Talisman Energy Inc

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Talisman Energy Inc. (TSX:TLM) (NYSE:TLM), is an oil and gas exploration and production company headquartered in Calgary, Alberta. It has a leasehold position in the Marcellus shale fairway amounting to 230,000 net acres and also holds a large swath of Saint Lawrence Lowlands acreage prospective for Utica shale. As of February, 2010 its Utica interest amounted to 756,000 net acres in the Province of Quebec.
Map depicting Talisman's area of operations in south central NY State and in northeastern PA. Map courtesy of: Talisman Energy Inc.
Map depicting Talisman's area of operations in south central NY State and in northeastern PA. Map courtesy of: Talisman Energy Inc.

Through a wholly-owned subsidiary, formerly known as Fortuna Energy, it also owns a large leasehold in both New York and Pennsylvania that is prospective for natural gas from the Trenton-Black River (TBR) formation. Most of this acreage was acquired from other companies. Talisman has dozens of successful TBR wells in New York State and is now the State's largest natural gas producer. An October, 2009 report numbered Talisman/Fortuna's producing TBR wells at 75. In January, 2010 Fortuna Energy Inc. was renamed Talisman Energy USA Inc.


Latest Operating Results

Marcellus shale production continued to advance up to an average of 222 Mmcf/d during the third quarter of 2010. By the beginning of November it had risen to approximately 270 Mmcf/d. This was up dramatically from the previous year when only 38 Mmcf/d had been produced in the same quarter.

Talisman had drilled 116 Marcellus wells (109.9 net) during the first three quarters of 2010. During the third quarter it had brought 42 wells (41 net) on stream for a total of 79 gross (77.5 net) since the first of the year. Shale had grown from a mere 6% of Talisman's North American natural gas volume in the previous year up to a 36% share in 2010.

The company's continued favorable results from Marcellus shale wells were cited as justification for increasing the estimated ultimate recovery (EUR) per well from 3.5 Bcf up to 5.0 Bcf. At the same time, it was also stated that the service industry in northeastern Pennsylvania was relatively tight indicating greater cost pressures in that region. Talisman estimated that the break even full cycle cost of producing gas in the Marcellus shale amounted to roughly $4/Mcf.

Talisman seemed to be toning down its original projections from earlier in the year that it would bring 145 wells online during 2010. As of early December, 2010, the company was estimating only around 105 to 110 net wells to go online before year-end. The reason given for the reduction was that drilling practices had changed during the year favoring wells with longer laterals and more stages to completions than had been originally planned. A second factor was Talisman's exclusive use of pad drilling, which by the nature of the program, required many wells to be carried over into 2011.

The company was also beginning to slow down its activity in anticipation of a coming reduction in rig count in the Marcellus fairway. The company's lease position appeared very stable with little risk of any extensive expiry of leases.

In the Quebec Utica shale play, Talisman had drilled one gross well (0.8 net) during the third quarter of 2010. Also, two wells drilled during the year had been completed with two additional ones left for completion in 2011. The completed ones were a Chantilly well and the LeClerkville well.

2008 Development Timeline

Talisman was at various stages in three major plays in the Appalachian Basin during 2008. It's Trenton-Black River land acquisition program in New York State was mature and extensive. In the Saint Lawrence Lowlands of Quebec, the company actively drilled test wells with a partner in the Utica and Lorraine shales. In the northeastern Pennsylvania counties of Bradford and Tioga, Talisman engaged in successful bidding for drilling rights to State forest tracts that were up for auction.

Trenton-Black River activities in New York

A report in October, 2008 stated that Talisman/Fortuna owned roughly 1 million acres of drilling rights in the Southern Tier of New York and in Pennsylvania. Some of these leases expired in 2009. One of the company's challenges was to form units large enough to drill out of what was left after expirations.

In December, 2008 a news report appeared in which it was mentioned that Talisman/Fortuna was using a dry well in Van Etten, NY, located approximately thirty-five miles west of Binghamton, for storage of drilling brines. It was stated that the brines were from a 9,000 foot deep Trenton-Black River well in the area.

Utica shale play - St. Lawrence Lowlands, Quebec

Talisman has been active in the Utica shale play via its Gentilly well, located in Quebec, 62 miles south of Quebec City on the south side of the St. Lawrence River. Talisman owns a 75% interest and is well operator. Gentilly had been the first of four wells drilled under a farm-in agreement with Questerre Energy Corporation. In September, 2008 this well was reported as having flowed 800 Mcf/d before shut-in. It had been a recompleted Trenton-Black River well that was producing from the Utica shale. The Lorraine shale interval was also being studied with this well.

Talisman held options with Questerre (now exercised) to earn 75% of a large leasehold in the Province of Quebec through drilling. As of November, 2008 it had started to exercise its options to 1,200 net sections (400,000 acres) through drilling the La Visitation well as part of a four-well pilot program.

Marcellus shale leasing in Pennsylvania

In September, 2008, Talisman/Fortuna Energy was reported having won two leases in competitive bidding for tracts in the State of Pennsylvania's forest lands in Tioga and Lycoming counties. Eighteen tracts were offered for bid.

A late September report indicated Talisman/Fortuna was drilling near Elmira, N.Y.

An October, 2008 report found the company having recorded 100 leases in Bradford County, Pennsylvania during 2008.

2009 Development Timeline

In the Quebec Utica Shale play, Talisman, along with partner, Questerre, continued to drill pilot wells and conduct further testing. It had obtained favorable results from a couple of test wells. In the Trenton-Black River play in New York State, where the company's exploration program was mature, it had dozens of productive wells. Talisman's Marcellus drilling program in northeastern Pennsylvania was extensive and production there was rapidly building. It also continued to expand its Marcellus leasehold through land deals and acquisitions. The company opened a new office in Pittsburgh to manage all of its Marcellus business.

Utica shale play - St. Lawrence Lowlands, Quebec

In January, 2009, the company announced the completion of the St. David well drilled to 6,545 feet, as third one in its four-well pilot program with Questerre Energy. This well had been undergoing log analysis. In late June, 2009, a fourth well, St. Edouard #1 had been fracture stimulated and tested for different intervals--the company planned to evaluate both the Utica and Lorraine shale formations. The well's Trenton-Black River interval had already been tested. For three days, it had flowed at an initial rate of 2.2 Mmcf/d with wellhead pressure of 2,000 psi on a 7/32-inch choke after acid stimulation. However, its flow rate had not been deemed adequate to justify a tie-in for the well. It offsets another one called the Leclercville #1 that produced 900 Mcf/d from the Utica interval during testing.

A July, 2009 report indicated that Talisman and Questerre planned to drill two additional horizontal wells in the Lowlands to test the Utica shale before the end of 2009.

Trenton-Black River Wells In New York State

Since its inception in 2002, Fortuna/Talisman Energy USA had acquired vast holdings of Trenton-Black River (TBR) drilling rights in the States of New York and Pennsylvania from several other energy companies. The company has dozens of successful TBR wells in New York State and is now the State's largest natural gas producer. An October, 2009 report numbered Fortuna's producing TBR wells at 75. Its wells are concentrated in Chemung, Schuyler, Steuben and Tioga counties in NY.

Marcellus shale drilling in Pennsylvania

By 2009, Talisman had amassed a substantial Marcellus leasehold in Pennsylvania amounting to 218,000 net acres in the Marcellus shale fairway. Its TBR and Marcellus leaseholds overlapped. The company announced 2009 plans to drill 36 horizontal Marcellus wells. Talisman's holdings in the play were centered on Bradford and Tioga counties in Pennsylvania.

In April, 2009 Talisman announced that it had drilled four horizontal Marcellus wells during the first quarter of the year. The company fielded three drilling rigs to complete its 2009 drilling plans. The most recent one of four wells drilled had averaged 4.5 Mmcfe/d during the initial 30 days of production. The company reported experiencing greater cost efficiencies with each new well drilled.

In April, 2009 Tallisman/Fortuna announced that it was opting out of lease extensions in Tioga County, New York. This county is roughly half way on a straight line drawn between Elmira and Binghamton in New York State's Southern Tier. The company cited the poor economy as well as the uncertain state regulatory environment as reasons for its action. Property owners were given the opportunity to continue on with Tallisman/Fortuna, but receive retroactive lease payments only if and when the company took the leases back up. Otherwise they were to be canceled. All of the leases involved were intended for Marcellus shale development.

A May, 2009 report had a more upbeat-sounding outlook than in the previous paragraph, stating that Marcellus drilling activities were increasing in both Pennsylvania counties of Tioga and Bradford. Talisman/Fortuna planned to have up to 50 horizontal Marcellus wells drilled in these two counties by the end of 2009. A gathering pipeline system was also being built for the newly drilled wells. It was mentioned that the company was having some difficulties in finding sufficient hotel rooms and lodging for all its new personnel brought into the area.

A second May, 2009 report indicated at least seven Talisman/Fortuna wells had been drilled in western Bradford County.

A late June, 2009 report stated that Talisman/Fortuna had 8 producing wells in Tioga County, PA and permits for an additional 49. One potential drilling location mentioned was Bloss and Ward Townships--both located roughly 40 miles north of Williamsport, PA. The company planned to greatly expand its workforce in Tioga County over the next 5 years.

A second late June report seemed to confirm the above item in that 15 or 16 wells were mentioned as having been in south-western Bradford and Tioga counties and 11 or 12 had already been fraced. The company budgeted $200 million in Bradford and Tioga counties for 2009.

According to Talisman's June 30, 2009 quarterly report the company had drilled 12 gross (12 net) Marcellus shale wells during the first half of 2009. These resulted in production greater than 30 Mmcf/d which had exceeded management's expectations.

In a July, 2009 update, the company indicated that it planned to maintain at least four rigs in the field for the balance of 2009 and was increasing the number of wells that it would drill for the year from 36 to 50. It also stated that the above-mentioned four horizontal wells, drilled in the first quarter, were now averaging 5 Mmcf/d apiece. The company had experimented with up to 11 fracture stages in drilling these wells at a cost of up to $4 million each.

A company spokesman stated in August, 2009 that Talisman/Fortuna had been producing 40 Mmcf/d in Bradford and Tioga counties.

September, 2009 found Tallisman/Fortuna striking a deal with the The Friendsville Group consisting of 600 landholders in Susquehanna and Bradford counties, Pennsylvania and the New York county of Broome. The company was to pay $5,500/acres on a five year lease with right to extend the lease for an additional three years. Royalties were to be 20% on production. The total deal amounted to $165 million for drilling rights to 30,000 acres in the three counties. C. Warren Trainor, a Philadelphia attorney, represented The Friendsville Group in the negotiation. Updeate, September 17, 2009: Despite The Friendsville Group having accepted Talisman/Fortuna's offer, Chesapeake Energy made a counter-offer amounting to $5,750/acre, 20% royalty and only a 5 year lease with no right to extend for another three years. A Talisman/Fortuna spokesperson indicated that despite the counter-offer, the company remained confident that it would still be able the to lease their minimum contingency acreage for the deal to go through which was 20,000 acres. Apparently, members of the group are at liberty to lease to whomever they choose.

An October, 2009 report indicated some of the 88 jobs at Fortuna's headquarters in Big Flats, NY were to be transferred to a new office being set up in Pittsburgh, PA by Talisman Energy. Talisman's new Pittsburgh office was to manage Talisman's interests in the Marcellus shale formation and be known as Talisman USA.

In a November, 2009 update, Talisman mentioned that it had increased its Marcellus shale leasehold by 90,000 acres during the year. Its most recent Marcellus wells averaged production of 4.5 Mmcf/d on an initial 30 day basis. The most recent 6 wells had averaged 5 Mmcf/d or better. At the time, the company's overall Marcellus production amounted to 50 Mmcf/d and was expected to grow to 70 Mmcf/d by year-end.

According to a third quarter, 2009 operational update issued in December the company planned to go from three rigs in the Marcellus play up to six by year-end 2009. This could increase to ten rigs by year-end 2010.

2010 Development Timeline

During 2010, dozens of Marcellus shale wells were drilled and went online to production ramping-up towards Talisman's goal of reaching 250 to 300 Mmcf/d by year-end. In the Qubec Utica shale play, Talisman completed the earning phase of its farm-in agreement with Questerre. The partners had several additional wells in various stages of development including a couple that had in testing flowed commercial volumes of production.

Utica shale play - St. Lawrence Lowlands, Quebec

A February, 2010 update mentioned that Talisman was going to continue its pilot program in Quebec, and that the company expected to test four horizontal wells during 2010. It also had completed the earning phase of its farm-in agreement with Questerre Energy. In late February, 2010, joint venture partner, Questerre, announced successful completion of the St. Edouard 1A, a horizontal well that had achieved commercial volume of production with an initial flow rate of 12 Mmcf/d that settled out to a rate during testing of 6 Mmcf/d. A May, 2010 update clarified that the 30-day initial production on this well had been 5 Mmcf/d. The company drilled 2 horizontal wells during the first quarter of 2010 that were to be tested during the second half of the year.

In July, 2010 the company announced that it expected to complete 5 horizontal Utica shale wells in Quebec during the year. Drilling was underway on the 5th well, and two wells were in the process of being completed. Talisman also mentioned that it was satisfied with test results from the St. Edouard well. Additional details about the Quebec pilot drilling program are available on the Questerre wiki page.

Marcellus shale drilling in Pennsylvania

A January, 2010 update stated that the company planned to drill 170 new Marcellus wells during the year. That was up from 53 wells during 2009. The company exited 2009 with 65 Mmcf/d in Marcellus shale production.

In February, 2010 the company announced that 38 of the wells drilled in 2009 were operated and 15 were non-operated. It had fielded 6 rigs during 2009 and planned to increase this number to 10 by the end of 2010. Talisman intended to drill up to 170 wells during 2010 and produce 250-300 Mmcf/d. Update: Talisman updated in May, 2010 that first quarter production from Pennsylvania's Marcellus shale play had averaged 85 Mmcf/d. By the end of April, production had reached 150 mmcf/d. Talisman's production during the first quarter came from 49 producing wells. The company had brought 22 wells onstream (21 operated and 1 non-operated). Average initial production (IP) for wells brought onstream during the quarter had been 5 Mmcf/d (based on 30-day IP). 41 gross additional wells were drilled, but awaited completion (34 net). 35 gross wells (30.5 net) had been drilled during the first quarter--26 operated and 9 non-operated. Talisman had fielded 7 horizontal rigs for most of the quarter, with an eighth one added by the end.

Talisman updated again at the end of July, 2010 that its July production was in excess of 190 Mmcf/d and the company expected to exit the year with production of 250-300 Mmcf/d. It had drilled 76 wells net during the first half of 2010 and brought 61 net new wells onstream to production. The company commented that it had permits for all of the water that it needed and was currently recycling 100% of its flowback water.

An August, 2010 news account mentioned that Talisman had leased 5,700 acres in Tioga County's Tioga State Forest and 13 wells there were producing 55 Mmcf/d. That amounted to roughly $33,500 in royalties per day added to the state's fund.

Spotlight Issues

  • Northeastern Pennsylvania Marcellus shale gas has emerged as a very significant factor in Talisman Energy's North American production portfolio having risen in only one year from 6 to 36% of its overall natural gas production--that is a 6-fold increase in share. With sustained prices of natural gas near break-even levels, the comapny has started to shift some of its exploration activities to a liquids-rich play in Texas which has better economics given prevailing natgas prices.
  • The same as other major E & P companies in the Marcellus play, Talisman has been using longer laterals and more stages in its completions. Similarly, the company has been enjoying increasingly favorable learning-curve economics as it gains greater drilling experience in the Marcelllus shale.
  • Talisman has assembled an extensive leasehold position both in northeastern Pennsylvania and south central New York. Should New York decide ultimately to permit horizontal drilling and hydro-fracturing, Talisman should be well positioned to benefit.

Executive Contacts

  • Talisman's President and Chief Executive Officer is Hal Kvisle.
  • L. Scott Thomson is Executive Vice-President and CFO.
  • Robert R. Rooney is Executive Vice President Legal and General Counsel.
  • Richard Herbert is the company's Executive Vice-President for Exploration.
  • Paul Smith is the Executive Vice President of No. American Operations.
  • A. Paul Blakeley is Talisman's Executive Vice President-International Operations (East).
  • Jim Fraser is Senior Vice President - No. American Shale Business.
  • Nick Walker is a Senior Vice President.
  • Philip D. Dolan is Vice President-Finance.
  • Marty Memory is a Water Usage Engineer.
  • Phoebe Buckland is a Talisman spokesperson.
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