July 27, 2010 / 11:19 AM / in 8 years

UPDATE 2-Talisman Q2 profit beats Street, spending slips

* Q2 EPS from cont ops C$0.13 vs estimate C$0.11

* Cash flow C$0.80 vs year-earlier C$0.88

* Capex slipping despite no change to operating plans

* Shares climb 2 percent (Adds CEO comments, details)

CALGARY, Alberta, July 27 (Reuters) - Talisman Energy Inc’s TLM.TO second-quarter profit beat expectations on higher oil and gas prices and Canada’s No. 4 independent oil explorer said it expects production to keep rising for the rest of the year.

Talisman, which has been restructuring its North American operations to concentrate on shale gas prospects, also said its capital spending for the year is ringing in at less than expected, partly because of a stronger Canadian dollar.

Talisman shares jumped 38 Canadian cents, or 2 percent, to C$17.47 on the Toronto Stock Exchange on a day when the energy subgroup fell 0.5 percent.

At the start of the year, the company earmarked C$4.9 billion ($4.7 billion) for capital spending and by May that figure had dropped to C$4.6 billion.

Now, spending may total C$4.4 billion to C$4.5 billion without any changes to the company’s operating plans, Chief Executive John Manzoni said.

“Indeed we will be ramping up activity in the second half versus the first half,” Manzoni told analysts and reporters.

“But I think it is just for whatever reason ... little changes here and there are putting us slightly behind the activity curve over time. I say people aren’t working hard enough but I’m assured they are working as hard as they can.”

Talisman has managed to avoid some of the cost inflation creeping up in hot operating areas such as the Marcellus shale in Pennsylvania and the North Sea by signing long-term contracts with rig and service providers, he said.

The company is investing heavily in shale gas plays such as the Marcellus, where output has exceeded 190 million cubic feet a day this month and could hit 300 million a day by the end of the year.

Other shale plays include the Montney in British Columbia, Utica in Quebec and Eagle Ford in Texas. Earlier this year, the company began early-stage exploration of shale prospects in Poland.

Talisman’s second-quarter net earnings jumped nearly tenfold to C$603 million, or 59 Canadian cents a share, from a year-earlier C$63 million, or 6 Canadian cents a share. Last year’s profit was chopped by mark-to-market losses on derivatives.

Excluding one-time items, it earned C$137 million from continuing operations, or 13 Canadian cents a share.

Analysts on average had forecast profit of 11 Canadian cents a share, according to Thomson Reuters I/B/E/S.

The company’s realized oil price averaged C$77.70 in the second quarter, up 17 percent from a year earlier. Its average natural gas price was C$5.51 per thousand cubic feet, up 13 percent.

Cash flow, a glimpse into an oil company’s ability to pay for drilling and other projects, fell 9 percent to C$812 million, or 80 Canadian cents a share, from C$897 million, or 88 Canadian cents a share.

Production at Talisman, which also operates in the North Sea and Southeast Asia, averaged 411,000 barrels of oil equivalent a day, down from 424,000 in the year-earlier quarter as a result of non-core asset sales.

The company said production from continuing operations averaged 387,000 barrels of oil equivalent a day, up 2 percent from last year. ($1=$1.04 Canadian) (Reporting by Jeffrey Jones and Bhaswati Mukhopadhyay; Editing by Gopakumar Warrier and Peter Galloway)

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