Executives
John Manzoni – President, Chief Executive Officer & Non-Independent Director
L. Scott Thomson – Chief Financial Officer & Executive Vice President Finance
Richard Herbert – Executive Vice President Exploration
A. Paul Blakeley – Executive Vice President – International Operations (East)
Mike Adams – Internal Reserves Evaluator
Analysts
Brian Singer – Goldman Sachs
Robert Morris – Citigroup
Andrew Fairbanks – Bank of America Merrill Lynch
Greg Pardy – RBC Capital Markets
Chris Theal – Macquarie Securities
Andrew Potter – UBS
Brian Dutton – Credit Suisse
[Inaudible – Veritas Investments]
Carrie Tait – National Post
Jim Mahoney – Daily Oil Bulletin
Talisman Energy, Inc. (TLM) Q4 2009 Earnings Call February 10, 2010 1:00 PM ET
Operator
Welcome to the Talisman Energy, Inc. yearend results conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions) This call contains forward-looking information. Certain material factors and assumptions were applied in making the forecasts and projections to be discussed in this call and actual results could differ materially from those anticipated by Talisman and described in the forward-looking information.
Please refer to the cautionary advisories in the February 10, 2010 news release and Talisman’s most recent annual information form which contains additional information about the applicable risk factors and assumptions. I would like to remind everyone that this conference call is being recorded on Wednesday, February 10, 2010 at 11 am Mountain Time.
I would now like to turn the conference over to Mr. John Manzoni.
John Manzoni
Thank you for joining our fourth quarter conference call. I’m joined here in Calgary today by the management team who will be happy to help answer your questions. We’ll start by outlining the main aspects of our fourth quarter results and then reiterate a couple of aspects of our guidance for this current year although nothing has changed since we updated you on the 11th of January. After that, we’ll be very happy to answer your questions.
Last year we set out to initiate a transformation of Talisman’s portfolio and we made a great start to that journey despite a very volatile world. We ended the year with a more focused portfolio, a strong balance sheet, lot’s of financial flexibility and a portfolio for which the underlying growth will become evident through the back half of this year. We also delivered a safety performance which is more than 40% improved over 2008.
Now, turning to the results themselves, our reported net income for the year was $437 million, down from about $3.5 billion the year before. The main difference from 2008 was of course the commodity price which resulted in net backs about 40% below the prior year levels. Also, the impact of our hedges which were very strong at the end of 2008 and resulted in substantial additions to income during the fourth quarter of that year. The hedging program swung the income numbers by more than $2 billion year-on-year.
The same is true for the fourth quarter where we reported a net loss of $111 million compared to a net income of around $1.2 billion a year earlier. The loss on derivatives in the fourth quarter of ’09 was $142 million compared to a gain of $1.7 billion a year earlier. The fourth quarter income was also impacted by dry hole write offs which totaled $204 million for the quarter. The main reason for this is we reassessed our Vietnam asset in Block 14-201 and we’ve decided to write off all the exploration and appraisal wells in the HSD basement structure outside of the central fault Block B which contains the initial well 1X and the most recent well 5X.
All the subsequent wells encountered full hydrocarbons columns and they also flowed under test but not at commercial rates. As you know, we’ve been engineering an early production scheme for the central fault block but we’ve now decided to reassess the design and slim down the proposed well head platform. It will still be tied in to the HST discovery which is not changed and will still be focused on getting production history to fully assess the reserves potential of this complex fractured basement.
As a result, we’ve pushed back the project by about 12 months and I think it is unlikely now that we will sanction this scheme during 2010 as I had previously indicated. This is disappointing but I’d rather delay the sanction and get the right development scheme in light of the appraisal results. In fact, the growth profile and the proved reserve numbers in Asia are unlikely to be effected by this delay since the recent Jambi Merang acquisition which I’ll discuss in a moment brings in new production in 2011 and we have not yet booked any proved reserves from HSD.
Earnings from continuing operations for the year which strips out the unrealized derivative contracts and other non-operating items was $640 million, down from $2.3 billion a year earlier with the main impact again being price. In the fourth quarter it was $76 million down from the equivalent quarter a year earlier due almost entirely to the realized portion of the hedging programs I’ve just mentioned. We were hedged in the fourth quarter of ’08 at about $90 which of course generated substantial real gains during that quarter.
Our costs are being controlled with absolute costs during 4Q held flat with 3Q and down from the fourth quarter of the prior year. Different activity levels obscure the underlying trends but from a number of different lenses we’re seeing underlying reductions in operating costs of between $100 and $150 million year-on-year.
Gas generated from operations for the quarter was $921 million up from the third quarter. We also sold assets which generated about $600 million of proceeds in the quarter. Capital spending in the quarter was just under $1.5 billion bringing the total for the year to $4.3 billion as I indicated in our last call. Over the year we generated disposition proceeds of $2.7 billion and all the sales were executed at very good metrics.
In total we sold assets which were producing about 30,000 barrels a day and which lowers production by about 15,000 barrels per day going in to 2010. These dispositions helped us go generate a total of $1.37 billion of free cash flow over the year. We ended the year with $2.1 billion of net debt which was considerably lower than at the start of the year and sets us up well for this coming year.
Production for the fourth quarter was 423,000 barrels per day which brings the 2009 annual production to 425,000 barrels a day towards the upper end of the guidance we issued in 3Q. This was after selling an annualized total of around 15,000 barrels a day. Production from continuing ops was 418,000 barrels a day in the fourth quarter up from a year ago and from the third quarter.
The other aspect of the results that I’ll spend a moment on is our finding and development costs which as you will have seen from the press release was about $24.3 a barrel excluding any price impacts and including all the capital we spend on land in our North American business last year. This I 43% below the 2008 number which was about $43 per barrel. Excluding the capital we spent on land, the F&D costs in ’09 would be less than $20 a barrel. This significant reduction is of course one of the objectives of our portfolio repositioning and while we’ve made a good start, it won’t stop here.
Our reserve replacement ratio for proven 1P reserves was 112% excluding the benefit of the yearend price affects and before A&D activity and 165% of 2P reserves. If we include the price impacts the 1P replacement number is 162% because we write back reserves in the UK North Sea in particular. As you know, the SEC introduced new rules this year which may cause different interpretation of reserves but for Talisman, we’ve maintained our proven undeveloped pud percentage at 28% in total up only a small amount from 24% last year.
In our North American operations we’ve increased our improved non-development bookings from 15% of the total last year to 26% this year and substantially all of our puds are scheduled for development within five years. I believe we’ve taken a conservative approach to this and we will continue to do so. Because we’ll continue to take a conservative approach, as we ramp up our drilling program and next the PDP replacement costs will begin to converge towards the total replacement costs.
That’s the inevitable outcome of us moving towards the shale business model. I’m expecting to see significant progress on this as our drilling program ramps up this year. We sold 120 million barrels of reserve last year but if we add back what we sold and again ignore the benefit of the year end price related write back of reserves, we’ve increased the company’s proven reserve base from 1.43 billion barrels at the end of 2008 to 1.45 barrels at the end of last year. In terms of finding and development costs we’re starting to see the impacts of the new strategy.
Now, let me ask Scott to go over some of the cash and balance sheet aspects for you in some more detail.
L. Scott Thomson
I will review our financial results, balance sheet, progress on focusing the portfolio and hedging position. Cash flow in the quarter was approximately $921 million compared to $838 million in the immediately preceding quarter due principally to higher volumes and higher commodity prices partially offset by associated higher royalties and cash taxes and lower proceeds from our hedges.
For the full year we generated $4 billion of cash flow compared to $6.2 billion in 2008. The decrease was primarily the result of substantially lower commodity prices partially offset by associated lower royalties and cash taxes and higher hedge proceeds. Earnings from continuing operations which exclude certain non-operational items were $76 million in the quarter which is $77 million less than Q3 as a result of the write down of Vietnam appraisal wells mentioned by John.
For the full year, earnings from continuing operations decreased from $2.3 billion in 2008 to $640 million in 2009 due principally to the year-on-year decline in commodity prices. As we indicated during our Q3 call, our cash tax expense in Q4 was higher than previous quarters at $253 million as a result of production volume increase in high tax rate jurisdictions. At our planned prices we expect 2010 cash taxes to be lower than 2009. However, as you know cash taxes in the UK and Norway are particularly sensitive to oil price changes.
Capital expenditures for the year were $4.3 billion. $1.8 billion was spent in North America of which the majority was directed towards shale plays including land purchases. In addition, $1.2 billion was spent on development activity in the North Sea, $500 million on development activity in Southeast Asia and approximately $760 million on international exploration.
As we announced in our recent guidance call, capital expenditures are expected to be $5.2 billion in 2010. $1.6 billion of this will be spent on accelerating the development of our shale properties, a trend which we expect will continue beyond 2010. At the end of 2009 we had $1.7 billion of cash on the balance sheet and $2.1 billion of net debt compared to net debt of $3.9 billion [inaudible]. We have no significant debt maturities in 2010 so we continue to be in a strong financial position.
Given our capital expenditures are expected to out strip our operating cash flow in 2010 at our planning price deck, we will use this cash as well as proceeds from dispositions we complete throughout the year to fund our 2010 capital program. During Q4 we completed a minor acquisition in Papa New Guinea, to further enhance our exploration position in that location and in January 2010 we acquired a 25% working interest in the Jambi Merang PFC in Indonesia for approximately $150 million.
Together with the rift and horizon transactions, we have now spent approximately $400 million on Southeast Asia acquisitions since the beginning of 2009 expanding our footprint in this strategically important area. We are continuing to make good progress in focusing our portfolio. In Q4 we completed the sales of our [Turner Valley and [Warburg assets in western Canada and the sale of 10% of the Yme asset in Norway.
During 2009 we sold assets for proceeds of approximately $2.7 billion while divesting approximately 30,000 barrels per day of production. We will continue to evaluate disposition opportunities and as announced previously are examining the sale of approximately 40,000 barrels per day of production in our conventional North American gas weighted business.
We had a successful hedging program in 2009 as 45% of our oil production was hedged at approximately US $80 and 45% of our North American natural gas production was hedged at approximately $6 [ACO. These hedges allowed us to maintain our capital spending levels despite commodity price volatility. As we’ve discussed previously we have hedges in place to protect our 2010 cash flow.
For oil we have protected 75,000 barrels per day of estimated 2010 production in three different programs. 28,000 barrels are hedged in 50 x 80 collars, 25,000 barrels are hedged in 70 x 90 collars and 22,000 barrels per day are hedged in 50 x 60 collars. As you can see we have significant upside exposures to oil prices above our $60 budget case.
For North American gas we have protected approximately 330 MMCF per day of estimated 2010 production through physical and financial hedges and approximately 50 MMCF per day in NYMEX collars with a US $5.50 floor in a US $6.50 ceiling and the majority of the remainder in [ACO collars with a $6.20 floor and a $7.50 ceiling. We currently have no material hedges in place for 2011 but anticipate hedging some 2011 production in the first half of 2010.
Those are my highlights John, I’ll turn the call back over to you.
John Manzoni
Looking forward to this year we’ve secured a great position in Tier-1 rocks in our North American business with sufficient running room to provide 10 years of growth in each of the Montney and Marcellus with at least 4,800 drilling locations between them. Our capital plans include a substantial ramp up in the development drilling in both locations and we’re determined to drive forward with those investments.
We sold a significant amount of lower return assets and we will continue that process through the year. We’ve identified assets in our North American portfolio which today produces about 40,000 barrels oil equivalent today and those assets are on the market now. We’ll continue to examine our portfolio to high grade the asset base, continue to build out our Asian portfolio and will begin drilling Papa New Guinea this year to prove up the onshore gas reserves there, continue to look for small target M&A in the region and as Scott mentioned during the last month completed the $150 million acquisition of the Jambi Merang development which is next to our corridor asset in Indonesia.
This will start production in 2011 and ramp up to 11,000 barrels a day. It’s an excellent addition to our portfolio in the region. It leverages our relationship with Pertamina which I’m confident will allow us to realize value from the field which the prior owners could not. In the North Sea we’ll bring on the Yme development and continue to progress the Auk redevelopment projects on the UK side.
We’re seeing some excellent results from our in field drilling program in Norway with recent successful wells in Varg in particular. Our exploration team had a good year last year with commercial discoveries in the UK, Norway, Columbia and Peru and our Kurdistan well is still drilling. We hope to build on those discoveries this year with key wells in Peru, Columbia, Kurdistan and Indonesia.
This is a critical transition year. I said a few weeks ago that our production will be broadly flat with 2009 excluding whatever we sell in North America. But underneath that as well as making up for the sales we made during 2009, we’re building a powerful growth engine as we invest in to the shale development and we’ll spend around $1.6 billion between the Montney and the Marcellus this year.
It’s important for us to continue to invest in to the shales as we transition the portfolio and you can expect us to maintain and increase that activity as we go forward. I’m expecting that on a continuing operations basis by the second half of this year those shale investments will drive underlying growth for the company as a whole. For next year, we’ll see absolute growth which will be then long term and sustainable.
I will reiterate what we said in our guidance, that we expect to drill around 170 net wells in to the Marcellus this year and complete about 145 of those which will drive our exit rates from the Marcellus this year to between 250 and 300 million cubic feet a day. We expect to continue to ramp up production as we maintain the investment rate in to drilling. We’re off to a good start this year since production from the Marcellus when I last checked was about $100 million cubic feet a day.
We’re on a path to position the portfolio to drive growth in to the medium term and to transition out of lower return conventional production in to higher return longer term growth from the shales. Our investment plan this year reflects that transition and we’ll maintain flexibility to ensure that we can execute against it.
Ladies and gentlemen that’s all we have to say. Now, we’ll be very happy to answer your questions.
Question-and-Answer Session
Operator
(Operator Instructions) Your next question comes from Brian Singer – Goldman Sachs.
Brian Singer – Goldman Sachs
Following up on the Marcellus that you just mentioned trying to get production up I guess 150 to 200 million a day by the end of the year, can you just talk to the trajectory and where you stand from a permitting and a pipeline perspective?
John Manzoni
You said 150 to 200 I said 250 to 300.
Brian Singer – Goldman Sachs
An incremental 150 to 200.
John Manzoni
Let me ask Paul to talk a little bit about where we are on permitting, pipelines and things.
A. Paul Blakeley
We’re currently running with six rigs and I think we indicated in our January guidance call that we will build to 10 rigs throughout this year so you can expect to see a steady increase quarter-by-quarter in terms of the activity within the Marcellus. In terms of permits this year we’ve got over two thirds of our 2010 program permitted as we speak and we’re confident that the remaining third will be permitted at natural pace as we go forward.
In terms of egress we have secured approximately 600 million standard cubic feet a day, 400 million of back haul capacity and we have term sales in place of approximately 200 million standard cubic feet a day which secure not just the 2010 program but clearly the expansion program beyond 2010 and we’ll continue to look for opportunities to make sure that we stay ahead of the egress curve in the Marcellus.
John Manzoni
On trajectory Brian let me answer that because we’re not providing anything beyond what we said frankly because I just think it’s too early. But you know, as Paul says we’ll be ramping up the rigs. It’s unlikely we’ll be ramping them back down again. I think we could bet on that but what we said is an exit rate this year of 250 to 300 and as we progress through the year we will progressively outline plans beyond that.
Brian Singer – Goldman Sachs
Separately, on southeast Asia I think you mentioned the potential for tuck in small acquisitions, have you ruled out or are less likely to consider larger acquisitions in that region? And, maybe talk to any interest in shale acquisitions in North America as well.
John Manzoni
Let me see if I can just answer that in general. We’ve said that we always look at everything, more or less everything that moves and we have a very, very active program doing that so we are aware of all the things that are moving on. To the extent that we will look in acquisitions we look in our areas of strategic focus so it will be in Southeast Asia. It might be behind some of our exploration activity in our existing core areas and we wouldn’t discount and as you know, we came in to 2009 expressly thinking about shale acquisitions. I wouldn’t discount those.
I would say in those areas you can expect us to keep looking. There’s nothing on the radar screen particularly specific right now but we will and do continue to look so we can take advantage where we see value in all of those areas.
Operator
Your next question comes from Robert Morris – Citigroup.
Robert Morris – Citigroup
Three quick questions, I wasn’t clear on Vietnam, what you wrote off here did you actually keep the 5X and the 1X well and not the other three? And, I don’t think you commented on the results from the 5X appraisal.
John Manzoni
Let’s pick your first one off first Bob and let me ask Paul Blakely to just give you a bit of color on what we actually did around our wells in Vietnam and 5X.
A. Paul Blakeley
Bob, the story here for us is outside of the core development area some of the appraisal wells have been disappointing and that’s where we’ve focused on writing wells down. The 1X would remain at the heart of the Hai Su Den development and indeed the 5X well which also was drilled in to the central fault Block B that’s currently testing and producing so again, that would be part of the development that we’ve planned. Indeed, the core development that we’ve always been planning in Block 15-2 which links Hai Su Den central fault block together with Hai Sue Trang, that will go forward.
Robert Morris – Citigroup
Elsewhere in Peru, did you mention the results of the sidetrack the Situche I think it is?
John Manzoni
I didn’t mention it actually but I know Richard Herbert will describe where we are in our operations in Peru. Richard, maybe just a bit of background on that as well?
Richard Herbert
In Peru the Situche central well you’ll recall that we encountered oil in the lower Vivian Reservoir down of the discovery well so we’ve got an oil accumulation there that we think is in the 30 to 40 million barrel range which looks to us that it’s probably commercial. We drilled deeper, we found encouraging oil shows and reservoir quality in a deeper reservoir which is called the [inaudible] but it looked in the original vertical well that it was below our potential oil water contact so we initiated a side track up dip to try and encounter that reservoir at a higher elevation.
Unfortunately, we had difficult drilling conditions and we weren’t able to complete the side track. We got very close but we were not able to get in to the reservoir zone again and acquire logs. So we’ve now plugged the well back and we’re preparing to test the Vivian reservoir and complete our operations in the well. Clearly, we’ve still got that upside potential there and we are looking at ways we could come back in the future and evaluate it.
Robert Morris – Citigroup
Then lastly, on the Marcellus you mentioned you were at 100 million a day currently. From the work you’ve done so far do you have an estimate on what you think the average EUR will be for what you’re drilling here in 2010?
John Manzoni
Well, we’ve made some statements about the EUR but Paul would like to reiterate them.
A. Paul Blakeley
Bob, we’ve said that the exit rate in our program this year is based on an assumption of an IP of 3, an average IP of 3 and an average EUR of 3.5 in the Marcellus.
Robert Morris – Citigroup
The results you’ve had so far since last quarter pretty much confirm that then?
A. Paul Blakeley
Our results are clearly better than that and we need to sort of go slowly here. We only completed less than 30 wells last year but the average IP and the average EUR were higher than the average we’re assuming this year.
John Manzoni
I’m glad you asked that Bob because he’s been dying to say that. I’m the guy holding him back to keep our conservative assumptions.
Robert Morris – Citigroup
Just lastly, you were somewhat conservative in booking puds. In the total company puds stayed nearly flat, it was up only slightly. Is that the fact that you’re being somewhat conservative in booking puds? And, if you are booking puds is it the ratio of 1.5 or two puds for every producing well or how are you going to look at the pud reserve bookings in the Marcellus?
John Manzoni
Let me make a general statement about our puds and puds percentages and how we’re approaching. Then I’d just ask Paul to chat about puds in the Marcellus if I don’t pick it up. But in general I think as I said, for the company as a whole we’ve got puds at about 28% total. That’s really not much moved up at all as a company. In North America we’ve got a pud percentage of 26%. The reason I said it was conservative is because that’s below 30% and many of our peers are from 30% and upwards.
Our pud percentage will creep up but we will keep that under control and I think as we stand we’re in a relatively conservative place and we will continue to be relatively transparent with that. We’ve taken a small amount of our Marcellus acreage and developed puds off the back of the locations that we have there and I think we’ve not been unduly aggressive there either and it is only a small part of the land. Paul is there anything to add to that?
A. Paul Blakeley
Other than the ratio that you asked for which is between three to four in terms of the puds in the Marcellus.
Operator
Your next question comes from Andrew Fairbanks – Bank of America Merrill Lynch.
Andrew Fairbanks – Bank of America Merrill Lynch
I wondered if you had any comments on your prospects in Quebec? I understand [inaudible] is drilling now. Do you have any early read on how perspective that well begins to look?
A. Paul Blakeley
We’re one well in to a full well horizontal program in Quebec. The well that you mentioned is just being completed and in fact it’s only just started we’re still drilling out the plug so it’s way too early to make any judgments around the well. When we get this well resolved I think it’s going to be too early for us to make any broad sweeping conclusions around Quebec. I think we’ll have a lot more data on which to make a more informed opinion in the middle of this year when we’ve got four wells behind us and completed.
Operator
Your next question comes from Greg Pardy – RBC Capital Markets.
Greg Pardy – RBC Capital Markets
A couple of questions, John with the Marcellus is the strategy to pick up more land selectively in Pennsylvania or do you keep your powder dry kind of awaiting lifting of the moratorium in New York to expand the program?
John Manzoni
I’ve said we look at everything. I mean there are no set predetermined plans as to where we’re going to go and expand and to some degree this is opportunistic. We do have a great position in Pennsylvania, we have an even larger position in New York which for the moment we’re discounting any activity on and that will take its own natural course. I would say we have just about 200,000 tier-1 acres in Pennsylvania that we’re very happy with and are busy drilling. I wouldn’t say our first focus is to expand that position. It will rank in an opportunistic way with whatever else comes across our path frankly.
Greg Pardy – RBC Capital Markets
Maybe just a question for Scott around the balance sheet, do you have targeted ranges that you’ll like at either in terms of debt to cap or debt to cash? I mean obviously maintaining investment grade is important but what else are you looking at?
L. Scott Thomson
I think Greg maintaining the investment grade is key. As you look at the cash position at the end of the year we had $1.7 billion of cash and post the Jambi Merang that’s come down a little bit. I think we feel confident using that cash position to help fund the 2010 capital program and there’s probably a little bit additional leverage that we could put on the balance sheet but obviously keeping the investment grade rating is crucial. So that’s essentially how we’re thinking about it. We don’t have targeted debt to cap because it’s frankly, not that relevant.
We use debt to PD and debt to cash flow type metrics and I think we have a little bit of room from the leverage perspective. But mostly it’s going to be using that cash to help fund the 2010 capital program.
Greg Pardy – RBC Capital Markets
Just the last one for me is just on the exploration side, which well will you drill, I think you’re talking Makasser Strait that you’ll be drilling this year in Indonesia?
John Manzoni
Let me ask Richard to just describe for you what we’re going to do in Indonesia.
Richard Herbert
In the Makasser Strait we currently have to PFCs there, one in the north which his called Pasangkayu which is operated by Marathon and one in the south which is 100% Talisman and operated called Sageri. The plan in this year is to start drilling in the northern PFCs Pasangkayu and the plan there is to drill two wells during this year. The first two wells of a commitment program and the first well will be spudded in about the middle of the year. The second well in the bad part of the year and then we’ll move on and drill in the Sageri PFC starting in 2011.
Greg Pardy – RBC Capital Markets
Don’t belabor this but just any indication around structure size? And, these are oil targets?
John Manzoni
Oil, gas or where are you particularly excited Richard?
Richard Herbert
It’s always difficult in frontier acreage to make predictions ahead of drilling it. We have some large structures there, we think we’re probably in a gassier terrain rather than oil. I don’t think there’s any surprises there but we can’t rule out having some associated liquid. But overall for Makasser we’re excited about the opportunities and what we now need to do is get the first few wells down and derisk the play.
Operator
Your next question comes from Chris Theal – Macquarie Securities.
Chris Theal – Macquarie Securities
The first question Jambi Merang, can you give us a sense on what the development plan is there and what you see in terms of contribution looking out in to 2011?
A. Paul Blakeley
Jambi Merang, is an interesting opportunity as John mentioned adjacent to corridor so we know the area well but more particularly we know the gas market that it will feed in to very well. As a development, it is already partially developed. The pipelines are largely in place and the facilities on the ground are currently under construction so we’re quite confident about production commencement in 2011 and net to Talisman it will add up to 10,000 to 11,000 BUEs a day. There will be a ramp up over the first year or two and then under the long term contracts will produce at very flat productions the remainder of the PFCs lives.
Chris Theal – Macquarie Securities
Just to switch gears back in to western Canada, there’s been lots of land activity, obviously up in the [Pharrell] area but also kind of refocusing in to Alberta deep basin the [Duvina] shale, is that something that Talisman is interested in? And, can you comment on any participation you’ve had in land sales or pending land sales?
A. Paul Blakeley
We continue to look at a broad spectrum of shale opportunities across North America and I don’t think we’re in a position to comment specifically on either the Montney or the Albert [Duvina] or anything like that.
Operator
Your next question comes from Andrew Potter – UBS.
Andrew Potter – UBS
Do you think a trend we’re seeing more of North American shale players starting to look at opportunities in Europe and Asia for shale gasses? Is that something Talisman is pursuing and if it is can you give any color on where you’re looking and what stage that’s at?
Richard Herbert
Andrew, the short answer is yes, we’re interested in international shale plays. We have an international exploration program which in the past has been focused obviously on conventional activity first. Just in the last six months we’ve started to focus some of our efforts on to looking at international unconventional plays. We recognize Talisman is a big player in North American shale gas now but it’s also a company with international reach so it’s a very good fit for us.
We’re focusing in on a few areas, we’re interested in Europe for the reason that it has an attractive gas market and some interesting geological opportunities there. So we haven’t done any deals yet but we are looking hard and depending on how things go we could see an entry in to an international opportunity.
Operator
Your next question comes from Brian Dutton – Credit Suisse.
Brian Dutton – Credit Suisse
You’ve laid out a pretty clear strategy for transitioning the portfolio to the investment market here. What message are you giving to the employees internally as to where you stand on a transition here and how pleased you are with the progress?
John Manzoni
Well that’s an interesting question Brian. It won’t surprise you to know that we’re giving you a very similar message inside to outside, that we are on a journey, that we’ve taken the initial steps of that journey and I believe we’ve made great progress inside a very short period of time. Of course, the employees will see more than just the actions on the portfolio. They will see and they do see a changed team at the top taking steps and driving the business forward in a new way. They will see in my view enhanced strengthened processes inside the company.
They see increased functional capability across the company. Just recently we’ve appointed a head of IT who is going to take that to the next stage, a head of drilling which will take that to the next stage, a head of projects to take that to the next stage, all of these sort of strengthening of individuals inside the company is much more visible to the employees than it is necessarily to the outside market. So all of that is going on and I believe that of course after a long period of time when you start changing the direction of a company there is a moment of uncertainty and employees worry about the future.
I have to say that I think increasingly as the business in all of its different aspects start to demonstrate real progress then it’s very easy and very fast for employees to then move behind that new strategy and build confidence and see that success. I have to say that I think what is going on. One never sits on ones laurels and we are only midway through a portfolio transition so we have a lot to do.
The company is working incredibly hard to do it in almost every dimension and I reflect for them exactly how I reflect to the outside which is I think they are doing a fantastic job and we’re making great progress.
Operator
Your next question comes from [Inaudible – Veritas Investments].
[Inaudible – Veritas Investments]
I’m noticing on the news release there’s 75 billion cubic feet negative revision in Canada, can you comment on that?
John Manzoni
We’ve got Mike Adams sitting here who is our internal reserves evaluator so he’s going to give you the straight scope about the 75 billion cubic feet negative reserve.
Mike Adams
[Inaudible – No Microphone]
John Manzoni
I think that answers your question.
[Inaudible – Veritas Investments]
I had a little trouble hearing that. Is it safe to say it is essentially price and conventional?
John Manzoni
Basically that’s what Mike said. I mean as we take capital out of the conventional we’ve chosen to take a conservative view and move the reserves down because they’re not being developed within five years which is the new approach to the SEC regulations.
Operator
Your next question comes from Carrie Tait – National Post.
Carrie Tait – National Post
Alberta budget that was released yesterday, they cut funding in the Department of Environment and within that one of the places where they are cutting will be monitoring lakes and rivers where they’ve seen positive trends over the past couple of years and where the lakes and rivers are not near population centers. I’m wondering if there’s a danger in Alberta cutting monitoring where there’s so much international criticism that they really need all the data that they can produce. Whether Alberta is comfortable with it or not that they need to make others comfortable. What are your thoughts on that?
John Manzoni
I can’t speak for the Alberta authorities in any way at all and of course they will make their own judgments and decisions. What I can say from our perspective is look we operate to a sort of code of practice which we try to hold internally and in fact is a global code of practice. I would much prefer to be running to our own standards which have to be at least as high as any imposed standards on us. Now of course we trip up occasionally, we make mistakes but from our perspective, whether people monitor us or not doesn’t actually determine the way we behave and we must hold and increasingly we are imposing and applying our own global standards to the environmental care Carrie so I think I can make no comment frankly about the Alberta cuts. I think that the most important thing from our perspective is that we carry on trying to continuously get better in the way we undertake our operations.
Carrie Tait – National Post
Isn’t there a danger though that while you’re keeping the standard high that the entire industry needs to show that it’s doing very well in order to protect the entire industry?
John Manzoni
Of course I think the industry needs to conduct itself in a responsible way. We can play our part in that and that hopefully sets an example for others.
Operator
Your next question comes from Jim Mahoney – Daily Oil Bulletin.
Jim Mahoney – Daily Oil Bulletin
I’m just wondering the comments that Mike had made a couple of minutes ago about the negative reserve revisions in Canada, I heard virtually nothing of the answer to that question. I guess that was the first point I was going to make and I’m wondering if apart from that you can discuss finding and development costs in 2009 and if you have any particular targets in terms of reducing F&D costs in 2010?
John Manzoni
What Mike basically said in terms of the reserve revisions was A, part of it is price because the average price applied under the new SEC rules is lower than what it was at the end of last year so that’s a part of the answer. The second point that he made was because we’re spending less money in some of our conventional assets we’ve taken a sort of conservative view we’ve removed some of the proven undeveloped reserves off the books because under the new capital programs they won’t be developed in the five year period. That was the answer that he gave Jim.
In terms of F&D, we’re on a journey. Last year was $43 a barrel in total for the company, this year it’s $23.3 or it’s actually $19.7 if you exclude the land that we purchased that is unlikely – we put a lot of money in land in 2009. That’s the sort of F&D story as we go forward. I’ve made two other comments, the first is that I expect that that trend, not at the same pace as we go forward but in total F&D will continue. We’re on a journey and we will continue as we move in to the shale gas business to drive the F&D totally down for the company as a whole which improves returns which improves the prospects for the company.
The second comment I made was actually to do with PDP F&D which because again of the shale business will actually follow the total F&D down so I would anticipate seeing substantial reductions in our PDP F&D as we go through 2010 as we ramp up our drilling activity. Those are the statements that I’ve made. I have not made any projections for 2010 F&D because I always try to say as little as possible in terms of absolute numbers. We will as we go forward I think progressively try and get clear on that for you and provide some more clarity. But, I would expect that the trend would see so far to continue from here. We’ve just taken the first step.
Jim Mahoney – Daily Oil Bulletin
Then in terms of just clarification you mentioned $43 per barrel would that be $43 per BOE?
John Manzoni
Yes, that was the total last year 2008, I think it was. It was the total per BOE in 2008 F&D cost.
Jim Mahoney – Daily Oil Bulletin
As opposed to 2009?
John Manzoni
As opposed to 2009. 2009 was $24.3 per BOE.
Operator
Mr. Manzoni there are no further questions at this time. Please continue.
John Manzoni
Ladies and gentlemen thank you for your attention and for joining us on our conference call. I think if there are no questions we will wrap it up with that and look forward to talking the next time. Thanks very much for your time.
Operator
Ladies and gentlemen this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.
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