Repsol Advances in Takeover Talks With Talisman -- Update

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 [e-mail], Ben Dummett at [e-mail] and Shayndi Raice at [e-mail]

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