On Dec 31, 2014, we issued an updated research report on Talisman Energy (TLM). Amid a weak natural gas and crude oil pricing environment we don’t expect the Canadian energy explorer to earn significantly for its shareholders in the coming months. This is reflected in Talisman’s current Zacks Rank #5 (Strong Sell).
With the projection of mild weather by National Oceanic and Atmospheric Administration for the rest of winter, the demand of natural gas for space heating purposes is expected to go down. On top of that there is an excess supply of the commodity. Hence, natural gas fared worse, dipping below $3 per million Btu (MMBtu) for the first time since Sep 2012.
Moreover, the price of crude tumbled more than 50% since June owing to oversupply and lackluster global demand. The price of the commodity is not expected to recover in the near term.
Being an upstream energy player – almost 75% of the company’s production comprises natural gas and the remaining liquid – Talisman generates significant amount of its cash flow by selling both commodities to the downstream players. As the pricing scenario for both natural gas and oil is likely remain weak, we don’t expect the company to earn considerably in the short run.
Apart from exploration activities, Talisman also depends on property acquisitions to expand its resource base. The company may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.
Key Picks in the Energy Sector
One can consider better-ranked players in the energy sector like Spectra Energy Partners LP (SEP), Seadrill Partners LLC (SDLP) and Cheniere Energy Partners LP (CQP). All the stocks sport a Zacks Rank #1 (Strong Buy).
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