Talisman Energy confirms a massive new share buy-back in its continuing effort to bolster distressed share price—but there is no mention of Sudan. This characteristic disingenuousness is hardly surprising, but stands in stark contrast to last year’s frank acknowledgement that the Sudan divestment campaign was pounding Talisman’s share price, which still stands far below analysts’ target figures.
Eric Reeves [March 1, 2001]
Northampton, MA 01063
A little over a year ago, a very frustrated Jim Buckee (CEO of Talisman)–surveying the devastation that the Sudan divestment campaign had inflicted on Talisman share price—declared: “We should be a screaming buy!” [National Post (Canada), December 15, 1999; attached below]. And as a result, Talisman proceeded to buy back over $250 million worth of its own shares (all dollar amounts Canadian). That’s capital unavailable for exploration, acquisition, or any of the other expenditures normally associated with an upstream oil and gas outfit.
As Jim Buckee bluntly put it: “If other people don’t like [our] shares for whatever reason, we will take them up.” Of course the Sudan-related “reasons” were spelled out by the Post in explicit detail. And even Buckee was forced to acknowledge, albeit indirectly, the power of the Sudan divestment campaign: “If there is abnormal pressure on us, as there is at the moment, then that calls for abnormal responses.” Hence the share buy-back
Well, evidently not much has changed since “the moment” Buckee was referring to. Yesterday (Feb 28) Talisman confirmed that it will begin a new buy-back of the maximum number of its own shares allowed under the “normal course issuer bid” procedures dictated by Canadian securities laws: over $300 million worth. Together with the last round of share buy-back, that makes over half a billion [!] dollars of response to the consequences, including divestment consequences, of their presence in Sudan. Serious money by any standard.
And what about Talisman’s share price? It has certainly risen from the abysmal depths that so perturbed Buckee a year ago; but at $55, Talisman shares are still trading at under 3x 2001 cash flow figures. It was this very same distressed share price multiple that Buckee cited in the Post article, and which led him to declare in exasperation that, “We should be a screaming buy!”
Further, share price is still only about $6 above the 1999 pre-divestment campaign high, despite an extraordinary 400% increase in net income in 2000. In a sector where historically five times cash flow per share is “normal” (Buckee’s word choice), there is still clearly a massive “Sudan discount” in share price—and hence the decision by Buckee to buy back the maximum amount of shares allowed under the “normal course issuer bid,” trying by whatever means to bolster share price.
If you can’t beat the divestment campaign, outspend them!
But again, that’s over $500 million dollars that will have become unavailable for exploration, drilling, expansion, acquisition. For example, Talisman was earlier this year rumored to be bidding for the British outfit Enterprise Oil. But according to analysts Talisman didn’t have sufficient capital—or share price value—to make the deal a “go.” Is spending over $500 million fighting off a Sudan divestment campaign helping to position the company for future acquisitions?
Talisman is perceived as having made shrewd acquisitions in the past, and has cultivated the reputation among analysts and the financial press. But have they really done so in a major way? At least one senior analyst has told this source that their reputation on this score is considerably overstated.
And so the question becomes inevitable in looking to the future: has their viciously callous and immoral presence in Sudan become the financial albatross that will continue to keep them from growing through acquisition? Between deflated share price and massive share buy-back expenditures—both related to their Sudan presence—it’s reasonable to wonder just how intelligent Talisman’s corporate game plan really is.
All this certainly poses a question that investors in Talisman should be asking: is this the nimble, acquisition-canny company they thought they were investing in? Or is this a company that can post record cash flow numbers, keep pumping out excellent bottom-line results—but can’t get share price lift-off, and has been forced to buy back hundreds and hundreds of millions of dollars of its own shares to keep the cash flow multiple per share close to 3x?
And let’s recall, as Buckee himself does in the Talisman newswire press release, that this has been a time of exceedingly high oil prices. This has been the real guarantor of high cash flow and net income numbers. Oil prices may very well come down, removing the price cushion from which Talisman has so amply benefited.
And then there are the others risks to share price, also conveniently omitted in the Talisman press release of yesterday.
Discussion of US capital market sanctions against oil companies involved in Sudan’s various projects continues to grow significantly in Washington (such language was contained in the House-passed version of the Sudan Peace Act, and in the original Senate-introduced version of the original bill). Such sanctions (denying access to American stock exchanges) have been recommended by the influential US Commission on International Religious Freedom, and have gained more and more support in the Congress.
Military risks in the oil regions of Sudan also remain extremely high, and as a consequence so do the physical risks to Canadian nationals. A January attack by the Sudan People’s Liberation Army (military forces opposed to the brutal Khartoum regime—Talisman’s business partner) put workers of the Greater Nile consortium at acute risk. Fighting this dry season is the heaviest in a number of years, and there have been repeated warnings from the SPLA that they consider the oil fields legitimate targets of war. The latest such announcement was made yesterday (Feb 28).
In brief, whatever short-term benefits to share price may accrue from the announcement of their massive additional share buy-back, Talisman continues to paint on their shares—in big, bold day-glow letters—CAVEAT EMPTOR!
From The National Post [Wednesday, December 15, 1999]
“Talisman to embark on share buyback;
Buckee admits Sudanese operations have hurt stock price”
By Paul Waldie and Charlie Gillis
Talisman Energy Inc.
plans to launch a share
buyback program to
help boost its stock
price, which has been
hit hard recently by
criticism over the
“If other people don’t
like the shares for
whatever reason, we
will take them up,”
and chief executive,
said yesterday during a
meeting with the
National Post’s editorial
Mr. Buckee said
Talisman’s board of
directors approved the
buyback at a recent meeting
and the terms of the program
will be announced soon.
The company’s share price has dropped from $49.15 on Sept. 10 to $34.40 yesterday on the Toronto Stock Exchange. That’s a loss of about $1.8-billion in market value based on the company’s 120 million outstanding shares. Talisman’s shares hit a 52-week low of $22.10 on March 1.
The recent drop in the share price coincides with mounting concern over the company’s oil operations in Sudan. Talisman is part owner of a large Sudanese oil project that accounts for about 10% of its total cash flow.
Sudan is in the midst of a civil war and there have been allegations the government has committed widespread human rights abuses, including slavery. Critics have accused Talisman of indirectly aiding the government’s abuses.
Those same critics are pressuring institutional investors to sell their Talisman shares.
Mr. Buckee said Talisman is not taking sides in the conflict and he denied the company is aiding any abuses. He also defended Talisman’s role in Sudan and said the country would be worse off if Western businesses
However, he acknowledged the criticism has hurt Talisman’s share price and prompted the board to launch the buyback, which is the company’s first.
“If there is abnormal pressure on us, as there is at the moment, then that calls for abnormal responses,” he said. “To that extent, yes, [the concerns] have brought that about. There comes a point where your own shares are the best investment you can make.”
He said Talisman’s share price is artificially low because of the problems in Sudan. The company expects to increase its output by 30% next year, he said, and generate $1.5-billion in cash. Talisman plans to spend about $1.2-billion on capital projects, which leaves some room for the buyback.
Mr. Buckee said the company’s shares are doing well, compared with other Canadian oil companies. However, he noted that the ***shares are trading at three times cash flow***, compared with the ***normal rate of five
times cash flow.***
“We should be a screaming buy,” he said.