There's Still Time to Buy Talisman

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In late May, I decided it was time to take note of Talisman Energy (NYSE: TLM). Unlike Venoco (NYSE: VQ) -- a West Coast oil player that promptly rocketed higher following my positive call -- Talisman's share price hasn't moved much since I took a shine to the Canadian E&P. The company's third-quarter report shows the business to be coming along just fine.

During the period, Talisman's production averaged a hair over 400,000 barrels of oil equivalent per day. Year to date, production from continuing operations has notched a 2% rise. That's modest compared to the efficient growth over at Anadarko Petroleum (NYSE: APC), but Talisman's future growth outlook looks quite solid.

Take the company's recently expanded footprint in two of its key North American unconventional plays.

First, there's the Marcellus Shale. Talisman has doubled its "Tier 1" (i.e. economic at $4 natural gas) leasehold to 180,000 acres this year. That's small compared to Range Resources' (NYSE: RRC) "fairway" footprint, but still translates to an estimated 1,800 potential well locations. Talisman is producing more than 50 million cubic feet per day in the Marcellus, putting it neck and neck with Cabot Oil & Gas (NYSE: COG), an unloved company that's also concentrating on the northeastern Pennsylvania portion of the play.

In Canada, Talisman is focused on the Montney and Utica shales, but the former is closer to commercialization. The greater Montney play, which straddles the British Columbia/Alberta border, is huge, with industry estimates of up to 600 trillion cubic feet of original gas in place (even more than in the Marcellus). No wonder Royal Dutch Shell (NYSE: RDS-B) was so eager to snap up Duvernay Oil last year.

Talisman divides its interests here between the Montney Core (primarily sand/siltstone geology) and the Montney Shale. Both plays are amenable to horizontal drilling, so the two are easily conflated. The shale play will see 20 pilot wells drilled this year, with commercialization expected in 2010.

With six rigs running by year-end in the Marcellus, this play will be a bigger growth driver in the near term. Both plays have great potential over the next decade and beyond. The Utica is a wild card at this point, but probably merits at least a modest nod in your valuation.

Speaking of which, Talisman shares look quite attractive on the basis of current production, which, like Apache (NYSE: APA), is well balanced both geographically and between oil and gas. This remains one of the best investment opportunities among the larger E&Ps.