Talisman Energy Inc. (NYSE:TLM) (TSE:TLM) has been in the news a lot recently after activist/value investor Carl Icahn took a 6% stake and immediately replaced two of the board members. Of course, the key question to ask here is whether or not there is actually any value to be found in Talisman. It would appear that there are mixed opinions on the matter.
There is a lot of data to cover here in the space of a two part series, so you’ll have to forgive my lack of explanation in some places.
Talisman Energy worldwide assets worth
According to an article by Forbes, which cites a research report from Berstein Research oil analyst Bob Brackett and his team, Talisman Energy Inc. (NYSE:TLM) (TSE:TLM)’s worldwide assets could be worth, in the base case, an enterprise value of $18.9 billion. To put that in some perspective, Talisman’s current enterprise value stands at $16.4 billion. At the high end, Berstein believes that Talisman’s assets could be worth upwards of $27 billion, nearly double the company’s current enterprise value. That being said, this report was put together on August 15th, so the data is somewhat out of date as Talisman has divested a number of assets since the report’s release.
Interestingly, the above valuation from Berstein, in the high case, assigns a value of $7.7 billion to Talisman Energy Inc. (NYSE:TLM) (TSE:TLM)’s Canadian assets, $7.3 billion to the US assets, and $3.3 billion to Indonesian assets but gives no valuation whatsoever to Talisman’s Iraqi assets. Talisman could be in line for a payoff of at least 200 million net barrels from its assets within Iraq, with the potential for up to 900 million net barrels. There is still a lot of work to do in Iraq regarding development and appraisal, so there are still years of development tasks ahead.
Forbes notes that this kind of project is the sort that will put pressure on Talisman’s balance sheet, and investor nerves (Icahn comes to mind here). With this being the case, this project may be too much to handle for Talisman but it would make a great acquisition for majors like Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM). Some real value could be unlocked here, as Talisman’s Kurdamir assets could be worth as much as $2.5 billion to the right bidder. A sale of these assets would give Talisman cash for reinvestment back into the business, or bolt-on acquisitions, conducive to CEO, Hal Kvisle’s strategy of focusing on more near-term cash flow producing assets, over long-term high cost developments. Still, Hal has previously indicated his desire to hold on to these Kurdistan assets but Icahn could have other ideas.
Talisman Energy capital raising program
As part of its capital raising program, one of Talisman Energy Inc. (NYSE:TLM) (TSE:TLM)’s most recent divestments was its 12% interest in the Ocensa Pipeline. The company received $595 million for its interest in the pipeline and retained 63 Mboe/d of crude transportation rights. This sale brought the company’s total combined asset sales to $2.2 billion, at the low end of Talisman’s self-imposed, $2 to $3 billion target range. To make up the balance, the company has several other options, including its assets in Norway, a JV or sale of assets within Kurdistan, and midstream assets in the Marcellus region – sales are expected to happen here in the first half. Taking these assets into account, Canaccord Genuity has placed a target price of $16.50 on Talisman. This factors in a 5.25x 2014E DACF plus $5.50 of unlockable value from Talisman’s Montney, Marcellus, Eagle Ford and CPE-6 assets.
RBC Capital Markets estimates that Talisman Energy Inc. (NYSE:TLM) (TSE:TLM)’s NAV is $12.02 per share, with a potential upside NAV of $14 per share, incorporating value attributable to the company’s Ford Motor Company (NYSE:F) and Marcellus positions, estimated to be worth $1 per share. RBC has a value of $0.50 to $1 per share on Talisman’s Kurdamir discovery in Iraq.
Continued in part two…