UPDATE 3-Talisman CEO signals age of austerity for oil producer

Tue Oct 30, 2012 5:38pm EDT

* 2013 capital spending cut to $3 billion

* Proceeds from North Sea sale to be used to cut debt

* CEO says no suitors have surfaced

* 3rd qtr net loss $731 mln; loss of $36 mln excluding items

* Shares sink 5 percent in Toronto

By Jeffrey Jones

CALGARY, Alberta, Oct 30 (Reuters) - Talisman Energy Inc's new chief executive on Tuesday announced a push into a new period of austerity for the Canadian oil producer, with a 25 percent cut in capital spending, plans to exit unprofitable regions and a promise to chop costs in the name of shoring up a lagging share price.

The announcement of the new strategy, delivered as Talisman reported a $731 million quarterly net loss after a series of writedowns, prompted a selloff in Talisman's shares as investors weighed the impact of a $1 billion cut in capital spending next year that will deliver one of its biggest hits to high-risk "wildcat" exploration.

The shares closed down 5 percent to C$11.50 on the Toronto Stock Exchange. They are down 11 percent this year.

Chief Executive Hal Kvisle detailed several moves aimed at putting Talisman on more solid financial footing, including using proceeds from a $1.5 billion North Sea joint venture deal with China's Sinopec to pay down debt rather than buy back shares, as previously planned.

Talisman will concentrate its main efforts on boosting cash flow from lower-risk operations in the Americas, Southeast Asia and the North Sea.

It is writing off its stalled shale gas operations in Quebec, resulting in an $82 million charge, and reducing the book value of its troubled Yme oil project in the Norwegian North Sea by a further $125 million after tax.

"In some ways you could characterize it as battening down the hatches, getting a lot of things sorted out and getting Talisman going in a more predictable direction," Kvisle said in an interview.

"There is austerity, but I don't think that going from $4.5 billion in capital (in 2011) to $3 billion in capital should be seen as austerity. In some ways I would characterize it as coming back to reality. That's about the amount of money a company like Talisman should be investing."

The stakes could hardly be higher for Canada's sixth-largest independent oil company, which was built on big acquisitions and promises of unlocking major reserves around the world using cash generated in the North Sea and North America.

The shares have suffered, however, due a series operational problems and delays in bringing the 40,000 barrel a day Yme project to fruition amid warnings about the platform's stability. The stock has also been pressured by depressed natural gas markets.

Kvisle, a former CEO at TransCanada Corp, replaced John Manzoni as head of Talisman in September to seek ways to boost the stock as speculation swirled that Talisman could be the next Canadian target of an acquisitive Asian state oil company after Nexen Inc agreed to be bought by China's CNOOC Ltd.

Kvisle said Tuesday the company was not in talks with any would-be buyers and he had not been approached about a deal.

"But those things can always come at you, and it's the responsibility of the board to deal with them appropriately when they do," he said. "But I am convinced more than ever that Talisman has very, very valuable upside in its asset base from assets not seeing a lot of cash flow today. We can do a lot to improve cash flow out of existing assets and do a lot to bring some near-term opportunities on stream."

That means reducing a focus on expensive long-term exploration, such as operations in Peru, a location that Talisman has said it will exit. In total, Talisman will spend about $350 million on high-risk exploration in 2013, down by about half from 2012 levels.

It will also cut costs across the board, which could mean a reduction in its work force of 3,700, Kvisle said. The bigger thrust will be on reducing finding and development, operating and overhead costs, he said.

The $3 billion budget is being billed as enough to maintain production at current levels, though one analyst cautioned of possible risk.

"The company has historically struggled to organically grow production," said Michael Dunn, an analyst at FirstEnergy Capital Corp. "That will likely continue to be a concern over the next six to 12 months."

CHARGES PROMPT DEEP LOSS

In the third-quarter, Talisman lost a net $731 million, or 71 cents a share, compared with a year-earlier profit of $521 million, or 51 cents a share.

The result included $443 million in after-tax impairment charges, which included the exit from Peru and writedowns in Quebec and Norway.

Excluding unusual items, the company lost $36 million, or 4 cents a share.

Cash flow, a glimpse into a company's ability to fund development, decreased 23 percent to $693 million, or 68 cents a share, from $902 million, or 88 cents a share.

Production rose 4 percent to 415,000 barrels of oil equivalent a day, and the company said it was still on track to meet its annual production targets.

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