Nov. 3 (Bloomberg) -- Talisman Energy Inc., the Canadian oil explorer with reserves in North America, the North Sea and southeast Asia, said third-quarter profit slumped 98 percent as commodities prices tumbled.

Net income slid to C$30 million ($27.7 million), or 3 cents a share, from C$1.43 billion, or C$1.38, a year earlier, the Calgary-based company said today in a statement. Excluding expenses for stock-based compensation and other items, profit was 15 cents a share. On that basis, the company was expected to earn 9 cents, the average of 11 analyst estimates compiled by Bloomberg. Revenue fell to C$1.54 billion from C$2.66 billion.

Talisman’s profit was hurt as New York oil prices averaged 42 percent lower in the quarter and natural gas slipped 62 percent. Talisman’s production, which is almost equally split between oil and gas, fell 9 percent last quarter to the equivalent of 401,000 barrels a day from a year earlier, partly because of maintenance work.

“Production-wise they were 1 percent below what I was looking for,” said Rafi Khouri, an analyst at Raymond James Ltd. in Calgary who rates the shares “outperform” and doesn’t own any. “So I wouldn’t call this a strong miss. They had guided to lower production.”

Full-year production is expected to be the equivalent of 423,000 to 426,000 barrels a day, Talisman said. The company had previously expected to pump the equivalent of 430,000 barrels a day of oil, with the downside risk limited to 5 percent, or 21,500 barrels a day.

The company’s oil price after hedging, royalties and other costs dropped 47 percent to C$38.20 a barrel in the third quarter from the same period a year earlier and its gas price slipped 57 percent to C$2.82 per thousand cubic feet.

Splitting Business

Chief Executive Officer John Manzoni, a former BP Plc executive, is splitting Talisman’s North American businesses into a conventional and a shale-gas division to focus on such reservoirs as the Montney in British Columbia and Pennsylvania’s Marcellus Shale.

Talisman has added more than 170,000 acres of land in the Marcellus and Montney shales for about C$570 million, most of it since Sept. 30. The company said it expects to start commercial production from part of its Montney operations “early next year.”

The land purchases add to what Talisman calls its Tier 1 unconventional acreage, which is expected to be economical at gas prices of $4 per thousand cubic feet in the long term, the company said today in a separate statement. Talisman has identified about 4,800 drilling opportunities in the Montney and the Marcellus.

Focus on Shale

Talisman also said it plans to sell more assets from its conventional operations in Canada and the U.S. to focus on shale. Divestitures each year may amount to the equivalent of about 8,000 daily barrels of production, the company said.

The strategy is in line with that of other Canadian producers. EnCana Corp., the country’s biggest gas company, said Oct. 23 it may sell up to $1 billion in gas assets each year that aren’t profitable enough to focus on shale reservoirs in western Canada and the U.S.

Talisman, which has 16 buy ratings from analysts and 6 hold recommendations, was unchanged at C$18.33 on the Toronto Stock Exchange.

(Talisman will conduct a conference call beginning at 1 p.m. New York time, accessible on the company’s Web site at http://www.talisman-energy.com).

To contact the reporter on this story: Sonja Franklin in Calgary at sfranklin6@bloomberg.net

Last Updated: November 3, 2009 16:20 EST