The Canadian Press - ONLINE EDITION

Talisman confirms approach by Repsol but interest may be in specific assets

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CALGARY - Talisman Energy Inc. said Wednesday it's been approached by Repsol SA regarding possible deals, but industry analysts say the Spanish company may be more interested in scooping up parts of Talisman than buying the whole package.

The Calgary-based company (TSX:TLM), a perennial subject of takeover speculation, confirmed Wednesday that it had been approached by Repsol but provided few details.

Talisman's statement came after a Bloomberg News report, citing people familiar with the matter, said that Repsol is exploring a takeover bid for the Canadian company, which is in the midst of a sweeping restructuring.

"Talisman acknowledges that it has been approached by Repsol with regards to various transactions," the company said in an announcement, issued at the request of the Investment Industry Regulatory Organization of Canada.

"There is no assurance that any transaction will be agreed. Until such time as it is appropriate to make a public announcement on any potential transaction, Talisman does not intend to make any further comment on this matter."

Talisman shares closed Wednesday up $1.40 or about 13 per cent at $11.97 at the Toronto Stock Exchange. Based on that price, Talisman is worth about $12 billion — a sizable energy player but by no means one of Canada's biggest.

Under the leadership of oilpatch veteran CEO Hal Kvisle, who took the reins almost two years ago, Talisman has been paring down its far-flung global portfolio.

It is now focused on two core regions: the Americas, which includes North American shale deposits and Colombian oilfields, and southeast Asia. It also has promising oil prospects in the semi-autonomous Iraqi region of Kurdistan and offshore platforms in the U.K. and Norway sectors of the North Sea that have faced a litany of operational woes.

Kvisle, who plans to retire by year end, has said selling the company is not his chief aim, but that Talisman would be open should the right offer come along.

The pressure on Talisman to turn around its performance increased last October, when billionaire U.S. investor Carl Icahn revealed he'd bought a stake in the company, which is now at about seven per cent.

Two of Icahn's representatives have joined the company's board, increasing the activist investor's involvement in the oil and gas company's key decisions.

Lanny Pendill, an energy analyst with Edward Jones, said Repsol has the means to buy the whole company, but he doubts whether that's what the Spanish firm is after.

"You can't rule out the possibility of an outright sale, but I question Repsol's appetite to do a full transaction," he said from St. Louis, Mo.

"I think it's probably more likely that you'll see maybe some joint venture announcements or possibly some sales of specific assets within the Talisman portfolio."

Pendill said Talisman's land in Alberta's Duvernay shale region could be a possibility, since the company has said its holdings are too big for it to develop solo. Another contender would be Talisman's holdings in the oil-rich Eagle Ford shale in Texas.

Laura Lau, senior vice-president and portfolio manager with the Brompton Group in Toronto, said the best case scenario for Talisman would be to sell the whole company.

"But I'm not sure that's going to occur," Lau said, noting potential buyers may be turned off by the North Sea assets.

Following the expropriation of its Argentinian holdings in 2012, Repsol has signalled it would look for growth in countries that are members of the Organization for Economic Co-Operation and Development. A good chunk of Talisman's portfolio does not fall into that category, Lau noted.

"The Asian assets are the crown jewel of Talisman. And those are not in OECD countries and that's what Repsol said that they don't want," she said from Toronto.

And if Talisman sells off its most attractive, best performing assets, it leaves existing shareholders in a weaker position, she said.

If Talisman does end up doing a deal with Repsol or another international player, Lau said there'd be little reason for the federal government to reject it.

A large portion of Talisman's operations are outside of Canada and it has no holdings in Alberta's oilsands. In late 2012, Ottawa announced new rules to limit foreign state-owned control in the oilsands in response to Chinese firm CNOOC Ltd.'s $15.1-billion deal to buy Nexen.

Follow @LaurenKrugel on Twitter

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