Repsol SA (REP) has revived talks with Talisman Energy Inc (TLM), people with knowledge of the matter said, as the Spanish company seeks acquisitions to bolster its presence in North America even while oil prices tumble to five-year lows.
Repsol and Calgary-based Talisman are discussing options that could include the sale of some assets or the whole company, the people said, asking not to be identified because the deliberations are private. Talisman’s plunging valuation — now at C$4.5 billion ($3.9 billion) after falling about 60 percent since the end of August — remains a hurdle to any deal, the people said.
Talisman said in a statement it has been approached by a number of parties including Repsol about “various transactions.”
The company said it would not be commenting until any potential transaction had been confirmed.
Repsol, which is seeking to deploy about $10 billion in cash via acquisitions outside its home market, dropped a plan to buy all of Talisman in August after conducting due diligence on the company, people with knowledge of the matter said at the time.
Talisman’s shares have fallen since then, as a drop in crude oil accelerated and investors punished debt-laden explorers, making the company a more attractive target to the cash rich Repsol and others, the people said.
Deterred by high valuations in the past, global oil firms have held off for years on buying companies that specialize in shale drilling.
Talisman fell 4.2% to C$4.30 in Toronto yesterday, while a benchmark of Canadian energy stocks was down about 5.7%. Repsol, which dropped as much as 2.4% in Madrid, has a market value of about $30 billion.
Another hurdle to a sale of Talisman is its assets in the North Sea, where output is falling, the people said.
Talisman, which has operations spanning six continents, has struggled in the past to find buyers for assets from Southeast Asia to Texas as it seeks higher prices than acquirers are willing to pay, people familiar with past efforts have said.
With the company losing money in the North Sea, Talisman is under pressure to raise cash by selling assets elsewhere, said Chris Feltin, an analyst with Macquarie Group Ltd. in Calgary.
Repsol might be interested in a number of Talisman properties, including those in the Marcellus and Eagle Ford basins in the US, he said.
“Things get difficult when commodity prices turn against you,” Feltin said in an interview. “It is really incumbent on them to get some assets out the door.”
Crude oil is trading in a bear market as the highest US production in three decades exacerbates a global glut.
West Texas Intermediate fell to a five-year low , with oil for January delivery declining as much as 80 cents to $62.25 a barrel.
Brent for January settlement was 18 cents lower at $66.01 a barrel on the London-based ICE Futures Europe exchange.
Repsol Chairman Antonio Brufau said Dec. 5 the company’s fields will still make money if oil is trading at $60 a barrel.
A spokesman for Repsol declined to comment. The companies have acknowledged in the past that they were in talks, with Talisman saying in July that it had been approached by Repsol.
Repsol has been seeking acquisitions in developed countries including the US and Canada after receiving compensation from Argentina in May relating to the nationalization of its YPF SA unit.
“More than likely, Repsol wants a piece of their North American assets, and in particular, the Marcellus,” said Chris Cox, an analyst with Raymond James in Calgary.
The Marcellus could be a “great backbone” for a $2 billion plant Repsol is considering building on Canada’s Atlantic coast to export liquefied natural gas, he said.
Talisman, under pressure from activist investor Carl Icahn, has announced plans to sell assets in the US, Canada and Norway to cut costs and boost profits.
The company said last month that its UK offshore business has been stymied by falling output and the potential for cost increases for development and future decommissioning of the project — a disclosure that left its shares trading at a 12-year low.
The troubles with the North Sea unit may lead to writedowns before the year’s end, Talisman said on November 4.
Separately, Talisman is in talks to sell its pipeline operations serving the Marcellus Shale region in New York and Pennsylvania to Regency Energy Partners LP, people with knowledge of the matter have said.
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