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Talisman Reports $1 Billion Loss on North Sea Impairments

Talisman Energy Inc., the energy company that was targeted by billionaire investor Carl Icahn, reported a $1.01 billion fourth-quarter loss as it reduced the value of its North Sea business.

The net loss, equivalent to 98 cents a share, compares with net income of $376 million, or 37 cents, a year earlier, the Calgary-based company said today in a statement. Excluding one-time writedowns, the 11-cent per-share loss missed the average of 14 analysts’ estimates compiled by Bloomberg.

Talisman’s oil and natural gas output has dropped as it sells assets and cuts spending to reduce debt. Chief Executive Officer Hal Kvisle, who has said he will depart this year, laid out plans today to sell another $2 billion in assets in the next 12 to 18 months, after announcing more than $2.2 billion in divestitures during the past year. The company took an $826 million impairment in the fourth quarter after reducing the value of assets in the U.K., Norway and Canada.

The results “did not include additional information on CEO succession planning or details on asset dispositions that we believe the market is looking for,” Randy Ollenberger, an analyst with BMO Capital Markets in Calgary, wrote in a note today. Talisman’s earnings “were in line with expectations.”

Production fell to 387,000 barrels of oil equivalent a day from 392,000 barrels a day a year earlier, according to the statement. Sales dropped 13 percent to $1.27 billion.

Spending Plans

The company said in November that unplanned maintenance in the North Sea would probably result in lower cash flows and may require it to cut the value of the assets. In December 2012, Talisman sold a 49 percent stake in its U.K. assets, including North Sea production, to China Petrochemical Corp.

Talisman forecast flat capital spending for 2014 and production about 4 percent lower than the average estimate of analysts after including planned dispositions, Greg Pardy, an analyst at RBC Capital Markets LLC, wrote in a note today.

The company said in a separate release it plans to keep 2014 capital spending unchanged from last year, at about $3.2 billion. Output from ongoing operations, which strips out asset sales, will be the equivalent of 350,000 barrels to 365,000 barrels of oil a day, up from 345,000 last year, Talisman said.

“In 2014, we expect more improvements in performance, with continued growth in high-margin liquids production generating increased cash flow,” Kvisle said in the statement. The company will focus spending to increase output in the Americas and Asia-Pacific, he said.

Beating Expectations

In the fourth quarter, Talisman agreed to sell its Southeast Sumatra asset in Indonesia and earlier this year agreed to sell its Foothills Monkman sour gas unit, it said today, without disclosing prices.

The stock, which has dropped 3.5 percent this year, rose 2.1 percent to C$11.92 at the close in Toronto. The shares have seven buy and 15 hold recommendations from analysts.

“They beat my expectations for the fourth quarter, in terms of production and cash flow, so that’s positive,” said Pawel Rajszel, an analyst at Veritas Investment Research Corp. in Toronto.

Icahn, the second-largest shareholder with a 7.3 percent stake in Talisman, agreed in December not to conduct a proxy fight in exchange for two board seats. Icahn has said he believes “in the potential of Talisman.”

Talisman is undervalued and investors should use “any weakness on 2014 guidance as a buying opportunity,” Phil Skolnick, an analyst at Canaccord Genuity Corp. in New York, wrote in a note today. “The market is giving no credit to any potential fixes associated with Carl Icahn.”

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