An Update on Talisman Energy's Restructuring

Talisman Energy is in the middle of a turnaround. Here's how things are going so far.

Jun 12, 2014 at 12:41PM

The last time I wrote about Talisman Energy (NYSE:TLM) the company had just unveiled full-year 2013 results, and they were much worse than analyst expectations. However, the oil and gas producer's outlook remained bright.

So what progress has Talisman made since the release of these disastrous results?

First-quarter progress
Talisman released an investor presentation at the end of the first quarter detailing year-over-year achievements, which for the most part were impressive.

Since the first quarter of 2013 the company has boosted liquids production by 19% and cash flow by 64%. Furthermore, Talisman has halved drilling cycle times within the Eagle Ford and Marcellus shale regions. Management layers have been reduced by 25% and the company's executive team has been cut in half.

Meanwhile, the company's gross debt has fallen to the lower end of management's targeted range: 1.5 times to 2 times times cash flow. This has been accomplished with $6.6 billion of asset divestments, and a further $2 billion of sales are planned within the next 12 to 18 months.

What about the future?
The company and its management are not about to rest on the progress made over the last year.

Talisman is targeting production growth of 5% per annum through 2018. Production growth is expected to drive cash flow growth of 10% to 12% over the same period, hitting $3.5 billion per annum by 2018.

North American assets are not expected to be free cash flow positive until 2015, but through to 2018 the projects should produce more cash than they are consuming.

Not the only one
Talisman is not the only exploration and production company relying on North America to hold up international assets. Marathon Oil (NYSE:MRO) has been offloading international assets to buy back stock and fund North American development.

Marathon is investing roughly $3.6 billion of its $5.9 billion 2014 capital budget in North American resource plays. It plans to accelerate drilling activity by 20% within its Bakken and Eagle Ford acreage.

However, Marathon is driving better results from its wells. The company's internal rate of return within the Bakken and Eagle Ford plays is currently in excess of 70%.

After the disposal of the company's Norwegian assets, North America accounts for around 60% of Marathon's overall production, making the company more of a domestic play than anything else. As production increases the company is only likely to become more reliant on this continent for growth.

International growth
Back to Talisman. Aside from North America, where Talisman is concentrating the majority of its exploration and production activities due to the low-cost, high-margin, oil-rich production on offer, the company's main regions for growth are the Asia-Pacific and Indonesia.

The company's Asia-Pacific assets are especially low cost: Cash flow from operations is targeted to hit $1.2 billion during 2014, nearly double the near-$700 million in capital expenditure planned. Cash flow within the region is expected to expand 10% per annum through 2018 and production of 140,000 barrels of oil per day is expected during 2014.

Within Indonesia, Talisman's assets are chucking out cash with netbacks in the neighborhood of 60%.

Foolish summary
Talisman has made great progress during the year and change since its turnaround plan began. The company has slashed debt, reduced costs, and sold off high-cost assets. All these separate factors have led analysts to conclude that the company will return to profit next year, with free cash flow generation also in the cards.

The future looks bright for Talisman.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Rupert Hargreaves owns shares of Talisman Energy (USA). The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information