Oil sands frenzy? not for Talisman

CALGARY -- Talisman Energy Inc.'s latest billion-dollar-plus auction of assets stands out for many reasons. There is the half-century-old contract typed on onion-skin paper that could itself be worth $400-million. But what might raise even more eyebrows is that while there's a global scramble to get into the oil sands, Talisman obviously wants out.

The Calgary company, led by chief executive officer Jim Buckee, has long been skeptical about the long-term prospects of the oil sands and yesterday the company said it would sell off assets in the sector potentially valued at about $800-million. In March, Mr. Buckee said Talisman would assess its small holdings in the region, aiming to cash in on the current boom.

All in, Talisman could reap as much as $2-billion, based on current market valuations and some analysts' estimates, although UBS Securities Canada Inc. estimated the total take at $1.1-billion, with $600-million for the 1.25-per-cent stake in Syncrude Canada Ltd.

So as big-name international players from France, South Korea, the United States and elsewhere rush to get a piece of the action around Fort McMurray during this out-of-control boom, one of Canada's biggest oil companies is getting out.

The most intriguing asset is the "onion skin" royalty. Supertest Petroleum Corp. -- a corporate predecessor to Talisman -- did early oil sands work in the late 1950s. As Talisman looked to see what it owned in the oil sands, it unearthed the old contract that gives it a 2-per-cent royalty on an undeveloped Suncor Energy Inc. lease.

"This is a fun, interesting tidbit," said analyst Rob Bedin of consultant Ross Smith Energy Group Ltd., who valued the royalty at as much as $400-million in an August report.

The royalty, along with two undeveloped leases controlled by Talisman and the tiny but valuable Syncrude stake, will go to auction, Talisman said yesterday, a process to be led by TD Securities Inc. It is possible that Talisman will sign up a joint venture partner to build on its undeveloped leases but a cash sale is the main goal.

TD Securities and Talisman said they hope to close the deals by the end of the year. The Syncrude stake -- for which Talisman gets 4,375 barrels of synthetic crude oil a day -- could be worth about $800-million, based on the market valuation of Canadian Oil Sands Trust, owner of 35.5 per cent of Syncrude.

Many interested buyers are expected. Canadian Oil Sands is one prominent name because it has previously said it would be interested in increasing its Syncrude stake.

The other assets, two undeveloped leases that would use steam injection to recover bitumen contain a rough estimate of 600 million barrels, which based on a recent deal may be worth $600-million.

Talisman's auction comes amid a broader program of divestiture of the company's far-flung assets. The firm, based in Calgary, has production in Canada, the U.S. and around the world and in late July said it would sell properties in Western Canada and the North Sea worth more than $1-billion. Some investors have criticized Talisman's growth strategy, saying its disparate holdings are unfocused.

Scotia Capital Inc. said last week in a report that Talisman could end up generating $3-billion from asset sales. "Talisman's diversified growth strategy is not well understood nor fully appreciated by the market," Scotia analyst Greg Pardy said in his report.

In its press release yesterday, Talisman said it believes the value of some of its assets "may not be fully reflected in the company's share price" and plans to buy back stock with the proceeds of the dispositions.

Talisman stock rose 72 cents or 3.7 per cent to $20.29 as the Toronto Stock Exchange energy index fell slightly.

The "onion skin" asset is for a Suncor lease beside Suncor's existing Steepbank mine and the 2-per-cent royalty is what is called a gross overriding royalty, which generally gives the owner a share of the revenue from the oil produced, minus the costs incurred by the operator to transport the crude to the point of sale. The contract appears to give the holder 2 per cent of the final product with no deductions.