January 11, 2011 / 11:26 AM / 7 years ago

UPDATE 3-Talisman to boost output 5-10 pct, gas spending cut

* Cash spending relatively unchanged from last year

* Warns of weak gas prices for 2011

* Shale spending to drop 35 percent

* Shares up 2.6 percent at C$22.78 (Adds CEO comments. In U.S. dollars unless noted)

By Jeffrey Jones

CALGARY, Alberta, Jan 11 (Reuters) - Talisman Energy Inc TLM.TO will hold exploration and development spending flat at about $4 billion this year with the aim of boosting overall output 5 percent to 10 percent as natural gas prices languish.

Talisman, Canada's No. 4 independent oil producer, said it will concentrate its North American efforts on liquids-rich shale plays, such as the Eagle Ford on Texas, and conventional oil prospects, while slowing drilling in the Marcellus in Pennsylvania.

The company will cut shale gas spending in North America by 35 percent from 2010 levels.

"It is all about supply and for all the reasons everyone is now familiar with, we see this situation continuing more or less through 2011, although the most recent cold weather has supported prices above $4 (per million British thermal units)," Talisman Chief Executive John Manzoni told analysts.

"I hope that by 2012 we might see some slowdown in drilling but it is possible that the oversupply situation could push into 2012 as well."

The moves are similar to strategies announced recently by other gas-focused energy companies, such as Encana Corp (ECA.TO) and Chesapeake Energy Corp (CHK.N), in response to stubbornly weak prices for natural gas due to rising production and high inventories.

Talisman, which also has oil and gas operations in Southeast Asia, the North Sea and Colombia, estimates 2010 production at about 415,000 barrels of oil equivalent a day.

Over the past few years, Manzoni has repositioned it as a major shale gas player. Last year it sold $2.2 billion of older assets as it pushed more into unconventional plays.

Despite the cut in gas spending, Talisman will advance its Farrell Creek play in the Montney shale of British Columbia, for which it signed a $1 billion joint venture deal with South Africa's Sasol (SOLJ.J) last month, drilling 35 wells.

Shares in Talisman were up 58 Canadian cents, or 2.6 percent, at C$22.78 on the Toronto Stock Exchange, representing a gain of about 15 percent over the past 12 months.

"Overall, the outlook is in line with our expectations but clearly demonstrates TLM's transition from years of stagnant/low growth back to a robust growth profile," CIBC World Markets analyst Andrew Potter said in a research note.

Total spending could exceed Talisman's cash flow in 2011, depending on oil prices, Manzoni said.

"Our balance sheet is certainly strong enough to handle a slight draw through the year," he said.

North American spending is budgeted at $1.7 billion, and $700 million to $800 million is earmarked for Southeast Asia, with exploration spending accounting for a third of the latter amount.

North Sea spending will be about $1.2 billion, with two-thirds of that in the U.K. sector and the rest in the Norwegian, the company said.

The company said its acquisition of BP Plc's (BP.L) Colombian assets -- expected to close next week after a slight delay -- will add 12,000-15,000 barrels a day of production in 2011 on top of the 5 percent to 10 percent estimated gain.

About $700 million is directed at exploration in the North Sea, Poland, Papua New Guinea, Indonesia and Kurdistan, Talisman said.

The company also said it will move to reporting its results in U.S. dollars from Canadian dollars for the first quarter of this year, reflecting the currency in most of its operations.

$1=$0.99 Canadian Additional reporting Aftab Ahmed; editing by Rob Wilson

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