Canada's Talisman Energy is making even heavier cuts to its rig count in Pennsylvania's Marcellus Shale natural gas play and will not reverse that trend until gas prices return to $4/Mcf, CEO John Manzoni said Wednesday.
Along with slashing its Marcellus Shale spending to $600 million from $1.2 billion in 2011, the number of rigs at work in the play in 2012 will be cut to three from 10 in 2011 and a previously anticipated five to seven because of a North American gas price that clearly reflects an excess of supply, he told a conference call.
Manzoni said prevailing gas prices are "unsustainable in the medium term, but we think they may last a year."
However, Talisman said its 2012 Marcellus Shale production guidance of about 500,000 Mcfe/d, compared with 486,000 Mcfe/d in the fourth quarter of 2011, is unchanged.
Paul Smith, executive vice-president of North American operations, said the decisions are based on the external environment and not Pennsylvania's decision earlier this month to impose a shale gas drilling fee, which he estimated will run from $150,000 per well to $300,000, depending on production.
Given gas prices, he said, "the fee clearly doesn't help in any way, shape, or form. It couldn't have come at a worse time."
In the liquids-rich Eagle Ford shale in Texas, where Talisman has 70,000 acres net, the company expects to increase its 2012 rig count to 14 from 10 and is still targeting a doubling of its net production to 60,000 Mcfe/d, with liquids comprising about 50%, Smith said.
The company said it will reduce its program in the Montney shale play of northeastern British Columbia to four rigs from 11 in the final quarter of 2011, while continuing to evaluate options for its two joint-venture programs with South Africa's Sasol.
Company executives said the primary focus with Sasol is on establishing a gas-to-liquids project in western Canada, although LNG exports remain an option.
Also, Manzoni said the Yme project offshore Norway has been removed from Talisman's production schedule for 2012 because the contractor is unable to complete platform work on schedule, but "we expect to define a path forward during this quarter."
In addition, he said Talisman plans to divest $1 billion-$2 billion of North American non-core assets in 2012, reduce its exposure to the North Sea and possibly exit some global exploration areas after they have been drilled.
By lowering its exploration and development spending to $4 billion this year, compared with $4.5 billion in 2011, and making a shift to liquids from gas, Talisman's production growth is forecast at 0%-5% from 2011's 425,000 barrels of oil equivalent/day average, he said.
Talisman reported a net loss for fourth quarter of 2011 of $117 million or 11 cents/share, compared with a loss of $350 million, or 34 cents/share, in the year-ago period. Net income for all of 2011 was $776 million, off $169 million from 2010's total.
