Talisman Energy Inc. (TLM), the Canadian oil and natural gas producer being targeted by investor Carl Icahn, agreed to sell part of its Montney acreage to Malaysia’s Petroliam Nasional Bhd for C$1.5 billion ($1.4 billion).
The transaction involves about 127,000 net acres, representing 75 percent of Talisman’s Montney shale holdings in the Farrell Creek and Cypress areas of British Columbia, the Calgary-based company said today in a statement. It includes C$800 million in drilling costs. Talisman rose 1.6 percent to C$12.42 at the close in Toronto.
The deal brings Talisman closer to a target of $2 billion to $3 billion in divestitures by mid-2014 to reduce debt and cut costs after North American gas prices fell to a 10-year low last year. Chief Executive Officer Hal Kvisle said earlier this week that shareholders are impatient with the pace of sales and Talisman is on schedule to announce one or two “major” deals by the end of 2013.
“It’s a solid first step,” David Neuhauser, who manages $100 million at Livermore Partners Inc. in Northbrook, Illinois, including shares of Talisman, said in a phone interview today. “I want them to sell all assets except for the U.S. and Asian operations. Everything else should have a ‘for sale’ sign.”
The acquisition is being made by Progress Energy Canada, the company that state-owned Petroliam Nasional bought last year for C$5.2 billion after an initial rejection from the Canadian government.
Petronas, as the Malaysian company is known, will decide next year on a proposed C$9 billion to C$11 billion liquefied natural gas export terminal on Canada’s Pacific Coast. It’s vying to be first among rivals including Royal Dutch Shell Plc and Chevron Corp. to tap western Canadian shale fields and chill the gas into a liquid for transport by ship to Asia.
The company has enough gas without Talisman’s Montney land to meet its initial proposal to export 12 million metric tons a year from Canada, Michael Culbert, CEO of Progress Energy, said in a phone interview today. It may require the additional supplies if it expands the project, he said.
“We really look at the economics of this additional land as being, for the time being at least, targeted toward the domestic natural gas market,” Culbert said. The company has applied for a license to export as much as 19.7 million metric tons a year from Canada’s National Energy Board, the country’s regulator.
Petronas is seeking to reduce its stake in the gas fields, pipeline and processing facilities for the LNG project to as low as 50 percent and bring in partners that would commit to take a portion of the LNG exports. Japan Petroleum Exploration Co. (1622) owns 10 percent.
A report released Nov. 6 by the governments of Canada, Alberta and British Columbia said the Montney formation that straddles the two provinces contains 449 trillion cubic feet of gas, more than double previous estimates and among the largest in the world.
Talisman will use the proceeds from today’s sale to pay down debt, Kvisle said in a phone interview today. He has a target to lower debt to 1.5 times cash flow.
“We came to realize we were going to have to put capital into that asset for a number of years with relatively modest returns,” Kvisle said, since gas from the Montney won’t fetch “premium prices” until LNG exports begin.
Kvisle, who became CEO in September 2012 and said Nov. 6 he would step down before the end of 2014, is seeking to shrink Talisman, which operates on six continents, to focus on North America and Southeast Asia. Talisman reported a narrower third-quarter loss as costs fell.
The company is also working toward announcing the sale of its 12 percent stake in the Ocensa pipeline in Colombia, Kvisle said. The pipeline interest has a book value of $660 million, Phil Skolnick, an analyst at Canaccord Genuity Corp. in New York, wrote in a note today.
The Montney sale includes lands on which Talisman previously signed joint-venture agreements with Sasol Ltd.
Excluding the value of production and development funding from Sasol, the per-acre price is around C$5,700, about 80 percent below what was paid by Sasol, Michael Dunn, an analyst at FirstEnergy Capital Corp. in Calgary, said in a note today. Talisman shares may pare gains as investors reassess the deal’s metrics, he said.
The assets being sold produced the equivalent of about 11,000 barrels of oil a day as of Oct. 1, with output expected to increase in the fourth quarter, Progress Energy said in a separate statement. The deal is expected to close in the first quarter pending regulatory approvals, including a review under Canada’s foreign-takeover law.
Billionaire investor Icahn reported a 7 percent stake in Talisman last month and said he may seek talks with management on “strategic alternatives” and board seats.
Jefferies Group LLC and Scotiabank acted as joint advisers to Talisman.
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