‘Pump’ up your Portfolio
04/30/2008 12:00 am EST
Looking for a way to profit from the high price of oil? Elliott Gue, editor of The Energy Strategist, says this company’s potential is ramping up…
Canadian exploration and production (E&P) firm Talisman Energy (NYSE: TLM) isn’t a pure play on natural gas or the North American market. However, the company is making the shift from a conventional oil and gas producer to targeting fast-growing unconventional plays.
Under new CEO John Manzoni, I expect Talisman to see a significant uptick in production growth over the next few years. For 2007, roughly 42% of Talisman’s production came from North America, with another 33% from the North Sea. In North America, Talisman has traditionally focused its attention on the Western Canada Sedimentary Basin WCSB), the prime conventional natural gas play in Canada.
Conventional gas production in North America is declining, and such reserves generally simply don’t offer the growth potential of unconventional plays. Resources can’t be produced using traditional technologies, but through a combination of horizontal drilling techniques and fracturing, these reserves are prolific. Talisman’s less-than-stellar production growth and relatively high costs have caused it to lag most of its peer group focused on unconventional North American plays.
But Talisman is in the middle of a strategic review of its acreage. Most likely, the company will soon announce its plans to develop several unconventional plays it owns but hasn’t fully exploited, including the Appalachian Basin of the US; the Bakken Shale oil play shale play, in the US and southeastern Saskatchewan; the Montney gas field in Alberta and British Columbia; the Utica Shale of Quebec; and the Outer Foothills of British Columbia and Alberta.
One more catalyst in the near term is Talisman’s significant acreage in an Alberta deep gas play where production was cut sharply after the Alberta government hiked producer’s royalty rates, rendering production from such fields uneconomic. On April 11, Alberta backtracked and announced changes to offset unintended consequences of the hikes. I suspect this will lead Talisman to boost its capital spending plans in the region—a positive move for the stock.
Additionally, Talisman has planned some $2 billion in capital spending planned for the North Sea, in the UK and Norway and also plans to increase spending in Southeast Asia to $765 million from $585 million last year, where exciting, high-growth potential projects are underway in Vietnam, Malaysia and Indonesia.
Talisman is looking for 45% production growth between 2007 and 2009. Buy Talisman Energy under 24.