July 23, 2012 / 5:52 PM / 5 years ago

Sinopec pays $1.5 billion for Talisman North Sea stake

CALGARY, Alberta (Reuters) - Talisman Energy Inc TLM.TO said on Monday that Sinopec Corp (600028.SS), China's top refiner, has agreed to buy a 49 percent stake in its North Sea operations for $1.5 billion as the Canadian company looks to strengthen a balance sheet battered by weak natural gas prices.

Talisman, Canada's No. 6 oil and gas exploration company, will form a joint venture with Sinopec to operate the assets, which produced 63,000 barrels of oil equivalent per day in the first quarter of 2012, about 14 percent of the company's total output.

Talisman has long looked to lower its stake in the North Sea, where it has had little exploration success and where higher taxes have lifted costs. Chief Executive John Manzoni has deployed cash generated in the region into Talisman's promising North American shale fields and its Southeast Asian oil fields.

"Talisman has delivered on two key promises for the year," Manzoni said in a statement.

"We are reducing our working interest and capital spend in the UK business by approximately half, allowing us to focus on and fund growth areas within our portfolio."

It was the second major investment in a Canadian oil explorer by a Chinese company announced on Monday, after CNOOC Ltd (0883.HK) agreed to buy Nexen Inc NXY.TO for $15.1 billion. That was China's largest offer for a foreign oil producer since U.S. regulators foiled an $18.5 billion bid for Unocal Corp in 2005.

Sinopec will take a 49 percent stake in Talisman's North Sea assets, which Talisman will operate. With a partner on board, Talisman said it will defer decommissioning of some platforms and look to do additional infill drilling and exploration.

Analysts said the new partnership will lower Talisman's exposure to the North Sea and could make its production forecasts more reliable. Operating issues with its UK platforms have in the past caused the company to come up short of expectations and disappoint investors and analysts.

"We are positive on today's announcement as it shows not only the undervalued nature of (Talisman's) assets but also de-emphasizes the North Sea, which has been operationally problematic for the company and the source of most guidance reductions," Andrew Potter, an analyst at CIBC World Markets.

Talisman, whose stock was up almost 7 percent late on Monday, said Sinopec will be able to appoint its employees into key positions within Talisman Energy (UK) Ltd.

Aberdeen, Scotland-based Talisman UK holds an interest in 46 North Sea fields and operates 11 offshore platforms and one onshore platform.

Talisman said $500 million of the proceeds will be used to buy back its own shares, which have fallen 42 percent over the past 12 months because of weak natural gas prices.

The shares were up 76 Canadian cents, or 6.9 percent at C$11.81 on the Toronto Stock Exchange.

Sinopec's investment in the North Sea comes as confidence in the mature North Sea area is reviving despite recent production slumps. In the last two months, Kuwait's state oil firm returned to the North Sea after a $500 million deal with EnQuest ENQ.L, and Japanese trading company Mitsui (8031.T) entered the North Sea for the first time.

Britain is set to pump fewer barrels of oil this year than last, even after production fell 19 percent in 2011. It is hoped that new fields coming on stream and rising investment will hope slow the decline in 2013.

Talisman said the deal is expected to close by year end, pending government and regulatory approvals.

($1=$1.02 Canadian)

Additional reporting by Sarah Young in London; Editing by Janet Guttsman and Tim Dobbyn

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