July 29, 2008 / 11:52 AM / 10 years ago

UPDATE 4-Talisman operating profit doubles on oil's surge

(Adds detail and CEO comment from conference call.)

By Scott Haggett

CALGARY, Alberta, July 29 (Reuters) - Operating profit at Talisman Energy Inc TLM.TO more than doubled in the second quarter due to surging oil and gas prices, Canada’s No. 3 independent oil company reported on Tuesday.

Talisman will increase capital spending to boost output from unconventional oil and gas reserves.

The company, under new Chief Executive John Manzoni, is selling off parts of its global production base and refocusing operations on a few key theaters such as the North Sea, Southeast Asia and unconventional reserves in North America.

“It looks like (Manzoni) is on track,” said Ben Dell, an analyst at Sanford C. Bernstein & Co. “The asset base potential is very good but it’s probably a multi-year turnaround.”

Talisman’s earnings from continuing operations, which exclude most charges and one-time items, were C$846 million. or 83 Canadian cents a share, in the second quarter, up from C$317 million, or 30 cents, in the year-before quarter.

The operating result surpassed the average forecast of analysts for a profit of 73 Canadian cents a share, according to Reuters Estimates, as the company’s oil and gas production rose more than expected.

However, net income fell 23 percent to C$426 million, or 42 Canadian cents, on higher charges on stock-based compensation and mark-to-market losses on hedging contracts. In the year-earlier quarter, when results were boosted by gains, net income was C$550 million, or 53 Canadian cents a share.

Talisman is jettisoning assets in regions where long-term production increases are in question and concentrating on such prospects as unconventional natural gas in North America, where spending is rising 50 percent to C$1.5 billion this year, and on exploration in Southeast Asia.

The additional cash for its unconventional program will boost Talisman’s capital spending budget this year to C$5.5 billion from its previous C$5 billion target. It’s the second increase in capital spending this year.

“Everything seems to be humming along,” said Martin Molyneaux, an analyst at FirstEnergy Capital. “They’ve got enough excitement in the early stages of their unconventional program that they’re adding C$500 million to it.”

Assets earmarked for sale, including some North Sea fields and holdings in Trinidad and Tobago, produce about 45,000 barrels of oil equivalent a day.

Manzoni, a former BP Plc (BP.L) executive who took over from founding chief executive Jim Buckee last year, said on a conference call that buyers have expressed interest in its Trinidad and the Netherlands properties.

Along with its new focus on developing unconventional oil and gas reserves in promising fields like the Montney gas play in northwestern Alberta and northeastern British Columbia or the Bakken oil field in Saskatchewan, Manzoni is also pushing into new regions, like Kurdistan in Iraq.

He said that could bring substantial rewards, despite turmoil in the region and political infighting between the national and regional governments.

“The region has about 40 billion barrels of yet-to-be defined hydrocarbons ... which makes it one of the most prospective areas in the world,” Manzoni said.

Cash flow, a measure of an oil company’s ability to finance its projects, was C$1.69 billion, or C$1.66 a share, up 43 percent from C$1.18 billion, or C$1.13 a share.

In the second quarter, the company produced 432,000 barrels of oil equivalent a day, down 4 percent from the same period in 2007 due to the sale of non-core assets.

Results at Talisman and its oil-industry peers have been buoyed by crude prices that soared 90 percent to a record quarterly average of $123.80 a barrel. Natural gas prices in Canada also surged, averaging C$9.68 per gigajoule, a 44 percent gain from 2007.

The company said it is delaying the start up of its Rev development in the Norwegian North Sea. It was scheduled to begin production next month, but will now start in early 2009 due to construction delays.

Revenue rose to C$3.16 billion from C$1.92 billion.

Talisman shares fell 28 Canadian cents to C$17.84 as investors sold energy stocks amid a 2 percent drop in U.S. light crude oil futures prices CLc1. Talisman has dropped 5.9 percent over the past 12 months. ($1=$1.03 Canadian) (Additional reporting by Jennifer Kwan; Editing by Janet Guttsman)

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