With Talisman’s transformation mostly complete, it’s time to deliver the goods

by R.P. Stastny

Under Jim Buckee, Talisman Energy Inc. had grown into a Canadian international success story by chasing oil to all corners of the globe. That strategy was very successful but eventually had reached a cul-de-sac as company growth began to stall.

"Like any strategy, when it reaches the end of its phase, you can´t do just more of the same," says John Manzoni, Talisman´s president and chief executive officer since 2007. "You have to do something different, which is what we chose to do."

Manzoni set about implementing a fundamental rebasing of the company for growth in the future. It sold off non-core assets, invested heavily in some of the most profitable shale gas plays in North America, including the Marcellus, and reset Talisman as a company on two fresh legs: unconventional resources development and conventional international exploration and production.

It´s a strategy that recognizes that searching for conventional hydrocarbons in Colombia, Kurdistan and other places around the world can be costly but, if it meets with success, typically provides the best returns among all play types.

"In the long run, we have a portfolio which, on the one hand, has scalability, longevity, and predictability of the shale unconventional business," Manzoni says. "On the other hand, it has the excitement and returns prospectivity of the conventional exploration business."

What next
With the most visible transformation complete, there is always more to do at Talisman. Portfolio optimization is ongoing. The company just finished a sizable $5-billion divestment program, which isn´t to say it won´t divest other assets or buy new assets. Globally, Talisman is looking for deals, looking for assets to add value and is high-grading its portfolio, but the bigger work of delivering on the promises made in the last few years is yet to be accomplished.

"We just closed the gap [on share price] from being below the pack to being in the middle of the pack," Manzoni says. "The work from here is about executing production growth and cash-flow growth. So that´s much more about execution, delivery and milestones than the last two years. It´s a different phase in the company."

Another aspect of Talisman´s transition is taking what is, in a global context, essentially a small company, running as a small company, and ramping that up to reasonable size by expanding its base of unconventional business and spending $700 million each year on conventional exploration and production.

"As our portfolio gets better and better around the world, the choices become tougher and tougher and you get quality through choice concept," Manzoni says. "But unless you deliberately focus on an organization´s construct to get you beyond a certain size, all you´re really doing is asking people to run faster and faster."

So parallel to the transition in portfolio strategy, Talisman has been fundamentally changing how it functions as a company. This part is arguably the more complex and difficult component of the shift because it has to do with human beings.

On this front, Talisman has, for example, started putting in place global health, safety and environmental standards. It now has a global information technology infrastructure. It´s putting in place a global enterprise-planning platform. It now has a global projects group in charge of how it develops projects irrespective of whether they´re in the North Sea, Southeast Asia or Papua New Guinea.

"We´re putting those things in place with the intent of constructing an organization which can actually grow to double the scale it is today without sprinting, which is what it feels like we´ve been doing," Manzoni says. "In other words, we´re building a scalable organization. That organizational piece gives people the capacity to deal with much more on their plates."

In terms of getting alignment of employees-Talisman has about 3,500 across 14 or so countries-and creating an engaged workforce, Manzoni believes the heart of it involves creating a strategic vision and a compelling future that is easily communicable and that people can buy into.

"Of course that´s about articulating what that vision looks like, articulating what the future is, and creating a future that people want to be apart of," he says.

As for the chief executive officer´s role in making a direction shift, Manzoni says the CEO has to be the starting point in creating vision of the future. The CEO also needs to create the right team so that the company stays unified around the strategic vision.

Growth constraints
Talisman could in theory grow at any pace it chooses, depending on the amount of capital it deploys in shale gas. If it put another five rigs in the Marcellus, where it´s making good money, in 12 months´ time it would get more production. But then it would have to forego potentially better opportunities in other plays like the liquids-rich Eagle Ford field in Texas, where it could make even better money.

"Our growth is actually dictated for us, at the moment, by the pace at which we can put good people in place so we can spend the money well," Manzoni says.

So Talisman has moderated the pace of building the dry-gas Marcellus and is holding constant the number of rigs it has there as it turns its attention to liquids-rich shales, the emerging game in North America.

"In gas shales, which was all the rage two or three years ago, the returns have normalized pretty damn quickly at gas prices of about $4.50," he says. "Suddenly, unless you´re in the very best shales, you´re not going to make a great deal of money. It´s basically a cost of capital business. Were it not for liquids-rich shales, like the Eagle Ford, there would be some more casualties."

Strategic thinking is perhaps the defining quality that Manzoni brings to the table in his role as Talisman´s CEO. His vision has reshaped Talisman in the last four years.

Strategic thinking led Talisman into the Marcellus, the most economic dry-shale gas play in North America, in part due to its proximity to the continent´s biggest natural gas market.

Thinking strategically about the Montney and the Horn River, which have vast amounts of gas but are the furthest away from the big U.S. markets and therefore have more tenuous economics, led to Talisman´s $1-billion gas-to-liquids deal with Sasol and opened the door on a potentially new market for British Columbia´s natural gas.

Strategic thinking also has Talisman in the forefront of international shale gas work, most notably in Poland, the gateway for Russian natural gas on its way to western Europe. And now strategic thinking is shaping the execution of the plans it has laid.