Talisman Energy Inc. on Wednesday said it plans to spend $420 million to drill a series of pilot wells to test the potential of its unconventional gas properties.

Speaking in New York, CEO John Manzoni outlined a strategic shift that will see the company sell off non-core assets and shift focus to resource-style plays in North America.

"Unconventional gas now competes very effectively with conventional," he said. "It's a potentially exciting new source of growth."

The money will be used to drill a series of test wells in places like Quebec, southern Saskatchewan and northeastern British Columbia.

Denver-based Forest Oil this spring announced upwards of six trillion cubic feet of shale gas reserves in the St. Lawrence lowlands of Quebec where Talisman already has a significant land position.

News of Talisman's pilot program in La Belle Province sent shares of tiny Questerre Energy -- the company's Quebec partner -- soaring in Toronto, where they jumped almost 20 per cent to $4.70.

The company started the year as a penny stock, trading around 75 cents.

"We were one of the first companies to recognize the potential of the Quebec Lowlands for unconventional gas and have worked for almost 10 years to get to this point," said Questerre president Michael Binnion.

"We are thrilled that Talisman, which also saw the potential early on, has decided to accelerate the exploration and appraisal program."

Under former president Jim Buckee, Talisman gained a reputation for eschewing flavours and industry fads of the day.

The company is known for drilling ultra-deep natural gas wells in the foothills of northwestern Alberta while its competitors have focused on shallow gas and oilsands.

But, Manzoni said, those competitors have enjoyed higher share price multiples as investors have shown a preference for the lower-risk business model.

Three years ago, Talisman shares traded at a premium to its peers, but have lagged as the company missed growth and production targets that Manzoni said served to "undermine credibility" of the company's acquire-and-exploit strategy.

"Investors want longer-term certainty," he said.

Manzoni said Talisman's one-million-hectare land base could hold as much as 125 trillion cubic feet of unconventional gas resources.

To that end, Talisman increased its 2008 capital budget 14 per cent to $4.9 billion and said it will dish out another $5.8 billion in 2009, depending on the success of its test programs.

About a quarter of the overall budget will be allocated to unconventional gas plays.

In a research report released Wednesday morning, Raymond James analyst Steve Calderwood raised his 12-month target price on the company to $28.

"The company has identified North American unconventional oil and natural gas resources as the most immediately available and most material growth opportunities," he said.

"Talisman would only have to be successful at two or three areas in order to meaningfully increase the reserves."

Talisman shares fell more than five per cent in Toronto on Tuesday, losing $1.25 to close at $23.65.

[email protected]