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Talisman Makes Big Gas Finds in BC; Earnings Tumble on UK Taxes

Big North American gas finds have been few and far between in recent years, but Talisman Energy Inc. continues to have great success in the Monkman area of northeastern British Columbia. The company announced another successful deep well in the Monkman Paleozoic that tested at a gross rate of 42 MMcf/d. It also announced two successful Triassic gas wells with gross raw rates of 30 MMcf/d and 16 MMcf/d in the same area.

The Talisman Seneca Brazion d-93-D/93-P-5 deep well (80% Talisman, 20% Seneca Energy Canada Inc.) commenced production on April 10 and has produced at rates of up to 33 MMcf/d, constrained by surface equipment. The well was tied in within two months of the original completion test utilizing existing infrastructure.

"This is our second major gas discovery in the Monkman Paleozoic," said CEO Jim Buckee. "Our b-60-E well was the most prolific well in the basin in 2005 and we believe d-93-D is in the same league. This is another example of why Talisman is committed to its deeper conventional natural gas strategy in Western Canada. Wells like b-60-E and d-93-D are extremely value accretive."

The b-60-E well had peak sales gas production of 70 MMcf/d in 2005 and is currently flowing at 50 MMcf/d. The d-93-D well was drilled five miles southeast of b-60-E. Early indications suggest original gas in place volumes of up to 100 Bcf.

Plans are under way to drill another deep well in 2006. The company also plans to shoot the second phase of a major 3D seismic program in the Brazion area. It is anticipated that this will lead to additional Paleozoic and Triassic drilling locations for 2007 and beyond. In the Triassic play, the company recently tested two wells and plans to have them on production by the third quarter of 2006. A well in the Bullmoose area (73% Talisman) is currently being drilled.

A company spokesman said Talisman plans to spend $105 million to drill seven exploration wells in the British Columbia foothills this year out of a total of 120 exploration wells in 2006. While it's drilling only a few wells in the promising BC region, the company is increasing its total exploration budget despite cutbacks by many other producers due to higher drilling costs, tight rig availability and workforce constraints. "While others are cutting back because of cost increases, we are increasing our [exploration budget] because we have a lot of opportunities," such as those in British Columbia, said Talisman spokesman Barry Nelson.

Talisman also reported that first quarter earnings from operations, which exclude one-time items, increased 47% to $556 million ($1.52/share) versus $377 million ($1.02/share) a year earlier. Net income, however, fell 24% to $197 million ($0.54/share) compared to $258 million ($0.70/share) a year ago because of a $325 million provision for future taxes (non-cash) in the United Kingdom as a result of the previously announced tax increase on petroleum profits.

Talisman's production rose 14% to 523,000 boe/d. Oil and liquids production rose 27% to 299,977 bbl/d and natural gas production averaged 1,338 MMcf/d in the first quarter, up slightly from last year. North American gas production, however, dropped 3.4% to 894 MMcf/d.

"We continue to generate new opportunities for growth, move forward on a number of large projects and drill big wells in North America," said Buckee. "The recently announced Monkman well is a great example of the large upside associated with our deep conventional natural gas strategy in North America.

"To reflect this we've increased our exploration and development spending to $4.8 billion, up from $4.4 billion. We are seeing some cost pressures, but all of our investments are generating attractive returns and we have the manpower and rigs to carry out our programs."

The Talisman board approved a 32% increase in the company's semi-annual dividend Tuesday to $0.225.

"We continue to develop new play areas and concepts and are increasing our spending on land and drilling in Western Canada," Buckee added. "North America gas volumes are down slightly in the quarter, but we have over 110 MMcf/d of unconnected or temporarily shut-in gas. The Lynx and Palliser pipeline projects will be completed early in the third quarter, bringing significant new volumes to market by the end of the year."

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