- Talisman 2010 Highlights
- About Our Company
- Financial and Operating Highlights
- President's Message
- Where We Operate
- Looking to 2011
- Management's Discussion and Analysis
- 2010 Performance
- 2010 Net Income Variance
- Continuing Operations Review
- Acquisitions
- Discontinued Operations
- Reserves Replacement
- Liquidity and Capital Resources
- Sensitivities
- Commitments and Off-Balance Sheet Arrangements
- Risk Management
- Summary of Quarterly Results
- Outlook for 2011
- Internal Control Over Financial Reporting and Disclosure Controls and Procedures
- Litigation
- Application of Critical Accounting Policies and Use of Estimates
- Changes in Reporting Conventions
- New US Accounting Pronouncements
- New Regulatory Developments
- International Financial Reporting Standards (IFRS)
- Risk Factors
- Advisories
- Abbreviations and Definitions
- Consolidated Financial Statements
- Report of Management
- Management Report on Internal Control Over Financial Reporting
- Independent Auditors' Report on Internal Controls Under Standards of the Public Company Accounting Oversight Board (United States)
- Independent Auditors' Report of Registered Public Accounting Firm
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Comprehensive Income (Loss)
- Consolidated Statements of Changes in Shareholders' Equity
- Consolidated Statements of Cash Flows
- Notes to the Consolidated Financial Statements
- Supplementary Oil and Gas Information
- Results of Operations from Oil and Gas Producing Activities
- Capitalized Costs Relating to Oil and Gas Activities
- Costs Incurred in Oil and Gas Activities
- Standardized Measure of Discounted Future Net Cash Flows from Proved Reserves
- Discounted Future Net Cash Flows from Proved Reserves
- Principal Sources of Changes in Discounted Cash Flows
- Continuity of Net Proved Reserves 1
- Additional Information
- Detailed Property Reviews
- Governance
- Investor Information
- Corporate Information
- Advisories
- Market Information
Talisman’s long-term debt at December 31, 2010 was $4.2 billion ($2.5 billion, net of cash and cash equivalents and bank indebtedness), up from $3.8 billion ($2.1 billion, net of cash and cash equivalents and bank indebtedness) at December 31, 2009. During 2010, the Company generated $3.5 billion of cash provided by operating activities, incurred capital expenditures of $5.6 billion (including acquisitions), received proceeds of $2.3 billion from the disposition of non-core assets and paid $176 million to settle held-for-trading commodity and non-commodity derivatives.
On an ongoing basis, Talisman plans to fund its capital program and acquisitions with cash provided by operating activities, cash on hand and cash proceeds from its strategic partnership with Sasol Limited.
The Company has an active hedging program that will partially protect 2011 cash flow from the effect of declining commodity prices. At December 31, 2010, the fair value of the Company’s commodity price derivatives was a net liability of $57 million, which can be settled from cash on hand. See the ‘Risk Management’ section of this MD&A.
The majority of the Company’s debt matures subsequent to 2014, with $357 million maturing in 2011. The Company enhanced its liquidity during 2010 with the issuance of US$600 million of public debt notes.
The Company is in compliance with all of its debt covenants. The Company’s principal financial covenant under its primary facility is a debt-to-cash flow ratio of 3.5:1, calculated quarterly on a trailing twelve month basis.
At December 31, 2010, the Company had not drawn against its available $4 billion of bank lines of credit, $3.85 billion of which is committed through 2014. These maturity dates may be extended from time to time by agreement between the Company and the respective lenders.
Talisman manages its balance sheet with reference to its liquidity and a debt-to-cash flow ratio. The main factors in assessing the Company’s liquidity are cash flow (defined as cash provided by operating activities plus changes in non-cash working capital), cash provided by and used in investing activities and available bank credit facilities. The debt-to-cash flow ratio is calculated using gross debt divided by cash flow for the year. For the year ended December 31, 2010, the debt-to-cash flow ratio was 1.38:1.
The Company routinely assesses the financial strength of its joint venture participants and customers, in accordance with its credit risk guidelines. At this time, Talisman expects that the counterparties will be able to meet their obligations when they become due.
A significant proportion of Talisman’s accounts receivable balance is with customers in the oil and gas industry and is subject to normal industry credit risks. At December 31, 2010, approximately 87% of the Company’s trade accounts receivable were current. Talisman had no customers with individually significant balances outstanding at December 31, 2010. Concentration of credit risk is mitigated by having a broad domestic and international customer base. The maximum credit exposure associated with accounts receivable is the carrying value.
The Company utilizes letters of credit largely pursuant to uncommitted letter of credit facilities. Letters of credit are issued by banks under these uncommitted facilities and most are renewed annually. The balance of outstanding letters of credit was $1.3 billion at both December 31, 2010 and January 1, 2011 relating largely to asset retirement and pension obligations.
In March 2010, the Company filed, as part of a registration statement, a shelf prospectus in the US under the Multi- Jurisdictional Disclosure System pursuant to which it may issue up to US$3.5 billion of various types of securities, including debt securities, in the US public market. The Company simultaneously filed a medium term note shelf prospectus in Canada pursuant to which it may issue up to $1 billion of medium term notes in the Canadian public debt market. In November 2010, the Company issued US$600 million of 3.75% notes due in 2021 in the US under its shelf prospectus.
In December 2010, Talisman renewed its normal course issuer bid (NCIB), pursuant to which the Company may repurchase through the facilities of the Toronto Stock Exchange and New York Stock Exchange up to 51,068,705 of its common shares (representing 5% of the common shares outstanding at November 29, 2010) during the 12-month period commencing December 15, 2010 and ending December 14, 2011. Shareholders may obtain a copy of the Company’s notice of intention to make an NCIB, free of charge by emailing the Company at tlm@talisman-energy.com. During the year ended December 31, 2010, Talisman did not repurchase any common shares of the Company under its NCIB.
Common share dividends of $254 million were paid in 2010 (2009 – $229 million; 2008 – $204 million) at an aggregate of $0.25 per share (2009 – $0.225 per share; 2008 – $0.20 per share). The Company’s dividend is determined semi-annually by the Board of Directors.
At December 31, 2010, there were 1,019,290,939 common shares outstanding (2009 – 1,014,876,564). Subsequent to December 31, 2010, 3,186,294 stock options were exercised for shares.
At December 31, 2010, there were 62,959,223 stock options, 10,112,792 cash units and 8,173,762 long-term Performance Share Units (PSUs) outstanding. Subsequent to December 31, 2010, 157,486 stock options were surrendered for cash, 3,186,294 were exercised for shares, none were granted, and 182,081 were cancelled, with 59,433,362 outstanding at February 22, 2011. Subsequent to December 31, 2010, 537,030 cash units were exercised, none were granted and 72,832 were cancelled with 9,502,930 outstanding at February 22, 2011. Subsequent to December 31, 2010, no PSUs were granted and 47,156 were forfeited with 8,126,606 outstanding at February 22, 2011.
The Company may purchase shares on the open market to satisfy its obligation to deliver common shares to settle long-term PSUs. During 2010, 4,482,681 common shares were purchased on the open market for $82 million and placed in a trust having an arm’s length third party trustee. Subsequent to December 31, 2010, a further 368,000 shares were purchased for $8 million. The Company is not exposed to fluctuations in the stock price in respect of the shares held in trust. Additional purchases of common shares to satisfy the Company’s obligations are contemplated.
Talisman continually monitors its portfolio of assets and investigates business opportunities in the oil and gas sector. The Company may make acquisitions, investments or dispositions, some of which may be material. In connection with any acquisition or investment, Talisman may incur debt or issue equity.
For additional information regarding the Company’s liquidity and capital resources, refer to notes 10 and 13 to the Consolidated Financial Statements.