Copied from the Norwegian forum - posted by Bettson

Encouraging Utica Horizontal Well Results Bolster TLM Value

Strong Utica well results suggest Quebec acreage is viable

TLM’s partner, Questerre Energy (QEC), announced very positive well results
from the St. Edouard 1A horizontal well in the St. Lawrence Lowlands, Quebec in
the Utica shale. Talisman is the operator. The full scale horizontal pilot well was
completed with an 8 stage frac and appears to have flowed for 22 days at a rate
consistently above 5 mmcfd of dry, clean methane. QEC touted initial IP rates
over an undisclosed timeframe of over 12 mmcfd. In any event, our early
interpretation is that this well suggests at least a portion of the Quebec Utica play
will be economic on Talisman’s acreage. While this is only one horizontal well (in
addition to 5 prior vertical pilots) we find the initial results very encouraging. TLM
will conduct an extended production test for 2-3 months on the well. TLM is also
in the process of drilling three additional horizontal pilots and should have the
wells completed and initial test results obtained by mid-summer 2010. According
Talisman’s partner QEC, the initial rates from the St. Edouard well exceeded its
internal threshold for commercial production on a per well basis.

Successful Utica play may add C$2.00-8.00 in TLM value

How large could the Utica be? We believe that if the play works, and these initial
results are very encouraging, it could be quite significant. We estimate that
Quebec’s value to TLM could be as much as C$2.00-8.00/share, or 10-40% of its
current market capitalization (see Table 1). Potential recoverable reserves net to
TLM could be between 6 and 25 Tcf depending on how aggressive one wants to
be with the assumptions. We are comfortable suggesting that at least the lower
end of this valuation and resource range have likely been confirmed by today’s
test results. To establish our valuation range in Table 1, we assume OGIP
estimates of 40-150 bcf/section, a 14% recovery rate, and a resource value
C$0.33 per mcf. QEC has suggested even higher top end assumptions. With
economics potentially even better than the Marcellus (similar depth but lower
royalties and a positive basis to NYMEX) this play could prove to be very exciting
for Talisman. TLM has the dominant land position in the Utica with almost half the
gross acreage in the play under lease for an extended timeframe.

We reiterate our Buy investment rating

The significant resource potential in Quebec is one of the key reasons we like
TLM since, in our view, this frontier shale play is not priced into Talisman’s equity
value at all, in our view. Despite its complexity, we continue to like TLM's
prospective asset base, especially its natural gas resources, and think it does
offer value in the long term. TLM trades at 5.3x our EV/2010E DACF, an
attractive level compared to its peers and on an absolute basis. We maintain our
C$25.00/share price objective, which is established by a DCF-based sum-of-theparts
analysis using long term $80/bbl oil prices and an industry standard 10%
discount rate. Our PO equates to a cash flow target multiple of 6.2x our 2010
CFPS estimate which is in line with TLM's five year historical range of 2-7x.