August 4, 2010

Action Notes Equity Research

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Oil & Gas Producers Jamie Somerville Wael Halaoui (Associate)

403 299 8586 403 299 2804
Recommendation: BUY jamie.somerville@tdsecurities.com wael.halaoui@tdsecurities.com

Risk: HIGH
12-Month Target Price: C$4.25
Transatlantic Petroleum Ltd.
(TNP-T, TAT-A) C$3.26

12-Month Total Return: 30.4%

Bringing Integrated E&P and Modern Completions to Turkey
Market Data (C$)
Current Price $3.26
52-Wk Range $2.34-$4.20 Event
Mkt Cap (f.d.)($mm) $1,041.9 We are initiating coverage of TransAtlantic Petroleum (TNP-T) with a BUY
Mkt Cap (basic)($mm) $989.7
rating and a $4.25 target, which is based on a 1.0x Base NAVPS plus 0.75x
EV ($mm) $952.0
Dividend per Share -- Risked Upside to Base NAVPS.
Dividend Yield --
Avg. Daily Trading Vol. (3mths) 83,235 For complete details, please refer to our full length initiation report to be
Financial Data (C$) released later today.
Fiscal Y-E December
Shares O/S (f.d.)(mm) 319.6
Shares O/S (basic)(mm) 303.6 Details and Outlook
Float Shares (mm) 300.9 We believe the major attraction of investment in TransAtlantic has to date
Net Debt ($mm) ($37.7)
been its experienced management with a track record of value creation with
Net Debt/Tot Cap (17.0%)
vertically integrated oil & gas operations. Over the next 12–18 months, we
Estimates (US$) expect an active exploration program to yield results that will focus investors
Year 2009A 2010E 2011E 2012E
on the company’s assets, which, in our opinion, hold large resource potential,
CFPS (f.d.) (0.24) 0.07 0.33 0.48
Oil (b/d) 1,161 2,738 4,577 5,951 in particular on its 5.2 million net acres in Turkey. We believe Turkey offers
Gas (MMcf/d) 0 6.9 17.7 19.0 excellent hydrocarbon potential and fiscal terms, but has been overlooked by
MBOE/d 1.2 3.9 7.5 9.5 the E&P industry due to a perception of high costs that may be unwarranted.
Valuations
Year 2009A 2010E 2011E 2012E In the near term, we expect results from multiple wells being drilled in a new
EV/DACF -- 45.2x 10.3x 6.6x Paleozoic oil trend in the Arpatepe area to lead to expectations of significant
Supplemental Data (US$) reserve and production growth. Thereafter, we believe TransAtlantic has the
Year 2009A 2010E 2011E 2012E potential to prove up large drilling inventories in both conventional
WTI (US$/bbl) $61.85 $75.00 $80.00 $80.00 exploration plays extending from Iraq and Syria, as well as less conventional
Base NAVPS -- C$2.38 -- --
Risked NAVPS -- C$4.89 -- --
tight sands and shales that could be exploited with new completions
EV/BOEPD $260122 $287043 $150042 $108592 technology that the company is importing.
EV/BOE (P+P) -- $33.75 -- --
We anticipate TransAtlantic’s Q2/10 results announcement will provide an
All figures in C$, unless otherwise specified.
update on a very active ongoing exploration and development program. We
are particularly keen to see further results from recent drilling and testing of
multiple wells in a new Paleozoic play in the Arpatepe area of Turkey. If all
wells were successful, our unrisked assumptions of 8 mmbbl of oil for the
company’s interests in the area would start to look conservative.

Further upside potential is provided by ongoing drilling in the Thrace Basin

gas play (low risk exploration), at the Selmo oil field (development drilling
that could de-risk future downspacing) and in Morocco (a first prospect
drilled on 3D seismic in a historical oil trend). Through Q4/10, we anticipate
TNP-T: Price
Company Profile 5 5
TransAtlantic Petroleum is an international
4 4
E&P pursuing acquisition, development,
exploration and production of crude oil and 3 3
natural gas with a vertical integration strategy
2 2
of owning and operating service equipment.
Please see the final pages of The company holds interests in Morocco, 1 1
this document for important Turkey, Romania and California. The
0 0
disclosure information. company's shares trade on the TSX. 2008 2009 2010
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larger (and higher risk) conventional structures will be drilled on block 4175 in Turkey (on trend with the
Zagros fold belt that has yielded giant oil discoveries in Iraqi Kurdistan to the south east) and in Morocco.
We also anticipate that TransAtlantic will provide improved production and resource guidance through H2/10,
including guidance for the recently acquired Zorlu assets.

Exhibit 1. TransAtlantic: Summary of Potential Catalysts

Resource Upside* Downside*
Event Timing COS mmBOE C$/sh % C$/sh %
Steady news flow from exploration of Paleozoic trend H2/10 20% 20 $0.81 17% $0.20 4%
Results from drilling block 4175, SE Turkey Q4/10 20% 80 $3.24 66% $0.81 17%
Reserves update could incorporate increased infill drilling at Selmo and Arpatepe Q1/11 50% 6 $0.14 3% $0.14 3%

* Estimated potential change to our Fully-risked NAVPS

Source: TD Newcrest.

Valuation

TransAtlantic appears relatively expensive based on 2011E EV/DACF, but we believe this is appropriate,
given its long life reserves and growth potential. The stock trades at one of the lowest multiples of Base
NAVPS in our coverage of International E&Ps. At 0.67x Fully-risked NAVPS, it trades slightly below other
International E&Ps in our coverage. However, we may have been very conservative in our prospective
resource estimates, due to limited guidance from management or third party estimates.

Exhibit 2. TransAtlantic: Relative Valuation

Fully-risked NAVPS Base NAVPS 2011E EV/DACF

At Price At Price At Price
Current Target Current Target Current Target
Ticker Estimate Multiple Multiple Estimate Multiple Multiple Multiple Multiple

ALE $0.62 0.66x 0.89x $0.21 1.92x 2.61x 3.7x 4.9x

BNK $11.36 0.66x 0.97x $5.57 1.34x 1.97x 11.8x 18.2x
BKX $3.40 0.61x 0.96x $1.79 1.16x 1.81x 11.1x 16.6x
CNE $1.60 0.73x 0.88x $0.32 3.64x 4.36x 6.1x 8.4x
GTE $7.52 0.80x 0.93x $3.69 1.64x 1.90x 5.0x 6.2x
NKO $146.22 0.78x 0.89x $27.62 4.11x 4.71x 14.8x 18.4x
PDQ $0.90 0.35x 0.61x $0.02 15.46x 27.00x 10.1x 15.8x
PRE $27.17 0.92x 0.96x $16.20 1.54x 1.60x 5.5x 6.1x
PXT $7.69 0.74x 0.85x $0.64 8.93x 10.20x 9.8x 11.7x
PMG $33.80 0.86x 0.95x $13.23 2.21x 2.42x 3.6x 4.1x

Average 0.71x 0.89x 4.20x 5.86x 8.1x 11.0x

TNP $4.89 0.67x 0.87x $2.38 1.37x 1.79x 10.3x 13.4x

Fiscal 2012 used as equivalent to calendar 2011 for CNE and NKO
Source: TD Newcrest.

Justification of Target Price

Our target price for TransAtlantic Petroleum is based on a combination of Base and Fully-risked NAVPS, as
shown in Exhibit 3. A multiple of 1.0x Base NAVPS is normal. But, our 0.75x Upside to Base NAVPS is
slightly below the average multiple that we use for our coverage of International E&Ps, due to a significant
risk of dilution to raise financing (following the Zorlu acquisition). We currently use a range of 0.60x to 0.90x
in terms of our multiples of Upside to Base NAVPS.
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Exhibit 3. TransAtlantic: Target Price Calculation

Base NAVPS $2.38
Multiple 1.00x
Target contribution $2.38
Fully-risked NAVPS $4.89
Upside to Base NAVPS $2.52
Multiple 0.75x
Target contribution $1.89
Calculated target price $4.26
Actual target price (rounded) $4.25
Source: TD Newcrest.

Our valuation of the company’s P+P reserves is shown in Exhibit 4 We have used reserve, production and cost
assumptions that are very similar to those that were published by TransAtlantic under its NI-51-101 year-end
filing. Our Base NAVPS estimate adds our valuation of P+P reserves to expected discounted proceeds from in-
the-money options and warrants and net debt.

Exhibit 4. TransAtlantic: P+P Reserve Assumptions and PV Estimates by Asset

2010E P+P Reserves

Post-tax PV
Asset mmBOE US$mm US$/BOE C$/sh %
Selmo 23.8 $567 $23.79 $1.82 80%
Edirne 1.4 $34 $25.32 $0.11 5%
Arpatepe 0.3 $10 $32.60 $0.03 1%
Amity Oil 2.0 $48 $23.73 $0.15 7%
Zorlu Petrogas 2.7 $52 $19.60 $0.17 7%
Total 30.2 $710 $23.56 $2.28 100%
Source: TD Newcrest.

Our Fully-risked NAVPS estimate adds the Base NAVPS to our estimates of the potential from exploration
(prospective resources) and possible reserves. Our assumptions regarding resource potential and chance of
success (COS) are summarized in Exhibit 5, together with after-tax expected monetary value (EMV) estimates
that result from discounting potential cash flows, using what we believe to be reasonable cost and pricing
assumptions, and a 10% discount rate.

Management has provided only limited guidance on resource potential and chance of success for its
exploration assets. And, due to the limited availability of historical drilling data in the countries where
TransAtlantic operates, our resource estimates for this company are among the most speculative in our
coverage of International E&Ps. In general, we have only modelled resource potential where sufficient public
information is available on the geology of the plays the company is pursuing to justify a subjective estimate of
resource potential and chance of success. As a result, we have not modelled any resource potential for large
portions of the company’s exploration lands. Overall, we are therefore relatively certain that our unrisked
resource assumptions understate the ultimate hydrocarbon resource that could be technically recoverable on the
companies’ lands, but we see this as appropriate, given the early exploration nature of many of those lands.
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Exhibit 5. TransAtlantic: Resource Assumptions and EMV Estimates by Asset

Unrisked Resources Risked Resources

Post-tax EMV
Asset mmBOE COS (%) mmBOE US$mm US$/BOE C$/sh %
Selmo 11.1 50% 5.5 $85 $15.23 $0.27 11%
Edirne 1.9 78% 1.5 $29 $19.55 $0.09 4%
Arpatepe 8.3 50% 4.1 $104 $25.14 $0.34 13%
Amity Oil 0.0 - 0.0 $0 - $0.00 0%
Zorlu Petrogas 10.4 30% 3.1 $26 $8.27 $0.08 3%
Other exploration 115.9 25% 29.0 $456 $15.72 $1.47 58%
Turkey Total 147.6 29% 43.3 $699 $16.16 $2.25 89%
Romania 17.0 10% 1.7 $34 $19.72 $0.11 4%
Morocco 14.6 20% 2.9 $51 $17.46 $0.16 7%
Total 179.2 27% 47.9 $783 $16.35 $2.52 100%
Source: TD Newcrest.

The combination of the PV’s we estimate for assets shown in Exhibits 4 and 5 with net cash/(debt) to calculate
our NAVPS estimate is shown in Exhibit 6.
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Exhibit 6. TransAtlantic: Summary Table

TransAtlantic Petroleum Ltd. TNP TSX Rating BUY

Price C$3.26 Risk HIGH

Target C$4.25
Basic S/O (mm) 303.6
f.d. S/O (mm) 319.6 Total Return to Target 30%
Market Cap. ($mm) $959.9 Fiscal Year-end 31-Dec
Net debt ($mm) ($36.6) Last reported quarter Q1/10
Enterprise Value ($mm) $923.4 Reporting Currency : All dollar amounts in US$ unless otherwise noted

NET ASSET VALUE (2010E) Post-tax PV PRODUCTION (BOEPD)* 2008 2009 2010E 2011E
Risked C$/ Turkey 0 1,161 3,895 7,525
% Int. COS mmBOE $mm share Romania 0 0 0 0
Turkey P+P n/a 100% 30.2 $710.2 $2.28 Morocco 0 0 0 0
Romania P+P 100% 100% - $0.0 $0.00 United States 0 0 0 0
Morocco P+P 100% 100% - $0.0 $0.00
Total 0 1,161 3,895 7,525
of which gas (%) 0% 0% 30% 39%
Total P+P Reserves 30.2 $710.2 $2.28 * includes risked resources and exploration potential
Net cash/(debt) -$158.4 -$0.51 FINANCIAL SUMMARY 2008 2009 2010E 2011E
Discounted proceeds from in-the-money options $29.3 $0.09 Cash Flow ($mm) ($7.9) ($51.4) $21.2 $105.4
Other long-term investments $157.3 $0.51 CFPS - Basic ($0.08) ($0.24) $0.07 $0.35
Base NAV $30.2 $738.5 $2.38 CFPS - f.d. ($0.08) ($0.24) $0.07 $0.33
P / Base NAVPS 1.37 Net Income ($mm) ($8.6) ($52.5) ($3.1) $70.0
EPS - Basic ($0.09) ($0.25) ($0.01) $0.23
Turkey Resource n/a 29% 43.3 $698.7 $2.25 EPS - f.d. ($0.09) ($0.25) ($0.01) $0.22
Romania Resource 100% 10% 1.7 $33.5 $0.11 Revenue* ($/BOE) nm $69.56 $58.24 $58.55
Morocco Resource 100% 20% 2.9 $50.9 $0.16 Operating Costs ($/BOE) nm $23.99 $13.38 $7.03
Operating Netback ($/BOE) nm $45.57 $44.86 $51.52
* net of royalties and hedging
Total Upside Resource 47.9 $783.1 $2.52 CAPITAL STRUCTURE 2008 2009 2010E 2011E
Discounted proceeds from exercise-below-target options $0.0 $0.00 Wtd. Avg. Basic Shares (mm) 100.0 212.3 303.5 303.6
Wtd. Avg. f.d. Shares (mm) 100.0 212.3 312.6 315.8
Fully Risked NAV 78.0 $1,521.6 $4.89 Market Cap. ($mm) $86.2 $383.0 $959.8 $959.9
P / Fully Risked NAVPS 0.67 Net Debt ($mm) ($28.9) ($80.9) $158.4 $169.1
Enterprise Value ($mm) $57.3 $302.0 $1,118.2 $1,129.0
Unrisked Upside Resource 179.2 $3,104.7 $9.99 Capex ($mm) $0.0 $126.2 $273.0 $116.0
Discounted unused proceeds from Options $0.0 $0.00 Net Debt to Cash Flow nm nm 7.5 1.6
Unrisked NAV 209.3 $3,843.2 $12.36
P / Unrisked NAVPS 0.26
AREAS OF OPERATION VALUATION METRICS 2008 2009 2010E 2011E
P/CF - f.d. nm nm 46.6 9.5
P/E - f.d. nm nm nm 14.3
Romania EV/DACF nm nm 45.2 10.3
U.S.A. EV/BOEPD nm $260,122 $287,043 $150,042
Turkey
Morocco RESERVES 2008 2009 Proforma
Proved* (mmBOE) 12.1 13.3 13.3
P+P* (mmBOE) 17.3 27.4 27.4
FD&A Costs, P+P ($/BOE) nmf $12.09
EV/BOE (Proved, $/BOE) $69.21
EV/BOE (P+P, $/BOE) $33.75
* Evaluated by RPS Energy Pty Ltd.
ASSUMPTIONS 2008 2009 2010E 2011E
Brent (US$/bbl) $97.57 $61.96 $75.00 $79.50
WTI (US$/bbl) $99.49 $61.85 $75.00 $80.00
Mature Growth Exploration Discount rate (nominal) 10.0%
Spot FX rate (US$/C$) 0.9700

RECENT FINANCINGS INSIDER OWNERSHIP BASIC f.d.

Price # of Shares Proceeds Management 46% 48%
Date (C$) (mm) (C$mm) Management & Directors 46% 48%
3/28/08 $0.36 10.0 $3.60
3/28/08 $0.36 25.0 $9.00 MAJOR SHAREHOLDER
8/28/08 US$1.20 35.4 US$42.48 N. Malone Mitchell 46% 46%
6/4/09 $1.65 98.4 $162.32
11/23/09 $2.35 48.3 $113.50

Source: Company Reports, Bloomberg, TD Newcrest.

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Key Risks to Target Price

Key risks associated with our target price include business risks of the company and industry, including but not
limited to: loss of key employees, drilling success, volatile commodity prices, operating costs, capital cost
overruns, product supply and demand, financing/access to capital, government regulations, legislation,
royalties, taxes, exchange rates, interest rates, environmental and weather concerns.

Key risks specific to TransAtlantic are:

• Financing, exploration and liquidity risk are relevant to TransAtlantic.
• Potential for significant influence - Malone Mitchell owns just under 50% of the basic outstanding shares
of the company.
• Higher than average geo-political risk. Despite being a secular democratic republic, political risk in
Turkey is considerable.

Investment Conclusion
We are initiating coverage of TransAtlantic Petroleum (TNP-T) with a BUY rating and a $4.25 target.
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TD Newcrest Equity Research Disclosures

Company Ticker Disclosures
Transatlantic Petroleum Ltd. TNP-T TAT-A n/a

1. TD Securities Inc., TD Securities (USA) LLC or an affiliated company has managed or co-managed a public offering of securities within the last 12
months with respect to the subject company.
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months with respect to the subject company.
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next three months with respect to the subject company.
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company.
5. A long position in the securities of the subject company is held by the research analyst, by a member of the research analyst’s household, or in an
account over which the research analyst has discretion or control.
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household, or in an account over which the research analyst has discretion or control.
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household, or in an account over which the research analyst has discretion or control.
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14. Non-voting shares.
15. Common/variable voting shares.
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Additional Important Disclosures

Distribution of Research Ratings

Distribution of Research Ratings^ Investment Banking Services Provided*

REDUCE
BUY
6% 80%
55%
70%
60%
50% 56%
40%
30% 40%
20%
HOLD 3%
10%
39%
0%
BUY HOLD REDUCE

Current as of July 5, 2010

^ Percentage of subject companies under each rating * Percentage of subject companies within each of the
category—BUY (covering Action List BUY, BUY and three categories (BUY, HOLD and REDUCE) for which
Spec. BUY ratings), HOLD and REDUCE (covering TD Securities Inc. has provided investment banking
TENDER and REDUCE ratings). services within the last 12 months.

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Research Ratings
ACTION LIST BUY: The stock's total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months and it is a top
pick in the Analyst's sector.
BUY: The stock’s total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months.
SPECULATIVE BUY: The stock's total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with
the investment that could result in significant loss.
HOLD: The stock’s total return is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months.
TENDER: Investors are advised to tender their shares to a specific offer for the company's securities
REDUCE: The stock’s total return is expected to be negative over the next 12 months.

Overall Risk Rating in order of increasing risk: Low (8.6% of coverage universe), Medium (28.5%), High (52.6%), Speculative (10.3%)

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