Oh, those wacky energy markets. One year everybody wants natural gas plays; the next year people freak about gas inventory levels and go screaming away in the night. That's not all bad for Canada's Talisman Energy (NYSE:TLM), however; it's one of the most "oil heavy" producers I monitor.

Like almost every other energy player, Talisman is reaping the benefits of higher energy prices. In this quarter, for instance, revenue rose 47% atop14% production growth. A fair bit of that is turning into cash flow; cash flow per share climbed about 42% this time around.

Still, I remain worried about Talisman's cost structure. Per-barrel operating costs rose 16% this quarter, and they've often come in higher than similar costs at most of Talisman's peers. I'm also concerned that these higher costs will be sticking around -- the company's geographically scattered operations lend themselves to more inefficiency, and the current robust environment for energy companies isn't forcing management to operate more efficiently.

In my view, Talisman is a mix of pluses and minuses. I like its leverage to oil in general and lighter oil in particular. I also like the solid production growth (though reserve replacement could be better) and the potential to build on that in the coming years. And those widely dispersed assets are a similarly mixed blessing -- I don't like the risk of higher costs, but I do like the diversification of risk that Talisman offers.

If Talisman could leverage its costs better, I'd really be impressed with the triple-play opportunity of higher production, higher reserves, and cash-generation potential. But those costs spook me, and many managers resist belt-tightening until it's mandatory. As a result, even though Talisman is undervalued by most relative metrics, I'd still rather be in Apache (NYSE:APA), Occidental (NYSE:OXY), CanadianNatural (NYSE:CNQ), and perhaps even Chesapeake (NYSE:CHK) today.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).