* Sees 5-10 pct annual prod'n growth in medium term
* Cuts 2012 exploration and development spending to $4 bln
* Q4 loss/share $0.11 vs loss/share $0.34 year ago
* Cash flow rises 25 pct
By Bhaswati Mukhopadhyay and Jeffrey Jones
Feb 15 (Reuters) - Talisman Energy Inc will cut spending in its largest shale gas production zone to cope with depressed natural gas prices, the chief executive of Canada's sixth-largest independent oil explorer said on Wednesday.
Talisman, which reported weaker than expected fourth-quarter results, now expects to run just three rigs in the Marcellus area of the northeastern United States in 2012, with gas prices forecast to remain at levels below $4 per million British thermal units for at least another year.
As recently as last month, the company had said it would run between four and seven rigs on the Pennsylvania lands, down from 11 in 2011.
"As a result, total capital expenditure in the Marcellus will reduce from the $1.2 billion we spent last year to around $600 million this year, which includes significant infrastructure buildout as we move east (in the region)," CEO John Manzoni told analysts.
Production there should hover around 500 million cubic feet a day, up from about 485 million at the end of last year, he said.
The company is among several that have cut back on dry gas activity, and shifted capital to areas offering more valuable liquids-rich gas output, as North American markets remain oversupplied, due partly to the shale gas production revolution.
It is increasing activity in such areas as the liquids-rich Eagle Ford area of Texas, where it is a partner with Norway's Statoil. There, it will run 14 rigs by the end of the year, Manzoni said.
With the shift to such plays, overall output is expected to increase by up to 5 percent in 2012, compared with a 9 percent increase in 2011.
"I really see no value in chasing unprofitable growth while gas prices remain so low," Manzoni said.
Company-wide exploration and production spending is budgeted at $4 billion, down from $4.5 billion last year.
Talisman shares were up 54 Canadian cents, or 4 percent, at C$13.06 on the Toronto Stock Exchange. They had lost about a quarter of their value in six months.
"From a strategic point, I think the shifting from natural gas to oil and oil liquids is positive news, which I think would be positive to their free cash flow and margins," said analyst Imran Pervaiz of Accountability Research. "I don't think the market has fully appreciated that."
Manzoni squelched any hope that the troublesome Yme project in the Norwegian North Sea would start up this year, citing continued delays by the platform contractor.
The company is in talks with the contractor, SBM Offshore , with the aim of improving productivity to complete the 40,000 bpd project, which is well behind schedule. Manzoni said he can "see a path forward" with the development, however.
In the fourth quarter, the company lost a net $117 million, or 11 cents a share, compared with a year-ago loss of $350 million, or 34 cents a share, with the loss owing to a host of one-time items
Excluding unusual items, earnings were $114 million, or 11 cents a share. That lagged an average estimate of 19 cents a share among analysts, according to Thomson Reuters I/B/E/S.
Cash flow, a glimpse into the company's ability to fund operations, rose 25 percent to $824 million, or 81 cents a share.
Production rose 8 percent to 442 million barrels of oil equivalent per day, but oil production from the North Sea fell by 25 percent.