By Christopher Bjork, Ben Dummett and Shayndi Raice
MADRID--In a sign that falling oil prices may be rekindling the
market for big energy mergers, Spanish oil company Repsol SA is
advancing on plans to buy beleaguered Canadian firm Talisman Energy
Inc., say people familiar with the matter. The deal could be for as
much as 8 billion Canadian dollars ($6.93 billion), one of these
people said Friday.
Repsol executives have traveled to Calgary, Alberta, to discuss
a takeover bid in the range of C$6 to C$8 per share, the person
said. Talisman said Monday that it has been approached by "a number
of parties" including Repsol about various unspecified
transactions.
News of the imminent bid was reported earlier by the Financial
Times.
The near-halving of oil prices since June has pressured smaller
energy companies to sell assets or consider takeover bids as they
face trouble funding new exploration. Big companies meanwhile have
an increasing incentive to cut their spending on exploration, and
instead use their stock or spare cash to acquire the
already-producing assets of smaller companies. For small producers
facing an approach by big rivals, "there is no bargaining power
they have," said Fadel Gheit, an analyst with Oppenheimer who
covers oil companies.
The value of oil and gas deals this year has gone up nearly 24%
from last year to more than $300 billion, according to data tracker
Dealogic. Last year's $242.54 billion of oil and gas deals was the
lowest since 2009.
Oil-price crashes have historically led to a flurry of deal
making, most notably in the late 1990s when the industry was
reshaped by deals like BP PLC's acquisition of Amoco and Arco,
Exxon's purchase of Mobil and Chevron Corp.'s deal for Texaco.
Talisman is a prime example of the kind of troubled company
facing takeover pressure. Even after rising by more than a third on
Friday, its share price has fallen 54% this year, compared with a
24% fall for Canada's main energy-stock index.
Talisman has struggled to pay off debt its previous management
loaded up on to aggressively pursue overseas expansion. Now it
faces a $900 million annual drain to keep its assets operating in
areas including the North Sea and Iraqi Kurdistan, according to
Standard & Poor's, which in October cut the company's credit
rating to one notch above junk, triple-B-minus.
Repsol, on the other hand, has money to spend. It received $5
billion in compensation earlier this year, after Argentina's
government nationalized YPF SA in 2012, in which Repsol held a
majority stake.
Repsol and Talisman said in July they were negotiating a
possible deal. That came nearly a year after The Wall Street
Journal reported that Repsol had begun shopping for a North
American oil company or assets, and that Talisman was one potential
seller.
Talisman Chief Executive Hal Kvisle said last month that he
expects to sell "one or two" assets by Dec. 31, though he didn't
specify a likely buyer by name. Talisman said it plans to sell off
more assets this year to meet a $2 billion divestiture goal by
mid-2015.
Chester Dawson and Justin Scheck contributed to this
article.
Write to Christopher Bjork at christopher.bjork@wsj.com, Ben
Dummett at ben.dummett@wsj.com and Shayndi Raice at
shayndi.raice@wsj.com
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