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TEXT-S&P says Talisman joint venture is a credit neutral
July 23 - Standard & Poor's Ratings Services today said that Calgary, Alta.-based oil and gas company Talisman Energy Inc.'s (BBB/Stable/A-2) announcement that it has entered an agreement with Sinopec International Petroleum and Production Corp. (a 100% subsidiary of China Petroleum & Chemical Corp. [A+/Stable/--; cnAAA/--]) to sell a 49% equity interest of its U.K. North Sea assets for US$1.5 billion will have no immediate effect on the ratings or outlook on Talisman. We believe that because the new joint venture will not either materially weaken nor strengthen the company's business risk profile, this transaction is neutral to the company's overall credit profile.
Furthermore, in our view, Talisman's inancial risk profile metrics, specifically its fully adjusted funds from operations (FFO)-to-debt, should remain within the bounds we have established for the 'BBB' rating. We expect the transaction to close by the end of 2012; the transaction will be effective as of Jan. 1, 2012. Talisman will remain the operator of the U.K. North Sea assets. The sale includes 49% of the company's U.K. North Sea asset retirement obligations (AROs); Sinopec will fund its share of North Sea capex. Following the joint venture's closure, we project Talisman's 2012 production to drop no more than 5% from 2011 levels and 2013 production to improve 5%-10% from 2012 levels. Despite the drop in production levels, we project the company's FFO-to-debt to remain at 40%-50% through 2013 (for more information, see "Standard & Poor's Lowers Its U.S. Natural Gas Price Assumptions; Oil Price Assumptions Are Unchanged," published April 18, 2012, on RatingsDirect on the Global Credit Portal) due to a combination of lower adjusted debt associated with the reduction in AROs and lower capital expenditures associated with the U.K. North Sea. Our assumptions also take into account that Talisman will buy back US$500 million of shares in 2012.
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