Despite a tough Canadian market, Talisman Energy Inc. (Toronto: TLM) (NYSE: TLM) announced Nov. 8 that it has reached an agreement to sell most of its Montney acreage for C$1.5 billion (U.S. $1.43 billion).
Petronas-owned Progress Energy Canada Ltd. will buy the northeast British Columbia acreage.
The sale includes 75%, or about 127,000 net acres, of Talisman's Montney position in the Farrell Creek and Cypress areas of British Columbia. Progress Energy said the acquisition will add 11,000 barrels of oil equivalent per day (BOE/d) to its production.
The deal may serve to blunt Carl Icahn, the activist shareholder who has targeted Talisman after buying a 6% stake in the company. Analysts have noted that while Icahn can pick on management, the company is already making changes.
As of Oct. 1, Farrell Creek production was 65 million cubic feet equivalent per day (MMcfe/d), which is expected to increase in the fourth quarter of 2013 as Talisman concludes its completion program and associated facilities.
The transaction also sells C$800 million of remaining third-party capital carry estimated at 2013 year-end.
“The sale of this long-dated position represents a strong return on our Montney investment and brings us closer to achieving the $2-3 billion asset disposition target we set out in March this year,” said Hal Kvisle, CEO. “It is priced in line with recent major Montney transactions, further simplifies the company, and enables us to strengthen our focus on our Edson-Duvernay producing and development assets. Following receipt of applicable regulatory approvals, expected in the first quarter of 2014, we will use the proceeds to pay down debt and strengthen our balance sheet.”
Tudor Pickering Holt & Co. said it liked the deal, though the price was below its $2 billion valuation of the asset.
“Despite a tough Canadian A&D market, TLM is able to monetize Montney position,” the firm said.
While the deal is a minor hit to net asset value, any loss is outweighed by a positive move to clean up the company’s portfolio.
Talisman “should easily be able to replace production through acceleration of Marcellus and Duvernay drilling,” Tudor said. “TLM will retain 48K net acres in Groundbirch, which may be sold at a later date.”
Talisman/Progress Deal Dynamics
Sales Price | $1,500,000,000 |
PV of Carry sold | $ (600,000,000) |
Subtotal | $ 900,000,000 |
Value of Production | $ (271,000,000) |
Price paid for land | $ 629,000,000 |
$/acre | $4,953/acre (127,000 Montney acres) |
Source: Talisman
Michael Culbert, president and CEO of Progress Energy, said the natural gas interests are an attractive complement to its existing North Montney asset base. They are among the largest remaining North Montney lands not dedicated to a potential liquefied natural gas (LNG) project.
“The location, resource potential and operational synergies of these assets make this an ideal fit that expands our British Columbia resource base and increases our land position to 1.2 million acres,” Culbert said.
The acquisition includes wells, pipelines and processing plants in the Greater Farrell and Great Cypress areas. Progress Energy will acquire Talisman’s 50% interest in Greater Farrell. Under the terms of the Talisman partnership, the partner pays a disproportionate share of development costs. The value of this “capital carry” is about $870 million and will be used to fund a portion of Progress Energy’s share of capital investments in Greater Farrell.
Progress Energy will also acquire Talisman’s partnership interest in the Greater Cypress area, where it has joint operations with Talisman.
Talisman has held its Montney position for five years. It is retaining assets in Groundbirch and Saturn, including about 48,000 net acres of prospective Montney land.
Jefferies LLC and Scotiabank acted as joint advisors to Talisman.
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