Talisman Energy Generates $960 Million in Cash Flow During the Quarter

    News Editors

    CALGARY, Alberta--(BUSINESS WIRE)--May 3, 2005--Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) today reported its first quarter operating and financial results.

    Cash flow was $960 million, an increase of 25% compared to $770 million a year earlier and $679 million in the fourth quarter of 2004. Cash flow per share was $2.59, an increase of 29% compared to $2.01 in the first quarter of 2004.

    Net income was $258 million ($0.70/share) compared to $218 million ($0.57/share) a year ago and $121 million ($0.32/share) in the previous quarter.

    Earnings from operations increased 89%, totaling $377 million ($1.02/share) versus $199 million ($0.52/share) a year earlier and $135 million ($0.35/share) in the fourth quarter of 2004. Earnings from operations are calculated to better illustrate Talisman's performance on an internally consistent basis. It adjusts for 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.

    Production averaged 457,000 boe/d, an increase of 5% over the first quarter of 2004 and 1.5% above the fourth quarter of 2004. Natural gas production averaged 1,332 mmcf/d in the quarter, a new record for the Company and an increase of 8% over the first quarter of 2004. Talisman's North American natural gas production averaged 929 mmcf/d, an increase of 7% over the comparable quarter a year ago. Oil and liquids production averaged 235,492 bbls/d, an increase of 2% compared to a year ago. Production from Trinidad commenced during the quarter, averaging 7,826 bbls/d.

    "This was a very good quarter on all fronts," said Dr Jim Buckee, President & Chief Executive Officer. "We posted solid production numbers; with daily production per share up 9% compared to a year ago, we set a new record for North American gas sales and commenced production from the Greater Angostura field in Trinidad and Tobago. We also set a new record average production rate of 482,000 boe/d in March.

    "Talisman's drilling program continues to deliver growth. We had a number of sizeable development drilling successes in the North Sea, a new discovery in Malaysia/Vietnam, we drilled a record number of wells in North America and continue to build our opportunity set. The Pertra acquisition doubled the size of our operations in Norway and adds some very attractive exploration acreage. Similarly, the award of Block 15-2/01 in Vietnam will also provide new exploration opportunities.

    "We generated a record $1.02/share in earnings from operations, which compares favorably with a consensus number of approximately $0.90/share. Even though this is often quoted as an earnings per share estimate, virtually all of the analysts covering Talisman provide an operating earnings numbers for the 'street' estimate.

    "Cash flow was also significantly higher than any other quarter in our history. Commodity prices continue to reflect the tension between growing demand and a lack of spare productive capacity. Talisman is also virtually unhedged this year, so these higher prices significantly benefit our shareholders.

    "Talisman's production forecast remains intact at between 455,000-485,000 boe/d for the year, including 10,000 boe/d of added volumes in Norway. We lost five weeks of production from the Ross and Blake fields due to some production chemistry issues. Since the shutdown, production levels have been good and the production chemistry issues are being addressed. This lost production, higher cost Norway production and a stronger than expected pound sterling also led to higher North Sea operating costs in the quarter. We expect to produce between 445,000-460,000 boe/d in the second quarter with anticipated plant turnarounds, returning to higher production levels in the third and fourth quarters.

    (For additional guidance please visit Talisman's website.)

    "Talisman is on track to deliver over $4 billion in cash flow for the year, or over $11 per share, assuming US$49/bbl WTI prices, US$7.00/mmbtu NYMEX gas prices and an $0.80 Canadian dollar."

    Talisman First Quarter Summary

    - Record North American natural gas volumes.

    - Appalachia production of 120 mmcf/d, more than double the previous year.

    - Record North American midstream volumes.

    - Production from the Brazion b-60-E (TLM 80%) well at Monkman ranged between 60-70 mmcf/d of sales gas.

    - Talisman doubled the size of its business in Norway with the acquisition of Pertra A.S. for US$175 million (including closing costs). The acquisition includes 70% of the Varg oil field and extensive exploration acreage.

    - In Malaysia, South Angsi field development continued on schedule for mid-2005 startup.

    - A successful exploration well and two sidetracks were drilled in the PM-3 CAA offshore Malaysia/Vietnam.

    - Talisman's subsidiary signed a Petroleum Contract with a 60% interest in Block 15-2/01 offshore Vietnam.

    - Production from Trinidad averaged 7,826 bbls/d in the quarter and 12,025 bbls/d in March.

    Cash flow, captioned as funds from operating activities in the Consolidated Statement of Cash Flows, in addition to earnings from operations (as illustrated in the table below) are non-GAAP measures. Please refer to the section in this press release entitled Advisory Non-GAAP Financial Measures for further explanation and details.

    Earnings from operations

    To assist in understanding the Company's earnings from operations, the following table adjusts the Company's net income per the financial statements for certain items of a non-operational nature, on an after-tax basis. Talisman's reported results may not be comparable to similarly titled measures by other companies. The Company uses this data to evaluate performance of core operational exploration and production activities on a basis comparable between periods.

($ millions, except per share amounts) Three months ended March 31, 2005 2004 --------------------------------------------------------------------- Net income 258 218

Stock-based compensation (1) 116 22

Tax effects of unrealized foreign exchange gains on foreign denominated debt (2) 3 (9)

Tax rate reductions and other - (32) ---------------------------------------------------------------------

Earnings from operations (3) 377 199 --------------------------------------------------------------------- Amounts per share - basic 1.02 0.52 --------------------------------------------------------------------- Amounts per share - diluted (4) 0.99 0.51 --------------------------------------------------------------------- ---------------------------------------------------------------------

    Footnotes:

    1. Stock-based compensation expense relates to the appreciated value of the Company's outstanding stock options and cash units at March 31, 2005, 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.

    2. Future tax effect relating to unrealized foreign exchange gains associated with the impact of a stronger Canadian Dollar on foreign denominated debt.

    3. This is a non-GAAP measure.

    4. 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.

    Management's Discussion and Analysis (MD&A)

    (May 2, 2005)

    This discussion and analysis should be read in conjunction with the Interim Consolidated Financial Statements as at March 31, 2005 and 2004 and the 2004 Audited Consolidated Financial Statements. All comparative percentages are between the quarters ended March 31, 2005 and 2004, unless stated otherwise. All amounts are in Canadian dollars unless otherwise indicated.

Quarterly results summary (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- Financial (millions of C$ unless otherwise stated) Net income(1) 258 218 Exploration and development expenditures 749 614 C$ per common share(2) Net income(1) - Basic 0.70 0.57 - Diluted 0.68 0.56 --------------------------------------------------------------------- --------------------------------------------------------------------- Production (daily average) Oil and liquids (bbls/d) 235,492 230,136 Natural gas (mmcf/d) 1,332 1,236 --------------------------------------------------------------------- Total mboe/d (6mcf equals 1boe) 457 436 Production (boe) per common share - Basic 0.11 0.10 --------------------------------------------------------------------- ---------------------------------------------------------------------

1. Effective January 1, 2005, the Company retroactively adopted certain changes to the Canadian Institute of Chartered Accountants ("CICA") accounting standard for financial instruments. The change to this standard requires that the Company's preferred securities, all of which were redeemed in 2004 be treated as debt rather than equity. See note 1 to the Interim Consolidated Financial Statements.

2. Prior period per share amounts have been retroactively restated to reflect the impact of the Company's three for one stock split. See note 1 to the Interim Consolidated Financial Statements.

    Net income for the quarter increased 18% to $258 million, as the impact of this period's improved commodity prices, 5% higher production and decreased hedging losses more than offset increases in operating expenses, depreciation, depletion and amortization, stock-based compensation and taxes.

Company Netbacks (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- Oil and liquids ($/bbl) Sales price 55.40 41.15 Hedging expense 0.72 2.67 Royalties 7.41 6.00 Transportation 0.84 0.87 Operating costs 10.43 9.26 --------------------------------------------------------------------- 36.00 22.35 --------------------------------------------------------------------- --------------------------------------------------------------------- Natural gas ($/mcf) Sales price 6.73 6.13 Hedging expense - 0.04 Royalties 1.37 1.15 Transportation 0.28 0.25 Operating costs 0.69 0.63 --------------------------------------------------------------------- 4.39 4.06 --------------------------------------------------------------------- --------------------------------------------------------------------- Total $/boe (6mcf equals 1boe) Sales price 48.07 39.09 Hedging expense 0.37 1.52 Royalties 7.82 6.43 Transportation 1.26 1.19 Operating costs 7.38 6.64 --------------------------------------------------------------------- 31.24 23.31 --------------------------------------------------------------------- ---------------------------------------------------------------------

Netbacks do not include synthetic oil and pipeline operations. Additional netback information by major product type and region is included elsewhere in this interim report.

    During the quarter, the Company's average netback was $31.24/boe, 34% higher than 2004. The rise in commodity prices, although partially offset by a 7% stronger Canadian dollar in relation to its US counterpart, resulted in a Company realized price of $48.07/boe which was $8.98/boe (23%) higher than in 2004. The impact of this increase in realized price, along with decreased hedging losses was reduced by increased royalties, operating costs and transportation expenses resulting in an increased netback of $7.93/boe.

    Gross sales

    Gross sales for the quarter ended March 31, 2005 were $2.0 billion, a 27% increase over 2004, as increased natural gas production in North America and Southeast Asia, first oil production from Trinidad and increased oil and liquids production in the North Sea and Algeria combined with higher commodity prices to more than offset the negative impact of a stronger Canadian dollar.

Daily Average Production (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- Oil and liquids (bbls/d) North America 56,275 58,291 North Sea 127,882 123,245 Southeast Asia 28,969 35,602 Algeria 14,540 12,998 Trinidad 7,826 - --------------------------------------------------------------------- 235,492 230,136 --------------------------------------------------------------------- --------------------------------------------------------------------- Natural gas (mmcf/d) North America 929 872 North Sea(1) 129 133 Southeast Asia 274 231 --------------------------------------------------------------------- 1,332 1,236 --------------------------------------------------------------------- --------------------------------------------------------------------- Total mboe/d (6mcf equals 1boe) 457 436 --------------------------------------------------------------------- --------------------------------------------------------------------- 1. Includes gas acquired for injection and subsequent resale of 8 mmcf/d in both 2005 and 2004

    The Company's average oil and liquids production for the quarter was 235 mbbls/d, up 2% compared to last year. In Trinidad, first oil came on production in January of 2005 and during the quarter, in spite of some early facilities constraints, averaged 7,826 bbls/d, exiting the quarter at a March monthly average of 12,025 bbls/d. In the North Sea, oil and liquids production averaged 127,882 bbls/d, up 4% from 2004 as production increases from development drilling and asset acquisitions over the past year were partially offset by the impact of maintenance work which shut down the Ross/Blake field for over a month. During the quarter, the Company completed the acquisition of the Varg field producing assets in Norway. Southeast Asia oil and liquids production in the current quarter averaged 28,969 bbls/d, down 6,633 bbls/d or 19% from 2004 due to the expiry of the Tanjung and Jambi contracts. Oil and liquids production in Malaysia/Vietnam was up 984 bbls/d or 5% from 2004. Algeria production averaged 14,540 bbls/d, up 12% from 2004 despite a two week planned shutdown of the MLN facilities in the current quarter. In North America, oil and liquids production averaged 56,275 bbls/d during the quarter, down 3% from 2004 due to natural declines and the Company's continued focus on natural gas.

    During the quarter, natural gas production averaged a record 1.3 bcf/d, 8% above last year, mainly due to production increases in both North America and Southeast Asia. In North America, natural gas production was 929 mmcf/d, an increase of 57 mmcf/d or 7% over last year, with production increases in Appalachia, up 68 mmcf/d to 120 mmcf/d, Monkman, up 25 mmcf/d to 108 mmcf/d, and Bigstone/Wild River, up 11 mmcf/d to 102 mmcf/d more than offsetting decreases resulting from natural declines in other areas. In Southeast Asia, natural gas production was 274 mmcf/d, an increase of 43 mmcf/d or 19% over last year. Production in Malaysia/Vietnam averaged 119 mmcf/d this quarter, an increase of 23 mmcf/d. Indonesia gas production increased 15% over last year averaging 155 mmcf/d with higher Corridor sales to Caltex and to Singapore. North Sea natural gas production decreased 3% during the quarter to 129 mmcf/d.

Prices and Exchange Rates (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- Oil and liquids ($/bbl) North America 46.50 37.56 North Sea 57.29 41.55 Southeast Asia 60.35 44.10 Algeria 60.90 44.62 Trinidad 57.78 - --------------------------------------------------------------------- 55.40 41.15 --------------------------------------------------------------------- --------------------------------------------------------------------- Natural gas ($/mcf) North America 7.07 6.61 North Sea 6.98 5.85 Southeast Asia 5.44 4.50 --------------------------------------------------------------------- 6.73 6.13 --------------------------------------------------------------------- --------------------------------------------------------------------- Total $/boe (6mcf equals 1boe) 48.07 39.09 --------------------------------------------------------------------- --------------------------------------------------------------------- Hedging loss not included in the above prices Oil and liquids ($/bbl) 0.72 2.67 Natural gas ($/mcf) - 0.04 Total $/boe (6mcf equals 1boe) 0.37 1.52 --------------------------------------------------------------------- --------------------------------------------------------------------- Benchmark prices and foreign exchange rates WTI (US$/bbl) 50.03 35.15 Brent (US$/bbl) 47.62 31.95 NYMEX (US$/mmbtu) 6.32 5.69 AECO (C$/gj) 6.34 6.26 US/Canadian dollar exchange rate 0.815 0.759 Canadian dollar / pound sterling exchange rate 2.319 2.424 --------------------------------------------------------------------- --------------------------------------------------------------------- Excludes synthetic oil

    Talisman's first quarter commodity price averaged $48.07/boe, up $8.98/boe or 23% from last year. Continuing strong demand, especially in China and India, contributed to crude oil's price remaining at near record levels. Although the average benchmark price of WTI oil, at US$ 50.03 per barrel, was 42% higher than 2004, the stronger Canadian dollar and the wider heavy oil differentials limited the increase in the Company's realized price to 35% over the same period last year, at $55.40/bbl of oil and liquids.

    Although the AECO reference price increased only 1% from last year, the proportion of the Company's North American gas sales in the US increased from 6% last year to 13% of sales in the current quarter, which resulted in a 7% increase in North America natural gas prices to $7.07/mcf during the quarter.

    For the quarter ended March 31, 2005, Talisman recorded net hedging losses on commodity based derivative financial instruments of $15 million, all associated with oil and liquids ($0.72/bbl), compared to losses of $55 million for oil and liquids ($2.67/bbl) and $5 million for natural gas ($0.04/mcf) during the same period in 2004. As of April 1, 2005, the Company has derivative and physical contracts for approximately 2% of its remaining 2005 estimated production. A summary of the contracts outstanding is included in notes 11 and 12 to the December 31, 2004 Consolidated Financial Statements and in note 7 to the March 31, 2005 Interim Consolidated Financial Statements.

Royalties(1) (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004(2) --------------------------------------------------------------------- % $ millions % $ millions --------------------------------------------------------------------- North America 20 166 20 143 North Sea 1 10 2 9 Southeast Asia 37 109 32 75 Algeria 40 32 51 27 Trinidad 11 4 - - --------------------------------------------------------------------- 16 321 17 254 --------------------------------------------------------------------- ---------------------------------------------------------------------

1. Royalty rates do not include synthetic oil

2. During the second quarter of 2004, the Company reclassified transportation costs on a retroactive basis. Previously, these costs had been partially netted off against realized prices. This change reduced the royalty rate which is a percentage of reported prices. Accordingly, 2004 royalty rates have been restated. See note 1 to the Interim Consolidated Financial Statements.

    The Company's royalty expense for the first quarter was $321 million (16%), up from $254 million (17%), in 2004. Total royalty expense increased as a result of increases in both commodity prices and production, as the royalty rate remained relatively constant. In Southeast Asia, the rate increased due to the impact of the payout of cost recovery pools at Corridor during the first quarter of 2004. In addition, rates for oil in Malaysia/Vietnam are tied to recently attained cumulative production threshold levels, which increased the rate to 34% from 32%. The Algeria royalty rate decreased as a portion of the revenue stream is allocated to profit oil, which increases the Algeria taxes payable while reducing the Company's effective royalty rate. The Algerian government's total take for the quarter including royalties and taxes equalled approximately 51%, similar to 2004 when no current taxes were payable. The 51% total government take is expected to continue for the next few years.

Operating Expense (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- $/boe $ millions $/boe $ millions --------------------------------------------------------------------- North America 5.16 98 4.96 91 North Sea 13.19 177 11.16 148 Southeast Asia 2.63 18 3.20 22 Algeria 5.64 7 1.71 2 Trinidad 4.00 3 - - --------------------------------------------------------------------- 7.38 303 6.64 263 Synthetic oil 40.36 7 19.00 5 Pipeline 14 12 --------------------------------------------------------------------- 324 280 --------------------------------------------------------------------- ---------------------------------------------------------------------

    During the first quarter, total operating expenses increased by $44 million to $324 million, with the North Sea comprising $29 million of the 16% total increase from last year. Unit operating costs averaged $7.38/boe, up from $6.64/boe last year primarily related to the addition of the Varg production. North Sea unit operating costs increased $2.03/boe to $13.19/boe, due in part to maintenance costs from the extended shutdown at Ross/Blake and higher unit costs associated with the Varg field in Norway. In North America, unit operating costs increased due to higher processing fees and operational maintenance. Unit operating costs in Southeast Asia were down 18% to $2.63/boe due to increased production from Malaysia/Vietnam. Algeria unit operating costs increased due to minor adjustments related to prior periods in each of the reported quarters.

    Transportation Expenses (unaudited)

    Effective in the second quarter of 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 year comparatives have been restated to reflect this change in accounting policy. See note 1 to the Interim Consolidated Financial Statements for further details. The reclassification has no impact on cash provided by operating activities or net income. The resulting transportation expenses for 2004 and comparable results for the current year are set forth in the table below:

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- Oil and liquids $/bbl $ millions $/bbl $ millions --------------------------------------------------------------------- North America 0.45 3 0.51 3 North Sea 1.14 13 1.11 13 Southeast Asia 0.08 - 0.25 1 Algeria 1.65 2 1.79 2 --------------------------------------------------------------------- Natural gas $/mcf $/mcf --------------------------------------------------------------------- North America 0.17 14 0.20 15 North Sea 0.54 6 0.37 4 Southeast Asia 0.55 14 0.42 9 --------------------------------------------------------------------- 52 47 --------------------------------------------------------------------- ---------------------------------------------------------------------

Depreciation, Depletion and Amortization (DD&A) (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- $/boe $ millions $/boe $ millions --------------------------------------------------------------------- North America 12.04 228 9.49 176 North Sea 12.16 164 12.23 162 Southeast Asia 4.57 31 6.60 44 Algeria 6.80 9 6.09 7 Trinidad 13.33 9 - - --------------------------------------------------------------------- 10.71 441 9.81 389 --------------------------------------------------------------------- ---------------------------------------------------------------------

    The 2005 first quarter DD&A expense was $441 million, up 13% from the same quarter of 2004, due to an increase in the per unit DD&A rate and higher production. The DD&A rate in North America increased primarily due to higher drilling costs and capital expenditures on infrastructure projects. The DD&A rate and total expense for Southeast Asia decreased as a result of the increase in reserves, primarily from Corridor, as total boe production remained relatively constant.

Other ($ millions except where noted) (unaudited)

Three months ended --------------------------------------------------------------------- March 31, 2005 2004 --------------------------------------------------------------------- G&A ($/boe) 1.22 0.98 Dry hole expense 46 79 Stock-based compensation 166 30 Other expense (income) 24 3 Interest costs capitalized 2 3 Interest expense 42 47 Other revenue 36 22 ---------------------------------------------------------------------

    General and administrative (G&A) expense increased over the same quarter of last year due to higher staff costs, increased costs associated with corporate governance initiatives, and higher legal and pension costs.

    Dry hole expense for the first quarter of 2005 was $46 million, $17 million of which was expensed in the North Sea for the North Saltire and Jenny wells. In North America dry hole expense was $18 million and included $9 million for the Sukunka a-37-J well. Other expense of $24 million included a write-down related to the North Saltire property of $23 million. Other revenue of $36 million included $29 million of pipeline and processing revenue.

    Stock-based compensation expense relates to the increase in value of the Company's outstanding stock options and cash units at March 31, 2005, 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. The $166 million expense for the current quarter is due in part to 1.5 million options being exercised for cash at an average share price of $40.08 and an average exercise price of $17.09 for a cash expense of $35 million. The remaining $131 million expense for the current quarter is a result of a 28% increase in the Company's share price in the current quarter and the corresponding impact on the mark to market liability of the vested and prorated vested options and cash units outstanding.

    Since the introduction of the cash feature, approximately 98% of options that have been exercised, have been exercised for cash, resulting in reduced dilution of shares.

Taxes ($ millions) (unaudited)

Effective Income Tax Rate

Three months ended --------------------------------------------------------------------- March 31, 2005 2004(1) --------------------------------------------------------------------- Income before taxes 489 304 --------------------------------------------------------------------- Less PRT Current 33 17 Deferred 10 7 --------------------------------------------------------------------- Total PRT 43 24 --------------------------------------------------------------------- 446 280 --------------------------------------------------------------------- Income tax expense Current income tax 185 51 Future income tax 3 11 --------------------------------------------------------------------- Total income tax expense 188 62 --------------------------------------------------------------------- --------------------------------------------------------------------- Effective income tax rate 42% 22% --------------------------------------------------------------------- ---------------------------------------------------------------------

1. Effective January 1, 2005, the Company retroactively adopted certain changes to the Canadian Institute of Chartered Accountants ("CICA") accounting standard for financial instruments. The change to this standard requires that the Company's preferred securities, all of which were redeemed in 2004 be treated as debt rather than equity. See note 1 to the Interim Consolidated Financial Statements.

    The effective tax rate is expressed as a percentage of pre-tax income adjusted for Petroleum Revenue Tax (PRT), which is deductible in determining taxable income. The Company's effective tax rate for the current quarter is higher than in 2004 due to the effect of increased taxable income in higher tax jurisdictions (e.g. Norway) during the current quarter and the impact of Canadian corporate tax rate reductions of $31 million in 2004. Excluding this adjustment, the effective tax rate on the Company's income in the first quarter of 2004 would have been 33%. During 2005, current tax increased to $185 million as a result of both higher commodity prices and increased production, which also increased PRT on North Sea operations.

Capital expenditures ($ millions) (unaudited) Three months ended ---------------------- March 31, 2005 2004 --------------------------------------------------------------------- North America 461 381 North Sea 407 119 Southeast Asia 76 53 Algeria 2 3 Trinidad 15 50 Other 20 24 --------------------------------------------------------------------- 981 630 --------------------------------------------------------------------- --------------------------------------------------------------------- Capital expenditures include exploration and development expenditures and net asset acquisitions but exclude administrative capital.

    North America capital expenditures for the current quarter on exploration of $173 million and development of $279 million, included the drilling of 111 gas wells and 14 oil wells and $9 million for net asset acquisitions. Expenditures in the North Sea during the first quarter were comprised of $22 million of exploration spending, development spending of $162 million, which included the ongoing development of the Tweedsmuir field, and $223 million primarily related to the acquisition of producing assets at Varg and extensive exploration acreage in Norway. In Southeast Asia, capital expenditures of $76 million included $14 million of exploration spending and development spending of $62 million, primarily on the South Angsi field development in Block PM-305 and ongoing development on Block PM 3. There have been no significant changes in the Company's outlook for the major projects underway as discussed in the Outlook for 2005 section of the Company's December 31, 2004 MD&A.

    Long-term debt and liquidity

    At March 31, 2005, Talisman's long-term debt was $2.9 billion, up from $2.5 billion at year-end. This increase resulted primarily from the repurchase of eight million common shares and the acquisition of the Varg assets in Norway, partially offset by cash provided by operating activities in excess of exploration and development capital expenditures.

    At quarter end, debt to debt plus book equity was 38%. For the 12 months ended March 31, 2005, the debt to cash provided by operating activities ratio was 0.93:1.

    During the first quarter of this year, the Company repurchased a total of 8,016,400 common shares under its normal course issuer bid (NCIB)at an average price of $37.35/share. In March of this year, the Company renewed its NCIB to permit the purchase of up to 18,437,285 common shares, representing 5% of the total common shares outstanding at the time of the renewal. 949,200 of the total were repurchased under the renewed NCIB.

    In May 2004, the Company implemented a three for one split of its issued and outstanding common shares. All per share statistics for 2004 have been restated to reflect this share split. As at March 31, 2005, there were 367,231,290 common shares outstanding, the same number as at April 30, 2005.

    During April 2005, stock options for 423,550 shares were exercised for cash.

    Talisman continually investigates strategic acquisitions and opportunities, some of which may be material. In connection with any such transaction, the Company may incur debt or issue equity.

    Summary of Quarterly Results (millions of Cdn. dollars unless otherwise stated)

    The following is a summary of quarterly results of the Company for the eight most recently completed quarters.

Three months ended (unaudited) --------------------------------------------------------------------- 2005 2004 2003 --------------------------------------------------------------------- March Dec. Sept. June March Dec. Sept. June 31 31 30 30 31 31 30 30 --------------------------------------------------------------------- Gross sales 1,977 1,827 1,788 1,705 1,554 1,351 1,272 1,220 Total revenue 1,677 1,401 1,355 1,337 1,262 1,128 1,077 1,023 Net income (1)(2) 258 121 122 193 218 104 121 190 Per common share amounts (Cdn dollars) Net income (1)(2) 0.70 0.32 0.32 0.50 0.57 0.27 0.31 0.49 Diluted net income (1)(2) 0.68 0.31 0.31 0.50 0.56 0.27 0.31 0.48 --------------------------------------------------------------------- 1. Net income and net income before discontinued operations and extraordinary items are the same. 2. Effective January 1, 2005, the Company retroactively adopted certain changes to the Canadian Institute of Chartered Accountants ("CICA") accounting standard for financial instruments. The change to this standard requires that the Company's preferred securities, all of which were redeemed in 2004 be treated as debt rather than equity. See note 1 to the Interim Consolidated Financial Statements.

    The following discussion highlights some of the more significant factors that impacted the results in the eight most recently completed quarters ended March 31, 2005.

    During the first quarter of 2005, revenue rose over the last quarter of 2004, as a result of higher commodity prices, increased production and reduced hedging losses. Net income increased in the quarter as the increased revenue, combined with reductions in dry hole costs, exploration expenses, impairments, DD&A and G&A to more than offset the impact of increases in stock based compensation charges, royalties, operating costs and taxes.

    During the fourth quarter of 2004, revenue increased over the previous quarter as increases in total volumes combined with higher gas prices to more than offset the impact of a stronger Canadian dollar and increased hedging losses. Net income remained relatively constant in the quarter as reductions in stock-based compensation, operating expenses and dry hole costs were offset by increases in DD&A, impairments and G&A expenses as well as a loss on disposal of fixed assets.

    In the third quarter of 2004, revenue rose over the second quarter as the increase in oil prices more than offset the reduction in production, resulting from maintenance shutdowns. Net income in the third quarter declined from the previous quarter, as the increase in revenue was more than offset by increases in hedging losses, dry hole costs, exploration expenses and current income taxes. In the first two quarters of 2004, revenue continued to rise due to increases in both commodity prices and production. These factors combined with the benefit of tax rate reductions to increase net income in the first quarter of 2004 over the last quarter of 2003. A higher charge for stock-based compensation and lower tax rate reductions resulted in a slight drop in net income during the second quarter of 2004 from the previous quarter.

    Net income during the second quarter of 2003 increased by $160 million due to a reduction in the Canadian federal and provincial tax rates. The Company began recording stock-based compensation in the second quarter. The second quarter's net income was reduced by a $105 million ($70 million after tax) catch-up expense relating to outstanding stock options. The third and fourth quarters of 2003 included an additional $80 million ($50 million after tax) of stock-based compensation expense.

    New Canadian Accounting Pronouncements

    The Canadian Institute of Chartered Accountants (CICA) has issued a number of accounting pronouncements, some of which may impact the Company's reported results and financial position in future periods.

    Comprehensive Income/Financial Instruments/Hedges

    The CICA issued new standards in early 2005 for Comprehensive Income (CICA 1530), Financial Instruments (CICA 3855) and Hedges (CICA 3865), which will be effective for the reporting of year-end 2007. The new standards will bring Canadian rules in line with current rules in the US. The standards will introduce the concept of "Comprehensive Income" to Canadian GAAP and will require that an enterprise (a) classify items of comprehensive income by their nature in a financial statement and (b) display the accumulated balance of comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. by their nature in a financial statement of financial position. Derivative contracts will be carried on the balance sheet at their mark-to-market value, with the change in value flowing to either net income or comprehensive income. Gains and losses on instruments that are identified as hedges will flow initially to comprehensive income and be brought into net income at the time the underlying hedged item is settled. It is expected that this standard will be effective for Talisman's 2007 reporting. Any instruments that do not qualify for hedge accounting will be marked-to-market with the adjustment (tax effected) flowing through the income statement.

    Talisman does not currently have any hedges in place that carry into 2006 so the impact would not be significant based on current positions.

    Risks and Uncertainties

    Litigation

    Talisman continues to be subject to a lawsuit brought by the Presbyterian Church of Sudan and others commenced in November 2001 under the Alien Tort Claims Act in the United States District Court for the Southern District of New York. The lawsuit alleges that the Company conspired with, or aided and abetted, the Government of Sudan to commit violations of international law in connection with the Company's now disposed of interest in oil operations in Sudan. In December 2004, Talisman filed a motion for judgment on the pleadings, seeking dismissal of the lawsuit on the grounds that the Court lacks subject matter jurisdiction to hear the lawsuit, and filed its opposition papers to the certification of the lawsuit as a class action. On March 25, 2005, the Court refused to certify the lawsuit as a class action. On March 15, 2005, the US Department of Justice submitted a Statement of Interest to the Court expressing the US Government's view that the lawsuit interferes with US-Canada relations. The Court subsequently asked the litigants to file submissions in relation to this development. It is uncertain when the Court will make a decision in relation to these matters. Talisman believes the lawsuit to be entirely without merit and is continuing to vigorously defend itself and does not expect the lawsuit to have a material adverse effect.

    Kyoto

    The Kyoto protocol, ratified by the Canadian Federal Government in December 2002, came into force on February 16, 2005. The protocol commits Canada to reducing greenhouse gas emissions to six percent below 1990 levels over the period 2008-2012. The Federal Government released a framework outlining its Climate Change action plan on April 13, 2005. The plan as released contains few technical details regarding the implementation of the Government's greenhouse gas reduction strategy. The Climate Change Working Group of Canadian Association of Petroleum Producers continues to work with the Federal and Alberta governments to develop an approach for implementing targets and enabling greenhouse gas control legislation, which protects the industry's competitiveness, limits the cost and administrative burden of compliance and supports continued investment in the sector.

    As the federal government has yet to release a detailed Kyoto compliance plan, Talisman is unable to predict the impact of potential regulations upon its business; however, it is possible that the Company would face increases in operating costs in order to comply with the greenhouse gas emissions legislation.

    Use of BOE equivalents

    Unless otherwise stated, references to production represent Talisman's working interest share (including royalty interests and net profits interest) before deduction of royalties. Throughout the MD&A, 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 approximate energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

    Additional information related to the Company can be found on SEDAR at www.sedar.com.

    Exploration and Operations Review

    North America

    During the first quarter of 2005, Talisman participated in a record 210 gross wells (126 operated) resulting in a total of 175 gas and 28 oil wells for an average success rate of 97%. Included in the 210 wells are 54 exploration wells, which resulted in 47 gas wells and two oil wells.

    Total production from North America averaged 210,974 boe/d in first quarter of 2005. Natural gas production in North America averaged a record 929 mmcf/d, 57 mmcf/d higher (7% higher) than the first quarter of 2004. A new weekly record for natural gas of 945 mmcf/d was achieved in March. Liquids production averaged 56,275 bbls/d, a decrease of 3% over the same period last year and in line with expectations.

    Talisman participated in 10 gas wells in the Alberta Foothills during the quarter. The 6-28-42-16W5 well (Talisman 100%) tested at a rate of approximately 11 mmcf/d and came onstream in April.

    Production in Monkman continues to increase with the first quarter gas rates averaging 108 mmcf/d, a 43 % increase over fourth quarter 2004 and a 30% increase over the first quarter of 2004. The Brazion b-60-E well (Talisman 80%) commenced production on December 13, 2004 at 66 mmcf/d. It has consistently produced at 60-70 mmcf/d of total sales gas. There are three wells currently being drilled, of which two are Paleozoic prospects and one a Triassic prospect. East Spieker b-15-F, a 2004 well (Talisman 50%), came on stream in April at 3 mmcf/d and Sukunka c-3-A, another 2004 well (Talisman 100%), came on stream at 8 mmcf/d.

    During the first quarter, production from the Edson area averaged 42,551 boe/d, an increase of 9% over the same period last year and 7% above the fourth quarter. Gas production increased to 227 mmcf/d, 18 mmcf/d higher than first quarter 2004, setting a new monthly production record of 238 mmcf/d in March. This area includes Bigstone/Wild River, Edson and West Whitecourt.

    Bigstone/Wild River's quarterly production of 18,718 boe/d was up 13% over the first quarter of last year and 6% over the previous quarter. Thirty-one wells were drilled during the quarter with a 100% success rate. The 13-04-57-24W5 well (Talisman 100%) came on stream in April with an initial production rate of 6.8 mmcf/d sales gas. In March, Bigstone/Wild River set a new monthly production record of 107 mmcf/d. The Wild River Plant 3 expansion has just been completed resulting in increased capacity of 10 mmcf/d (Talisman share).

    Talisman Midstream Operations (TMO) transported and processed record gas volumes during the quarter. The Edson plant processed 203 mmcf/d, of which TMO contributed 133 mmcf/d. The Cutbank system gathered and processed 137 mmcf/d and we will be completing the construction of an additional 30 mmcf/d of capacity at Musreau in May TMO has submitted a pipeline construction application for the proposed Lynx pipeline. The pipeline will allow production from Talisman's working interest lands in the North Alberta Foothills to move south and east to connect to the Central Foothills Gas Gathering System (CFGGS) and is targeted for commissioning by late 2006.

    In Central Alberta, the Ferrier 9-3-42-10W5 well (Talisman 73.7%) came on production in early April and is currently producing 11 mmcf/d sales gas and 800 bbls/d condensate. The Ferrier 2-9-42-10W5 well (Talisman 65%), a follow-up well to 9-3, tested at 5.6 mmcf/d in February.

    Production in Appalachia averaged 120 mmcf/d, an 18% increase over the fourth quarter and a 132% increase over the same quarter last year. The Solderblom HZ #1 well (FEI 100%), which came on stream in December 2004, hit a record high rate of 32 mmcf/d in March. Two wells were brought onstream in the quarter with combined sales of 6.5 mmcf/d. Two more wells, Drumm #1 and Behm, are waiting to be tied-in. Six gas wells were drilled in the first quarter, of which three were in the Belden and Blake acreage. The Catlin Hill compressor expansion that will be commissioned in early 2006 should provide an additional 8 mmcf/d of capacity.

    North Sea

    In February 2005, a Talisman subsidiary acquired all of the outstanding shares of Pertra A.S. of Norway for US$175 million (including closing costs). The acquisition effectively doubled the size of Talisman's business in Norway. As part of the transaction, Talisman's subsidiary acquired 70% ownership and operatorship of the Varg oil field, 70% of the undeveloped South Varg gas condensate field and extensive exploration acreage. The acquisition added 10,000 bbls/d to Talisman's production as of March 1. Subsequently Talisman has repaired the main production riser at Varg and started a development drilling program at the end of March.

    Production in the North Sea averaged 149,462 boe/d in the quarter, up slightly from 148,043 in the fourth quarter of 2004 and 3% above the first quarter of 2004. The Ross/Blake FPSO had an unplanned shutdown of five weeks in the first quarter as a result of production chemistry issues. Since the shutdown, production levels in April have been good and the production chemistry issues are being addressed.

    Four successful operated development wells were completed in the first quarter. A Galley well came on at 1,700 bbls/d and a Claymore well had an initial flow rate of 4,700 bbls/d. A new well at Tartan has been successful and will be tested in the second quarter. The Gyda A16 well came on production at 3,000 bbls/d. In addition the Gyda A31 well appears to be successful and will be completed in the second quarter.

    Development drilling has commenced at Tweedsmuir. All main construction contracts have now been let at Tweedsmuir and first production is expected in early 2007.

    Malaysia/Vietnam

    Production in Malaysia/Vietnam averaged 41,876 boe/d in the first quarter of 2005 compared to 46,401 boe/d in the fourth quarter of 2004 and up 13% compared to a year ago. The drop in production from the prior quarter reflects the acceleration of a planned two week shutdown from May into February. Two successful development wells were drilled in PM-3 CAA during the quarter.

    A successful exploration well and two sidetrack wells were drilled at West Bunga Orkid in the PM-3 CAA. The well tested at 2,200 bbls/d from the I-45 reservoir. A successful appraisal well and sidetrack well were drilled to delineate oil and gas reservoirs on the North Bunga Orkid discovery. The development plan for the northern field complex is being prepared.

    The South Angsi project in Block PM-305 is on schedule for first production in mid-2005. The seven well development drilling program on the field is almost complete and confirms the expected reserves. A successful exploration well (Kuning-1) was drilled from the South Angsi platform to evaluate a near field prospect. The Murai well east of South Angsi also found oil pay.

    At PM-314 in Malaysia, processing of the 1,024 square kilometre 3D seismic program (acquired in 2004) is near completion and is indicating exploration prospects close to the South Angsi development.

    On April 26, a wholly owned subsidiary of Talisman signed a Petroleum Contract with a 60% interest in Block 15-2/01 offshore Vietnam. This block is prospective and is located in the heart of the Cui Long basin. The consortium's commitment on the 700,000 acre block includes a 3D seismic survey and a two well exploration program over the initial three year exploration phase.

    Indonesia

    Production in Indonesia averaged 32,755 boe/d in the first quarter, compared to 35,308 boe/d in the fourth quarter and 36,998 boe/d a year ago. Production decreased as expected due to the planned expiry of the Jambi and Tanjung production sharing contracts in 2004.

    The PT Perusahaan Gas Negara (Persero) Tbk ("PGN") pipeline project and expansion of the Corridor facilities to supply 2.3 tcf of natural gas from Corridor to West Java continued.

    Trinidad

    Development of the Greater Angostura field in Block 2c offshore Trinidad was completed on schedule with first production commencing in January; the completion of the export terminal was delayed to February and the tie in of the Canteen platform was delayed to the end of April. Production averaged 7,826 bbls/d (Talisman share) in the first quarter reaching 12,025 bbls/d in March. Full production is anticipated in early May following the tie-in of the Canteen platform.

    Algeria

    Production averaged 14,540 bbls/d in the first quarter, compared to 12,998 bbls/d a year ago. Production was down from 15,329 bbls/d in the fourth quarter due to a two week planned shutdown of the MLN plant in February.

    The expansion of the Greater MLN facilities is expected to be sanctioned in the second quarter. Development options for the MLSE field (located to the southeast of Greater MLN) are being prepared.

    Rest of World

    In Qatar, processing of 3D seismic on Block 10 has been completed. The data is being interpreted and the first well (QT-1) is expected to spud in the fourth quarter.

    In Peru, the Situche Central well was spud late in January 2005.

    In Colombia, drilling continued on the Tangara-1 well.

    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 Tobago 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.

    Forward-looking Statements

    This news release contains statements about future production growth and timing of production, cash flow and cash flow per share, earnings from operations, business plans for drilling, exploration and development, estimated future commodity prices and exchange rates, target dates for commissioning of a pipeline and a compressor expansion (as well as additional capacity following expansion), planned expansion of facilities or other expectations, beliefs, plans, goals, objectives, assumptions and statements about future events or performance that constitute "forward-looking statements" or "forward-looking information" within the meaning of 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 Annual Report under the headings "Management's Discussion and Analysis- Risks and Uncertainties", "- Liquidity and Capital Resources", and "- Outlook for 2005", under the heading "Risk Factors" in the Company's 2004 annual information form as well as in the Company's other 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 - Oil and Gas Information, Note Regarding US Disclosure Requirements

    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 U.S., net production volumes are reported after the deduction of these amounts.

    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 ration 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.

    Advisory - Canadian Dollars and GAAP

    Numbers are in Canadian dollars unless otherwise indicated. Unless otherwise indicated, financial information is presented in accordance with Canadian generally accepted accounting principles that differ from generally accepted accounting principles in the US.

    Advisory - Non-GAAP Financial Measures

    This release includes references to terms such as cash flow, cash flow per share and earnings from operations 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. Talisman's reported results of cash flow, cash flow per share and earnings from operations may not be comparable to similarly titled measures by other companies.

    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. 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.

    Earnings from operations is calculated by adjusting the Company's net income per the financial statements, for certain items of a non-operational nature, on an after-tax basis. The Company uses this data to evaluate performance of core operational activities on a comparable basis between periods. To assist in understanding the Company's earnings from operations, the following table adjusts the Company's net income per the financial statements, for certain items of a non-operational nature, on an after-tax basis.

Talisman Energy Inc. Highlights (unaudited)

Three months ended March 31 2005 2004 --------------------------------------------------------------------- Financial (restated 1) (millions of Canadian dollars unless otherwise stated) Cash flow (funds from operating activities) 960 770 Net income 258 218 Exploration and development expenditures 749 614 Per common share (dollars) Cash flow (funds from operating activities) 2.59 2.01 Net income 0.70 0.57 --------------------------------------------------------------------- Production (daily average) Oil and liquids (bbls/d) North America 54,256 55,241 North Sea 127,882 123,245 Southeast Asia 28,969 35,602 Algeria 14,540 12,998 Trinidad 7,826 - Synthetic oil 2,019 3,050 --------------------------------------------------------------------- Total oil and liquids 235,492 230,136 --------------------------------------------------------------------- Natural gas (mmcf/d) North America 929 872 North Sea 129 133 Southeast Asia 274 231 --------------------------------------------------------------------- Total natural gas 1,332 1,236 --------------------------------------------------------------------- Total mboe/d 457 436 --------------------------------------------------------------------- Prices (2) Oil and liquids ($/bbl) North America 46.50 37.56 North Sea 57.29 41.55 Southeast Asia 60.35 44.10 Algeria 60.90 44.62 Trinidad 57.78 - --------------------------------------------------------------------- Crude oil and natural gas liquids 55.40 41.15 Synthetic oil 55.87 43.91 --------------------------------------------------------------------- Total oil and liquids 55.41 41.19 --------------------------------------------------------------------- Natural gas ($/mcf) North America 7.07 6.61 North Sea 6.98 5.85 Southeast Asia 5.44 4.50 --------------------------------------------------------------------- Total natural gas 6.73 6.13 --------------------------------------------------------------------- Total ($/boe) (includes synthetic) 48.10 39.13 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) Effective January 1, 2005, the Company retroactively adopted certain changes to the Canadian Institute of Chartered Accounts ("CICA") accounting standard for financial instruments. The change to this standard requires that the Company's preferred securities, all of which were redeemed in 2004, be treated as debt rather than equity. See note 1 to the Interim Consolidated Financial Statements. (2) Prices are before hedging.

Talisman Energy Inc. Consolidated Balance Sheets

March 31 December 31 (millions of Canadian dollars) 2005 2004 --------------------------------------------------------------------- Assets (restated Current note 1) Cash and cash equivalents 66 38 Accounts receivable 1,027 836 Inventories 81 78 Prepaid expenses 14 18 --------------------------------------------------------------------- 1,188 970 ---------------------------------------------------------------------

Accrued employee pension benefit asset 60 61 Other assets 68 64 Goodwill (note 2) 619 466 Property, plant and equipment 11,298 10,847 --------------------------------------------------------------------- 12,045 11,438 --------------------------------------------------------------------- Total assets 13,233 12,408 ---------------------------------------------------------------------

Liabilities Current Accounts payable and accrued liabilities 1,541 1,302 (notes 3 and 5) Income and other taxes payable 355 341 --------------------------------------------------------------------- 1,896 1,643 ---------------------------------------------------------------------

Deferred credits 114 105 Asset retirement obligations (note 3) 1,314 1,272 Long-term debt (note 6) 2,872 2,457 Future income taxes 2,263 2,100 --------------------------------------------------------------------- 6,563 5,934 --------------------------------------------------------------------- Contingencies and commitments (notes 7 and 9)

Shareholders' equity Common shares (note 4) 2,611 2,666 Contributed surplus 70 71 Cumulative foreign currency translation (93) (76) Retained earnings 2,186 2,170 --------------------------------------------------------------------- 4,774 4,831 --------------------------------------------------------------------- Total liabilities and shareholders' equity 13,233 12,408 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Interim statements are not independently audited.

Talisman Energy Inc. Consolidated Statements of Income

Three months ended March 31 (millions of Canadian dollars) 2005 2004 --------------------------------------------------------------------- (restated Revenue note 1) Gross sales 1,977 1,554 Less hedging loss 15 60 --------------------------------------------------------------------- Gross sales, net of hedging 1,962 1,494 Less royalties 321 254 --------------------------------------------------------------------- Net sales 1,641 1,240 Other 36 22 --------------------------------------------------------------------- Total revenue 1,677 1,262 ---------------------------------------------------------------------

Expenses Operating 324 280 Transportation 52 47 General and administrative 50 39 Depreciation, depletion and amortization 441 389 Dry hole 46 79 Exploration 43 44 Interest on long-term debt 42 47 Stock-based compensation 166 30 Other 24 3 --------------------------------------------------------------------- Total expenses 1,188 958 --------------------------------------------------------------------- Income before taxes 489 304 --------------------------------------------------------------------- Taxes Current income tax 185 51 Future income tax 3 11 Petroleum revenue tax 43 24 --------------------------------------------------------------------- 231 86 --------------------------------------------------------------------- Net income 258 218 ---------------------------------------------------------------------

Per common share (Canadian dollars) Net income 0.70 0.57 Diluted net income 0.68 0.56 --------------------------------------------------------------------- Average number of common shares outstanding (millions) 371 384 Diluted number of common shares outstanding (millions) 380 391 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Interim statements are not independently audited.

Consolidated Statements of Retained Earnings

Three months ended March 31 (millions of Canadian dollars) 2005 2004 --------------------------------------------------------------------- (restated note 1) Retained earnings, beginning of period 2,170 1,852 Net income 258 218 Purchase of common shares (note 4) (242) - --------------------------------------------------------------------- Retained earnings, end of period 2,186 2,070 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Interim statements are not independently audited.

Talisman Energy Inc. Consolidated Statements of Cash Flows

Three months ended March 31 (millions of Canadian dollars) 2005 2004 --------------------------------------------------------------------- (restated Operating note 1) Net income 258 218 Items not involving cash (note 8) 659 508 Exploration 43 44 --------------------------------------------------------------------- Funds from operating activities 960 770 Changes in non-cash working capital (88) 135 --------------------------------------------------------------------- Cash provided by operating activities 872 905 --------------------------------------------------------------------- Investing Capital expenditures Exploration, development and corporate (753) (621) Acquisitions (236) (21) Proceeds of resource property dispositions 1 4 Changes in non-cash working capital 24 (4) --------------------------------------------------------------------- Cash used in investing activities (964) (642) --------------------------------------------------------------------- Financing Long-term debt repaid (72) (197) Long-term debt issued 491 - Common shares (purchased) issued (299) 2 Deferred credits and other 4 150 Changes in non-cash working capital (2) (3) --------------------------------------------------------------------- Cash provided by (used in) financing activities 122 (48) --------------------------------------------------------------------- Effect of translation on foreign currency cash (2) (3) --------------------------------------------------------------------- Net increase in cash and cash equivalents 28 212 Cash and cash equivalents, beginning of period 38 98 --------------------------------------------------------------------- Cash and cash equivalents, end of period 66 310 --------------------------------------------------------------------- ---------------------------------------------------------------------

See accompanying notes.

Interim statements are not independently audited.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (tabular amounts in millions of Canadian dollars ("$") except as noted)

    The Interim 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. The Interim Consolidated Financial Statements should be read in conjunction with the audited Annual Consolidated Financial Statements and the notes thereto in Talisman's Annual Report for the year ended December 31, 2004.

    1. Significant Accounting Policies

    The Interim Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the Consolidated Financial Statements for the year ended December 31, 2004 except for the following:

    1a) Preferred Securities

    Effective January 1, 2005 the Company retroactively adopted certain changes to the Canadian Institute of Chartered Accountants ("CICA") accounting standard for financial instruments. The change to this standard requires that the Company's preferred securities, all of which were redeemed in 2004, be treated as debt rather than equity. Previously preferred securities charges were charged directly to Retained Earnings but under the new accounting standard they would have been charged to interest expense. In addition, since the preferred securities would have been treated as debt, the balance would have been revalued at each balance sheet date with the offsetting movement reflected in the cumulative foreign currency translation account. As a result there would not have been a gain on the redemption of the preferred securities. There was no impact to the 2005 results as the preferred securities were fully redeemed in 2004.

    The adjustment required to the December 31, 2004 consolidated balance sheet to implement this change in accounting is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Cumulative foreign currency translation (150) 74 (76) Retained earnings 2,244 (74) 2,170

The adjustment required to the December 31, 2003 consolidated balance sheet to implement this change in accounting is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Future income taxes 2,127 2 2,129 Long-term debt 2,203 392 2,595 Preferred securities 431 (431) - Cumulative foreign currency translation (114) 88 (26) Retained earnings 1,903 (51) 1,852

The adjustment required to the December 31, 2002 consolidated balance sheet to implement this change in accounting is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Other assets 99 3 102 Future income taxes 2,282 (9) 2,273 Long-term debt 2,997 476 3,473 Preferred securities 431 (431) - Cumulative foreign currency translation 140 4 144 Retained earnings 1,143 (37) 1,106

The adjustment to the income statement for the three months ended March 31, 2004 is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Interest on long-term debt 38 9 47 Future income tax (recovery) 15 (4) 11 --------------------------------------------------------------------- Net income 223 (5) 218 --------------------------------------------------------------------- Preferred securities charges, net of tax (5) 5 - --------------------------------------------------------------------- Gain on redemption of preferred Securities, net of tax 16 (16) - --------------------------------------------------------------------- Net income available to common share holders 234 (16) 218 ---------------------------------------------------------------------

--------------------------------------------------------------------- Per common share(1) (Canadian dollars) --------------------------------------------------------------------- Net income .61 (.04) .57 --------------------------------------------------------------------- Diluted net income .60 (.04) .56 --------------------------------------------------------------------- 1. Per share amounts have been retroactively restated to reflect the impact of the Company's three-for-one stock split. See note 9 to the 2004 Consolidated Financial Statements.

The adjustment to the income statement for the year ended December 31, 2004 is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Interest on long-term debt 158 15 173 Future income tax (recovery) (105) (6) (111) --------------------------------------------------------------------- Net income 663 (9) 654 --------------------------------------------------------------------- Preferred securities charges, net of tax (9) 9 - --------------------------------------------------------------------- Gain on redemption of preferred Securities, net of tax 23 (23) - --------------------------------------------------------------------- Net income available to common share holders 677 (23) 654 ---------------------------------------------------------------------

--------------------------------------------------------------------- Per common share (Canadian dollars) --------------------------------------------------------------------- Net income 1.77 (.06) 1.71 --------------------------------------------------------------------- Diluted net income 1.74 (.06) 1.68 ---------------------------------------------------------------------

The adjustment to the income statement for the year ended December 31, 2003 is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Interest on long-term debt 137 41 178 Future income tax (recovery) (48) (5) (53) --------------------------------------------------------------------- Net income 1,012 (36) 976 --------------------------------------------------------------------- Preferred securities charges, net of tax (22) 22 - --------------------------------------------------------------------- Net income available to common share holders 990 (14) 976 ---------------------------------------------------------------------

--------------------------------------------------------------------- Per common share (Canadian dollars) --------------------------------------------------------------------- Net income 2.56 (.03) 2.53 --------------------------------------------------------------------- Diluted net income 2.53 (.03) 2.50 ---------------------------------------------------------------------

The adjustment to the income statement for the year ended December 31, 2002 is as follows:

--------------------------------------------------------------------- As previously reported Adjustments As restated --------------------------------------------------------------------- Interest on long-term debt 164 45 209 Future income tax (recovery) 175 (18) 157 --------------------------------------------------------------------- Net income 544 (27) 517 --------------------------------------------------------------------- Preferred securities charges, net of tax (24) 24 - --------------------------------------------------------------------- Net income available to common share holders 520 (3) 517 ---------------------------------------------------------------------

--------------------------------------------------------------------- Per common share (Canadian dollars) --------------------------------------------------------------------- Net income 1.29 - 1.29 --------------------------------------------------------------------- Diluted net income 1.27 - 1.27 ---------------------------------------------------------------------

    1b) Transportation Expenses

    During the second quarter of 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 year 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 in the three months ended March 31, 2004 as follows:

--------------------------------------------------------------------- 2004 --------------------------------------------------------------------- Revenue 31 Operating expenses (16) --------------------------------------------------------------------- Transportation expenses 47 --------------------------------------------------------------------- Net income - ---------------------------------------------------------------------

1c) Reclassification

Certain information provided for prior years has been reclassified to conform to the presentation adopted in the current year.

2. Goodwill

During the first three months of 2005, the Company's Goodwill changed as follows: --------------------------------------------------------------------- Opening balance at January 1, 2005 466 Acquired during the period 158 Foreign currency translation effect (5) --------------------------------------------------------------------- Closing balance at March 31, 2005 619 --------------------------------------------------------------------- --------------------------------------------------------------------- During the period ended March 31, 2005, the Company completed the acquisition of 100% of all outstanding shares of Pertra A.S. The purchase price of $215 million has been assigned to property plant and equipment ($257 million), future income tax liability ($156 million), asset retirement obligations ($44 million), and the remainder to goodwill ($158 million).

3. Asset Retirement Obligation

During the first three months of 2005, the Company's asset retirement obligation changed as follows:

--------------------------------------------------------------------- ARO liability at January 1, 2005(1) 1,295 Liabilities incurred during period 43 Liabilities settled during period (8) Accretion expense 19 Foreign currency translation (12) --------------------------------------------------------------------- ARO liability at March 31, 2005(1) 1,337 --------------------------------------------------------------------- ---------------------------------------------------------------------

1. Included in January 1, 2005 and March 31, 2005 liabilities are $23 million of short-term reclamation costs recorded in accounts payable on the balance sheet for a net ARO liability of $1,272 and $1,314 respectively.

4. Share Capital

Talisman's authorized share capital consists of an unlimited number of common shares without nominal or par value and unlimited first and second preferred shares. No preferred shares have been issued.

Continuity of common shares (year to date) 2005 --------------------------------------------------------------------- Shares Amount --------------------------------------------------------------------- Balance at January 1, 375,185,290 $2,666 Issued upon exercise of stock options 62,400 2 Purchased (8,016,400) (57) --------------------------------------------------------------------- Balance at March 31, 367,231,290 2,611 --------------------------------------------------------------------- ---------------------------------------------------------------------

    Pursuant to a normal course issuer bid renewed in March 2005, Talisman may repurchase up to 18,437,285 common shares representing 5% of the outstanding common shares of the Company at the time the normal course issuer bid was renewed. During the first three months of 2005 the Company repurchased 8,016,400 common shares, of which 949,200 common shares were repurchased under the renewed normal course issuer bid, for $299 million.

5. STOCK OPTIONS

Continuity of stock options (year to date) 2005 --------------------------------------------------------------------- Number of Average Options Exercise Price --------------------------------------------------------------------- Outstanding at January 1 20,788,375 19.58 Granted during the period 5,838,830 42.03 Exercised for common shares (62,400) 14.39 Exercised for cash payment (1,541,742) 17.09 Expired/forfeited (21,720) 20.40 --------------------------------------------------------------------- Outstanding at March 31 25,001,343 24.99 --------------------------------------------------------------------- --------------------------------------------------------------------- Exercisable at March 31 9,042,031 17.40 --------------------------------------------------------------------- ---------------------------------------------------------------------

    All options issued by the Company permit the holder to purchase one common share of the Company at the stated exercise price or to receive a cash payment equal to the appreciated value of the stock option.

    Since the introduction of the cash feature, approximately 98% of options that have been exercised, have been exercised for cash, resulting in reduced dilution of shares.

    Cash units

    In addition to the Company's stock option plans Talisman's subsidiaries issue stock appreciation rights under the cash unit plans. Cash units are similar to stock options except that the holder does not have a right to purchase the underlying share of the Company.

Continuity of cash units (year to date) 2005 --------------------------------------------------------------------- Number Average Cash Units Exercise Price --------------------------------------------------------------------- Outstanding at January 1 1,526,640 21.34 Granted during the period 981,135 42.02 Expired/forfeited (1,800) 19.80 --------------------------------------------------------------------- Outstanding at March 31 2,505,975 29.44 --------------------------------------------------------------------- --------------------------------------------------------------------- Exercisable at March 31 9,900 19.81 --------------------------------------------------------------------- ---------------------------------------------------------------------

During the period the Company recorded stock-based compensation expense of $166 million (2004-$30 million). Of the total expense $35 million (2004-$27 million) relates to options exercised for cash at an average share price of $40.08 (2004-$26.20)compared to an average exercise price of $17.09 (2004-$14.05)for an average per option gain of $22.99 (2004-$12.15).

The remaining $131 million (2004-$3 million) is a result of the 28% (2004-5%) increase in the Company's share price during the period, and the corresponding impact on the mark-to-market liability of the vested and prorated vested options and cash units outstanding.

The total mark-to-market liability for stock options and cash units is included in accounts payable and accrued liabilities and was $352 million as at March 31, 2005 (December 31, 2004 - $223 million).

6. Long-Term Debt

March 31, December 31, 2005 2004 --------------------------------------------------------------------- Bank Credit Facilities (Canadian $ denominated) 744 328 Debentures and Notes (unsecured) US$ denominated (US$825 million) 998 993 Canadian $ denominated 559 559 Pounds Sterling denominated (Pounds Sterling 250 million) 571 577 --------------------------------------------------------------------- $ 2,872 $ 2,457 --------------------------------------------------------------------- ---------------------------------------------------------------------

    7. Commodity Based Sales Contracts

    The Company's outstanding commodity price derivative contracts have been designated as hedges of the Company's anticipated future commodity sales. The following tables summarize commodity price derivative contracts and fixed price sales contracts outstanding at March 31, 2005:

a) Crude oil price derivative contracts

--------------------------------------------------------------------- Fixed price swaps Remainder 2005 --------------------------------------------------------------------- (WTI oil index) Volumes (bbls/d) 6,000 Price (US$/bbl) 26.97 ---------------------------------------------------------------------

b) Physical natural gas contracts (North America)

--------------------------------------------------------------------- Fixed price sales Remainder 2005 2006 2007 --------------------------------------------------------------------- Volumes (mcf/d) 14,650 14,650 14,650 Weighted average price ($/mcf) 3.21 4.15 4.28 ---------------------------------------------------------------------

8. Selected Cash Flow Information

2005 2004 (restated) Three months ended March 31, (note 1) --------------------------------------------------------------------- Net income 258 218 --------------------------------------------------------------------- Items not involving current cash flow Depreciation, depletion and amortization 441 389 Property impairments 23 - Dry hole 46 79 Net loss (gain) on asset disposals (1) 3 Stock-based compensation 131 3 Future taxes and deferred petroleum revenue tax 13 19 Other 6 15 --------------------------------------------------------------------- 659 508 --------------------------------------------------------------------- Exploration 43 44 --------------------------------------------------------------------- Funds from operating activities 960 770 ---------------------------------------------------------------------

    9. Contingencies and Commitments

    The Company continues to be subject to a lawsuit brought by the Presbyterian Church of Sudan and others commenced in November 2001 under the Alien Tort Claims Act in the United States District Court for the Southern District of New York. The lawsuit alleges that the company conspired with, or aided and abetted, the Government of Sudan to commit violations of international law in connection with the Company's now disposed of interest in oil operations in Sudan. In December 2004, Talisman filed a motion for judgment on the pleadings, seeking dismissal of the lawsuit on the grounds that the Court lacks subject matter jurisdiction to hear the lawsuit, and filed its opposition papers to the certification of the lawsuit as a class action. On March 25, 2005, the Court refused to certify the lawsuit as a class action. On March 15, 2005, the US Department of Justice submitted a Statement of Interest to the Court expressing the US Government's view that the lawsuit interferes with US-Canada relations. The Court subsequently asked the litigants to file submissions in relation to this development. It is uncertain when the Court will make a decision in relation to these matters. Talisman believes the lawsuit to be entirely without merit and is continuing to vigorously defend itself and does not expect the lawsuit to have a material adverse effect.

10. Segmented Information

Three months ended March 31

North North Southeast (millions America (1) Sea (2) Asia (3) Algeria of Canadian ------------------------------------------------------- dollars) 2005 2004 2005 2004 2005 2004 2005 2004 --------------------------------------------------------------------- Revenue Gross sales 829 728 735 536 292 237 80 53 Hedging 15 20 - 40 - - - - Royalties 166 143 10 9 109 75 32 27 --------------------------------------------------------------------- Net sales 648 565 725 487 183 162 48 26 Other 21 17 15 5 - - - - --------------------------------------------------------------------- Total revenue 669 582 740 492 183 162 48 26 --------------------------------------------------------------------- Segmented expenses Operating 106 97 190 159 18 22 7 2 Transportation 17 18 19 17 14 10 2 2 DD&A 228 176 164 162 31 44 9 7 Dry hole 18 32 17 25 1 1 - - Exploration 21 24 5 6 3 2 - - Other (2) (12) 31 2 (3) 1 - - --------------------------------------------------------------------- Total segmented expenses 388 335 426 371 64 80 18 11 --------------------------------------------------------------------- Segmented income before taxes 281 247 314 121 119 82 30 15 --------------------------------------------------------------------- Non-segmented expenses General and administrative Interest Stock-based compensation Currency translation --------------------------------------------------------------------- Total non-segmented expenses --------------------------------------------------------------------- Income before taxes --------------------------------------------------------------------- Capital expenditures Exploration 173 134 22 40 14 9 - - Development 275 243 162 66 62 44 2 3 Midstream 4 1 - - - - - - --------------------------------------------------------------------- Exploration and development 452 378 184 106 76 53 2 3 Property acquisitions Proceeds on dispositions Other non-segmented --------------------------------------------------------------------- Net capital expenditures (4) --------------------------------------------------------------------- Property, plant and equipment 6,415 6,214 3,279 3,074 1,098 1,050 172 178 Goodwill 290 291 228 75 101 100 - - Other 472 419 441 347 280 221 17 36 --------------------------------------------------------------------- Segmented assets 7,177 6,924 3,948 3,496 1,479 1,371 189 214 Non-segmented assets --------------------------------------------------------------------- Total assets (5) ---------------------------------------------------------------------

Trinidad Other Total --------------------------------------------------------------------- (millions of Canadian dollars) 2005 2004 2005 2004 2005 2004 --------------------------------------------------------------------- Revenue Gross sales 41 - - - 1977 1,554 Hedging - - - - 15 60 Royalties 4 - - - 321 254 --------------------------------------------------------------------- Net sales 37 - - - 1641 1,240 Other - - - - 36 22 --------------------------------------------------------------------- Total revenue 37 - - - 1677 1,262 --------------------------------------------------------------------- Segmented expenses Operating 3 - - - 324 280 Transportation - - - - 52 47 DD&A 9 - - - 441 389 Dry hole 3 - 7 21 46 79 Exploration 1 - 13 12 43 44 Other - - - - 26 (9) --------------------------------------------------------------------- Total segmented expenses 16 - 20 33 932 830 --------------------------------------------------------------------- Segmented income before taxes 21 - (20) (33) 745 432 --------------------------------------------------------------------- Non-segmented expenses General and administrative 50 39 Interest 42 47 Stock-based compensation 166 30 Currency translation (2) 12 --------------------------------------------------------------------- Total non-segmented expenses 256 128 --------------------------------------------------------------------- Income before taxes 489 304 --------------------------------------------------------------------- Capital expenditures Exploration 8 15 20 24 237 222 Development 7 35 - - 508 391 Midstream - - - - 4 1 --------------------------------------------------------------------- Exploration and development 15 50 20 24 749 614 Property acquisitions 236 26 Proceeds on dispositions (4) (10) Other non-segmented 4 8 --------------------------------------------------------------------- Net capital expenditures (4) 985 638 --------------------------------------------------------------------- Property, plant and equipment 283 182 51 149 11,298 10,847 Goodwill - - - - 619 466 Other 31 11 15 - 1,256 1,034 --------------------------------------------------------------------- Segmented assets 314 193 66 149 13,173 12,347 Non-segmented assets 60 61 --------------------------------------------------------------------- Total assets (5) 13,233 12,408 --------------------------------------------------------------------- ---------------------------------------------------------------------

(1) North America 2005 2004 --------------------------------------------------------------------- Revenues Canada 594 550 US 75 32 --------------------------------------------------------------------- 669 582 --------------------------------------------------------------------- Property, plant and equipment (5) Canada 5,950 5,738 US 465 476 --------------------------------------------------------------------- 6,415 6,214 ---------------------------------------------------------------------

(2) North Sea 2005 2004 --------------------------------------------------------------------- Revenues United Kingdom 636 458 Netherlands 14 9 Norway 90 25 --------------------------------------------------------------------- 740 492 --------------------------------------------------------------------- Property, plant and equipment (5) United Kingdom 2,837 2,858 Netherlands 36 41 Norway 406 175 --------------------------------------------------------------------- 3,279 3,074 ---------------------------------------------------------------------

(3) Southeast Asia 2005 2004 --------------------------------------------------------------------- Revenues Indonesia 79 85 Malaysia 97 73 Vietnam 7 4 --------------------------------------------------------------------- 183 162 --------------------------------------------------------------------- Property, plant and equipment (5) Indonesia 327 327 Malaysia 749 701 Vietnam 22 22 --------------------------------------------------------------------- 1,098 1,050 ---------------------------------------------------------------------

(4) Excluding corporate acquisitions.

(5) Current year represents balances as at March 31, prior year represents balances as at December 31.

Talisman Energy Inc. Product Netbacks

Three months Three months ended ended March 31 March 31 (C$ - production before royalties) 2005 2004 2005 2004 --------------------------------------------------------------------- Oil and liquids Natural gas ($/bbl) ($/mcf) --------------------------------------------------------------------- North Sales price 46.50 37.56 7.07 6.61 America Hedging (gain) 3.10 3.07 - 0.06 Royalties 9.87 7.57 1.39 1.32 Transportation 0.45 0.51 0.17 0.19 Operating costs 6.32 5.90 0.79 0.77 ------------------------------------------------------- 26.76 20.51 4.72 4.27 --------------------------------------------------------------------- North Sea Sales price 57.29 41.55 6.98 5.85 Hedging (gain) - 3.55 - - Royalties 0.43 0.13 0.47 0.66 Transportation 1.14 1.11 0.54 0.37 Operating costs 14.55 12.86 0.86 0.28 ------------------------------------------------------- 41.17 23.90 5.11 4.54 --------------------------------------------------------------------- Southeast Sales price 60.35 44.10 5.44 4.50 Asia Hedging (gain) - - - - Royalties 25.27 17.82 1.75 0.81 Transportation 0.08 0.25 0.55 0.42 Operating costs 4.08 4.78 0.28 0.29 ------------------------------------------------------- 30.92 21.25 2.86 2.98 --------------------------------------------------------------------- Algeria Sales price 60.90 44.62 Hedging (gain) - - Royalties 24.53 22.59 Transportation 1.65 1.80 Operating costs 5.64 1.71 --------------------------------------- 29.08 18.52 --------------------------------------------------------------------- Trinidad Sales price 57.78 - Hedging (gain) - - Royalties 6.38 - Operating costs 4.00 - --------------------------------------- 47.40 - --------------------------------------------------------------------- Total Company Sales price 55.40 41.15 6.73 6.13 Hedging (gain) 0.72 2.67 - 0.04 Royalties 7.41 6.00 1.37 1.15 Transportation 0.84 0.87 0.28 0.25 Operating costs 10.43 9.26 0.69 0.63 ------------------------------------------------------- 36.00 22.35 4.39 4.06 --------------------------------------------------------------------- ---------------------------------------------------------------------

Talisman Energy Inc. Additional Information Production net of royalties

Three months ended March 31 2005 2004 ---------------------------------------------------------------------

Oil and liquids (bbls/d) North America 42,736 43,954 North Sea 126,911 122,868 Southeast Asia 16,839 21,155 Algeria 8,683 6,417 Trinidad 6,962 - Synthetic oil (Canada) 1,938 2,900 --------------------------------------------------------------------- Total oil and liquids 204,069 197,294 ---------------------------------------------------------------------

Natural gas (mmcf/d) North America 746 694 North Sea 121 117 Southeast Asia 186 185 --------------------------------------------------------------------- Total natural gas 1,053 996 ---------------------------------------------------------------------

Total mboe/d 379 363 ---------------------------------------------------------------------

Talisman Energy Inc. Additional Information Product Netbacks

Three months ended March 31 (US$ - production net of royalties) 2005 2004 --------------------------------------------------------------------- North Oil and liquids (US$/bbl) America Sales price 37.93 28.50 Hedging (gain) 3.22 2.90 Transportation 0.46 0.48 Operating costs 6.54 5.62 ------------------------------------------------------- 27.71 19.50 ------------------------------------------------------- Natural gas (US$/mcf) Sales price 5.76 5.02 Hedging (gain) - 0.06 Transportation 0.17 0.19 Operating costs 0.80 0.73 ------------------------------------------------------- 4.79 4.04 --------------------------------------------------------------------- North Sea Oil and liquids (US$/bbl) Sales price 46.76 31.52 Hedging (gain) - 2.68 Transportation 0.94 0.84 Operating costs 12.00 9.79 ------------------------------------------------------- 33.82 18.21 ------------------------------------------------------- Natural gas (US$/mcf) Sales price 5.69 4.44 Hedging (gain) - - Transportation 0.48 0.31 Operating costs 0.76 0.24 ------------------------------------------------------- 4.45 3.89 --------------------------------------------------------------------- Southeast Asia Oil and liquids (US$/bbl) Sales price 49.26 33.47 Hedging (gain) - - Transportation 0.11 0.32 Operating costs 5.72 6.08 ------------------------------------------------------- 43.43 27.07 ------------------------------------------------------- Natural gas (US$/mcf) Sales price 4.44 3.41 Hedging (gain) - - Transportation 0.67 0.39 Operating costs 0.34 0.27 ------------------------------------------------------- 3.43 2.75 --------------------------------------------------------------------- Algeria Oil (US$/bbl) Sales price 49.73 33.87 Hedging (gain) - - Transportation 2.26 2.76 Operating costs 7.70 2.66 ------------------------------------------------------- 39.77 28.45 --------------------------------------------------------------------- Trinidad Oil (US$/bbl) Sales price 47.11 - Hedging (gain) - - Operating costs 3.61 - ------------------------------------------------------- 43.50 - --------------------------------------------------------------------- Total Company Oil and liquids (US$/bbl) Sales price 45.22 31.23 Hedging (gain) 0.68 2.35 Transportation 0.79 0.77 Operating costs 9.84 8.20 ------------------------------------------------------- 33.91 19.91 --------------------------------------------------------------------- Natural gas (US$/mcf) Sales price 5.49 4.66 Hedging (gain) - 0.04 Transportation 0.29 0.24 Operating costs 0.72 0.58 --------------------------------------------------------------------- 4.48 3.80 ---------------------------------------------------------------------

Netbacks do not include synthetic oil or pipeline operations.

Talisman Energy Inc. Consolidated Financial Ratios March 31, 2005

The following financial ratios are provided in connection with the Company's shelf prospectus, filed with Canadian and US securities regulatory authorities, and are based on the Company's consolidated financial statements that are prepared in accordance with accounting principles generally accepted in Canada.

The asset coverage ratios are calculated as at March 31, 2005. The interest coverage ratios are for the 12 month period then ended.

--------------------------------------------------------------------- Interest coverage (times) Income (1) 7.49 Cash flow (2) 21.50 Asset coverage (times) Before deduction of future income taxes and deferred credits(3) 3.95 After deduction of future income taxes and deferred credits(4) 2.66 ---------------------------------------------------------------------

(1) Net income plus income taxes and interest expense; divided by the sum of interest expense and capitalized interest. (2) Cash flow plus current income taxes and interest expense; divided by the sum of interest expense and capitalized interest. (3) Total assets minus current liabilities; divided by long-term debt. (4) Total assets minus current liabilities and long-term liabilities excluding long-term debt; divided by long-term debt.

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

--30--CCN/na*

CONTACT: Talisman Energy Inc. David Mann Senior Manager, Corporate & 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