Truth be told, there's an aspect of the "monkey see, monkey do" philosophy in the oilpatch.


It's always a tad amusing attending any one of the many conferences sponsored by investment banks or the annual investment symposium sponsored by the Canadian Association of Petroleum Producers and hearing about company exposure to what may be the play or corporate structure of the day.

One year it's conventional natural gas, another it's oilsands. For a time it was all about being an income trust with an exploration company associated with it, and more recently the buzz has been about exposure to shale gas, resource plays or light oil in the Bakken formation. These days, if the speculation isn't about which company is going to be bought or sold; the discussion turns to whether it is a candidate for being split into pieces, a la EnCana.

No surprise, then, that this very issue arose during Talisman's conference call discussing the release of its 2010 capital budget Monday.

But had EnCana not gone ahead with its reorganization into two, separate, publicly traded entities, it's unlikely this kind of conversation would have happened in the first place.

And for this reason, it shouldn't have been a big surprise that company chief executive John Manzoni downplayed the likelihood Talisman will follow the EnCana playbook.

Nor should it -- at least not at this point.

Manzoni has been busy recasting Talisman since his arrival in 2008; there have been big changes in the management structure and he has not been shy to shed assets that will yield cash to fund growth-oriented opportunities.

The company's capital expenditure plan for 2010 is clearly an aggressive one, aimed at upgrading the asset portfolio and realizing the potential of the underlying reserves.

Included in Monday's plan is the shedding of 40,000 barrels of oil equivalent -- a move that could fetch something between $2.5 billion and $3 billion, depending on what the purchaser's view of commodity prices happens to be.

More importantly, the monies raised will go toward developing what are turning out to be exciting areas for Talisman: the Marcellus shale gas play in the Northeast U.S. and the Montney in northeast B.C.

Perhaps one has to look at Talisman's plans as a plate-spinning exercise -- the company has three core areas, and each plate, or core area, needs to be spinning for the company to realize the value. At this point, the area with the greatest potential -- the shale gas -- is where development needs to be focused.

Even then, if all plates are spinning smoothly, there's nothing to say that Talisman should be split up, because it remains a very different cat than the old EnCana.

EnCana had to strike the joint venture deal in 2006 with ConocoPhillips for the processing and upgrading of the bitumen before it made sense for it to proceed with splitting the company into two distinct pieces. The reality is, as one finance type noted Monday, being completely exposed to a commodity such as bitumen without the opportunity for adding value means a company is more vulnerable to commodity price volatility. Moreover, the nature of EnCana's assets -- being entirely focused in North America -- made it easier to effect the split.

The argument made to support EnCana's decision -- that the individual business units were not being recognized for the value they generated -- could also be applied to Talisman, if not to other companies organized along similar lines.

But again, these kinds of restructurings are never clean and easy to do. In EnCana's case, it was pretty much a situation of natural gas and oil -- all in North America. The mature natural gas assets were put into a new integrated oil company, Cenovus, as a source of cash flow, while the rest stayed with EnCana.

Things are not quite as neat for Talisman. While there are three primary arenas of operation -- there's a mix of oil and natural gas in each -- would a restructuring be done geographically? On the basis of the commodity? Conventional or unconventional? One could argue it would be easier to split Nexen or Husky Energy into two distinct entities than it would be for Talisman.

Finally, Talisman is being viewed as a company that has yet to be recognized by the market in terms of the long-term strategy that has been put into motion by Manzoni. At some point down the road, when the plates are all spinning and Manzoni has identified a new core area to pursue, a spinoff of one or more of the business units isn't out of the question.

But for now, there's too much to do.

Source: canwest.com
Calgary Herald

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