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Talisman sells Montney assets to Petronas for $1.4 billion

BY REBECCA PENTY

CALGARY, Canada (Bloomberg) -- Talisman Energy Inc., 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 2.4 percent to C$12.51 at 10:40 a.m. in Toronto.

“This is positive and very unexpected by us and the market,” Phil Skolnick, a New York-based analyst at Canaccord Genuity Corp., said in a note today. The sale generated C$11,811 an acre compared with his estimate of C$11,518, Skolnick said.

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 acknowledged shareholder impatience with the slow pace of deals on Nov. 6 and said Talisman is on track to announce two by the end of 2013.

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 initial opposition from the Canadian government.

Petronas, as the Malaysian company is known, plans to 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 Malaysian company is seeking to sell down its stake in the gas fields, pipeline and processing facilities that are part of the 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. 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 resources in the world.

Talisman will use the proceeds to strengthen its balance sheet as Kvisle seeks to bring debt down to 1.5 times cash flow. He is seeking to shrink the company which operates on six continents to focus on North America and Southeast Asia. Talisman reported a narrower third-quarter loss on Nov. 6 as costs fell.

The 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 and lower than an estimate by FirstEnergy Capital Corp., Michael Dunn, an analyst at the Calgary-based investment adviser, said in a note today. Talisman shares may pare gains as investors reassess the deal, 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 approval by the Canadian government, which is required to review the deal under its 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.

11/08/2013

 

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