* Boosts 2010 capex 10 pct to C$5.2 billion
* C$1.6 bln to be spent on N. American shale properties
* Eyes sale of non-core assets producing 40,000 boed
* Sees production unchanged from 2009
* No plans to break up company
* Shares drop 3.5 pct to C$19.85 (Recasts with details from investor call, comments; updates shares)
By Scott Haggett
CALGARY, Alberta, Jan 11 (Reuters) - Talisman Energy Inc TLM.TO, Canada's No. 3 independent oil explorer, said on Monday it will accelerate its switch to an unconventional gas producer this year, raising 2010 spending by 10 percent as it boosts drilling on its shale gas holdings.
The company, which has spent the past two years selling non-core assets around the world to concentrate on its longer-term prospects in Canada, the United States, the North Sea and Southeast Asia, expects to spend C$5.2 billion ($5.04 billion) on its business this year, up about one-tenth from its 2009 budget.
Talisman is speeding ahead on its strategic shift, selling off conventional assets and concentrating on unconventional gas production by investing heavily in the massive shale plays that have revolutionized the North American natural gas business as new technology lets companies profitably tap massive reserves once thought too expensive to exploit.
"Our main priority (in 2010) will be continuing the portfolio transition we've begun," John Manzoni, Talisman's chief executive, said on a conference call. "We'll continue to accelerate the development of our shale plays."
However, despite raising spending, the company is expecting little production growth, saying output would be about flat from 2009 at around 425,000 barrels of oil equivalent per day.
Talisman shares fell 73 Canadian cents to C$19.85 on the Toronto Stock Exchange on a volume of more than 5 million, about twice the usual level over the past three months.
However some analysts were optimistic about the company's plans, though the capital budget was higher than most had expected.
"The C$5.2 billion (budget) really tells you that Talisman has a lot of options," said Martin Molyneaux, an analyst at FirstEnergy Capital. "They've gone through a huge amount of positive change in the past two years ... Anyone just looking at the negatives is doing themselves a disservice."
After spending 2009 acquiring lands in the Marcellus shales of Pennsylvania and British Columbia's Montney region, Talisman will focus on boosting output from its holdings, earmarking C$1.6 billion to drill on its new lands.
"North American shale continues to emerge as a key focus," Andrew Potter, an analyst at UBS Securities, wrote in a note to clients. "Drilling in the Marcellus and Montney shale plays is expected to more than double in 2010 with over 200 wells expected."
Talisman drilled 70 wells on its shale holdings last year.
Manzoni said the company's plans for Marcellus will not include any drilling in the parts of the play under New York state, where exploration is opposed by New York City because of concerns drilling could contaminate water supplies.
Talisman will wait until the state drafts new regulations for companies exploiting the play before drilling on its holdings there.
Most of Talisman's budget, about 85 percent, will go to developing its existing properties, with the remainder pegged for international exploration as it looks for new fields in Southeast Asia, Colombia, Iraq and elsewhere.
Talisman may also sell conventional natural gas assets in North America currently producing about 40,000 barrels of oil equivalent per day (boed).
The assets expected to go on the block are properties in Western Canada, which are more expensive to develop than its shale holdings, or properties the company considers too small to retain.
On the conference call, Manzoni also reiterated that Talisman has no plans to split up into regional or separate commodity-focused firms, saying it still makes sense to keep the company whole.
"I'm always open to structural adjustments of the company if we believed that value was somehow being trapped inside the company," he said. "I think right now we're on a great path ... There are certainly no plans today to split the company."
$1=$1.03 Canadian Additional reporting by Ajay Kamalakaran; editing by Rob Wilson