November 2, 2011 / 10:40 AM / in 6 years

UPDATE 3-Talisman looks to reduce North Sea exposure

* Hit by year of operational problems in region

* Examining joint ventures, interest arrangements

* Q3 EPS $0.16 excluding items vs $0.12 last year (Updated throughout with CEO comments, details; in U.S. dollars unless noted)

By Jeffrey Jones

CALGARY, Alberta, Nov 2 (Reuters) - Talisman Energy Inc TLM.TO will look to further cut exposure to North Sea operations after a year of production setbacks forced the company to twice lower output forecasts, its chief executive said on Wednesday.

CEO John Manzoni told investors that Talisman is weighing a series of options, including joint ventures and drill-to-earn-interest arrangements, as a way to keep extracting short-term cash from North Sea operations to fund other business, but cut longer-term spending.

After Talisman reported its third-quarter profit rose by 48 percent, Manzoni said North Sea operational problems have overshadowed positive results in other parts of the company’s portfolio, such as shale gas holdings in Canada and the United States, and that has depressed its stock price.

“There’s been this huge reaction. It’s been a very difficult thing to deal with, and it’s all because for the first year in a number of years the North Sea actually surprised us again,” he said told analysts.

When Manzoni became Talisman’s CEO in late 2007, he made meeting targets a top priority and later reduced the North Sea operations to the point where they would play the role of cash generator for the rest of the company.

This year, a delay in assembling the platform for the Yme field in the Norwegian sector was a big factor behind the reduced production target, to 425,000 barrels of oil equivalent a day from an initial outlook of 450,000-470,000.

Some analysts had wondered if Talisman could be returning to its previous record of missing its own forecasts.

Manzoni had blamed contractor SBM Offshore (SBMO.AS) for poor construction quality that led to the delay at Yme, but now the companies are working together to achieve a start-up by the end of mid-2012, executives said.

Despite moves to de-emphasize the North Sea, he told investors not to expect “radical change”.

“But I am signaling that we’re looking at various options to reduce the impact of the volatility within our portfolio over time,” he said.

Talisman shares rose 42 Canadian cents, or 3 percent, to C$14.19 on the Toronto Stock Exchange on Wednesday. They had been down 38 percent year-to-date.

The company has yet to finalize 2012 capital spending, but Manzoni said he expects less outlay on conventional natural gas as markets remain weak and increased expenditures on liquids-rich shale plays, such as the Eagle Ford in Texas, and on oil exploration in Colombia.

In the quarter, earnings rose to $521 million, or 51 cents a share, from year-earlier $352 million, or 35 cents a share.

Excluding unusual items, profit rose by a third to $165 million, or 16 cents a share, beating the average estimate among analysts by a penny, according to Thomson Reuters I/B/E/S.

Cash flow, an indicator of a company’s ability to pay for new projects, rose 29 percent to $902 million, or 88 cents a share.

Third-quarter production averaged 400,000 barrels of oil equivalent a day, down slightly from 404,000 a year ago.

Output from shale deposits, including Eagle Ford, the Marcellus in the northeastern United States and Montney in British Columbia, doubled and should account for more than half of North American production at year-end.

$1=$1.01 Canadian Additional reporting by Aftab Ahmed and Maneesha Tiwari in Bangalore; editing by Rob Wilson

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