March 5, 2009 / 11:27 AM / 9 years ago

REFILE-UPDATE 2-Talisman boosted by lucrative energy hedges

(Refiles to add dropped work in paragraph 4)

* Q4 EPS C$1.17 vs C$0.63 last year

* Q4 EPS from cont. ops C$0.53, tops estimates

* Asset sales hit C$1.7 billion

* Production down 3 pct

By Jeffrey Jones

CALGARY, Alberta, March 5 (Reuters) - Talisman Energy Inc’s TLM.TO fourth-quarter profit surged 83 percent as Canada’s No. 3 oil explorer sold forward production at levels well above market prices, which collapsed due to sputtering economies.

Talisman also said on Thursday it has sold C$1.7 billion ($1.3 billion) of assets in the past year, the mid-point of its target range, after agreeing to jettison its southeastern Saskatchewan properties a day earlier.

The sales are central to Chief Executive John Manzoni’s strategy of sharpening the company’s focus on large unconventional natural gas prospects in North America as well as big fields in southeast Asia and offshore Norway.

He is moving away from operations in numerous locales as oil prices have dropped more than $100 since July to around $40 a barrel. Natural gas is 40 percent below last year’s price.

Whether the plans to move to longer-term prospects work depends on how Talisman reinvests its sales proceeds, and on rivals passing up on the temptation to launch a bid, FirstEnergy Capital Corp analyst Martin Molyneaux said.

Last September, Talisman shares jumped on a report that China’s CNOOC Ltd (0883.HK) had approached the Canadian company with plans to combine assets in a new company. Four months earlier, other Chinese firms were said to be considering bids.

Since then, Talisman’s shares have been more than halved in the industry downturn. They fell 10 Canadian cents to C$11.38 on the Toronto Stock Exchange on Thursday.

China National Petroleum Corp “has been all over the world now, and there’s no question Talisman has a very nice suite of assets in southeast Asia,” Molyneaux said.

Absent of that, investors will probably be patient enough to let Manzoni’s initiatives play out, analysts said.

“It’s going to take time, but I think he’s doing all of the right things,” Dundee Securities analyst Menno Hulshof said. “A a turn in the market would certainly help, because the plays that he’s chasing right now are becoming more uneconomic by the day, given the correction in natural gas prices.”

In the fourth quarter, net income climbed to C$1.2 billion, or C$1.17 a share, from C$656 million, or 63 Canadian cents, a year earlier.

The result included C$769 million in gains from hedging, which allowed Talisman to counteract the impact of a 25 percent drop in realized prices and lower output, Manzoni said.

The company has sold forward 37 percent of the year’s remaining oil output at about $75 a barrel and 48 percent of its gas output at a floor price of about C$6 per gigajoule. U.S. oil sold for $43.61 a barrel and Canadian gas fetched C$4.41 a GJ on Thursday.

Earnings from continuing operations were C$537 million, or 53 Canadian cents a share, up more than four times from C$123 million, or 12 Canadian cents a share.

That beat the average estimate among analysts of 38 Canadian cents, as compiled by Reuters Estimates.

Cash flow, a key indicator of Talisman’s ability to pay for new projects and drilling, rose 55 percent C$1.57 billion, or C$1.54 per share, from C$1.01 billion, or 99 Canadian cents a share, in the fourth quarter of 2007.

Production averaged 432,000 barrels of oil equivalent per day, down more than 3 percent due to asset sales in Canada, Denmark and Netherlands.

On Thursday, Talisman sold lands in Saskatchewan’s prolific Bakken oil region for C$720 million to Tristar Oil & Gas (TOG.TO) and Crescent Point Energy Trust CPG_u.TO for C$720 million.

$1=$1.29 Canadian Additional reporting by Chakradhar Adusumilli; Editing by Frank McGurty

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