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Gold/Mining/Energy : Talisman Energy Inc. (TLM)
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To: Dennis Roth who wrote (51)6/11/2008 6:25:15 PM
From: Dennis Roth   of 82
 
Talisman Energy Inc. (TLM.TO)
Moving Up The Learning Curve - Outperform
B. Dutton Credit Suisse - June 11th

· Talisman has announced that it has reached agreement to earn up to a 1/3 working interest in properties owned by Hallwood Energy L.P. The agreement calls for a commitment of up to US$125 million over 12 to 18 months, depending on the pace of drilling. Hallwood's assets include properties in Texas, Arkansas and Louisiana. Key plays include Hallwood's 40% working interest in over 43,000 acres in the West Texas Deep Barnett and Woodford shales (Reeves and Culberson counties) and Hallwood's 24,500 net acres in the Fayetteville shale (White and Faulkner counties). The 2008 drilling program calls for 11 wells with the potential for up to 1,000 locations on evaluated lands. Hallwood will also provide technical and consulting services for 1 year.

· We believe this announcement should be viewed positively as it demonstrates that Talisman is actively moving forward to develop the skills necessary to realize the full potential of its extensive unconventional resource acreage in North America. The deal also gives Talisman an entry into core Barnett and Fayetteville acreage plus access to a leading company in the field in unconventional shale gas drilling and completion. Using an estimated range of between 2 and 3.5 Bcf/well EUR (typical) and assuming 8 wells per section, the transaction provides exposure to potentially 400-500 Bcf of resource on the core Barnett and Fayetteville acreage, with other acreage providing further upside.

· We continue to believe that current valuation does not appreciate the potential for value creation from unconventional gas assets in North America and exploration assets in Southeast Asia. Talisman currently trades at 4.2x 2009E EBIDAX versus 5.7x for its North American peer group. We continue to apply a 5.25x multiple to 2009E EBIDAX of C$6,636 million to derive our 12-month target price of C$33.
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