Why Talisman Energy Inc is the first — but not last — victim of the oil price slump – by Claudia Cattaneo (National Post – December 17, 2014)

The National Post is Canada’s second largest national paper.

Senior oil and gas producer Talisman Energy Inc. became the first Canadian oil patch company to surrender to the global oil price crash Tuesday, when it announced its sale to Spain’s Repsol SA for US$8.3 billion in cash after a long campaign to re-focus its global business.

There will be more.

With share prices at garage-sale levels, the whole Canadian energy sector is vulnerable to being picked on by anyone with a war chest, expectations of an oil price recovery or better ideas on how to create value.

“The likelihood for high-profile M&A transactions is almost a guarantee,” said Sonny Mottahed, CEO and managing partner of Black Spruce Merchant Capital in Calgary. “In the environment that we are in today, where you have equity prices reacting dramatically to the drop in the commodity … the intrinsic value of a lot of these companies is far greater than what the market is valuing them at.”

In anticipation of more consolidation, investors pushed up many battered Canadian energy names, with Encana Corp. bouncing 7.4% to close at $14.53, Crescent Point Energy Corp. gaining 10% to close at $24.13; Baytex Energy Corp. gaining 5.7% to $16.21, and Whitecap Resources Inc. gaining 5.4% to $10.99.

Talisman interim president and CEO Hal Kvisle said weak oil prices made it difficult for the company to continue as an independent.

“This transaction mitigates the risk associated with executing on a plan as a going concern,” he said in an early morning conference call to discuss the deal.

Talisman is facing “a very stressed oil price environment,” limited ability to reduce costs, difficulties selling assets, having to raise equity to shore up a debt-heavy balance sheet, he said.

In addition, the company failed to find a replacement for Mr. Kvisle, a director and former CEO of TransCanada Corp. who came out of retirement to temporarily lead the company but wanted to step down by the end of December.

The call lasted a mere 12-minutes and generated no questions — hardly the end one would have expected for a company that was once one of Canada’s most aggressive and that took more than 20 years to build.

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