November 4, 2008 / 11:23 AM / 9 years ago

UPDATE 3-Talisman profit quadruples, spending heads lower

* Q3 EPS from cont. ops 72 Canadian cents

* 2008 output target trimmed to 430,000 boe/d

* CEO sees lower spending in 2008, 2009

* Shares up 6 percent (Adds CEO comments, details)

By Jeffrey Jones

CALGARY, Alberta, Nov 4 (Reuters) - Talisman Energy Inc TLM.TO will cut spending this year and next to cope with the meltdown in energy and financial markets, even if it means output slips in some areas, the head of Canada’s No. 3 independent oil explorer said on Tuesday.

After Talisman reported its third-quarter profit quadrupled, Chief Executive John Manzoni said he was trimming the 2008 budget by up to 9 percent to C$5 billion-C$5.3 billion ($4.3 billion-$4.6 billion) and signaled a frugal 2009.

Still, Talisman’s shares jumped 6 percent to C$12.39 on the Toronto Stock Exchange as oil surged more than 9 percent.

Manzoni said the company will reduce capital spending on conventional oil and gas in North America and may defer some projects in the North Sea while it focuses on its highest-return opportunities.

It is shifting Canadian and U.S. spending to unconventional natural gas plays like the Montney in British Columbia and Marcellus shale in Pennsylvania. Such prospects are known for large reserves but require busy drilling and rock fracturing.

“If we slow down our conventional activity, it’s bound to have an impact on next year’s production. There’s no escaping that, but I think strategically it’s the right thing to do,” Manzoni told analysts. He said Talisman will announce its 2009 budget in January.

As part of his strategy to shift to longer-term prospects, Talisman been in the midst of a plan to sell C$3 billion of non-core assets when the meltdown intensified in September.

It has asset packages in Trinidad and the British North Sea on the block, but executives expressed concern on Tuesday that they may not attract high enough bids in the weak environment.

CASH FLOW UP 48 PERCENT

In the third quarter, Talisman earned a net C$1.4 billion, or C$1.40 a share, up from C$352 million, or 35 Canadian cents a share, a year earlier.

The result included an unrealized C$467 million after-tax gain on the value of its oil and gas hedging contracts and a C$214 million stock-based compensation expense recovery.

Earnings from continuing operations were C$731 million, or 72 Canadian cents a share, matching the average in a Reuters Estimates survey of analysts’ forecasts.

Cash flow, a glimpse into an oil company’s ability to fund drilling and other projects, rose 48 percent to C$1.68 billion, or C$1.65 a share.

The industry has reported strong results for the quarter as oil prices averaged $118.22 a barrel, up 57 percent from a year earlier, and Canadian natural gas averaged C$7.35 a gigajoule, up 49 percent.

But investors, hit by major stock market losses, are now concentrating on forecasts as the subsequent swoon in oil prices to below $70 a barrel, combined with the credit crunch, point to miserly 2009 spending across the industry.

Production averaged 443,000 barrels of oil equivalent a day, up 1 percent from a year earlier despite the sale of assets pumping out 40,000 barrels of oil equivalent a day.

Talisman now expects annual production will be 430,000 barrels a day, down from its previous outlook of 435,000, due to a delay in the startup of the Song Doc offshore project in Vietnam and extended maintenance at another development in the region.

$1=$1.15 Canadian Additional reporting by Ajay Kamalakaran; editing by Rob Wilson

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