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Talisman Disappoints as Prices Fall

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Independent oil and gas exploration and production (E&P) company, Talisman Energy Inc. reported weak fourth-quarter 2012 results due to lower price realizations. The company announced loss per share from continuing operations (excluding non-operating items) of 10 cents against the Zacks Consensus Estimate of earnings of 9 cents. In the year-ago quarter, Talisman had earned 11 cents per share.

Quarterly total revenue of $1,606.0 million deceased 22.9% from $2,082.0 million in the fourth quarter of 2011. The revenue also missed the Zacks Consensus Estimate of $1,742.0 million due to decreased production.

Volume Analysis

The quarter’s total production of 392 thousand barrels of oil equivalent per day (MBOE/d), was down 11.3% from the year-ago level, due to lower North Sea oil production and a decrease in North American gas output. Higher activity in Southeast Asia, Colombia and the Eagle Ford shale was however encouraging.

Oil & liquids production was down 20.50% at 142,764 barrels per day (Bbl/d). Volumes were down due to lower production in the North Sea, partially offset by Southeast Asia and North America output increase.

Talisman’s natural gas volumes were down 4.70% at 1,498 million cubic feet per day (MMcf/d), mainly attributable to the decrease in North America.

Realized Prices

During the quarter, Talisman’s realized commodity prices dropped 8.80% from the year-ago quarter to $56.56 per barrel of oil equivalent (BOE) mainly on account of lower North American and Southeast Asia realizations.

Overall, natural gas prices declined 4.30% year over year to $5.28 per Mcf, while oil and liquids realizations averaged $100.05 per barrel, down 3.90% from the year-ago level.

Cash Flow and Capital Expenditure

Cash flow from continuing operations totaled $675.0 million, down 18.10% year over year. Talisman spent $311.0 million on exploration and development activities.

Balance Sheet

As of Dec 31, 2012, Talisman had cash and cash equivalents of approximately $721.0 million and long-term debt of $4,442.0 million (including current portion) with a debt-to-capitalization ratio of 31.0%.

Zacks Rating

The company currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

As is the case with other independent exploration and production companies, Talisman Energy’s results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flows.

Additionally, Talisman’s extensive natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more diversified independent peers with higher oil production. The company, which derives more than half of its reserves/production from natural gas, is likely to see its sales and income suffer on the back of weak gas prices.

However, there are other E&P companies that are expected to perform well in the coming one to three months. These include ARC Resources Ltd. with Zacks Rank #1 (Strong Buy) as well as Canadian Oil Sands and Dejour Energy Inc. with Zacks Rank #2 (Buy).