While Talisman Energy Inc.’s (NYSE:TLM) bond ratings have been under pressure in recent weeks, Phillip Adams at New York-based Gimme Credit LLC have initiated an “outperform” rating on the oil and gas company’s bonds.
Last week, Standard and Poors lowered Talisman’s senior ratings by one notch, to “mid-triple-B” status, following up on a similar rating and negative outlook by Moody’s on June 4. Criticisms of the company include Talisman’s deteriorating cost management, higher financial, huge capital costs needed to develop resources and execution risks associated with the oil sands part of its growth strategy. Talisman CEO John Manzoni also announced a shift in strategy giving greater emphasis to North American natural gas, divesting a significant portion of “non-core” worldwide production.
Mr. Phillips said that while he“gets” the anxiety over a strategy shift, and the interim loss of production,
with energy prices high and likely to stay that way, Talisman has an opening to make the transition work well, even if we suppose it might benefit from greater focus.
We think Talisman bonds can outperform, having already discounted any further negative ratings action.
Talisman 5.85% notes due 2037 are trading 25 basis points wider than Nexen Inc.'s (NXY) comparable issue.