Tuesday, Talisman Energy Inc. (TLM, TLM.TO) reported a 23% decline in its profit for the second quarter on higher charges for stock-based compensation as well as market-to-market losses on derivative contracts, in addition to year-ago gains on asset sales. However, the company's cash flow for the quarter surged 44% from a year ago, helped by significant increases in both oil and natural gas prices.
For fiscal year 2008, the company expects production to be closer to the lower end of the range due to the impact of the delay of the Rev project in Norway. The company also said it will increase its total capital spending for the full year.
Second Quarter Results
The Calgary, Canada-based company's net income for the second quarter declined to C$426 million, or C$0.41 per share from C$550 million, or C$0.52 per share, in the prior-year quarter.
The company noted that the majority of the mark-to-market losses related to commodity derivative contracts were put in place in 2007 to lock in natural gas prices for the Rev development in Norway and, in the first quarter of 2008, to ensure the company would be in a position to fund higher capital spending levels associated with its new strategy.
The company's after-tax realized loss on commodity derivatives for the quarter was C$52 million. In addition, the company recorded an unrealized after-tax loss of C$344 million in the quarter.
Net income from continuing operations for the quarter increased to C$305 million, or C$0.29 per share, from C$298 million, or C$0.28 per share, in the prior-year quarter. Adjusted earnings from continuing operations more than doubled to C$846 million, or C$0.83 per share, from C$317 million, or C$0.30 per share, in the same period last year. The increase was largely driven by higher commodity prices.
Total revenue for the quarter rose to C$3.16 billion from C$1.92 billion in the prior-year period. Net sales for the quarter were C$3.12 billion, up from C$1.88 billion in the year-ago quarter.
Peer Performance
The company's peer EnCana Corp. (ECA, ECA.TO) reported a second quarter profit that declined from last year, hurt by unrealized mark-to-market losses on risk management activities. Net earnings for the second quarter were US$1.2 billion, down 16% from US$1.4 billion in the prior-year quarter, Operating earnings rose 7% to US$1.5 billion from US$1.4 billion in the preceding year quarter. Operating earnings per share grew 9% to US$1.96 from US$1.79 last year. Total revenues, net of royalties, increased to US$7.32 billion for the second quarter from US$5.61 billion in the same quarter last year.
Other Metrics
Talisman's cash flow for the quarter surged 44% to C$1.69 billion from C$1.18 billion in the same period a year ago, helped by significant increases in both oil and natural gas prices that more than offset the impact of a stronger Canadian dollar, lower production volumes reflecting asset sales, and higher operating costs and taxes. Cash flow from continuing operations was C$1.66 billion, up 53% from the preceding-year quarter.
The company's total production for the quarter declined 4% to 432 mboe/d, mainly due to the sale of non-core assets. Sequentially, production increased 3% from the preceding quarter. Production from continuing operations averaged 425 mboe/d, up 3% from the same period last year.
Oil and liquids production came in at 219,307 barrels per day, or bbls/d, down from 245,349 bbls/d last year. Meanwhile, natural gas production increased to 1,276 million cubic feet per day, or mmcf/d, from 1,231 mmcf/d in the same period last year.
Netbacks for the quarter surged 63% from the same period last year to C$61.33/boe, primarily due to a 90% increase in the benchmark WTI oil price, which averaged US$124/bbl in the quarter.
Year-To-Date Results
The company's net income for the half-year period declined to C$892 million, or C$0.86 per share, from C$1.07 billion, or C$1.00 per share, in the same period last year.
Total revenue for the six months rose to C$5.27 billion from C$3.80 billion a year ago. Net sales climbed to C$5.20 billion from C$3.73 billion in the year-ago period.
Outlook
Talisman said that its total spending for 2008 is now expected to be about C$5.5 billion, an increase of C$500 million, with the final amount dependent on the success the company has in accelerating the unconventional programs. Of the total spending, C$2.5 billion has been allocated to North America, of which C$1.5 billion will be spent on unconventional programs.
The company said that it believes its production guidance to be achievable for the year, but would likely be closer to the lower end of the range due to the impact of the Rev project delay. The company noted that the Rev development in Norway was on schedule very recently, but has been delayed until early 2009. In April, the company had said it continues to expect production in a range of 435,000-460,000 boe/d for the year.
Talisman said it expects continuing growth in the second half of the year despite the impact of asset sales. Much of the growth is expected from Southeast Asia with the startup of the Northern Fields gas development and strong sales from the Corridor field.
Last month, Talisman said that it would sell assets in the U.K., Netherlands and Trinidad and Tobago to focus on projects in Norway and Malaysia that offer bigger returns. The company closed the sale of non-strategic assets in Denmark and Canada during the second quarter.
Stock Quotes
In Tuesday's regular trading on the NYSE, TLM is trading at US$17.54, down US$0.20 or 1.13% on a volume of 2.98 million shares. The stock has been trading in a range of US$14.58-US$25.71 in the past 52 weeks.
On the Toronto Stock Exchange, TLM.TO is trading at C$17.98, down C$0.16 or 0.88% on a volume of 1.95 million shares. The stock has been trading in a range of $15.20-$25.40 in the past 52 weeks.
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