Talisman Energy continues to post spectacular bottom-line results, which has the ironic effect of making all the more visible the terrible capital-market punishment that they are taking for their immoral investment in Sudan. Today Talisman announced record cash flow, the best six-month financial results in the company’s history, net income up 11% over the same quarter last year (a year in which there was a 400% increase in Talisman’s net income). And yet there it is: the ugly reality of share price still under C$60. Using Talisman’s own higher end figure of $22/share cash flow for 2001, that means that at $58+ per share, Talisman shares are trading at well under 3x cash flow. It’s no accident that Talisman chief Jim Buckee made his most explicit comments to date about abandoning the Sudan stake.
Eric Reeves [July 30, 2001]
Smith College
Northampton, MA 01063
413-585-3326
ereeves@smith.edu
Just how ugly is “under 3x cash flow per share”? Painfully ugly, if we use as a barometer Jim Buckee’s response to the hammering Talisman share price had already begun to experience in the second half of 1999 with the ramping up of the Sudan divestment campaign. In December of 1999, Jim Buckee was moaning publicly that Talisman shares should be “a screaming buy.” (National Post, December 15, 1999)
Why? Because the multiple for share price on cash flow was a desperately anemic 3x. Indeed, this was a figure so dismaying that Buckee felt obliged to announce a share buy-back scheme for 2000, one which has been renewed for 2001—and is tracking to cost Talisman over half a billion dollars. Talisman has also issued an unprecedented dividend. And yet, Talisman shares are actually trading **below** the level that prompted the initial share buy-back, at least on the basis of cash flow multiple.
Thus it comes as no surprise that the Dow Jones News Service (July 30, 2001) is reporting that Talisman will sell its Sudan assets for the right amount of cash. Ending their vicious complicity in the oil-driven destruction of Sudan has finally come to seem financially inevitable even to the pathologically stubborn Jim Buckee.
But he has left an interesting caveat: the sale will take place **if** Talisman’s Sudan stake sells at an “attractive price.” Given what Talisman has invested (minus what they’ve extracted in the way of revenues) the company will need to find someone willing to offer them almost C$1 billion in cash to come out even—something that Buckee feels is essential to save face. A number of analysts say, as confidently as Talisman, that someone is ready to pay that kind of money. But there are reasons to doubt.
No Western company is going to take over Talisman’s Sudan stake, not with capital market sanctions against oil companies operating in Sudan still clearly a legislative possibility in the US. And who has the deep pockets to come up with a billion dollars in cash? China National Petroleum Corp. and Petronas of Malaysia are constantly cited as the two possibilities. But there are substantial reasons for both to hesitate in becoming the majority partner in the Greater Nile Petroleum Operating Company (in which Talisman has a 25% stake). Indeed, China’s Sudan-related companies already have all too much US capital market exposure for comfort. China needs more access to the US capital markets, not continued controversy over the ones that have already come to market.
Certainly both CNPC and Petronas know all too well that to become majority partner in the GNPOC insures a kind of prominence that will immediately galvanize extremely potent protest and consequential political action. Such protest and action have been dismissed before as unimportant, including by Talisman. Talisman chose to learn the hard way; so, too, will any Talisman replacement in southern Sudan.
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“Talisman Energy Mulls Selling Sudanese Assets: CEO”
07/30/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
CALGARY -(Dow Jones)- Talisman Energy Inc. (TLM) would sell its
controversial oil assets in Sudan for cash at an “attractive price,” said
James Buckee, the company’s president and chief executive.
During a teleconference with analysts, he said Talisman’s 25% interest in a large crude oil production and pipeline project in war-torn Sudan “could be having a depressing effect” on the company’s share price. “There is plainly an intent in the U.S. Congress to make it difficult for us to hold (the assets). We are watching this carefully,” Buckee added.
Buckee said spinning off its Sudanese assets to shareholders isn’t an option for Talisman because the company’s U.S. shareholders wouldn’t be permitted, under U.S. laws imposing sanctions on Sudan, to trade shares in a predominantly Sudanese entity. He said Talisman would consider selling the assets to “an appropriate buyer” for cash in a deal that would be subject to Sudanese government approval.
Buckee projected Talisman’s 2001 capital spending at C$1.94 billion,
excluding acquisitions. He said the company plans about C$1.9 billion of spending next year, also net of acquisitions.
Although Talisman’s unit production costs rose during the first two quarters of this year, Buckee predicted they will decline during the second half of 2001 due, in part, to a projected increase in the company’s oil production volumes from the North Sea and to falling electricity prices in western Canada.
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[Talisman Energy press release]
Talisman Generates Record $1.4 Billion in Cash Flow; $583 Million in Income During First Six Months of 2001; Company Expects 20%
Volume Growth in Second Half
CALGARY, ALBERTA–Talisman Energy Inc. has posted the best six-month financial results in the company’s nine year history.
“On the back of these very strong financial results, Talisman will post impressive growth in production volumes in the third and fourth
quarters,” said Dr. Jim Buckee, President and Chief Executive Officer. “Volumes for the second quarter came in slightly below first quarter, which was stated in our last conference call. However, we hope to enter August approaching 450,000 boe/d and to reach 500,000 boe/d later this year with higher Canadian gas and North Sea oil volumes.
“Talisman’s expected 20% increase in volumes should offset much of the projected decline in oil and gas prices in the second half. Based on US$25 per barrel WTI oil prices and US$3.50 per mcf NYMEX gas prices in the second half of the year, we are projecting Talisman’s cash flow for 2001 to be approximately $2.8 billion, or $20-22 per share.”
Second Quarter Highlights
* Cash flow of $641 million ($4.73/share), an increase of 12% versus $573 million ($4.14/share) in the second quarter of 2000. Year to date cash flow is up 23% to $1.4 billion ($10.37/share)
* Net income of $237 million ($1.71/share), an increase of 11% compared to $214 million ($1.51/share) for 2Q last year. Year to date net income is up 39% to $583 million ($4.22/share).
* Exploration and development spending during the quarter of $474 million versus $279 million a year earlier. Exploration and development spending to June 30 has totalled $848 million.
* Production of 387,000 boe/d during the quarter, compared to 415,000 boe/d a year earlier.
* Realized oil prices of $38.66/bbl in the second quarter of 2001, down 1% from the second quarter of 2000. Average natural gas prices of $5.74/mcf ($5.99/mcf in Canada), compared to $4.05/mcf ($3.96/mcf in Canada) in 2000.
* Long-term debt of $2.1 billion (0.8:1 debt to cash flow ratio based on previous 12 months).