Preferred Shares,
Series 1. The dividend will be paid on July 2, 2013 to shareholders
of record at the close of business on May 15, 2013.
Talisman Energy Inc. is a global upstream oil and gas company,
headquartered in Canada. Talisman has two core operating areas: the
Americas (North America and Colombia) and Asia-Pacific. Talisman is
committed to conducting business safely, in a socially and
environmentally responsible manner, and is included in the Dow
Jones Sustainability (North America) Index. Talisman is listed on
the Toronto and New York stock exchanges under the symbol TLM.
Please visit our website at www.talisman-energy.com.
Forward-Looking Information
This news release contains information that constitutes
"forward-looking information" or "forward-looking statements"
(collectively "forward-looking information") within the meaning of
applicable securities legislation. This forward-looking information
includes, among others, statements regarding: business strategy,
priorities and plans; expected increase in liquids production in
the second half of 2013; expected cash flow; expected improvements
in the company's operating efficiency and expected lower costs;
expected capital spending; expected reduction in G&A run rate;
expected sales or joint ventures and timing of such transactions;
expected drilling activity in North America, Colombia, PNG, the
North Sea and Kurdistan; expected first production from HST/HSD;
expected additional facilities and processing capacity in North
America; expected benefits of the company's interest in the Ocensa
pipeline; and other expectations, beliefs, plans, goals,
objectives, assumptions, information and statements about possible
future events, conditions, results of operations or performance.
The company priorities disclosed in this news release are
objectives only and their achievement cannot be guaranteed.
The factors or assumptions on which the forward-looking
information is based include: assumptions inherent in current
guidance; projected capital investment levels; the flexibility of
capital spending plans and the associated sources of funding; the
successful and timely implementation of capital projects; the
continuation of tax, royalty and regulatory regimes; ability to
obtain regulatory and partner approval; commodity price and cost
assumptions; and other risks and uncertainties described in the
filings made by the Company with securities regulatory authorities.
The Company believes the material factors, expectations and
assumptions reflected in the forward-looking information are
reasonable but no assurance can be given that these factors,
expectations and assumptions will prove to be correct.
Forward-looking information for periods past 2013 assumes
escalating commodity prices.
Undue reliance should not be placed on forward-looking
information. Forward-looking information is based on current
expectations, estimates and projections that involve a number of
risks which could cause actual results to vary and in some
instances to differ materially from those anticipated by Talisman
and described in the forward-looking information contained in this
news release. The material risk factors include, but are not
limited to: the risks of the oil and gas industry, such as
operational risks in exploring for, developing and producing crude
oil and natural gas; risks and uncertainties involving geology of
oil and gas deposits; risks associated with project management,
project delays and/or cost overruns; uncertainty related to
securing sufficient egress and access to markets; the uncertainty
of reserves and resources estimates, reserves life and underlying
reservoir risk; the uncertainty of estimates and projections
relating to production, costs and expenses, including
decommissioning liabilities; risks related to strategic and capital
allocation decisions, including potential delays or changes in
plans with respect to exploration or development projects or
capital expenditures; fluctuations in oil and gas prices, foreign
currency exchange rates, interest rates and tax or royalty rates;
the outcome and effects of any future acquisitions and
dispositions; health, safety, security and environmental risks,
including risks related to the possibility of major accidents;
environmental regulatory and compliance risks, including with
respect to greenhouse gases and hydraulic fracturing; uncertainties
as to the availability and cost of credit and other financing and
changes in capital markets; risks in conducting foreign operations
(for example, civil, political and fiscal instability and
corruption); risks related to the attraction, retention and
development of personnel; changes in general economic and business
conditions; the possibility that government policies, regulations
or laws may change or governmental approvals may be delayed or
withheld; and results of the Company's risk mitigation strategies,
including insurance and any hedging activities.
The foregoing list of risk factors is not exhaustive. Additional
information on these and other factors which could affect the
Company's operations or financial results or strategy are included
in Talisman's most recent Annual Information Form. In addition,
information is available in the Company's other reports on file
with Canadian securities regulatory authorities and the United
States Securities and Exchange Commission. Forward-looking
information is based on the estimates and opinions of the Company's
management at the time the information is presented. The Company
assumes no obligation to update forward-looking information should
circumstances or management's estimates or opinions change, except
as required by law.
Unless the context indicates otherwise, references in this news
release to "Talisman" or the "company" include, for reporting
purposes only, the direct or indirect subsidiaries of Talisman
Energy Inc. and the partnership interests held by Talisman Energy
Inc. and its subsidiaries. Such use of "Talisman" or the "company"
to refer to these other legal entities and partnership interests
does not constitute waiver by Talisman Energy Inc. or such entities
or partnerships of their separate legal status, for any
purpose.
Oil and Gas Information
Throughout this news release, Talisman makes reference to
production volumes. Unless otherwise stated, such production
volumes are stated on a gross basis, which means they are stated
prior to the deduction of royalties and similar payments. In the
US, net production volumes are reported after the deduction of
these amounts.
Barrel of oil equivalent (boe) throughout this news release is
calculated at a conversion rate of six thousand cubic feet (mcf) of
natural gas for one barrel of oil (bbl). This news release also
includes reference to mcf equivalents (mcfes) which are calculated
at a conversion rate of one barrel of oil to 6,000 cubic feet of
gas. Boes and mcfes may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 mcf:1 bbl and an mcfe
conversion ratio of 1 bbl: 6 mcf are based on an energy equivalence
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
In this news release, all references to "core" and "non-core"
assets and properties align with the company's current public
disclosure regarding its assets and properties.
Talisman also discloses netbacks in this news release. Netbacks
per boe are calculated by deducting from the sales price associated
royalties, operating and transportation costs.
Forecasted Cash Flow
This news release also contains discussions of anticipated cash
flow. The material assumptions used in determining estimates of
cash flow are: the anticipated production volumes; estimates of
realized sales prices, which are in turn driven by benchmark
prices, quality differentials and the impact of exchange rates;
estimated royalty rates; estimated operating expenses; estimated
transportation expenses; estimated general and administrative
expenses; estimated interest expense, including the level of
capitalized interest; and the anticipated amount of cash income tax
and petroleum revenue tax. The amount of is inherently difficult to
predict.
Anticipated production volumes are, in turn, based on the
midpoint of the estimated production range and do not reflect the
impact of any potential asset dispositions or acquisitions. The
completion of any contemplated asset acquisitions or dispositions
is contingent on various factors including favourable market
conditions, the ability of the company to negotiate acceptable
terms of sale and receipt of any required approvals for such
acquisitions or dispositions.
Non-GAAP Financial Measures
Included in this news release are references to financial
measures commonly used in the oil and gas industry such as cash
flow, earnings (loss) from operations, capital spending and net
debt. These terms are not defined by International Financial
Reporting Standards (IFRS). Consequently, these are referred to as
non-GAAP measures. Talisman's reported results of such measures may
not be comparable to similarly titled measures reported by other
companies.
Cash Flow
US$ million, except per share amounts
Three Months Ended
----------------------------------------------------------------------------
March 31, December 31, March 31,
2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by operating
activities 331 497 914
----------------------------------------------------------------------------
Changes in non-cash working
capital 21 4 (153)
----------------------------------------------------------------------------
Add: Exploration expenditure 75 118 56
----------------------------------------------------------------------------
Add: Pennsylvania impact fee(1) - - 18
----------------------------------------------------------------------------
Add: Restructuring costs 17 - -
----------------------------------------------------------------------------
Less: Finance costs (cash) (70) (44) (49)
----------------------------------------------------------------------------
Cash flow from subsidiaries 374 575 786
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Add: Cash provided by operating
activities from equity
accounted entities 149 49 66
----------------------------------------------------------------------------
Change in non-cash working
capital from equity accounted
entities (5) 51 (1)
----------------------------------------------------------------------------
Less: Dividends and
distributions received from
equity accounted entities - - -
----------------------------------------------------------------------------
Add: Exploration expenditure
from equity accounted entities 2 - -
----------------------------------------------------------------------------
Less: Finance costs (cash) from
equity accounted entities (3) - -
----------------------------------------------------------------------------
Cash flow from equity accounted
entities 143 100 65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Flow(2) 517 675 851
----------------------------------------------------------------------------
Cash flow per share 0.50 0.66 0.83
----------------------------------------------------------------------------
Diluted cash flow per share 0.50 0.65 0.83
----------------------------------------------------------------------------
(1) Pennsylvania impact fee amount represents the one-time impact of the
retrospective application of the legislation to wells drilled pre-2012.
(2) Includes cash flow from subsidiaries and Talisman's share of equity
accounted entities' cash flow.
Cash flow, as commonly used in the oil and gas industry,
represents net income before exploration costs, DD&A, deferred
taxes and other non-cash expenses including Talisman's share of
cash flow from equity accounted entities. Cash flow is used by the
company to assess operating results between years and between peer
companies using different accounting policies.
Cash flow should not be considered an alternative to, or more
meaningful than, cash provided by operating, investing and
financing activities or net income as determined in accordance with
IFRS as an indicator of the company's performance or liquidity.
Cash flow per share is cash flow divided by the average number of
common shares outstanding during the period. Diluted cash flow per
share is cash flow divided by the diluted number of common shares
outstanding during the period, as reported in the interim condensed
consolidated financial statements filed on May 1, 2013. A
reconciliation of cash provided by operating activities to cash
flow is provided above.
Earnings (loss) from Operations
US$million, except per share amounts
Three Months Ended
----------------------------------------------------------------------------
March 31, December 31, March 31,
2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) (213) 376 291
----------------------------------------------------------------------------
Gain on disposals (tax
adjusted) - (862) (377)
----------------------------------------------------------------------------
Unrealized (gain) loss on
financial instruments(tax
adjusted)(1) 43 (46) 37
----------------------------------------------------------------------------
Share-based payments (tax
adjusted)(2) 24 (40) (46)
----------------------------------------------------------------------------
Foreign exchange on debt (tax
adjusted) (23) 3 15
----------------------------------------------------------------------------
Impairment (tax adjusted) 44 278 302
----------------------------------------------------------------------------
Pennsylvania impact fee (tax
adjusted)(3) - - 11
----------------------------------------------------------------------------
Restructuring costs (tax
adjusted) 13 - -
----------------------------------------------------------------------------
Gain on revaluation of
investment (tax adjusted)(4) - (245) -
----------------------------------------------------------------------------
Derecognition of deferred tax
assets(5) - 429 -
----------------------------------------------------------------------------
Deferred tax adjustments(6) 52 - (66)
----------------------------------------------------------------------------
Earnings (loss) from
operations(7) (60) (107) 167
----------------------------------------------------------------------------
Earnings (loss) from operations
per share (0.06) (0.10) 0.16
----------------------------------------------------------------------------
Diluted earnings (loss) from
operations per share (0.06) (0.10) 0.16
----------------------------------------------------------------------------
(1) Unrealized (gain) loss on financial instruments relates to the change in
the period of the mark-to-market value of the company's held-for-trading
financial instruments.
(2) Share-based payments relate principally to the mark-to-market value of
the company's outstanding stock options and cash units at March 31. The
company uses the Black-Scholes option pricing model to estimate the fair
value of its share-based payment plans.
(3) Pennsylvania impact fee amount represents the one-time impact of the
retrospective application of the legislation to wells drilled pre-2012.
(4) Gain on revaluation of investment represents the fair value adjustment
recorded upon the restructuring of Talisman's investment in Oleoducto
Central S.A.
(5) Derecognition of deferred tax assets from the US operations.
(6) Deferred tax adjustments largely comprise tax on foreign exchange on tax
pools.
(7) Earnings (loss) from operations include results and adjustments from
subsidiaries and Talisman's share of equity accounted entities.
Earnings (loss) from operations are calculated by adjusting the
company's net income (loss) per the financial statements for
certain items of a non-operational nature, on an after tax basis.
The adjustments include items from subsidiaries and Talisman's
share of equity accounted entities. The company uses this
information to evaluate performance of core operational activities
on a comparable basis between periods. Earnings (loss) from
operations per share are earnings (loss) from operations divided by
the average number of common shares outstanding during the period.
Diluted earnings (loss) from operations per share are earnings
(loss) from operations divided by the diluted number of common
shares outstanding during the period, as reported in the interim
condensed consolidated financial statements filed on May 1, 2013. A
reconciliation of net income (loss) to earnings (loss) from
operations is provided above.
Capital Spending
US$million
Three Months Ended
----------------------------------------------------------------------------
March 31, December 31, March 31,
2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subsidiaries
----------------------------------------------------------------------------
Exploration, development and
other 569 834 993
----------------------------------------------------------------------------
Exploration expensed 75 118 56
----------------------------------------------------------------------------
Exploration and development
spending - Subsidiaries 644 952 1,049
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Talisman's share of equity
accounted entities
----------------------------------------------------------------------------
Exploration, development and
other 130 65 18
----------------------------------------------------------------------------
Exploration expensed 1 - -
----------------------------------------------------------------------------
Exploration and development
spending - joint ventures 131 65 18
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital spending for
subsidiaries and joint
ventures 775 1,017 1,067
----------------------------------------------------------------------------
Capital spending (or run rate or exploration and development
spending) is calculated by adjusting the capital expenditure per
the financial statements for exploration costs that were expensed
as incurred and adding Talisman's share of joint ventures.
Net Debt
US$million
Three Months Ended
----------------------------------------------------------------------------
March 31, 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt 4,509
----------------------------------------------------------------------------
Cash and cash equivalents, net of bank
indebtedness (276)
----------------------------------------------------------------------------
Cash and cash equivalents from equity
accounted entities(1)
----------------------------------------------------------------------------
TSEUK (30)
----------------------------------------------------------------------------
Equion (62)
----------------------------------------------------------------------------
Total net debt 4,141
----------------------------------------------------------------------------
(1) Includes Talisman's share of joint ventures' cash and cash equivalents.
Net debt is calculated by adjusting the company's long-term debt
per the financial statements for bank indebtedness, cash and cash
equivalents from subsidiaries and joint ventures. The company uses
this information to assess its true debt position and eliminate the
impact of timing differences.
Sensitivities
Talisman's financial performance is affected by factors such as
changes in production volumes, commodity prices and exchange rates.
The estimated annualized impact of these factors for 2013
(excluding the effect of derivative contracts) is summarized in the
following table, based on a Dated Brent oil price of approximately
$105/bbl, a NYMEX natural gas price of approximately $3.60/mmbtu
and exchange rates of US$1=C$1 and UKGBP 1=US$1.60.
----------------------------------------------------------------------------
($ millions) Cash Provided
by Operating
Activities Cash Flow
Net Income(1) (GAAP(2)) (Non-GAAP(3))
----------------------------------------------------------------------------
Volume changes
----------------------------------------------------------------------------
Oil - 10,000 bbls/d 80 130 195
----------------------------------------------------------------------------
Natural gas - 60 mmcf/d 15 55 55
----------------------------------------------------------------------------
Price changes(4)
----------------------------------------------------------------------------
Oil - $1.00/bbl 20 25 35
----------------------------------------------------------------------------
Natural gas (North America)(5)
- $0.10/mcf 15 25 25
----------------------------------------------------------------------------
Exchange rate changes
----------------------------------------------------------------------------
US$/C$ decreased by US$0.01 (10) (10) (10)
----------------------------------------------------------------------------
US$/UKGBP increased by US$0.02 - - (5)
----------------------------------------------------------------------------
(1) Net income includes Talisman's share of net income (loss) from TSEUK and
Equion, after tax.
(2) Changes in cash flow provided by operating activities (GAAP) excludes
TSEUK and Equion due to the application of equity accounting.
(3) Changes in cash flow (Non-GAAP) includes TSEUK and Equion and is
included for comparative purposes only.
(4) The impact of price changes excludes the effect of commodity
derivatives. See specific commodity derivative terms in the 'Risk
Management' section of the MD&A, and note 19 to the interim condensed
Consolidated Financial Statements.
(5) Price sensitivity on natural gas relates to North American natural gas
only. The company's exposure to changes in the natural gas prices in the
Norway and Malaysia/Vietnam and Colombia is not material. Most of the
natural gas price in Indonesia is based on the price of crude oil and,
accordingly, has been included in the price sensitivity for oil except
for a small portion which is sold at a fixed price.
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended March 31
2013 2012
----------------------------------------------------------------------------
Financial
(millions of US$ unless otherwise stated)
Cash flow (1) 517 851
Net income (loss) (213) 291
Exploration and development spending (1) 775 1,067
Per common share (US$)
Cash flow (1) (0.50) (0.83)
Net income (loss) (0.21) 0.28
----------------------------------------------------------------------------
Production (3)
(Daily Average - Gross)
Oil and liquids (bbls/d)
North America 28,873 27,940
Southeast Asia 41,103 44,848
North Sea 16,739 88,753
Other 11,991 14,280
----------------------------------------------------------------------------
Total oil and liquids 98,706 175,821
----------------------------------------------------------------------------
Natural gas (mmcf/d)
North America 875 1,024
Southeast Asia 531 548
North Sea 14 43
Other - -
----------------------------------------------------------------------------
Total natural gas 1,420 1,615
----------------------------------------------------------------------------
Total mboe/d (2) 335 444
----------------------------------------------------------------------------
Prices (3)
Oil and liquids (US$/bbl)
North America 63.88 77.20
Southeast Asia 112.35 122.99
North Sea 111.21 120.53
Other 110.25 128.51
----------------------------------------------------------------------------
Total oil and liquids 97.72 114.92
----------------------------------------------------------------------------
Natural gas (US$/mcf)
North America 3.31 2.49
Southeast Asia 10.22 9.85
North Sea 10.36 9.91
Other - -
----------------------------------------------------------------------------
Total natural gas 5.96 5.19
----------------------------------------------------------------------------
Total (US$/boe) (2) 54.01 64.22
----------------------------------------------------------------------------
(1) Cash flow, exploration and development spending and cash flow per share
are non-GAAP measures.
(2) Barrels of oil equivalent (boe) is calculated at a conversion rate of
six thousand cubic feet (mcf) of natural gas for one barrel of oil.
(3) 2012 Production and price from Other, was restated to reflect the change
to equity accounting of Equion on adoption of IFRS 11.
Talisman Energy Inc.
Condensed Consolidated Balance Sheets
(unaudited)
March 31, December 31,
(millions of US$) 2013 2012
----------------------------------------------------------------------------
(Restated)
Assets
Current
Cash and cash equivalents 319 553
Accounts receivable 907 884
Risk management 13 48
Income and other taxes receivable 22 10
Inventories 140 122
Prepaid expenses 26 19
----------------------------------------------------------------------------
1,427 1,636
----------------------------------------------------------------------------
Other assets 169 55
Restricted cash 245 -
Investments 1,758 1,791
Risk management 24 26
Goodwill 775 775
Property, plant and equipment 10,616 10,462
Exploration and evaluation assets 3,292 3,319
Deferred tax assets 1,180 1,273
----------------------------------------------------------------------------
18,059 17,701
----------------------------------------------------------------------------
Total assets 19,486 19,337
----------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness 43 -
Accounts payable and accrued liabilities 1,704 1,744
Risk management 83 81
Income and other taxes payable 75 84
Loans from joint ventures 258 148
Current portion of long-term debt 151 8
----------------------------------------------------------------------------
2,314 2,065
----------------------------------------------------------------------------
Decommissioning liabilities 1,514 1,514
Other long-term obligations 540 256
Risk management 10 1
Long-term debt 4,358 4,434
Deferred tax liabilities 1,082 1,157
----------------------------------------------------------------------------
7,504 7,362
----------------------------------------------------------------------------
Shareholders' equity
Common shares 1,708 1,639
Preferred shares 191 191
Contributed surplus 92 121
Retained earnings 6,866 7,148
Accumulated other comprehensive income 811 811
----------------------------------------------------------------------------
9,668 9,910
----------------------------------------------------------------------------
Total liabilities and shareholders' equity 19,486 19,337
----------------------------------------------------------------------------
Talisman Energy Inc.
Condensed Consolidated Statements of Income (Loss)
(unaudited)
Three months ended March 31
(millions of US$) 2013 2012
----------------------------------------------------------------------------
(Restated)
Revenue
Sales 1,098 1,975
Other income 27 26
Income (loss) from joint ventures &
associates, after tax (2) 55
----------------------------------------------------------------------------
Total revenue and other income 1,123 2,056
----------------------------------------------------------------------------
Expenses
Operating 329 564
Transportation 51 59
General and administrative 103 119
Depreciation, depletion and amortization 421 574
Impairment 7 1,053
Dry hole - 60
Exploration 75 56
Finance costs 78 71
Share-based payments (recovery) expense 22 (41)
Loss on held-for-trading financial
instruments 80 47
Gain on asset disposals - (505)
Other, net 6 72
----------------------------------------------------------------------------
Total expenses 1,172 2,129
----------------------------------------------------------------------------
Loss before taxes (49) (73)
----------------------------------------------------------------------------
Taxes
Current income tax 147 405
Deferred income tax (recovery) 17 (769)
----------------------------------------------------------------------------
164 (364)
----------------------------------------------------------------------------
Net income (loss) (213) 291
----------------------------------------------------------------------------
Per common share (US$):
Net income (loss) (0.21) 0.28
Diluted net income (loss) (0.21) 0.24
----------------------------------------------------------------------------
Weighted average number of common shares
outstanding (millions)
Basic 1,027 1,023
Diluted 1,031 1,028
----------------------------------------------------------------------------
Talisman Energy Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31
(millions of US$) 2013 2012
----------------------------------------------------------------------------
(Restated)
Operating activities
Net income (loss) (213) 291
Add: Finance costs (cash and non-cash) 78 71
Items not involving cash 487 399
----------------------------------------------------------------------------
352 761
Changes in non-cash working capital (21) 153
----------------------------------------------------------------------------
Cash provided by operating activities 331 914
----------------------------------------------------------------------------
Investing activities
Capital expenditures
Exploration, development and other (569) (993)
Property acquisitions - (2)
Proceeds of resource property dispositions - 502
Yme removal obligation 282 -
Restricted cash (245) -
Investments (7) (5)
Loan to TSEUK (70) -
Changes in non-cash working capital (84) 72
----------------------------------------------------------------------------
Cash used in investing activities (693) (426)
----------------------------------------------------------------------------
Financing activities
Long-term debt repaid - (429)
Long-term debt issued 93 258
Loans from joint ventures 110 35
Common shares issued 60 2
Common shares purchased (44) (4)
Finance costs (cash) (70) (49)
Common share dividends (70) -
Preferred share dividends (2) (3)
Deferred credits and other (9) (7)
Changes in non-cash working capital 18 7
----------------------------------------------------------------------------
Cash provided by (used in) financing
activities 86 (190)
----------------------------------------------------------------------------
Effect of translation on foreign currency cash
and cash equivalents (1) 7
----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (277) 305
Cash and cash equivalents net of bank
indebtedness, beginning of period 553 340
----------------------------------------------------------------------------
Cash and cash equivalents net of bank
indebtedness, end of period 276 645
----------------------------------------------------------------------------
Cash and cash equivalents 319 645
Bank indebtedness (43) -
----------------------------------------------------------------------------
Cash and cash equivalents net of bank
indebtedness, end of period 276 645
----------------------------------------------------------------------------
Contacts: Talisman Energy Inc. - Media and General Inquiries:
Phoebe Buckland Manager, External Communications
403-237-1657tlm@talisman-energy.com Talisman Energy Inc. -
Shareholder and Investor Inquiries: Lyle McLeod Vice-President,
Investor Relations 403-767-5732tlm@talisman-energy.com
www.talisman-energy.com
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