Analyst Actions: Credit Suisse on Talisman, North Sea Sale Positive First Step

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Talisman Energy Inc. ( TLM )

OUTPERFORM

B. Dutton

CP: US$ 11.58

TP: US$ 16

CAP: US$ 11.2b

416 352 4596

UK Sale +ve First Step... Likely More Needed

Premium Bid for North Sea Assets: Talisman announces it has reached an agreement with Sinopec, whereby Sinopec will acquire a 49% equity interest in Talisman's UK North Sea business, Talisman Energy (UK) Limited (TEUK), for US$1.5 billion. The deal structure will be a joint venture and will proportionately reduce Talisman's share of capital spending, production and abandonment liabilities for its UK business. The effective date of the sale is January 1, 2012, and the transaction is expected to close by the end of 2012, subject to government and regulatory approval. TEUK will operate the assets, and Sinopec will appoint select personnel into key positions within the organization. No reductions to TEUK staffing are expected.

Metrics: The 49% equity interest acquired by Sinopec places a ~US$3.1 billion value on Talisman's UK assets, well above our US$1.95 billion estimated value (i.e. ~US$1.00/share accretive to our US$16.10 NAVPS). Divestment proceeds now total US$2.5 billion to-date in 2012. Talisman plans to utilize ~US$500 million of the proceeds to repurchase shares.

Our View: For several months, we've been advocating that 'transformational' change was necessary to materially alter Talisman's 'DNA' to make the company 'work' for investors. Investor feedback still indicates Talisman's asset base remains unattractive due to its unpredictability (i.e. North Sea) and overall complexity. In our May 30th note 'Time to Get Transformational... Part II' we highlighted what we consider to be Talisman's key assets: SE Asia, Colombia and North America. With lower FCF now expected from the North Sea, its cross-divisional funding purpose is greatly reduced and now is the time to exit given ongoing reliability issues and impact on EPS/CFPS. We think today's (July 23, 2012) sale is a positive first step, but ultimately the entire North Sea business should be sold.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: TLM

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