Talisman’s turnaround, six months in

More than takeover bait?

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Hal Kvisle came out of retirement to fix Talisman. (Jeff McIntosh/Canadian Press)

Hal Kvisle came
out of retirement
to fix Talisman. (Jeff McIntosh/Canadian Press)

Clearly, it’s going to take more than a quarter. Talisman Energy’s unaudited 2012 financials, released in February, reveal a still-troubled company, profitable only by virtue of asset sales. Judging that the bleeding had stopped, investors gave the stock a modest boost.

Yet many expected…more. After all, Talisman’s new CEO, Hal Kvisle, was drafted out of retirement last September with the express mandate to do to Talisman what he did to TransCanada Corp. when he ran the pipeline giant. That is, send the underperforming, overextended company to boot camp and whip it into fiscal shape. Now.

Kvisle’s aware of the pressure and the daunting odds against the natural-gas-weighted producer in an era of fracking-induced abundance and rock-bottom prices. “The reality is, I ended up in this position because Talisman was facing some challenges,” he says. “It is unreasonable for people to expect we would effect the turnaround in six months.” At TransCanada, where he built his reputation as a Mr. Fix-it, the exercise took 18 months-plus. Over his nine-year stint as CEO, the pipeline company’s stock rose 138%. Kvisle says Talisman’s turnaround is moving at a faster pace than TransCanada’s, and the company is already “shifting focus from identifying assets to sell and write down…to what we have to do to grow shareholder value.”

Still, 2012 net income of $376 million came only thanks to one-time gains, masking an operating loss of $107 million. Given the trouble the company got itself into under previous CEO John Manzoni—overinvesting in North America and failing to control costs at its far-flung global ventures—the theme for 2013 will continue to be divestitures and financial discipline—“living within its cash flow,” as Kvisle likes to put it.

On its own, this strategy likely won’t satisfy even long-term shareholders, and in its time of trial Talisman has picked up some shorter-term players with a penchant for shareholder activism. They need a compelling growth story, which Kvisle hopes to give them in the fullness of time from several hot North American plays combined with “terrific opportunities” in Colombia, Southeast Asia and Kurdistan. His goal is to position Talisman as a fiscally responsible company with great growth prospects.

Or is he positioning for a sale, as the market started to murmur the moment Kvisle took the reins? Unlike oilsands producers, Talisman is still fair game for foreign national oil companies under federal rules introduced late last year. On this point, Kvisle is emphatic. “It was never my mandate to position the company for a sale,” he says. “My mandate was to clean up the asset base, sort out debt problems and get the company on solid footing. The objective of the board has always been to keep Talisman going as a sustaining entity.”

Investors aren’t 100% sold on this particular spin. As CIBC World Markets’ Andrew Potter wrote in a note analyzing the 2012 results, “We believe the market is more focused on potential for the breakup or sale of [Talisman] as opposed to short-term results.” If his job is really to remake Talisman and keep it independent, then Kvisle’s still got a way to go.

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