Talisman Energy Generates $2.9 Billion in Cash Flow in 2004: 179% Prov

    News Editors

    CALGARY, Alberta--(BUSINESS WIRE)--March 2, 2005--Talisman Energy Inc. (TSX:TLM)(NYSE:TLM) released its 2004 consolidated financial and operating results today. Highlights include continuing strong growth in proved reserves and production, a sixth consecutive year of record cash flow and cash flow per share and a very strong balance sheet.

    Cash flow increased 7% to $2,931 million ($7.65/share), compared to $2,729 million ($7.07/share) a year ago. Cash flow per share was $1.78 in the fourth quarter, up 6% from the same period a year earlier. Net income was down in 2004, reflecting the sale of Talisman's Sudan assets and a number of tax changes in 2003. Total net income in 2004 was $663 million ($1.77/share) versus $1,012 million ($2.56/share) a year earlier. Net income per share increased 19% to $0.32 in the fourth quarter, compared to the same period a year ago.

    In order to better illustrate Talisman's operating performance on an internally consistent basis, the Company has calculated an earnings from operations number. This metric adjusts for significant one-time events such as the sale of Talisman's assets in Sudan. It also adjusts for other non-operational impacts on earnings such as the mark-to-market effect of changes in share prices on stock based compensation expense and changes to tax rates. This calculation however, still does not reflect differing accounting policies and conventions between companies.

    Talisman's earnings from operations increased 15% to $773 million ($2.02/share), compared to $673 million ($1.74/share) in 2003. On a per share basis, earnings from operations were $0.39 in the fourth quarter, compared to $0.38 a year earlier.

    Production averaged 438,000 boe/d, an increase of 10% over 2003, setting a new record for production per share. Talisman grew its natural gas production by 16% to 1,259 mmcf/d. Oil and liquids production increased by 5% to 228,434 bbls/d. Talisman increased volumes in all of its core operating areas with significant growth in Southeast Asia (a full year of production from the PM-3 CAA in Malaysia/Vietnam) and Algeria (a full year of production from the MLN field). Production in the fourth quarter averaged 451,000 boe/d. References to production and reserves in this news release are gross numbers, unless otherwise indicated.

    "2004 was a very strong year for Talisman, both operationally and financially, and 2005 promises to be better still," said Dr. Jim Buckee, President and Chief Executive Officer. "World oil demand continues to press upwards against a limited amount of surplus capacity and prices may have to go higher yet to restrain consumption. Talisman is virtually unhedged in 2005 and the effects of these high prices will fully benefit our shareholders.

    "Talisman grew its proved reserves by 9% to 1.5 billion boe. The Company added a total of 286 mmboe of proved reserves from all sources in 2004, 93% through the drill bit. Total capital spending (excluding Syncrude and midstream but including net acquisitions) was $2.6 billion. We increased natural gas reserves by 11% to 5.2 trillion cubic feet. Crude oil and liquids reserves increased 7% to 618 mmbbls. Our crude oil reserves are predominantly high quality so they were not negatively affected by the year end dip in heavy oil prices caused by very wide differentials.

    "Cash flow was $2.9 billion last year and we are predicting $3.6-3.8 billion in 2005, based on an average US$40/bbl WTI price for the year.(i)

    "Talisman increased production by 10% last year, 14% if you remove Sudan production from our 2003 volumes. The result was record high production per share in 2004, and our objective is to continue to grow production per share by 5-10% annually. Looking ahead, these growth rates should be achievable for at least the next three years with new production in Trinidad, a major expansion at Corridor, continuing development in Algeria, development of the Tweedsmuir field in the North Sea, South Angsi startup in Malaysia and the continuing success of our deep gas programs in North America.

    "We have maintained a very strong balance sheet with a year end debt to cash flow ratio of approximately 0.8 times, the lowest amongst our Canadian peer group. We reduced our total debt in 2004, while increasing spending on exploration and development, increasing dividends and repurchasing nearly nine million Talisman shares. These repurchases have continued in 2005, as we continue to create value for our shareholders."

    (i) Talisman guidance release of January 11, 2005; assuming production of 445,000 - 475,000 boe/d, US$40/bbl WTI price, US$6.25/mmbtu NYMEX gas price, US$/C$ 0.80, C$/Pounds Sterling $2.25. Excludes volumes from the recent acquisition in Norway.

    Six Consecutive Years of Record Cash Flow

    Talisman generated record high cash flow and cash flow per share for the sixth consecutive year. Cash flow was $2,931 million on gross sales of $6,394 million. Cash flow per share increased 8% to $7.65 from $7.07 a year earlier ($6.87 excluding the cash flow generated by our Sudan interests in 2003).

Three months ended Year ended December 31 December 31 ------------------------------------ 2004 2003 2004 2003 ------------------------------------ Cash flow ($mm)(1) 679 644 2,931 2,729 Cash flow per share ($)(1) 1.78 1.68 7.65 7.07 ------------------------------------ Net income ($mm) 121 108 663 1,012 Income per share ($) 0.32 0.27 1.77 2.56 ------------------------------------ Earnings from operations ($mm)(1) 147 147 773 673 Earnings from operations ($/share)(1) 0.39 0.38 2.02 1.74 ------------------------------------ Long term debt ($mm at year end) 2,457 2,203 Preferred securities ($mm at year end) -- 431 Shares outstanding (mm at year end) 375 384

(1) non-GAAP measure

    Higher volumes and prices resulted in gross sales (before hedging) increasing by $1.2 billion compared to 2003. These gains were partly offset by higher royalties and cash taxes ($531 million), higher operating costs ($159 million) and increased hedging losses ($286 million).

    Cash flow in the fourth quarter came in lower than expected. The Company issued guidance in early January, which assumed approximately $775 million in cash flow in the fourth quarter of 2004. The $95 million difference was the result of lower than expected prices at year end, higher than expected cash taxes and an insurance expense adjustment.

    The Company no longer calculates a diluted cash flow per share amount. Since the introduction in mid-2003 of a cash payment feature attached to the outstanding stock options, approximately 98% of options have been exercised using the cash payment feature. Since the diluted per share calculation assumes all options will be exercised for shares, with no adjustment to account for the fact that actual options exercised for cash have resulted in a reduction of cash flow, management feels that the diluted cash flow per share figure is not relevant as the underlying assumptions are not a realistic view of expected results.

    Net income for the year was $663 million ($1.77/share) versus $1,012 million ($2.56/share) in 2003. The major reason for the decrease in 2004 was a $296 million after tax gain associated with the sale of Talisman's properties in Sudan in 2003. Depreciation, depletion and amortization (DD&A) expense increased by $215 million, compared to 2003. Most of the increase was the result of higher production volumes. On a $/boe basis, DD&A was only up 4%.

    Net income in the fourth quarter was $0.32/share, an increase of 19% over the same period in 2003.

    The differences between the full cost and successful efforts methods of accounting make it difficult to compare net income between companies. In periods of growth and high exploration spending, it is likely that net income determined using the full cost method would be higher than net income determined using the successful efforts method.

    Earnings from operations totalled $773 million ($2.02/share), an increase of 15% over 2003. The Company calculates earnings from operations to better illustrate core operating performance on a consistent basis. This metric adjusts for significant events such as the sale of Talisman's assets in Sudan and changes to tax rates in 2003.

    Earnings from operations

    To assist in understanding the Company's earnings from operations, the following table adjusts the Company's net income per the consolidated financial statements, for certain items of a non-operational nature, on an after-tax basis. This term is not defined by Generally Accepted Accounting Principles (GAAP) in either Canada or the US. Consequently, it is referred to as a non-GAAP measure. Our reported results may not be comparable to similarly titled measures by other companies. The Company uses this data to evaluate performance of core operational activities on a comparable basis between periods.

($ millions, except per share amounts)

Three months ended Year ended ------------------------------------ December 31, 2004 2003 2004 2003 --------------------------------------------------------------------- Net income 121 108 663 1,012 Gain on sale of Sudan operations(1) - - - (296) Sudan operating income(1) - - - (44) Stock-based compensation(2) 5 42 119 130 Insurance expenses(3) 12 - 12 - Tax effects of unrealized foreign exchange gains on foreign denominated debt(4) 15 (3) 37 32 Tax rate reductions and other(4) (6) - (58) (161) ------------------------------------ Earnings from operations(5) 147 147 773 673 ------------------------------------ Amounts per share - basic 0.39 0.38 2.02 1.74 ------------------------------------ Amounts per share - diluted 0.38 0.38 1.98 1.72 ------------------------------------ ------------------------------------

(1) On March 12, 2003, Talisman completed the sale of its indirectly held interest in the Greater Nile Oil Project in Sudan for net proceeds of $1,012 million and a gain of $296 million. During the period January 1, 2003 through March 12, 2003, the Sudan operations had after tax operating income of $44 million. (2) Stock-based compensation expense relates to the appreciated value of the Company's outstanding stock options and cash units at December 31, 2004, which was first expensed during the second quarter of 2003. The Company's stock-based compensation expense is based on the difference between the Company's share price and its stock options or cash units exercise price. (3) Insurance costs relate to the current liability associated with past claims experience that is expected to be billed in future premiums. (4) Tax adjustments include the impact of Canadian corporate tax rate reductions in 2004 and 2003, as well as future taxes relating in part to unrealized foreign exchange gains associated with the impact of a stronger Canadian Dollar on foreign currency denominated debt. (5) This is a non-GAAP measure.

    A Very Strong Balance Sheet

    Talisman's long-term debt at year end was $2.5 billion, down from a total of $2.6 billion ($2.2 billion debt and $431 million preferred securities) at the end of last year. During 2004, the Company generated $3.1 billion of cash provided by operating activities, while spending $2.5 billion on exploration and development and a net $242 million on acquisitions. In addition, Talisman financed the redemption of its preferred securities, repurchased nine million common shares and paid dividends of $114 million. At year end, Talisman's debt to cash flow ratio was 0.84.

Talisman Increased Production by 10%

Three months ended Year ended December 31 December 31 ------------------------------------ 2004 2003 2004 2003 ------------------------------------ Oil and liquids (bbls/d) North America 57,322 57,527 57,392 59,578 North Sea 127,943 128,697 121,861 113,075 Southeast Asia 35,018 31,138 35,644 24,430 Algeria 15,329 11,804 13,537 6,594 Sudan -- -- -- 13,039 --------------------------------------------------------------------- 235,612 229,166 228,434 216,716 --------------------------------------------------------------------- Natural gas (mmcf/d)

North America 891 867 885 864 North Sea 121 118 114 109 Southeast Asia 280 153 260 117 --------------------------------------------------------------------- 1,292 1,138 1,259 1,090 --------------------------------------------------------------------- 000 boe/d 451 419 438 398 --------------------------------------------------------------------- 000 boe/d (net of royalties) 379 353 365 334 boe per share (gross) 0.42 0.38 ---------------------------------------------------------------------

    Production for the year averaged 438,000 boe/d, an increase of 10% (14% excluding Sudan), and the Company set a new production per share record. Production in the fourth quarter was 451,000 boe/d, an increase of 8% over the fourth quarter of 2003 and 5% above the third quarter of 2004.

    Liquids production averaged 228,434 bbls/d, an increase of 5%. North Sea liquids production increased 8% with the startup of the Tartan North field, ahead of schedule, and minor asset acquisitions. Production from Southeast Asia increased by 46% with a full year of production from the PM-3 CAA project in Malaysia/Vietnam (22,388 bbls/d in 2004 versus 8,672 bbls/d in 2003). Algerian production more than doubled with a full year of production from the MLN field.

    Natural gas production increased 16%, averaging 1,259 mmcf/d for the year. Production in the fourth quarter was 1,292 mmcf/d, an increase of 14% over the fourth quarter of 2003 and 2% over the previous quarter. Talisman's North American gas production averaged 885 mmcf/d, an increase of 2% over the previous year. New production records were set in the northeastern US, Alberta Foothills, Deep Basin, southern Alberta Foothills and Bigstone/Wild River regions. North Sea natural gas volumes increased 5% to 114 mmcf/d. Natural gas production in Southeast Asia increased by 122%. Natural gas sales in Malaysia/Vietnam increased from 5 mmcf/d in 2003 to 119 mmcf/d in 2004, with a full year of production from the PM-3 CAA project. Natural gas sales in Indonesia averaged 141 mmcf/d, compared to 112 mmcf/d in 2003, the result of increased sales volumes to Singapore.

    Talisman expects production to average between 445,000-475,000 boe/d in 2005. For additional information please see Talisman's guidance release of January 11, 2005. The current guidance does not reflect the acquisition of assets in Norway announced February 1, 2005.

179% Production Replacement

Oil & Natural NGLs(1) Gas(1) Talisman Proved Reserves (million (billion BOE(1) Net BOE(2) (excluding Syncrude) barrels) cu ft) (millions) (millions) --------------------------------------------------------------------- Dec 31, 2003 579 4,695 1,362 1,086 Discoveries, additions and extensions 74 1,252 283 204 Net acquisitions (dispositions) 30 (50) 21 24 Revisions 17 (212) (19) 22 Production (82) (462) (159) (129)

--------------------------------------------------------------------- Total Proved 618 5,223 1,488 1,207 Dec 31, 2004

--------------------------------------------------------------------- Total Probable 383 2,624 820 634 Dec 31, 2004 --------------------------------------------------------------------- (1) Talisman working interest reserves before royalties payable, plus royalty interests and net profits interest (2) Talisman working interest net of royalties, plus royalty interests and net profits interest

    Talisman increased its total proved reserves by 9% to 1,488 mmboe at the end of 2004. The Company replaced 179% of conventional production from all sources and 166% through the drill bit. Talisman's net proved reserves increased by 11% to 1,207 mmboe. Capital spending totalled $2,375 million for exploration and development (excludes Syncrude, capitalized interest, midstream). Drilling related reserve additions totalled 265 mmboe. Talisman spent $241 million on net acquisitions, adding 21 mmboe of proved reserves.

    Proved oil and liquids reserves increased 7% to 618 mmbbls. Talisman added a total of 121 mmbbls, including 85 mmbbls in the North Sea, 18 mmbbls in Southeast Asia, 13 mmbbls in Algeria and 13 mmbbls in North America, partially offset by an 8 mmbbl reduction in Trinidad. The majority (75%) of these reserve additions were through discoveries, additions and extensions. North America (30%) and the North Sea (48%) account for the majority of Talisman's oil reserves. These are predominantly high quality crude oil and natural gas liquids. Talisman has virtually no heavy oil or bitumen reserves.

    Talisman's proved natural gas reserves increased by 11% in 2004, totaling 5.2 tcf at year end. Talisman's North American natural gas reserves were 2.6 tcf at year end, unchanged from the previous year. In North America, the Company added a record 479 bcf through the drill bit (147% of production), offset by record natural gas production (325 bcf), minor asset sales (50 bcf) and downward revisions to existing reserves (113 bcf). These numbers include Fortuna's natural gas reserves in the northeastern US, which totalled 153 bcf (an increase of 40%) at year end, with the addition of 59 bcf through drilling activities.

    Talisman's proved international natural gas reserves increased 26% to 2.6 tcf at year end. The majority of this increase came from the addition of 695 bcf of proved undeveloped reserves in Indonesia as a result of an agreement to sell gas to PT Perusahaan Gas Negara (Persero), Tbk ("PGN"), the Indonesian national gas transmission and distribution company. These reserves will be developed over the next two years, in anticipation of sales commencing in the first quarter of 2007.

    Over the past three years, Talisman has added 565 mmboe of proved reserves through discoveries, additions and extensions (including revisions) and acquired 58 million boe of proved reserves (not including the impact of the sale of Talisman's indirect interest in the Greater Nile Oil Project in Sudan). During this period exploration and development spending was $6,153 million. Net spending on acquisitions and divestitures (excluding Sudan) was $1,013 million. Approximately 90% of Talisman's proved reserves have been independently evaluated over the past three years. Detailed reserve reconciliation tables are provided elsewhere in this news release.

    The reserves replacement ratio of 166% was calculated by dividing the sum of changes (revisions of estimates, improved recovery and discoveries) to estimated proved oil and gas reserves during 2004 by the Company's 2004 conventional production. The reserves replacement ratio of 179% was calculated by dividing the sum of changes (revisions of estimates, improved recovery, discoveries, acquisitions and dispositions) to estimated proved oil and gas reserves during 2004 by the Company's 2004 conventional production.

    The Company's management uses reserve replacement ratios, as described above, as an indicator of the Company's ability to replenish annual production volumes and grow its reserves. It should be noted that a reserve replacement ratio is a statistical indicator that has limitations. As an annual measure, the ratio is limited because it typically varies widely based on the extent and timing of new discoveries, project sanctioning and property acquisitions. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not imbed the cost, value or timing of future production of new reserves, it cannot be used as a measure of value creation.

Netbacks up 21% in the Fourth Quarter

Total Company Three months ended Year ended December 31 December 31 ------------------------------------ 2004 2003 2004 2003 ------------------------------------ WTI oil price US$/bbl 48.29 31.19 41.40 30.99 NYMEX gas price US$/mcf 6.87 4.89 6.09 5.44

--------------------------------------------------------------------- Talisman netback ($/boe) Sales price 43.88 34.97 42.75 38.51 Hedging loss (3.99) (1.04) (3.02) (1.34) Royalties 6.80 5.34 7.04 6.18 Operating cost 6.84 6.68 7.04 6.74 Transportation 1.20 1.22 1.20 1.26 --------------------------------------------------------------------- Netback ($/boe)(1) 25.05 20.69 24.45 22.99 --------------------------------------------------------------------- Oil and liquids netback ($/bbl) 24.46 20.81 24.42 21.66 Natural gas netback ($/mcf) 4.30 3.42 4.08 4.11 ---------------------------------------------------------------------

(1) Netbacks do not include synthetic oil and pipeline operations. Additional netback information by major product type and region is contained elsewhere in this news release.

    World oil prices continued to increase during 2004, with WTI prices averaging US$41.40/bbl, a 34% increase over the 2003 average of US$30.99/bbl. North American natural gas prices increased 12% over 2003, with NYMEX prices averaging US$6.09/mcf in 2004.

    Talisman's netbacks increased 6% to an average of $24.45/boe for 2004, on the strength of higher world oil and North American natural gas prices. The rise in US$ denominated commodity prices was partly offset by a 7% increase in the Canadian dollar compared to the US dollar. The strengthening of the Canadian dollar reduced Talisman's reported oil and liquids price by $3.62/bbl to $47.45/bbl.

    Talisman's netbacks in the fourth quarter averaged $25.05/boe, an increase of 21%, compared to the fourth quarter of 2003. North American natural gas netbacks averaged $4.43/mcf for the year, an increase of 7% over 2003 and $4.74/mcf in the fourth quarter (up 44%). North Sea oil netbacks averaged $26.09/bbl (up 4%) for the year and $26.79/bbl in the fourth quarter (up 10%).

    The Company hedged approximately 22% of its 2004 production volumes late in 2003. The resulting hedging loss was $3.02/boe in 2004. However, the Company currently has only about 2% of its production hedged for 2005.

    Overall royalty rates were unchanged at about 16% in 2004.

    Unit operating costs increased by 4% to $7.04/boe. Higher unit costs in North America and the North Sea were partially offset by lower costs in Southeast Asia and Algeria (full production volumes from the PM-3 CAA and MLN field). Unit transportation costs were down slightly.

Additional Information

Capital Spending (1),(3)

------------------------------ (millions of dollars) 2004 2003 2002 --------------------------------------------------------------------- North America 1,500 1,580 939 North Sea 721 693 518 Southeast Asia 235 316 269 Algeria 8 34 107 Trinidad 191 130 78 Sudan - 2 98 Other(2) 125 93 43 Corporate, IS and Administrative 26 38 26 --------------------------------------------------------------------- 2,806 2,886 2,078 --------------------------------------------------------------------- --------------------------------------------------------------------- (1) Includes exploration, development and net asset acquisitions expenditures but excludes corporate acquisitions and the Sudan disposition in 2003. (2) Other includes Colombia, Peru, Qatar and North American frontiers. (3) Includes interest costs, which are capitalized on major development projects until facilities are completed and ready for use.

    Natural gas continues to be the focus of the Company's capital investment activities in North America, supplemented by low risk oil projects and strategic acquisitions. Of the $1.5 billion of capital spending in North America, $590 million related to exploration activities, while development accounted for $862 million. The Company participated in 444 gross gas wells and 137 gross oil wells in North America and had a 94% success rate. Development spending was concentrated in the predominantly gas producing core areas in the Alberta Foothills, Greater Arch, Deep Basin, Edson area, Monkman/BC Foothills and Appalachia.

    Total capital spending in the North Sea of $721 million included $150 million for exploration and $357 million for development, with the remaining $214 million for net property acquisitions. Development activity included the start of the Tweedsmuir project and well operations within the Clyde, Buchan, Tartan, Piper and Claymore and Gyda (Norway) core areas. A total of 17 successful development wells were drilled during 2004 in the North Sea. Exploration drilling included the successful South Tweedsmuir appraisal, which added significant reserves to the Tweedsmuir development.

    Malaysia/Vietnam accounted for a majority of the $235 million of total capital spending in Southeast Asia, due to the ongoing development of the PM-3 CAA project and the South Angsi field development in PM-305. Talisman participated in 14 successful development wells in Malaysia/Vietnam during 2004. In addition, one successful exploration well was drilled in Block PM-3 CAA.

    Capital spending in Algeria totaled $8 million in 2004, as the Company participated in three successful wells during the year. In Trinidad, a total of $191 million was spent on Angostura exploration and development activity. Other areas accounted for $125 million.

Depreciation, Depletion and Amortization Expense (includes accretion of asset retirement obligations)

------------------------------------------- 2004 2003(1) ------------------------------------------- $/boe $millions $/boe $millions --------------------------------------------------------------------- North America 10.47 785 9.26 688 North Sea 12.83 661 12.85 616 Southeast Asia 6.02 174 5.92 95 Algeria 5.99 30 6.99 17 Sudan - - 3.98 19 --------------------------------------------------------------------- 10.29 1,650 9.87 1,435 --------------------------------------------------------------------- --------------------------------------------------------------------- (1) Restatement of prior year to effect retroactive adoption of the new accounting policy on asset retirement obligations as at January 1, 2004.

    The Company's 2004 depreciation, depletion and amortization (DD&A) expense increased $215 million or 15% to $1.7 billion, or $10.29/boe. The DD&A rates in North America increased due to the inclusion of costs associated with US property acquisitions and the acquisition of Vista Midstream in 2003. In the North Sea, DD&A increased 7% with increased production, while the unit rate remained flat. Total DD&A expense for Southeast Asia increased primarily as a result of increased production from Malaysia/Vietnam.

Corporate and Other

--------------------------- (millions of dollars) 2004 2003 --------------------------------------------------------------------- G & A expense 183 152 Interest expense 158 137 Capitalized interest 13 24 Stock-based compensation 171 185 Preferred securities charges 15 38 Other revenue 85 76 Other expense 89 16 --------------------------------------------------------------------- ---------------------------------------------------------------------

    On a per unit basis, G&A was $1.14/boe (2003 - $1.05/boe). Other revenue includes pipeline and custom treating revenues and miscellaneous income. Other expense for 2004 included foreign exchange losses of $30 million, property impairments in the North Sea of $31 million, a net loss on property dispositions of $30 million and a $20 million insurance adjustment expense partially offset by a gain on the unwinding of cross currency and interest rate swap contracts of $15 million.

    Income Taxes

    The Company's effective tax rate for 2004, after deducting Production Revenue Tax (PRT), was 36%, compared to 15% in 2003. A number of events in the past two years have significantly impacted the Company's effective tax rates including tax rate reductions in Canada and the sale of the Sudan operations in 2003.

Effective Income Tax Rate

--------------------------------- (millions of dollars) 2004 2003(1) --------------------------------- Income before tax 1,165 1,285 Less PRT Current 124 72 Future 5 20 ---------- --------- 129 92 --------------------------------- 1,036 1,193 --------------------------------------------------------------------- Income tax expense (recovery) Current 478 229 Future (105) (48) --------------------------------- 373 181 --------------------------------- Effective income tax rate (%) 36 15 --------------------------------------------------------------------- 1. Restatement of prior year to effect retroactive adoption of the new accounting policy on asset retirement obligations as at January 1, 2004.

    A normalized effective tax rate after removing the impact of the Canadian and UK tax rate changes, the tax on unrealized foreign exchange gains on foreign denominated debt and the impact of the gain on disposal of the Sudan operations would have been 37% in 2004 and 34% in 2003.

    Current income tax expense increased to $478 million in 2004, due to higher commodity prices and volumes, which resulted in increases in current taxes of $167 million in the North Sea, $50 million in Southeast Asia, $33 million in Algeria and $22 million in North America.

    Talisman Energy Inc. is a large, independent oil and gas producer with operations in Canada and, through its subsidiaries, the North Sea, Indonesia, Malaysia, Vietnam, Algeria, Trinidad and the United States. Talisman's subsidiaries also conduct business in Colombia, Qatar and Peru. Talisman has adopted the International Code of Ethics for Canadian Business and is committed to maintaining high standards of excellence in corporate citizenship and social and environmental responsibility wherever its business is conducted. The Company is a participant in the United Nations Global Compact, a voluntary initiative that brings together companies, governments, civil society and other groups to advance human rights, labour and environmental principles. Talisman's shares are listed on the Toronto Stock Exchange in Canada and the New York Stock Exchange in the United States under the symbol TLM.

    Non-GAAP financial measures

    Included in this press release are references to terms commonly used in the oil and gas industry such as cash flow and cash flow per share. These terms are not defined by Generally Accepted Accounting Principles in either Canada or the US. Consequently, these are referred to as non-GAAP measures. Cash flow, as commonly used in the oil and gas industry, appears as a separate caption on the Company's cash flow statement and represents net income before exploration costs, DD&A, future taxes and other non-cash expenses. Cash flow is used by the Company to assess operating results between years and between peer companies with different accounting policies. Our reported results may not be comparable to similarly titled measures by other companies. Cash flow should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income as determined in accordance with Canadian GAAP as an indicator of the Company's performance or liquidity. Cash flow per share is cash flow divided by the average number of common shares outstanding during the period. Debt to cash flow is a non-GAAP measure.

    Forward-looking Statements

    This news release contains statements about future production and cash flows, business plans for drilling, exploration and development, estimated future commodity prices and exchange rates, or other expectations, beliefs, plans, goals, objectives, assumptions and statements about future events or performance that constitute "forward-looking statements" within the meaning of the applicable securities legislation.

    Statements concerning oil and gas reserves contained in this report may be deemed to be forward-looking statements as they involve the implied assessment that the resources described can be profitably produced in the future, based on certain estimates and assumptions.

    Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements. These risks and uncertainties include:

    - the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas and market demand;

    - risks and uncertainties involving geology of oil and gas deposits;

    - the uncertainty of reserves estimates and reserves life;

    - the uncertainty of estimates and projections relating to production, costs and expenses;

    - potential delays or changes in plans with respect to exploration or development projects or capital expenditures;

    - fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;

    - health, safety and environmental risks;

    - uncertainties as to the availability and cost of financing;

    - uncertainties related to the litigation process, such as possible discovery of new evidence or acceptance of novel legal theories and the difficulties in predicting the decisions of judges and juries;

    - risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action);

    - general economic conditions;

    - the effect of acts of, or actions against international terrorism; and

    - the possibility that government policies or laws may change or governmental approvals may be delayed or withheld.

    We caution that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other factors, which could affect the Company's operations or financial results, are included in the Company's reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission.

    Forward-looking statements are based on the estimates and opinions of the Company's management at the time the statements are made. The Company assumes no obligation to update forward-looking statements should circumstances or management's estimates or opinions change.

    Advisory - Reserves Data and Other Oil and Gas Information

    Talisman's disclosure of reserves data and other oil and gas information is made in reliance on an exemption granted to Talisman by Canadian securities regulatory authorities, which permits Talisman to provide disclosure in accordance with US disclosure requirements. The information provided by Talisman may differ from the corresponding information prepared in accordance with Canadian disclosure standards under National Instrument 51-101 (NI 51-101). Talisman's net proved reserves have been calculated using the standards contained in Regulation S-X of the U.S. Securities and Exchange Commission. Talisman has made additional voluntary disclosure of gross proved reserves. Probable reserves have been calculated using the definition for probable reserves set out by the Society of Petroleum Engineers/World Petroleum Congress ("SPE/WPC"). Further information about the differences between the U.S. requirements and the NI 51-101 requirements is set forth under the heading "Note Regarding Reserves Data and Other Oil and Gas Information" in Talisman's Annual Information Form.

    The exemption granted to Talisman also permits it to disclose internally evaluated reserves data. While Talisman annually obtains an independent audit of a portion of its reserves, no independent reserves evaluator or auditor was involved in the preparation of the reserves data disclosed in this report.

    Throughout this release, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

    Note to US Readers

    Talisman is subject to the reporting requirements of the US Securities Exchange Act of 1934 and, consequently, files reports with and furnishes other information to the SEC. The SEC normally permits oil and gas companies to disclose in their filings with the SEC only proved reserves that have been demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. Accordingly, any probable reserves and the calculations with respect thereto included in this release do not meet the SEC's standards for inclusion in documents filed with the SEC. In addition, throughout this news release, Talisman makes reference to production volumes. Where not otherwise indicated, such production volumes are stated on a gross basis, which means they are stated prior to the deduction of royalties and similar payments. In the United States, net production volumes are reported after the deduction of these amounts. US readers may refer to the table headed "Continuity of Proved Net Reserves" for a statement of Talisman's net production volumes by reporting segment that are comparable to those made by United States companies subject to SEC reporting and disclosure requirements.

    Talisman reports its consolidated financial statements in Canadian dollars. All dollar amounts are stated in Canadian dollars, except where otherwise indicated. Unless otherwise indicated, the financial statements and other Canadian financial information included in this presentation are set out in accordance with Canadian generally accepted accounting principles, which differ from generally accepted accounting principles in the US. See the notes to Talisman's Consolidated Financial Statements for information concerning significant differences between Canadian and US generally accepted accounting principles.

    You may read any document Talisman furnishes to the SEC at the SEC's public reference rooms at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and 500 West Meridian Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies of the same documents from the public reference room of the SEC at 450 Fifth Street, N.W., Washington D.C. 20549 by paying a fee. The reports may be reviewed without a charge at the SEC's website www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.

Talisman Energy Inc. Highlights

Three months ended Years ended December 31 December 31 2004 2003 2004 2003 --------------------------------------------------------------------- Financial (restated) (restated) (millions of Canadian dollars unless otherwise stated)

Cash flow 679 644 2,931 2,729 Net income 121 108 663 1,012 Exploration and development expenditures 728 658 2,538 2,180 Per common share (dollars) Cash flow (1) 1.78 1.68 7.65 7.07 Net income (2) 0.32 0.27 1.77 2.56 --------------------------------------------------------------------- --------------------------------------------------------------------- Production (daily average) Oil and liquids (bbls/d) North America 54,464 55,019 54,393 56,929 North Sea 127,943 128,697 121,861 113,075 Southeast Asia 35,018 31,138 35,644 24,430 Algeria 15,329 11,804 13,537 6,594 Sudan - - - 13,039 Synthetic oil 2,858 2,508 2,999 2,649 --------------------------------------------------------------------- Total oil and liquids 235,612 229,166 228,434 216,716 --------------------------------------------------------------------- Natural gas (mmcf/d) North America 891 867 885 864 North Sea 121 118 114 109 Southeast Asia 280 153 260 117 --------------------------------------------------------------------- Total natural gas 1,292 1,138 1,259 1,090 --------------------------------------------------------------------- Total mboe/d 451 419 438 398 --------------------------------------------------------------------- --------------------------------------------------------------------- Prices (3) Oil and liquids ($/bbl) North America 44.05 32.39 42.11 35.78 North Sea 50.26 38.81 48.29 39.72 Southeast Asia 53.81 41.56 51.29 41.35 Algeria 46.50 39.70 51.17 39.01 Sudan - - - 43.89 --------------------------------------------------------------------- Crude oil and natural gas liquids 49.10 37.68 47.45 39.09 Synthetic oil 61.61 36.99 52.19 43.19 --------------------------------------------------------------------- Total oil and liquids 49.24 37.67 47.51 39.14 --------------------------------------------------------------------- Natural gas ($/mcf) North America 6.99 5.31 6.83 6.58 North Sea 6.08 5.10 5.55 4.77 Southeast Asia 4.55 5.31 4.74 5.72 --------------------------------------------------------------------- Total natural gas 6.38 5.29 6.28 6.30 --------------------------------------------------------------------- Total ($/boe) (includes synthetic) 44.00 34.98 42.81 38.54 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Cash flow per common share is calculated before deducting preferred security charges. (2) Net income per common share is calculated after deducting preferred security charges. (3) Prices are before hedging.

Talisman Energy Inc. Consolidated Balance Sheets (Unaudited)

December 31 (millions of Canadian dollars) 2004 2003 --------------------------------------------------------------------- Assets (restated) Current (note 1) Cash and cash equivalents 38 98 Accounts receivable 836 760 Inventories 78 100 Prepaid expenses 18 17 --------------------------------------------------------------------- 970 975 ---------------------------------------------------------------------

Accrued employee pension benefit asset 61 63 Other assets 64 76 Goodwill 466 473 Property, plant and equipment 10,847 10,193 --------------------------------------------------------------------- 11,438 10,805 --------------------------------------------------------------------- Total assets 12,408 11,780 --------------------------------------------------------------------- ---------------------------------------------------------------------

Liabilities Current Accounts payable and accrued liabilities 1,302 1,064 Income and other taxes payable 341 154 Short-term borrowings - - --------------------------------------------------------------------- 1,643 1,218 ---------------------------------------------------------------------

Deferred credits 105 57 Asset retirement obligation 1,272 1,157 Long-term debt 2,457 2,203 Future income taxes 2,100 2,127 --------------------------------------------------------------------- 5,934 5,544 ---------------------------------------------------------------------

Shareholders' equity Preferred securities - 431 Common shares 2,666 2,725 Contributed surplus 71 73 Cumulative foreign currency translation (150) (114) Retained earnings 2,244 1,903 --------------------------------------------------------------------- 4,831 5,018 --------------------------------------------------------------------- Total liabilities and shareholders' equity 12,408 11,780 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Talisman Energy Inc. Consolidated Statements of Income (Unaudited)

Three months ended Years ended (millions of Canadian dollars December 31 December 31 except per share amounts) 2004 2003 2004 2003 --------------------------------------------------------------------- (restated) (restated) Revenue (note 1) (note 1) Gross sales 1,663 1,311 6,394 5,416 Less royalties 281 205 1,124 894 --------------------------------------------------------------------- Net sales 1,382 1,106 5,270 4,522 Other 20 22 85 76 --------------------------------------------------------------------- Total revenue 1,402 1,128 5,355 4,598 ---------------------------------------------------------------------

Expenses Operating 302 272 1,198 1,039 Transportation 50 47 192 181 General and administrative 64 46 183 152 Depreciation, depletion and amortization 447 401 1,650 1,435 Dry hole 89 66 311 251 Exploration 71 52 238 213 Interest 38 35 158 137 Stock-based compensation 7 62 171 185 Other 74 (9) 89 16 --------------------------------------------------------------------- Total expenses 1,142 972 4,190 3,609 --------------------------------------------------------------------- Gain on sale of Sudan operations - - - 296 --------------------------------------------------------------------- Income before taxes 260 156 1,165 1,285 --------------------------------------------------------------------- Taxes Current income tax 204 35 478 229 Future income tax (recovery) (99) (6) (105) (48) Petroleum revenue tax 34 19 129 92 --------------------------------------------------------------------- 139 48 502 273 --------------------------------------------------------------------- Net income 121 108 663 1,012 --------------------------------------------------------------------- ---------------------------------------------------------------------

Per common share (dollars) Net income 0.32 0.27 1.77 2.56 Diluted net income 0.31 0.26 1.74 2.53 --------------------------------------------------------------------- --------------------------------------------------------------------- Average number of common shares outstanding (millions) Basic 381 384 383 386 Diluted 387 390 390 391 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Consolidated Statements of Retained Earnings (Unaudited)

Three months ended Years ended December 31 December 31 (millions of Canadian dollars) 2004 2003 2004 2003 --------------------------------------------------------------------- (restated) (restated) (note 1) (note 1) Retained earnings, beginning of period 2,401 1,851 1,903 1,125 Net income 121 108 663 1,012 Common share dividends (56) (51) (114) (90) Purchase of common shares (222) - (222) (122) Redemption of preferred securities, net of tax - - 23 - Preferred security charges, net of tax - (5) (9) (22) --------------------------------------------------------------------- Retained earnings, end of period 2,244 1,903 2,244 1,903 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Talisman Energy Inc. Consolidated Statements of Cash Flows (Unaudited)

Three months ended Years ended December 31 December 31 (millions of Canadian dollars) 2004 2003 2004 2003 --------------------------------------------------------------------- (restated) (restated) Operating (note 1) (note 1) Net income 121 108 663 1,012 Items not involving current cash flow 487 484 2,030 1,504 Exploration 71 52 238 213 --------------------------------------------------------------------- Cash flow (note 2) 679 644 2,931 2,729 Deferred gain on unwound hedges - (1) - (9) Changes in non-cash working capital 46 (126) 203 (128) --------------------------------------------------------------------- Cash provided by operating activities 725 517 3,134 2,592 --------------------------------------------------------------------- Investing Proceeds on sale of Sudan operations - - - 1,012 Capital expenditures Exploration, development and corporate (735) (668) (2,565) (2,218) Acquisitions (18) (17) (317) (661) Proceeds of resource property dispositions 70 1 75 63 Investments 4 (8) - (11) Changes in non-cash working capital 110 104 50 105 --------------------------------------------------------------------- Cash used in investing activities (569) (588) (2,757) (1,710) --------------------------------------------------------------------- Financing Long-term debt repaid (99) - (667) (791) Long-term debt issued 330 - 912 292 Short-term borrowings - - - - Common shares issued (purchased) (286) 2 (284) (184) Common share dividends (56) (51) (114) (90) Preferred securities redeemed - - (402) - Preferred security charges - (9) (15) (38) Deferred credits and other (29) 8 164 28 Changes in non-cash working capital (2) - (10) - --------------------------------------------------------------------- Cash used in financing activities (142) (50) (416) (783) --------------------------------------------------------------------- Effect of translation on foreign currency cash (4) (1) (21) (28) --------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents 10 (122) (60) 71 Cash and cash equivalents, beginning of period 28 220 98 27 --------------------------------------------------------------------- Cash and cash equivalents, end of period 38 98 38 98 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

    ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

    (unaudited)

    The Consolidated Financial Statements of Talisman Energy Inc. ("Talisman" or the "Company") have been prepared by management in accordance with Canadian generally accepted accounting principles. Certain information and disclosures normally required to be included in notes to annual consolidated financial statements have been condensed or omitted.

    1. Change in accounting policies

    a) Asset Retirement Obligations

    Effective January 1, 2004 the Company retroactively adopted the Canadian Institute of Chartered Accountants ("CICA") new standard for accounting for asset retirement obligations (ARO).

    The change in accounting has increased net income and decreased depreciation, depletion and amortization for the three months and year ended December 31, 2003. In addition, property plant & equipment, provision for future site restoration/ARO, future income taxes, and retained earnings as at December 31, 2003 have all increased.

    b) Transportation Expenses

    During 2004, the Company began accounting for transportation costs as expenses on a retroactive basis. Previously, these costs had been either netted off against the realized price or included as a component of operating costs, depending on the circumstances in the various geographic segments. Prior period comparatives have been restated to reflect this change in accounting policy. The change in accounting has no effect on net earnings but has increased revenue and decreased operating expenses.

    c) Share split

    In May 2004, the Company implemented a three-for-one share split of its issued and outstanding common shares. All references to per share amounts, weighted average number of common shares, shares outstanding and common shares issued and outstanding have been retroactively restated to reflect the impact of the Company's three-for-one share split.

2. Selected Cash Flow Information

Three months ended Years ended December 31 December 31 (millions of Canadian dollars) 2004 2003 2004 2003 --------------------------------------------------------------------- (restated) (restated) (note 1) (note 1) --------------------------------------------------------------------- Net income 121 108 663 1,012 --------------------------------------------------------------------- Items not involving current cash flow Depreciation, depletion and amortization 447 401 1,650 1,435 Property impairments 31 2 31 30 Dry hole 89 66 311 251 Net loss (gain) on asset disposals 28 - 30 (14) Gain on sale of Sudan operations - - - (296) Stock-based compensation (10) 32 89 138 Future taxes and deferred PRT (85) (7) (101) (29) Other (13) (10) 20 (11) --------------------------------------------------------------------- 487 484 2,030 1,504 --------------------------------------------------------------------- Exploration 71 52 238 213 --------------------------------------------------------------------- Cash flow 679 644 2,931 2,729 ---------------------------------------------------------------------

Segmented Information

North America (1) North Sea (2) --------------------------------------------------------------------- Three Three months Years months Years (millions of ended ended ended ended Canadian December 31 December 31 December 31 December 31 dollars) 2004 2003 2004 2003 2004 2003 2004 2003 --------------------------------------------------------------------- Revenue Gross sales (5) 765 593 2,964 2,780 541 490 2,056 1,746 Royalties 143 122 599 587 10 14 37 8 --------------------------------------------------------------------- Net sales 622 471 2,365 2,193 531 476 2,019 1,738 Other 14 22 62 54 6 1 23 23 --------------------------------------------------------------------- Total revenue 636 493 2,427 2,247 537 477 2,042 1,761 --------------------------------------------------------------------- Segmented expenses Operating (5) 114 104 421 395 159 140 662 528 Transportation (5) 18 20 75 78 18 16 66 63 DD&A (5) 227 178 785 688 179 184 661 616 Dry hole 38 26 128 135 14 19 109 69 Exploration 36 21 123 87 6 5 28 21 Other 34 3 18 (28) 16 (6) 30 26 --------------------------------------------------------------------- Total segmented expenses 467 352 1,550 1,355 392 358 1,556 1,323 --------------------------------------------------------------------- Segmented income before taxes 169 141 877 892 145 119 486 438 --------------------------------------------------------------------- Non-segmented expenses General and administrative Interest Gain on sale of Sudan operations Stock-based compensation Currency translation --------------------------------------------------------------------- Total non-segmented expenses --------------------------------------------------------------------- Income before taxes --------------------------------------------------------------------- --------------------------------------------------------------------- Capital expenditures Exploration 181 105 590 453 11 40 150 99 Development 246 236 821 629 101 96 357 397 Midstream 34 7 41 27 - - - - --------------------------------------------------------------------- Exploration and development 461 348 1,452 1,109 112 136 507 496 Property acquisitions Midstream acquisitions Proceeds on dispositions Other non-segmented --------------------------------------------------------------------- Net capital expenditures (4) --------------------------------------------------------------------- --------------------------------------------------------------------- Property, plant and equipment 6,214 5,767 3,074 2,995 Goodwill 291 291 75 74 Other 419 403 347 386 --------------------------------------------------------------------- Segmented assets 6,924 6,461 3,496 3,455 Non-segmented assets --------------------------------------------------------------------- Total assets --------------------------------------------------------------------- ---------------------------------------------------------------------

Southeast Asia (3) Algeria --------------------------------------------------------------------- Three Three months Years months Years (millions of ended ended ended ended Canadian December 31 December 31 December 31 December 31 dollars) 2004 2003 2004 2003 2004 2003 2004 2003 --------------------------------------------------------------------- Revenue Gross sales (5) 291 187 1,120 592 66 41 254 89 Royalties 102 49 391 156 26 20 97 46 --------------------------------------------------------------------- Net sales 189 138 729 436 40 21 157 43 Other - - - - - - - - --------------------------------------------------------------------- Total revenue 189 138 729 436 40 21 157 43 --------------------------------------------------------------------- Segmented expenses Operating (5) 24 25 98 86 5 3 17 12 Transportation (5) 11 9 42 36 3 2 9 4 DD&A (5) 32 31 174 95 9 8 30 17 Dry hole 12 7 25 9 4 - 4 1 Exploration 3 6 20 17 - - - - Other (12) 4 (9) 9 - - - - --------------------------------------------------------------------- Total segmented expenses 70 82 350 252 21 13 60 34 --------------------------------------------------------------------- Segmented income before taxes 119 56 379 184 19 8 97 9 --------------------------------------------------------------------- Non-segmented expenses General and administrative Interest Gain on sale of Sudan operations Stock-based compensation Currency translation --------------------------------------------------------------------- Total non-segmented expenses --------------------------------------------------------------------- Income before taxes --------------------------------------------------------------------- --------------------------------------------------------------------- Capital expenditures Exploration 16 26 54 70 - - - 4 Development 62 58 201 246 1 4 8 30 Midstream - - - - - - - - --------------------------------------------------------------------- Exploration and development 78 84 255 316 1 4 8 34 Property acquisitions Midstream acquisitions Proceeds on dispositions Other non-segmented --------------------------------------------------------------------- Net capital expenditures (4) --------------------------------------------------------------------- --------------------------------------------------------------------- Property, plant and equipment 1,050 1,084 178 202 Goodwill 100 108 - - Other 221 217 36 27 --------------------------------------------------------------------- Segmented assets 1,371 1,409 214 229 Non-segmented assets --------------------------------------------------------------------- Total assets --------------------------------------------------------------------- ---------------------------------------------------------------------

Sudan Other --------------------------------------------------------------------- Three Three months Years months Years (millions of ended ended ended ended Canadian December 31 December 31 December 31 December 31 dollars) 2004 2003 2004 2003 2004 2003 2004 2003 --------------------------------------------------------------------- Revenue Gross sales (5) - - - 209 - - - - Royalties - - - 97 - - - - --------------------------------------------------------------------- Net sales - - - 112 - - - - Other - - - (1) - (1) - - --------------------------------------------------------------------- Total revenue - - - 111 - (1) - - --------------------------------------------------------------------- Segmented expenses Operating (5) - - - 18 - - - - Transportation (5) - - - - - - - - DD&A (5) - - - 19 - - - - Dry hole - - - - 21 14 45 37 Exploration - - - 5 26 20 67 83 Other - - - - 20 (1) 20 2 --------------------------------------------------------------------- Total segmented expenses - - - 42 67 33 132 122 --------------------------------------------------------------------- Segmented income before taxes - - - 69 (67) (34) (132) (122) --------------------------------------------------------------------- Non-segmented expenses General and administrative Interest Gain on sale of Sudan operations Stock-based compensation Currency translation --------------------------------------------------------------------- Total non-segmented expenses --------------------------------------------------------------------- Income before taxes --------------------------------------------------------------------- --------------------------------------------------------------------- Capital expenditures Exploration - - - 7 42 50 158 151 Development - - - (5) 34 36 158 72 Midstream - - - - - - - - --------------------------------------------------------------------- Exploration and development - - - 2 76 86 316 223 Property acquisitions Midstream acquisitions Proceeds on dispositions Other non-segmented --------------------------------------------------------------------- Net capital expenditures (4) --------------------------------------------------------------------- Property, plant and equipment - - 331 145 Goodwill - - - - Other - - 11 18 --------------------------------------------------------------------- Segmented assets - - 342 163 Non-segmented assets --------------------------------------------------------------------- Total assets --------------------------------------------------------------------- ---------------------------------------------------------------------

Total --------------------------------------------------------------------- Three months ended Years ended December 31 December 31 (millions of Canadian dollars) 2004 2003 2004 2003 --------------------------------------------------------------------- Revenue Gross sales (5) 1,663 1,311 6,394 5,416 Royalties 281 205 1,124 894 --------------------------------------------------------------------- Net sales 1,382 1,106 5,270 4,522 Other 20 22 85 76 --------------------------------------------------------------------- Total revenue 1,402 1,128 5,355 4,598 --------------------------------------------------------------------- Segmented expenses Operating (5) 302 272 1,198 1,039 Transportation (5) 50 47 192 181 DD&A (5) 447 401 1,650 1,435 Dry hole 89 66 311 251 Exploration 71 52 238 213 Other 58 - 59 9 --------------------------------------------------------------------- Total segmented expenses 1,017 838 3,648 3,128 --------------------------------------------------------------------- Segmented income before taxes 385 290 1,707 1,470 --------------------------------------------------------------------- Non-segmented expenses General and administrative 64 46 183 152 Interest 38 35 158 137 Gain on sale of Sudan operations - - - (296) Stock-based compensation 7 62 171 185 Currency translation 16 (9) 30 7 --------------------------------------------------------------------- Total non-segmented expenses 125 134 542 185 --------------------------------------------------------------------- Income before taxes 260 156 1,165 1,285 --------------------------------------------------------------------- --------------------------------------------------------------------- Capital expenditures Exploration 250 221 952 784 Development 444 430 1,545 1,369 Midstream 34 7 41 27 --------------------------------------------------------------------- Exploration and development 728 658 2,538 2,180 Property acquisitions 36 27 330 638 Midstream acquisitions - - - 130 Proceeds on dispositions (74) (14) (88) (100) Other non-segmented 6 11 26 38 --------------------------------------------------------------------- Net capital expenditures (4) 696 682 2,806 2,886 --------------------------------------------------------------------- --------------------------------------------------------------------- Property, plant and equipment 10,847 10,193 Goodwill 466 473 Other 1,034 1,051 --------------------------------------------------------------------- Segmented assets 12,347 11,717 Non-segmented assets 61 63 --------------------------------------------------------------------- Total assets 12,408 11,780 --------------------------------------------------------------------- ---------------------------------------------------------------------

Three months ended Years ended December 31 December 31 (1) North America 2004 2003 2004 2003 --------------------------------------------------------------------- Canada 568 480 2,199 2,095 US 68 13 228 152 --------------------------------------------------------------------- Total revenue 636 493 2,427 2,247 --------------------------------------------------------------------- --------------------------------------------------------------------- Canada 5,738 5,356 US 476 411 --------------------------------------------------------------------- Property, plant and equipment 6,214 5,767 --------------------------------------------------------------------- ---------------------------------------------------------------------

Three months ended Years ended December 31 December 31 (2) North Sea 2004 2003 2004 2003 --------------------------------------------------------------------- United Kingdom 492 450 1,897 1,699 Netherlands 11 3 36 26 Norway 34 24 109 36 --------------------------------------------------------------------- Total revenue 537 477 2,042 1,761 --------------------------------------------------------------------- --------------------------------------------------------------------- United Kingdom 2,858 2,777 Netherlands 41 40 Norway 175 178 --------------------------------------------------------------------- Property, plant and equipment 3,074 2,995 --------------------------------------------------------------------- ---------------------------------------------------------------------

Three months ended Years ended December 31 December 31 (3) Southeast Asia 2004 2003 2004 2003 --------------------------------------------------------------------- Indonesia 80 92 346 340 Malaysia 106 43 363 85 Vietnam 3 3 20 11 --------------------------------------------------------------------- Total revenue 189 138 729 436 --------------------------------------------------------------------- --------------------------------------------------------------------- Indonesia 327 384 Malaysia 701 677 Vietnam 22 23 --------------------------------------------------------------------- Property, plant and equipment 1,050 1,084 --------------------------------------------------------------------- ---------------------------------------------------------------------

(4) Excluding corporate acquisitions.

(5) Revenues, operating expenses and transportation reclassified in 2004. DD&A restated effective January 1, 2004 for retroactive adoption of CICA policy on Asset Retirement Obligations.

Talisman Energy Inc. Product Netbacks

Three months Twelve months ended ended (C$ - production December 31 December 31 before royalties) 2004 2003 2004 2003 --------------------------------------------------------------------- North America

Oil and liquids ($/bbl) Sales price 44.05 32.39 42.11 35.78 Hedging (gain) 8.64 2.07 5.95 2.45 Royalties 8.76 6.86 8.59 7.37 Transportation 0.46 0.51 0.49 0.48 Operating costs 7.79 6.76 6.75 6.28 --------------------------------------------------------------------- 18.40 16.19 20.33 19.20 --------------------------------------------------------------------- Natural gas ($/mcf) Sales price 6.99 5.31 6.83 6.58 Hedging (gain) 0.04 (0.04) 0.10 0.11 Royalties 1.20 1.08 1.31 1.37 Transportation 0.21 0.20 0.20 0.21 Operating costs 0.80 0.78 0.79 0.75 --------------------------------------------------------------------- 4.74 3.29 4.43 4.14 --------------------------------------------------------------------- --------------------------------------------------------------------- North Sea

Oil and liquids ($/bbl) Sales price 50.26 38.81 48.29 39.72 Hedging (gain) 10.02 2.07 7.36 2.01 Royalties 0.52 0.60 0.43 (0.08) Transportation 1.09 0.99 1.14 1.16 Operating costs 11.84 10.83 13.27 11.51 --------------------------------------------------------------------- 26.79 24.32 26.09 25.12 --------------------------------------------------------------------- Natural gas ($/mcf) Sales price 6.08 5.10 5.55 4.77 Hedging (gain) - - - - Royalties 0.37 0.63 0.42 0.28 Transportation 0.38 0.39 0.35 0.37 Operating costs 0.72 0.33 0.55 0.37 --------------------------------------------------------------------- 4.61 3.75 4.23 3.75 --------------------------------------------------------------------- --------------------------------------------------------------------- Southeast Asia (1)

Oil and liquids ($/bbl) Sales price 53.81 41.56 51.29 41.35 Hedging (gain) - 2.10 - 2.37 Royalties 21.94 15.69 21.24 16.09 Transportation 0.18 0.27 0.23 0.41 Operating costs 5.60 6.76 5.57 7.22 --------------------------------------------------------------------- 26.09 16.74 24.25 15.26 --------------------------------------------------------------------- Natural gas ($/mcf) Sales price 4.55 5.31 4.74 5.72 Hedging (gain) - - - - Royalties 1.20 0.33 1.19 0.29 Transportation 0.38 0.68 0.41 0.77 Operating costs 0.25 0.41 0.27 0.50 --------------------------------------------------------------------- 2.72 3.89 2.87 4.16 --------------------------------------------------------------------- --------------------------------------------------------------------- Algeria

Oil ($/bbl) Sales price 46.50 39.70 51.17 39.01 Hedging (gain) - 2.11 - 2.23 Royalties 18.48 18.52 19.65 19.18 Transportation 1.64 1.64 1.76 1.77 Operating costs 3.77 2.66 3.51 5.07 --------------------------------------------------------------------- 22.61 14.77 26.25 10.76 --------------------------------------------------------------------- --------------------------------------------------------------------- Sudan

Oil ($/bbl) Sales price - - - 43.89 Hedging (gain) - - - - Royalties - - - 20.34 Operating costs - - - 3.73 --------------------------------------------------------------------- - - - 19.82 --------------------------------------------------------------------- --------------------------------------------------------------------- Total Company

Oil and liquids ($/bbl) Sales price 49.10 37.68 47.45 39.09 Hedging (gain) 7.53 2.08 5.42 2.05 Royalties 6.85 5.13 6.84 5.59 Transportation 0.84 0.81 0.88 0.83 Operating costs 9.42 8.85 9.89 8.96 --------------------------------------------------------------------- 24.46 20.81 24.42 21.66 --------------------------------------------------------------------- Natural gas ($/mcf) Sales price 6.38 5.29 6.28 6.30 Hedging (gain) 0.03 (0.03) 0.07 0.08 Royalties 1.12 0.93 1.21 1.14 Transportation 0.26 0.29 0.26 0.28 Operating costs 0.67 0.68 0.66 0.69 --------------------------------------------------------------------- 4.30 3.42 4.08 4.11 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes operations in Indonesia and Malaysia/Vietnam. Netbacks do not include synthetic oil or pipeline operations.

Talisman Energy Inc. Additional Information for US Readers Product Netbacks

Three months Twelve months ended ended (US$ - production December 31 December 31 net of royalties) 2004 2003 2004 2003 --------------------------------------------------------------------- North America

Oil and liquids (US$/bbl) Sales price 36.05 24.72 32.44 25.64 Hedging (gain) 8.81 2.00 5.81 2.21 Transportation 0.47 0.49 0.48 0.44 Operating costs 7.96 6.55 6.55 5.67 --------------------------------------------------------------------- 18.81 15.68 19.60 17.32 --------------------------------------------------------------------- Natural gas (US$/mcf) Sales price 5.74 4.08 5.26 4.74 Hedging (gain) 0.04 (0.04) 0.10 0.10 Transportation 0.21 0.20 0.19 0.19 Operating costs 0.79 0.75 0.76 0.68 --------------------------------------------------------------------- 4.70 3.17 4.21 3.77 --------------------------------------------------------------------- --------------------------------------------------------------------- North Sea

Oil and liquids (US$/bbl) Sales price 41.14 29.50 37.23 28.35 Hedging (gain) 8.27 1.60 5.77 1.43 Transportation 0.90 0.76 0.89 0.83 Operating costs 9.76 8.36 10.28 8.19 --------------------------------------------------------------------- 22.21 18.78 20.29 17.90 --------------------------------------------------------------------- Natural gas (US$/mcf) Sales price 4.99 3.89 4.29 3.41 Hedging (gain) - - - - Transportation 0.33 0.33 0.29 0.28 Operating costs 0.63 0.29 0.47 0.28 --------------------------------------------------------------------- 4.03 3.27 3.53 2.85 --------------------------------------------------------------------- --------------------------------------------------------------------- Southeast Asia (1)

Oil and liquids (US$/bbl) Sales price 43.93 31.66 39.49 29.66 Hedging (gain) - 2.57 - 2.78 Transportation 0.25 0.34 0.30 0.48 Operating costs 7.72 8.26 7.32 8.48 --------------------------------------------------------------------- 35.96 20.49 31.87 17.92 --------------------------------------------------------------------- Natural gas (US$/mcf) Sales price 3.72 4.07 3.65 4.12 Hedging (gain) - - - - Transportation 0.43 0.55 0.42 0.59 Operating costs 0.28 0.33 0.27 0.38 --------------------------------------------------------------------- 3.01 3.19 2.96 3.15 --------------------------------------------------------------------- --------------------------------------------------------------------- Algeria

Oil (US$/bbl) Sales price 38.06 30.17 39.48 27.84 Hedging (gain) - 3.01 - 3.13 Transportation 2.22 2.34 2.20 2.55 Operating costs 5.10 3.79 4.41 7.06 --------------------------------------------------------------------- 30.74 21.03 32.87 15.10 --------------------------------------------------------------------- --------------------------------------------------------------------- Sudan

Oil (US$/bbl) Sales price - - - 31.33 Hedging (gain) - - - - Operating costs - - - 4.96 --------------------------------------------------------------------- - - - 26.37 --------------------------------------------------------------------- --------------------------------------------------------------------- Total Company

Oil and liquids (US$/bbl) Sales price 40.16 28.67 36.57 27.90 Hedging (gain) 7.15 1.83 4.90 1.71 Transportation 0.80 0.71 0.79 0.70 Operating costs 8.94 7.79 8.87 7.46 --------------------------------------------------------------------- 23.27 18.34 22.01 18.03 --------------------------------------------------------------------- Natural gas (US$/mcf) Sales price 5.23 4.06 4.84 4.50 Hedging (gain) 0.03 (0.03) 0.07 0.07 Transportation 0.26 0.27 0.25 0.25 Operating costs 0.67 0.63 0.63 0.59 --------------------------------------------------------------------- 4.27 3.19 3.89 3.59 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes operations in Indonesia and Malaysia/Vietnam. Netbacks do not include synthetic oil or pipeline operations.

Talisman Energy Inc. Additional Information for US Readers Production net of royalties

Three months Twelve months ended ended December 31 December 31 2004 2003 2004 2003 --------------------------------------------------------------------- Oil and liquids (bbls/d) North America 43,636 43,178 43,303 45,035 North Sea 126,622 126,711 120,768 113,291 Southeast Asia (1) 20,738 19,326 20,884 14,853 Algeria 9,235 6,298 8,338 3,351 Sudan - - - 6,997 Synthetic oil (Canada) 2,748 2,380 2,868 2,510 --------------------------------------------------------------------- Total oil and liquids 202,979 197,893 196,161 186,037 ---------------------------------------------------------------------

Natural gas (mmcf/d) North America 738 683 715 678 North Sea 113 103 105 103 Southeast Asia (1) 206 142 194 110 --------------------------------------------------------------------- Total natural gas 1,057 928 1,014 891 ---------------------------------------------------------------------

Total mboe/d 379 353 365 334 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Includes operations in Indonesia and Malaysia/Vietnam.

Continuity of Proved Net Reserves(1)

North North SE America(2) Sea Asia Algeria Sudan Trinidad Total --------------------------------------------------------------------- Crude Oil and Liquids (mmbbls) Total proved

--------------------------------------------------------------------- Proved reserves at December 31, 2001 175.8 260.2 39.6 16.9 116.3 0.0 608.8 Discoveries, additions, and extensions 10.6 13.5 5.8 1.3 19.0 18.9 69.1 Purchase of reserves 1.1 7.5 8.6 Sale of reserves -3.7 -2.8 -6.5 Net revisions and transfers -2.5 13.9 -4.2 -4.3 -27.7 -24.8 2002 Production -17.2 -44.7 -5.1 -13.3 -80.3 --------------------------------------------------------------------- Proved reserves at December 31, 2002 164.1 247.6 36.1 13.9 94.3 18.9 574.9 Discoveries, additions, and extensions 13.1 8.3 17.0 2.3 40.7 Purchase of reserves 1.1 21.1 22.2 Sale of reserves -4.6 -91.7 -96.3 Net revisions and transfers 1.1 19.4 4.8 0.5 -0.8 25.0 2003 Production -16.4 -41.4 -5.4 -0.1 -2.6 -65.9 --------------------------------------------------------------------- Proved reserves at December 31, 2003 158.4 255.0 52.5 16.6 0.0 18.1 500.6 Discoveries, additions, and extensions 14.0 29.7 2.0 8.1 0.0 53.8 Purchase of reserves 0.2 34.0 0.9 0.0 35.1 Sale of reserves -2.1 -3.3 0.0 -5.4 Net revisions and transfers -2.5 24.0 -1.3 0.3 0.0 -7.2 13.3 2004 Production -15.8 -44.3 -7.9 -3.1 0.0 -71.1 --------------------------------------------------------------------- Proved Reserves at December 31, 2004 152.2 295.1 46.2 21.9 0.0 10.9 526.3 Proved Developed December 31, 2001 168.6 203.8 13.3 89.6 475.3 December 31, 2002 157.2 210.8 11.9 2.4 84.1 466.4 December 31, 2003 155.4 211.8 18.6 14.6 400.4 December 31, 2004 142.6 252.3 19.2 16.5 10.5 441.1 --------------------------------------------------------------------- Natural Gas (bcf) Total proved

--------------------------------------------------------------------- Proved reserves at December 31, 2001 2,052.6 267.3 1,112.1 0.0 0.0 0.0 3,432.0 Discoveries, additions, and extensions 283.1 14.0 11.7 220.0 528.8 Purchase of reserves 31.5 0.4 31.9 Sale of reserves -26.7 -26.7 Net revisions and transfers -110.8 -4.3 -122.6 -237.7 2002 Production -243.6 -39.5 -32.3 -315.4 --------------------------------------------------------------------- Proved reserves at December 31, 2002 1,986.1 237.9 968.9 0.0 0.0 220.0 3,412.9 Discoveries, additions, and extensions 276.3 1.0 64.0 341.3 Purchase of reserves 92.2 14.4 106.6 Sale of reserves -11.4 -11.4 Net revisions and transfers -14.9 19.8 -6.1 -9.0 -10.2 2003 Production -247.6 -37.5 -40.1 -325.2 --------------------------------------------------------------------- Proved reserves at December 31, 2003 2,080.7 235.6 986.7 0.0 0.0 211.0 3,514.0 Discoveries, additions, and extensions 370.6 8.0 521.9 0.0 900.5 Purchase of reserves 19.1 0.1 0.0 19.2 Sale of reserves -57.1 -0.5 0.0 -57.6 Net revisions and transfers -19.2 -26.4 93.5 0.0 5.5 53.4 2004 Production -260.6 -39.5 -47.3 0.0 -347.4 --------------------------------------------------------------------- Proved reserves at December 31, 2004 2,133.5 177.3 1,554.8 0.0 216.5 4,082.1 Proved Developed December 31, 2001 1,804.7 213.8 252.0 2,270.5 December 31, 2002 1,746.9 210.0 471.6 2,428.5 December 31, 2003 1,890.4 200.7 593.9 2,685.0 December 31, 2004 1,788.2 150.0 624.0 0.0 0.0 0.0 2,562.2 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) "Net" reserves are the remaining reserves of Talisman, after the deduction of estimated royalty burdens and including royalty interests and net profit interests. (2) North American net proved reserves exclude synthetic crude oil reserves: 2002-36.7 mmbbls; 2003-35.8 mmbbls; 2004-35.2 mmbbls.

Continuity of Proved Gross Reserves(1)

North North SE America(2) Sea Asia Algeria Sudan Trinidad Total --------------------------------------------------------------------- Crude Oil and Liquids (mmbbls) Total proved

--------------------------------------------------------------------- Proved reserves at December 31, 2001 212.3 274.5 59.3 35.2 156.3 0 737.6 Discoveries, additions, and extensions 13 13.5 9.6 2.6 32.3 19.2 90.2 Purchase of reserves 1.4 7.5 8.9 Sale of reserves -4.6 -2.8 -7.4 Net revisions and transfers -1.2 3.5 -10.4 -5.8 -13.9 2002 Production -21.8 -46.5 -8.3 -21.9 -98.5 --------------------------------------------------------------------- Proved reserves at December 31, 2002 199.1 249.7 60.6 27.4 160.9 19.2 716.9 Discoveries, additions, and extensions 16 8.2 25.2 3.9 53.3 Purchase of reserves 1.3 21.1 22.4 Sale of reserves -5.3 -156.1 -161.4 Net revisions and transfers -0.1 18.7 7.6 0.1 26.3 2003 Production -20.8 -41.3 -9 -2.4 -4.8 -78.3 --------------------------------------------------------------------- Proved reserves at December 31, 2003 190.2 256.4 84.4 29.0 0.0 19.2 579.2 Discoveries, additions, and extensions 17.3 29.8 13.0 13.9 74.0 Purchase of reserves 0.2 34.1 1.3 35.6 Sale of reserves -2.6 -3.3 -5.9 Net revisions and transfers -2.2 24.6 3.4 -0.7 0.0 -7.8 17.3 2004 Production -19.9 -44.6 -13.0 -5.0 -82.5 --------------------------------------------------------------------- Proved Reserves at December 31, 2004 183.0 297.0 89.1 37.2 11.4 617.7 Proved Developed December 31, 2001 203.0 215.7 20.4 120.4 559.5 December 31, 2002 190.0 212.6 19.7 4.8 143.4 570.5 December 31, 2003 186.4 213.0 29.5 25.5 454.4 December 31, 2004 171.0 254.0 39.9 27.9 11.0 503.8 --------------------------------------------------------------------- Natural Gas (bcf) Total proved

--------------------------------------------------------------------- Proved reserves at December 31, 2001 2,596.8 302.2 1,597.5 0.0 0.0 0.0 4,496.5 Discoveries, additions, and extensions 374.2 15.4 19.7 223.5 632.8 Purchase of reserves 37.7 0.4 38.1 Sale of reserves -34.9 -34.9 Net revisions and transfers -80.3 -11.3 -54.4 -146.0 2002 Production -300.1 -44.6 -34.5 -379.2 --------------------------------------------------------------------- Proved reserves at December 31, 2002 2,593.4 262.1 1,528.3 0.0 0.0 223.5 4,607.3 Discoveries, additions, and extensions 351.5 1.0 107.0 459.5 Purchase of reserves 107.1 14.4 121.5 Sale of reserves -14.3 -14.3 Net revisions and transfers -77.0 17.5 -20.6 -80.1 2003 Production -315.8 -39.9 -42.7 -398.4 --------------------------------------------------------------------- Proved reserves at December 31, 2003 2,644.9 255.1 1,572.0 0.0 0.0 223.5 4,695.5 Discoveries, additions, and extensions 478.5 8.0 765.3 1,251.8 Purchase of reserves 22.8 0.1 22.9 Sale of reserves -72.7 -0.5 -73.2 Net revisions and transfers -113.2 -33.2 -58.7 0.0 0.0 -7.0 -212.1 2004 Production -324.9 -41.6 -95.2 -461.7 --------------------------------------------------------------------- Proved reserves at December 31, 2004 2,635.4 187.9 2,183.4 216.5 5,223.2 Proved Developed December 31, 2001 2,281.8 247.4 358.5 2,887.7 December 31, 2002 2,278.7 232.8 723.8 3,235.3 December 31, 2003 2,404.0 220.1 920.9 3,545.0 December 31, 2004 2,207.3 160.6 858.2 3,226.1 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) "Gross" proved reserves refer to the sum of (i) working interest reserves before deduction of royalty burdens payable, (ii) royalty interest reserves and (iii) net profits interests. (2) North American gross proved reserves exclude synthetic crude oil reserves: 2002-43.2 mmbbls; 2003-42.3 mmbbls; 2004 - 41.2 mmbbls.

    Talisman Energy Inc. (TSX:TLM) (NYSE:TLM)

--30--CCN/na*

CONTACT: Talisman Energy Inc. David Mann, Senior Manager, Corporate and Investor Communications (403) 237-1196 Fax: (403) 237-1210 Email: tlm@talisman-energy.com Website: www.talisman-energy.com

KEYWORD: NEW YORK INTERNATIONAL CANADA INDUSTRY KEYWORD: OIL/GAS ENERGY EARNINGS SOURCE: Talisman Energy Inc.

Copyright Business Wire 2005