Talisman Energy Inc. (TSX:TLM) is cutting back its plans to drill for natural gas in the Marcellus region of New York and Pennsylvania even further and reducing its spending plans in the area by half compared with 2011.
Chief executive John Manzoni said Wednesday the company expects to spend about US$600 million in the region, down from roughly $1.2 billion last year.
"At this level of spend, we can maintain production broadly at today's levels of 500 million cubic feet per day," he told a conference call with financial analysts.
The company had originally planned to have 10 drill rigs working in the region and reduced that to between five and seven in January. On Wednesday, Manzoni said that could be reduced to as few as three rigs this year.
"I really see no value in chasing unprofitable growth while gas prices remain so low," he said.
Manzoni noted that he wouldn't expect to ramp up Talisman's natural gas operations in the region and have 10 rigs working again until he saw a natural gas price of $4 or more.
Natural gas was trading for around $2.55 per 1,000 cubic feet on Wednesday.
The revised natural gas drilling plans came as the company reported a loss of US$117 million, or 11 cents per share, in the fourth quarter ended Dec. 31. That compared with a loss of $350 million, or 34 cents per share in the same period a year earlier.
The company, which reports in U.S. dollars, said revenues for the three months rose to nearly $2.1 billion from more than $1.8 billion a year earlier.
Analysts polled by Thomson Reuters were on average expecting Talisman to earn 19 cents per share and post revenues of about $2 billion.
For the full year, net profits fell to $776 million from $945 million, due to higher depreciation and amortization charges, lower gains on asset sales, and higher operating expenses and taxes.
Production averaged 426,000 oil equivalent barrels a day, a nine per cent increase over the previous year. Meanwhile, annual cash flow jumped 16 per cent to $3.4 billion.
While Manzoni said the company would reduce spending in the Marcellus region in the northeastern U.S., he said the company will look to focus on liquids and oil to take advantage of higher prices in those commodities.
Talisman has been drilling in areas rich in valuable liquids, like the Eagle Ford in Texas. Natural gas liquids, used to make plastics and petrochemicals, track oil prices more closely than they do ordinary dry natural gas.
Manzoni noted the company expects to ramp up operations at its Eagle Ford operations to 14 drill rigs and at least double production.
The Calgary-based company has set a 2012 capital budget of just over $4 billion, down $500 million from 2011.
The company is looking to pare down its portfolio by $1 billion to $2 billion this year, eyeing opportunities to divest assets in the North Sea, North America and in early-stage international exploration areas.
In December 2010, Talisman agreed to sell a 50 per cent stake in two of its shale properties in northeastern British Columbia to South Africa's Sasol for $1.05 billion each.
The two companies have been studying whether it's economically feasible to build a plant in Western Canada that would convert natural gas into liquid fuels.
Talisman's other key areas of focus include offshore production in Southeast Asia, as well as operations in South America and the Middle East.
Shares in Talisman were up 52 cents at C$13.04 in afternoon trading on the Toronto Stock Exchange.
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