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What to Expect When Talisman Reports Earnings This Week

Talisman Energy (TSX: TLM)(NYSE: TLM) is scheduled to publish its quarterly results on Wednesday. Like its rivals Encana and Penn West Petroleum, Talisman has been trying to slim down the scope of its operations to become a more efficient, profitable producer. But due to unexpected snags, the turnaround has taken far longer than anyone anticipated.

Let’s take a look at what has been happening at Talisman over the past couple of months and what we’re likely to see in the upcoming report.

Stats on Talisman Energy

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Year-Ago EPS


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Change From Year-Ago EPS


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance

Can Talisman finally turn things around?

Talisman’s past leaders tried to turn the company into a global empire with enormous potential for growth. But after the fall in energy prices, the firm was been forced to sell many of its prized assets. It simply could not afford to develop all of the properties it has collected.

Now management is struggling to re-invent the company into a disciplined, focused producer by concentrating its asset portfolio in the Americas and Asia Pacific. Not an easy task at a time of weak energy prices and an abundance of assets on the market.

Unexpected snags have resulted in a much slower turnaround than anyone expected. Talisman would be happy to sell all or much of its North Sea assets, but contractual obligations with its Chinese partners have made this difficult. Investors have also suggesting splitting the company into two, more focused businesses. But such a deal would leave two units with below investment grade credit ratings — an outcome unlikely to please debt holders or business partners. Management is also hesitant to speed up the pace of asset sales because they are unlikely to yield top value.

However, Talisman’s fourth-quarter results show that the company is making some progress on its turnaround efforts. The company’s cash flow, a key indicator of its ability to pay for drilling and new projects, rose to $675 million, or $0.66 per share, last quarter from $580 million, or $0.56 per share, a year earlier. Production from ongoing operations is expected to rise to 350,000 to 365,000 barrels of oil equivalent per day this year, from 345,000 barrels per day in 2013.

The street is also becoming more optimistic on Talisman’s turnaround prospects. Over the past couple of months analysts have increased their March quarter estimates by 75% and hiked their full-year outlook by $0.02 per share. The stock, nevertheless, has remained in the doldrums down 10% year-to-date.

This will not be the quick flip some investors have been hoping for. While Talisman is an intriguing turnaround play, this is a capital-intensive industry and it will take time to move the needle at a company this big. Investors will need more patience.

What’s next?

Last quarter, Talisman announced the it will put more assets on the chopping block, hoping to raise another $2 billion to buffer its balance sheet. Mr. Kvisle has said that the company’s properties in Kurdistan and the Alberta Duvernay are up for sell as well as midstream assets in the Marcellus shale in the eastern United States.

In Talisman’s upcoming report, listen for colour on the state of the deal market. The firm’s turnaround hinges on its ability to secure a reasonable price for its non-core assets. However, buyers are firmly in control as other companies are attempting to rejigger their portfolios at the same time.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in this article.

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