Talisman starts natural gas joint venture with Mitsubishi in Papua New Guinea

CALGARY - Talisman Energy Inc. and Mitsubishi are looking at exporting liquefied natural gas from Papua New Guinea under a joint venture deal announced Wednesday — the Japanese company's second move in a week to secure gas assets from a Canadian producer.

Mitsubishi will pay about US$280 million to form a partnership on nine licences in the southeast Asian country. Calgary-based Talisman (TSX:TLM) will hold about a 40 per cent stake in the licences, while Mitsubishi will hold 20 per cent.

Last week, the giant Japanese industrial, trading and energy company inked a nearly $3 billion deal with Canadian natural gas giant Encana (TSX:ECA) to acquire a stake in a major B.C. gas field that will potentially feed into a West Coast LNG export terminal.

Mitsubishi "brings extensive experience in LNG development and marketing" to the table, Talisman executive vice president Paul Blakeley said in a release.

"I am confident they will be a key success factor in helping us unlock the value of our Papua New Guinea assets."

Talisman and Mitsubishi are looking to export about three million tonnes a year of LNG, natural gas that has been chilled into a liquid state, enabling it to be transported by sea in specialized tankers.

In the past, natural gas has been limited to markets that can only be served by pipelines. As LNG, the gas can travel to global markets where demand is greatest, allowing producers to fetch a much better price than if it were to remain landlocked.

Japan is a big user of LNG, and its demand for the fuel has only grown since a massive earthquake and tsunami nearly a year ago destroyed the Fukushima Daiichi nuclear power plant, causing radioactive material to be released. Most of the country's reactors remain offline, and it's likely the country will look to use other energy sources for electrical generation, like natural gas, in the future.

Japan's LNG imports jumped 12 per cent to a record 78.5 million tonnes in 2011.

Papua New Guinea, off the north coast of Australia, has huge gas deposits in its western provinces, which Canadian, Australian and other global companies are exploiting.

The deal with Mitsubishi values Talisman's Papua New Guinea assets at $840 million, well above CIBC World Markets' net asset value estimate of $250 million, wrote analyst Andrew Potter in a research note.

"Another way of looking at this deal is that it is worth approximately five per cent of TLM's current enterprise value — a substantial value for an asset that the Street and investors have largely ignored," he wrote.

"We believe this is just the first in a string of deals from TLM in 2012."

Potter called the deal "another step toward redemption" for a company that has missed its targets in recent years.

"After a disastrous 2011, TLM is turning the corner and we believe the stock will regain a respectable valuation through the year" as it focuses on growth, crystallizes value from "fringe" parts of its portfolio and delivers exploration success on projects in Colombia and elsewhere.

Last week, Mitsubishi bought a 40 per cent interest in the Cutbank Ridge Partnership from Calgary-based Encana for $2.9 billion in another deal aimed at securing future LNG supplies.

Encana, along with U.S. firms Apache Corp. and EOG Resources, is getting ready to build an LNG export terminal in Kitimat, B.C.

Over the past year there have been several other link-ups between Canadian and Asian companies eyeing potential West Coast LNG projects, including Progress Energy Resources Corp. (TSX:PRQ) and Malaysian energy giant Petronas as well as Nexen Inc. (TSX:NXY) and a consortium led by Japan's Inpex Corp.

Talisman shares gained nearly three per cent to close at $14.26 Wednesday on the Toronto Stock Exchange.