commodity prices
The benchmark WTI oil price averaged $66.25/bbl in 2006, an increase of 17% compared to the previous year. World oil consumption reached a record 84.2 mmbbls/d. However, growth in world oil demand continued to slow, estimated at 0.7% in 2006, compared to 1.5% in 2005 and 4% in 2004. Despite limited spare production capacity and political unrest in oil producing regions, oil prices fell to US$60.17/bbl in the fourth quarter of 2006. The weakness was due to high inventory levels, fears of a US economic slowdown and predictions for lower demand growth.
NYMEX natural gas prices averaged US$7.26/mmbtu in 2006, a decrease of 15%, compared to 2005. US natural gas demand fell again in 2006, while record drilling and a benign hurricane season resulted in increased production and very high natural gas inventories at year-end.
Cold weather and OPEC production cuts combined to strengthen natural gas prices and stabilize oil prices in early 2007. Talisman’s 2007 cash flow forecast is based on a US$65/bbl WTI oil price, US$7.50/mmbtu NYMEX gas price and US$/C$ exchange rate of $0.90.
netbacks
Talisman’s realized oil and gas netbacks decreased by 0.5% to average $36.98/boe in 2006.
Sales prices averaged $57.45/boe, an increase of 1%, reflecting an increase in world oil prices and Talisman’s international natural gas prices, offset largely by the drop in North American natural gas prices. Although most oil and natural gas sales are priced off US dollar denominated benchmarks, Talisman reports its netbacks in Canadian dollars. The Canadian dollar strengthened by 6% against its US counterpart in 2006. This had an adverse effect on Talisman’s reported netbacks.
Royalty rates were unchanged at 17% in 2006.
Unit operating costs averaged $9.98/boe, an increase of 19% over the previous year. The increase is due to a change in Talisman’s production mix, as well as increased spending on maintenance, extended turnarounds and higher power costs.
Talisman reported a small hedging gain, although the Company remained relatively unhedged throughout the year.
Detailed information on the Company’s netbacks can be found in Talisman’s Annual Financial Report.
| ($/boe) | 2006 | 2005 | 2004 | 2003 | 2002 |
|---|---|---|---|---|---|
| Sales price | 57.45 | 56.67 | 42.75 | 38.51 | 32.89 |
| Hedging (gain) loss | (0.37) | 0.46 | 3.02 | 1.34 | (0.46) |
| Royalty | 9.58 | 9.41 | 7.04 | 6.18 | 5.74 |
| Transportation | 1.28 | 1.21 | 1.20 | 1.26 | 1.20 |
| Operating expenses | 9.98 | 8.41 | 7.26 | 6.98 | 6.14 |
| Netback | 36.98 | 37.18 | 24.23 | 22.75 | 20.27 |
Note: Excludes synthetic.
