Talisman profit falls, boosts shale gas holdings

By Scott Haggett

CALGARY, Alberta (Reuters) - Talisman Energy Inc (TLM.TO: Quote) is boosting spending on its unconventional gas holdings, raising its budget by C$900 million ($841 million) to buy and drill shale-gas properties even as it reported a 98 percent drop in third-quarter profit.

The company, Canada's No. 3 independent oil explorer, said on Tuesday that net income fell to C$30 million ($27.9 million), or 3 Canadian cents a share, down from C$1.4 billion, or C$1.40 a share, a year ago as oil and gas prices plunged, production fell and costs rose.

But Talisman is still speeding ahead with a strategic shift, concentrating on unconventional gas production and investing heavily in the massive shale plays that have revolutionized the North American natural gas business as new technology lets companies profitably tap massive reserves once thought too expensive to exploit.

To pay for its switch, the company raised its 2009 capital budget by 25 percent to C$4.5 billion to increase drilling on its shale properties and acquire new exploration lands.

"We're accelerating our shale-gas development activity as we gain confidence," John Manzoni, Talisman's chief executive, said on a conference call.

Since the beginning of the year, Talisman has bolstered its land holdings in two unconventional gas discoveries where it thinks it can produce gas for about C$4 per thousand cubic feet, making it profitable at current prices.

It said it added 90,000 acres of properties in Pennsylvania's Marcellus shale gas region, North America's largest natural gas reserve, with an estimated 1,500 trillion cubic feet of gas in place.

Talisman's production from the region has risen ten-fold since the start of the year to more than 50 million cubic feet a day.