Talisman Energy: Stock is Cheap and Analysts are Skittish

Oil at $100 plus per barrel has not produced many winners for investors in the upstream, downstream or integrated oil and refining companies. Crack spreads have narrowed, exploration costs are rising faster than ROI and the NOC’s have a death grip on cheaper to extract resources. Since October of 2007, there has been a slow grinding death spiral in these stocks, and with the refiners, the spiral has not been so slow.

The reasons are many, ranging from failure to complete projects on time, relentless rising costs, hedge fund illiquidity and a market refusal to price explorcos NAV at the higher and current oil prices. Suffice it to say that 2008 so far has not been a good year to start an energy fund.

However, this does present the investor with an opportunity to find companies with great assets and rising production at much cheaper prices. A quick look at one of them follows.

Talisman Energy (TLM) is beset by an excess number of shares, a falling oil production graph line, and investor consternation of a perceived lack of strategy, Alberta’s punitive tax increase on deep gas wells and the universal problem of not having completed projects on time.

It is no wonder that the stock price has tanked and disappointed every analyst from Calgary to London. Every analyst, and I mean all of them, have knocked this stock down. Price as of this writing: $15.80.

The good news: the Company is undertaking a complete portfolio review with a strategy of increasing reserves to longer life expectancy. Talisman has retired 50 million common shares; the Alberta government has started negotiations to end the proposed punitive measures and “unintended consequences” of the recent proposed royalty hike that affects deep gas wells.

Talisman is achieving great success in Vietnam with her exploration results, garnered a share, albeit a small one, in a LNG project in the hottest LNG market and has righted itself under new CEO Manzzoni to achieve production targets. Furthermore, Talisman has recently purchased RSX Energy, a land rich, cash poor Canadian junior gas explorco with interesting prospects. Talisman got the company cheap and as most of the lands are in Alberta this implies that Talisman has some optimism about royalty reform talks with Alberta.

A key factor in buying Talisman is that her production problems are not reservoir based but an outgrowth of too few engineers, rising material costs and rig availability.

Bottom line: Great worldwide assets and a rising production profile to 2010. This stock is cheap and the analysts are still skittish, a contrarian time to buy. Keep your eye on Vietnam; the potential here could be explosive to the positive.

Disclosure: none

Comments

[redbaron]

Another positive, and the reason I have bought TLM, is that T. Boone Pickens has been buying up these shares. No one knows this market better than T. Boone. JK

2008 Mar 24 11:40 AM

[TA]

Living in Canada, I see a lot of this stock and can tell you it's a serial loser. Everyone and his dog has recommended this stock due to it's assets and gotten burned because of it.

Most of what I hear is poor execution - similar to Petro Canada.
Looks great, cheap but can't get off the ground.

Infact, both are currently in an unbroken downtrend.

2008 Mar 24 01:30 PM

[stockdoc]

I believe TLM has the forward potential of gaining a substantial amont of revenue if turned around in the 08 thru 09 period and would be a buy at 15-16 range and see 24-25 by years end.

2008 Mar 25 08:26 PM

[AL Berta]

Good call stockdoc. I re-bought TLM below $17 and fully believe 08 will be a great year for holding and trading TLM. The stock has been a great trader if nothing else the past year or more. A reverse H & S formation has completed and the run past $18 indicates better days immediately ahead. Not to mention the fantastic volume of late! By now or cry later.

2008 Mar 30 03:03 PM

[Greg Pinelli]

It's interesting looking back on Mr. Ward's recommendations. Of course, this one hasn't turned out so well...but, then, we don't know if he had the courage of his convictions and invested in TLM or just likes to poke his finger in someone's eye. One gets the impression he talks the talk but seldom walks the walk.
In any case...a little post mortem...
Mr. Ward seems enamoured of Vietnam...despite it's very solid reputation as a VERY difficult place to do business..and as..well..a Communist government that by its very foundational principles doesn't hold with private property...Until, of course, it's been developed. Then it looks awfully enticing!
Mr. Ward, however, thinks Canadian trusts are going down a rathole..although this also seems to be a figment of his sarcastic imagination. In any case..it caveat emptor where the "analyst" is concerned.

2008 Nov 25 09:15 PM

[Greg Pinelli]

And also...bravo TA (message above).."every dog and his fleas have recommended this stock (TLM)." We know for a fact at least one of the fleas!!

2008 Nov 25 09:17 PM