Talisman Energy First Quarter Results

May 1, 2012

CALGARY, ALBERTA--(Marketwire -05/01/12)- Talisman Energy Inc. (TLM.TO - News) (TLM - News) reported its operating and financial results for the first quarter of 2012. All values in this release are in US$ unless otherwise stated.

  -- Cash flow(1) was $851 million, up 5% over the first quarter of last year and 3% higher than the prior quarter. -- Net income was $291 million, compared to a net loss of $326 million in the first quarter of 2011 and a net loss of $117 million in the fourth quarter. -- Earnings from operations(1) were $167 million, compared to $157 million a year earlier and $114 million in the previous quarter. -- Production was up 4%, with record sales in Southeast Asia and higher volumes in Colombia and shale. Liquids volumes in Southeast Asia and North America are up 35% year over year. -- $1 billion of non-core asset sales have been agreed in North America; net debt(1) was down to $4 billion from $4.5 billion at year-end. -- Capital spending will be further cut to approximately $3.6 billion in 2012. -- In Papua New Guinea, Mitsubishi Corporation (MC) was brought in as a strategic partner; natural gas resource aggregation continues with success at Elevala-2 and Ketu-2. -- Discovery of light oil was confirmed in the Kurdamir-2 well. (1) The terms "cash flow," "earnings from operations" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.

"The first quarter was very strong operationally, and we have made significant progress towards meeting key objectives set out in our January guidance," said John A. Manzoni, President and Chief Executive Officer.

"On a macro level, although oil prices are a bit stronger, North American gas prices are weaker than we anticipated coming into the year. As a result, we are taking additional steps to reduce capital spending in dry gas plays in North America. We are now projecting total capital expenditure on exploration and development activities to be around $3.6 billion for the year. For the remainder of the year, we anticipate spending only about $200 million on dry gas activities in North America, primarily to maintain land and options for the future.

"We have reached agreements to sell approximately $1 billion in non-core assets in North America, which further strengthens our balance sheet. We are continuing to look at other options to focus our portfolio, including potential dilution of redevelopment projects in the North Sea, and high grading our exploration portfolio.

"Production averaged 462,000 boe/d, up 4% from both a year ago and the fourth quarter of last year, driven by growth in both North American shale and Southeast Asia. Planned maintenance turnarounds will result in lower volumes in the second and third quarters, and lower capital spending will impact North American natural gas volumes over the rest of this year.

"Underlying production growth for the year is now projected to be at the bottom of our production growth guidance range of 0 - 5%, due to the further reduction of capital in our dry gas assets. The actual outcome will depend on the asset disposals we make through the year.

"Our shift towards liquids-rich opportunities in North America continued during the quarter. We are currently running 12 rigs in the Eagle Ford shale, up from 10 at year-end. In Southeast Asia we set a new production record. Natural gas sales in the region averaged 548 mmcf/d, up 11% year over year, with realized prices averaging $9.85/mcf.

"In the UK, the Tartan field was brought back onstream in March after several months of safety-related work. The Claymore field, which was also subject to an extended turnaround for safety-related work, was brought back onstream in October of last year, and produced around 10,000 bbls/d over the first quarter.

"In Norway, we have been progressing independent technical studies as part of our assurance processes as operator of the Yme field. These studies indicate that a substantial amount of work is still required to complete the facility to meet Norwegian specifications.

"Given this uncertain timing, we are removing Yme from our forward production projections and have taken the prudent step of writing down a portion of the carrying value of the project (a writedown of $248 million after tax), which we believe represents a sensible view of the range of potential outcomes. We are committed to successful startup of the field and will continue to work with our partners and the contractor to achieve this. At the same time, we are considering all options to complete the Yme development.

"In Colombia, Talisman, like others, is experiencing delays in the regulatory permitting process. We are working with the government and our partners and are expecting to see a ramp up of activity in the latter part of the year.

"We are excited about the results of the Kurdamir-2 well in the Kurdistan Region of northern Iraq. The well tested light oil, condensate and natural gas from a portion of an upper zone. We are currently drilling deeper zones and plan to further test the well this summer.

"In Papua New Guinea (PNG), we are very pleased to have Mitsubishi Corporation (MC) as a strategic partner going forward. In addition to funding $280 million of the future program, they bring global and regional gas market expertise. Drilling results in PNG continue to be encouraging, and our gas aggregation plans are on track.

"In summary, we will continue the course set out in January: reducing spending, directing more capital to liquids plays and continuing to focus and high grade our portfolio. Our balance sheet is strong, and we are encouraged by continuing exploration success in Colombia, PNG and Kurdistan."

  Financial Results ---------------------------------------------------------------------------- March 31 Three Months Ended ---------------------------------------------------------------------------- 2012 2011 ---------------------------------------------------------------------------- Cash flow(2) ($ million) 851 811 ---------------------------------------------------------------------------- Cash flow per share(2) 0.83 0.79 ---------------------------------------------------------------------------- Net income (loss) ($ million) 291 (326) ---------------------------------------------------------------------------- Net income (loss) per share 0.28 (0.32) ---------------------------------------------------------------------------- Earnings from operations(2) ($ million) 167 157 ---------------------------------------------------------------------------- Earnings from operations per share(2) 0.16 0.15 ---------------------------------------------------------------------------- Average shares outstanding - basic (million) 1,023 1,022 ----------------------------------------------------------------------------

Cash flow was $851 million compared to $811 million in the same period last year, due mainly to higher volumes, oil prices and Southeast Asian natural gas prices, offset by lower North American gas prices, higher royalties and higher operating costs.

Net income was up, reflecting the increase in cash flow plus gains on asset sales, lower dry hole expense and lower exploration expense, a smaller loss on derivatives, a share-based payments recovery and lower taxes, offset by a partial writedown of the Yme project and higher DD&A.

Earnings from operations, which reflect the underlying operations of the company, increased by 6% over the same period last year. Capital expenditure, including exploration expensed(2) in the quarter, was $1.1 billion. Net debt(2) at the end of the first quarter was $4 billion, down from $4.5 billion at the end of 2011.

(2) The terms "cash flow," "cash flow per share," "earnings from operations," "earnings from operations per share," "capital expenditure, including exploration expensed" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.

  Netbacks ---------------------------------------------------------------------------- March 31 Three Months Ended ---------------------------------------------------------------------------- 2012 2011 ---------------------------------------------------------------------------- Total company netback ($/boe) $36.79 $40.58 ---------------------------------------------------------------------------- Oil and liquids netback ($/bbl) $68.02 $64.66 ---------------------------------------------------------------------------- Natural gas netback ($/mcf) $2.61 $3.58 ----------------------------------------------------------------------------

Talisman's realized sales price of $65.14/boe was relatively unchanged compared to the same period in 2011, since higher global oil and liquids and Southeast Asian natural gas prices were offset by lower gas prices in North America.

The company's average netback was $36.79/boe, 9% lower than 2011 due to higher royalties and unit operating expenses. Natural gas netbacks in Southeast Asia increased 12% to $5.83/mcf.

WTI oil prices averaged $102.93, up 9% from the first quarter of last year. NYMEX natural gas prices averaged $2.77, a 33% decrease from a year ago due to continued natural gas oversupply in North America.

  Production ---------------------------------------------------------------------------- March 31 Three Months Ended ---------------------------------------------------------------------------- 2012 2011 ---------------------------------------------------------------------------- Oil and liquids (mbbls/d) ---------------------------------------------------------------------------- North America 28 21 ------------------------------ North Sea 89 123 ------------------------------ Southeast Asia 45 33 ------------------------------ Other 25 20 ---------------------------------------------------------------------------- Total oil and liquids (mbbls/d) 187 197 ---------------------------------------------------------------------------- Natural gas (mmcf/d) ---------------------------------------------------------------------------- North America 1,024 885 ------------------------------ North Sea 43 82 ------------------------------ Southeast Asia 548 493 ------------------------------ Other 37 24 ---------------------------------------------------------------------------- Total natural gas (mmcf/d) 1,652 1,484 ---------------------------------------------------------------------------- Total (mboe/d) 462 444 ---------------------------------------------------------------------------- Assets held for sale - North America (mboe/d) 7 8 ---------------------------------------------------------------------------- Production from ongoing operations (mboe/d) 455 436 ----------------------------------------------------------------------------

Total production and production from ongoing operations increased by 4% over the previous year, due principally to increased oil and gas volumes in Colombia and Southeast Asia and shale volumes in North America, partially offset by lower North Sea production.

  North America Production ---------------------------------------------------------------------------- March 31 Three Months Ended ---------------------------------------------------------------------------- 2012 2011 ---------------------------------------------------------------------------- Shale (mmcfe/d) ---------------------------------------------------------------------------- Marcellus 529 351 ---------------------------------------------------------------------------- Montney/other 70 76 ---------------------------------------------------------------------------- Eagle Ford 76 23 ---------------------------------------------------------------------------- Total shale (mmcfe/d) 675 450 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Conventional total (mboe/d) 79 86 ---------------------------------------------------------------------------- Assets held for sale (mboe/d) 7 8 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total NAO production (mboe/d) 198 169 ----------------------------------------------------------------------------

We are well positioned in some of the top-tier shale plays in North America. We are shifting our focus to the liquids-rich parts of our portfolio and expect to grow our liquids production from approximately 25,000 bbls/d in 2012 to over 60,000 bbls/d by 2015.

In North America, production averaged 198,000 boe/d for the first quarter, up 17% from a year ago. Liquids volumes averaged 28,000 boe/d, an increase of 33%.

Talisman sold non-core, non-producing coal properties in Northeast British Columbia for $500 million in cash, and has secured buyers for two non-core conventional oil and gas properties, with additional proceeds of approximately $500 million. These deals are expected to close in the second quarter.

We continue to ramp up our development program in the liquids-rich Eagle Ford, with 12 rigs active at quarter end. During the quarter, Talisman signed a number of deals with midstream companies to secure significant, long-term egress.

In the liquids-rich Duvernay, we drilled the second well of a six-well pilot program.

In the Pennsylvania Marcellus, gas production was 529 mmcf/d, up 51% over the prior year with 36 wells coming onstream this quarter. We have reduced the number of rigs from 10 at the end of December to one in April, reflecting the company's shift away from dry gas to higher-value liquids projects. In February, Pennsylvania introduced a retroactive impact fee. This increased our operating costs in the quarter by $21 million, $18 million of which reflected a non-recurring, one-time impact for wells that were drilled pre-2012.

In the Montney, we have reduced the number of rigs from 11 at the end of 2011 to four currently, with plans to further reduce this to three.

  Southeast Asia Production ---------------------------------------------------------------------------- March 31 Three Months Ended ---------------------------------------------------------------------------- 2012 2011 ---------------------------------------------------------------------------- Malaysia liquids (mbbls/d) 18 17 ---------------------------------------------------------------------------- Malaysia gas (mmcf/d) 128 113 ---------------------------------------------------------------------------- Malaysia total (mboe/d) 39 36 ---------------------------------------------------------------------------- Indonesia liquids (mbbls/d) 12 11 ---------------------------------------------------------------------------- Indonesia gas (mmcf/d) 421 379 ---------------------------------------------------------------------------- Indonesia total (mboe/d) 82 74 ---------------------------------------------------------------------------- Vietnam (mboe/d) 2 2 ---------------------------------------------------------------------------- Australia (mboe/d) 13 3 ---------------------------------------------------------------------------- Total (mboe/d) 136 115 ----------------------------------------------------------------------------

Southeast Asia is a cash-positive growth area, where the majority of our gas sales contracts are linked to oil price benchmarks. It is expected to grow at an average of approximately 8% per year through the medium term. The region is one of the fastest growing natural gas markets in the world.

Liquids production averaged 45,000 bbls/d in the quarter, an increase of 36% over last year. Natural gas sales averaged 548 mmcf/d, a new record, with prices averaging $9.85/mcf.

In Malaysia, the company achieved record gas sales of 128 mmcf/d, 13% higher than the same period last year, reflecting continued optimization initiatives at PM-3 CAA and strong regional gas demand. Talisman plans to drill up to six development wells on the block this year.

In Indonesia, production was higher than the same period last year principally due to Jambi Merang volumes and improved operational efficiency at the Tangguh LNG plant. Facility optimizations were completed at the Suban gas plant in the Corridor PSC, increasing gross throughput by approximately 45 mmcf/d. Overall, the Corridor PSC is now producing at record levels of over 1 bcf/d gross sales gas.

In Vietnam, production averaged 2,000 bbls/d. The Hai Su Trang and Hai Su Den (HST/HSD) development, which was sanctioned in December 2011, is progressing on schedule and on budget, with first production planned for the second half of 2013.

Production from Australia/Timor-Leste JPDA averaged 13,000 bbls/d, an increase of 30% over the previous period, due primarily to current production from Kitan, which continues to exceed our expectations.

  North Sea Production (mboe/d) ---------------------------------------------------------------------------- March 31 Three Months Ended ---------------------------------------------------------------------------- 2012 2011 ---------------------------------------------------------------------------- UK 63 92 ---------------------------------------------------------------------------- Norway 33 44 ---------------------------------------------------------------------------- Total (mboe/d) 96 136 ----------------------------------------------------------------------------

The North Sea is an important cash generator for the company. We continue to maximize value from these assets by improving operational efficiency. At the same time, we will seek to reduce our exposure in this region.

In the UK, production recommenced at the Tartan platform at the end of March. Claymore has also been up and running since the fourth quarter of 2011. A new well was brought onstream at Auk North, and the Fulmar coil tubing campaign was successfully completed.

Production decreased 4% compared to the fourth quarter of 2011 and was down 29% year over year as a result of a pump failure at Auk North, technical issues with compressors at Claymore and the Ross/Blake facility, and the shutdown at Tartan. In addition, we are seeing both natural declines and water breakthrough at Rev and Tweedsmuir. We continue to work to improve facilities reliability and take remedial actions to offset some of the water breakthrough issues. Planned maintenance activities will result in lower volumes in the second and third quarters.

In Norway, Talisman remains committed to the safe development of the Yme field but we are concerned with the continued delays in the delivery of the facility. Recent technical studies indicate that a substantial amount of work is still required to complete the facility. We are removing the field from our forward production projections pending the development of a work plan to complete the facility to Norwegian specifications.

As such Talisman has taken the prudent step of writing down a portion of the carrying value of the project. Talisman continues to work closely with the Yme partners and the contractor to fully understand the remaining scope of work. At the same time, we are considering all options to complete the Yme development.

Yme is a turnkey, lump sum lease arrangement, which means that the platform belongs to the contractor and is their project to deliver. Upon delivery, Talisman will lease the facility and begin production.

International Exploration

We have created an exploration portfolio focused on material prospects including near-term oil growth and large Asian gas opportunities. We are looking to expand our portfolio in areas that have significant resource potential and low finding costs. We will continue to high grade our assets by seeking new organic options and rationalizing others at an earlier stage in the cycle.

During the quarter, Talisman confirmed the presence of light oil at Kurdamir-2 in the Kurdistan Region of northern Iraq. An open hole drillstem test flowed at unstimulated rates of 7.3 mmcf/d of natural gas and 950 bbls/d of oil and condensate, with no indications of water and no observed decline. A total of 140 metres of gross reservoir (88 metres net) was identified through wireline logging. The well is drilling ahead toward underlying Eocene and Cretaceous targets, with additional testing of the Oligocene planned after the well has finished drilling.

In Papua New Guinea, the company farmed out interests in nine licences in the Western Province to Mitsubishi Corporation (MC), at a value of approximately $280 million. Following government approval of MC's entry, Talisman's and MC's respective equity positions will average approximately 40% and 20%. The natural gas aggregation project continues in the Western Province, with successful results from the Elevala-2 and Ketu-2 wells. Offshore Vietnam, Talisman has just spud its first exploration well in the Nam Con Son basin.

In Colombia, an additional stratigraphic well, Akacias Es-1, has been drilled on Block CP0-9, and preliminary results are very encouraging. In the Niscota block, the Huron-2 appraisal well is expected to finish drilling mid-year.

In the first quarter, production from Colombia averaged 17,000 boe/d with excellent performance from new wells and facilities debottlenecking.

In Peru, the Situche Norte-4X well reached its target depth. It failed to encounter a commercially viable reservoir and has been plugged and abandoned.

Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York Stock Exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.

Forward-Looking Information

This news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding: business strategy, priorities and plans; expected capital spending and allocation; potential reductions of exposure in the North Sea and the high grading of the exploration portfolio; expected production; expected delays, remaining work, effects on timing and consideration of options at Yme; potential further testing of the Kurdamir-2 well; expected increase in liquids productions; expected timing of the closing of the two non-core conventional oil and gas property sales; expected rigs in the Montney; planned drilling in Malaysia; expected first production at HST/HSD; planned maintenance and corresponding declines in production in the North Sea; expected completion of the drilling of the Huron-2 appraisal well; and other business strategy, plans and priorities.

The factors or assumptions on which the forward-looking information is based include: assumptions inherent in current guidance; projected capital investment levels; the flexibility of capital spending plans and the associated sources of funding; the successful and timely implementation of capital projects; the continuation of tax, royalty and regulatory regimes; ability to obtain regulatory and partner approval; commodity price and cost assumptions; and other risks and uncertainties described in the filings made by the company with securities regulatory authorities. The company believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct. Forward-looking information for periods past 2012 assumes escalating commodity prices.

Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this news release. The material risk factors include, but are not limited to: the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages; risks and uncertainties involving geology of oil and gas deposits; uncertainty related to securing sufficient egress and markets to meet shale gas production; the uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk; the uncertainty of estimates and projections relating to production, costs and expenses; the impact of the economy on the ability of the counterparties to the company's commodity price derivative contracts to meet their obligations under the contracts; 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; the outcome and effects of any future acquisitions and dispositions; health, safety and environmental risks; uncertainties as to the availability and cost of financing and changes in capital markets; risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action); changes in general economic and business conditions; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; and results of the company's risk mitigation strategies, including insurance and any hedging activities.

The foregoing list of risk factors 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 most recent Annual Information Form. In addition, information is available in the company's other reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission (SEC). Forward-looking information is based on the estimates and opinions of the company's management at the time the information is presented. The company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law.

Unless the context indicates otherwise, references in this news release to "Talisman" or the "company" include, for reporting purposes only, the direct or indirect subsidiaries of Talisman Energy Inc. and the partnership interests held by Talisman Energy Inc. and its subsidiaries. Such use of "Talisman" or the "company" to refer to these other legal entities and partnership interests does not constitute waiver by Talisman Energy Inc. or such entities or partnerships of their separate legal status, for any purpose.

The completion of any contemplated disposition or acquisition is contingent on various factors, including favourable market conditions, the ability of the company to negotiate acceptable terms of sale and receipt of any required approvals for such disposition.

Oil and Gas Information

Throughout this news release, Talisman makes reference to production volumes. Unless otherwise stated, 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 US, net production volumes are reported after the deduction of these amounts.

Barrel of oil equivalent (boe) throughout this news release is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil (bbl). This news release also includes reference to mcf equivalents (mcfes) which are calculated at a conversion rate of one barrel of oil to 6,000 cubic feet of gas. Boes and mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl and an mcfe conversion ratio of 1 bbl: 6 mcf are based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Talisman also discloses its company netbacks in this news release. Netbacks per boe are calculated by deducting from sales price associated royalties, operating and transportation costs.

Non-GAAP Financial Measures

Included in this news release are references to financial measures commonly used in the oil and gas industry such as cash flow, earnings from operations, capital expenditure including exploration expensed and net debt. These terms are not defined by International Financial Reporting Standards (IFRS). Consequently, these are referred to as non-GAAP measures. Talisman's reported results of such measures may not be comparable to similarly titled measures reported by other companies.

  Cash Flow US$million, except per share amounts Three Months Ended ---------------------------------------------------------------------------- March 31, 2012 March 31, 2011 ---------------------------------------------------------------------------- Cash provided by operating activities 980 883 Changes in non-cash working capital (154) (127) Add: Exploration expenditure 56 112 Add: Pennsylvania impact fee(1) 18 - Less: Finance costs (cash) (49) (57) ---------------------------------------------------------------------------- Cash flow 851 811 ---------------------------------------------------------------------------- Cash flow per share 0.83 0.79 ---------------------------------------------------------------------------- Diluted cash flow per share 0.83 0.79 ---------------------------------------------------------------------------- 1. Pennsylvania impact fee amount represents the one-time impact of the retrospective application of the legislation to wells drilled pre-2012.

Cash flow, as commonly used in the oil and gas industry, represents net income before exploration costs, DD&A, deferred taxes and other non-cash expenses. Cash flow is used by the company to assess operating results between years and between peer companies using 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 IFRS 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. Diluted cash flow per share is cash flow divided by the diluted number of common shares outstanding during the period, as reported in the interim condensed consolidated financial statements filed on May 1, 2012. A reconciliation of cash provided by operating activities to cash flow is provided above.

  Earnings from Operations US$million, except per share amounts Three Months Ended ---------------------------------------------------------------------------- March 31, 2012 March 31, 2011 ---------------------------------------------------------------------------- Net income (loss) 291 (326) ---------------------------------------------------------------------------- Gain on disposal (tax adjusted) (377) (68) Unrealized loss on financial instruments (tax adjusted)(1) 37 263 Share-based payments (tax adjusted)(2) (46) 108 Foreign exchange on debt (tax adjusted) 15 8 Impairment (tax adjusted) 302 39 Pennsylvania impact fee (tax adjusted)(3) 11 - Deferred tax adjustments(4) (66) 133 ---------------------------------------------------------------------------- Earnings from operations 167 157 ---------------------------------------------------------------------------- Earnings from operations per share 0.16 0.15 ---------------------------------------------------------------------------- Diluted earnings from operations per share 0.16 0.15 ---------------------------------------------------------------------------- 1. Unrealized loss on financial instruments relates to the change in the period of the mark-to-market value of the company's held-for-trading financial instruments. 2. Share-based payments relate principally to the mark-to-market value of the company's outstanding stock options and cash units at March 31. The company uses the Black-Scholes option pricing model to estimate the fair value of its share-based payment plans. 3. Pennsylvania impact fee amount represents the one-time impact of the retrospective application of the legislation to wells drilled pre-2012. 4. Deferred tax adjustments largely comprise tax on foreign exchange on tax pools. The three-month period ended March 31, 2011 also includes a deferred tax expense of $225 million in respect of a UK tax rate change occurring in that period.

Earnings from operations are calculated by adjusting the company's net income (loss) per the financial statements for certain items of a non-operational nature, on an after tax basis. The company uses this information to evaluate performance of core operational activities on a comparable basis between periods. Earnings from operations per share are earnings from operations divided by the average number of common shares outstanding during the period. Diluted earnings from operations per share are earnings from operations divided by the diluted number of common shares outstanding during the period, as reported in the interim condensed consolidated financial statements filed on May 1, 2012. A reconciliation of net income (loss) to earnings from operations is provided above.

  Capital Expenditure Including Exploration Expensed US$million Three Months Ended ---------------------------------------------------------------------------- March 31, 2012 March 31, 2011 ---------------------------------------------------------------------------- Exploration, development and other 1,011 910 Exploration expensed 56 112 ---------------------------------------------------------------------------- Capital expenditure including exploration expensed 1,067 1,022 ---------------------------------------------------------------------------- Capital expenditure including exploration expensed is calculated by adjusting the capital expenditure per the financial statements for exploration costs that were expensed as incurred. Net Debt US$million Three Months Ended ---------------------------------------------------------------------------- March 31, 2012 March 31, 2011 ---------------------------------------------------------------------------- Long-term debt 4,741 4,895 Bank indebtedness - 60 Cash and cash equivalents (732) (474) ---------------------------------------------------------------------------- Net debt 4,009 4,481 ---------------------------------------------------------------------------- Net debt is calculated by adjusting the company's long-term debt per the financial statements for bank indebtedness, cash and cash equivalents. The company uses this information to assess its true debt position and eliminate the impact of timing differences. Talisman Energy Inc. Highlights (unaudited) Three months ended March 31 2012 2011 ---------------------------------------------------------------------------- Financial (millions of US$ unless otherwise stated) Cash flow (1) 851 811 Net income (loss) 291 (326) Capital expenditure including exploration expensed (1) 1,067 1,022 Per common share (US$) Cash flow (1) 0.83 0.79 Net income (loss) 0.28 (0.32) ---------------------------------------------------------------------------- Production (Daily Average - Gross) Oil and liquids (bbls/d) North America 27,940 21,083 North Sea 88,753 122,358 Southeast Asia 44,848 32,858 Other 25,379 20,157 ---------------------------------------------------------------------------- Total oil and liquids 186,920 196,456 ---------------------------------------------------------------------------- Natural gas (mmcf/d) North America 1,024 885 North Sea 43 82 Southeast Asia 548 493 Other 37 24 ---------------------------------------------------------------------------- Total natural gas 1,652 1,484 ---------------------------------------------------------------------------- Total mboe/d (2) 462 444 ---------------------------------------------------------------------------- Prices Oil and liquids (US$/bbl) North America 77.20 68.78 North Sea 120.53 104.91 Southeast Asia 122.99 117.27 Other 124.93 114.37 ---------------------------------------------------------------------------- Total oil and liquids 115.24 104.07 ---------------------------------------------------------------------------- Natural gas (US$/mcf) North America 2.49 4.06 North Sea 9.91 8.56 Southeast Asia 9.85 8.74 Other 5.21 5.64 ---------------------------------------------------------------------------- Total natural gas 5.19 5.89 ---------------------------------------------------------------------------- Total (US$/boe) (2) 65.14 65.75 ---------------------------------------------------------------------------- 1. Cash flow, capital expenditure including exploration expensed and cash flow per share are non-GAAP measures. 2. 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. Talisman Energy Inc. Condensed Consolidated Balance Sheets (unaudited) March 31, December 31, (millions of US$) 2012 2011 ---------------------------------------------------------------------------- Assets Current Cash and cash equivalents 732 474 Accounts receivable 1,569 1,550 Risk management 13 42 Inventories 173 164 Prepaid expenses 20 24 Assets held for sale 252 - ---------------------------------------------------------------------------- 2,759 2,254 ---------------------------------------------------------------------------- Other assets 112 101 Investments 393 395 Risk management 27 24 Goodwill 1,308 1,317 Property, plant and equipment 15,013 15,909 Exploration and evaluation assets 3,852 3,954 Deferred tax assets 864 272 ---------------------------------------------------------------------------- 21,569 21,972 ---------------------------------------------------------------------------- Total assets 24,328 24,226 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Liabilities Current Bank indebtedness - 60 Accounts payable and accrued liabilities 2,831 2,622 Risk management 20 - Income and other taxes payable 381 371 Current portion of long-term debt 892 410 Liabilities associated with assets held for sale 116 - ---------------------------------------------------------------------------- 4,240 3,463 ---------------------------------------------------------------------------- Decommissioning liabilities 2,917 2,982 Other long-term obligations 341 346 Long-term debt 3,849 4,485 Deferred tax liabilities 2,683 2,932 ---------------------------------------------------------------------------- 9,790 10,745 ---------------------------------------------------------------------------- Shareholders' equity Common shares 1,650 1,561 Preferred shares 191 191 Contributed surplus 87 186 Retained earnings 7,582 7,292 Accumulated other comprehensive income 788 788 ---------------------------------------------------------------------------- 10,298 10,018 ---------------------------------------------------------------------------- Total liabilities and shareholders' equity 24,328 24,226 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Talisman Energy Inc. Condensed Consolidated Statements of Income (Loss) (unaudited) Three months ended March 31 (millions of US$) 2012 2011 ---------------------------------------------------------------------------- Revenue Sales 2,089 1,972 Other income 26 28 ---------------------------------------------------------------------------- Total revenue and other income 2,115 2,000 ---------------------------------------------------------------------------- Expenses Operating 577 452 Transportation 59 56 General and administrative 121 98 Depreciation, depletion and amortization 603 469 Impairment 1,053 102 Dry hole 60 104 Exploration 56 112 Finance costs 71 76 Share-based payments expense (recovery) (41) 116 Loss on held-for-trading financial instruments 47 319 Gain on asset disposals (505) (92) Other, net 77 58 ---------------------------------------------------------------------------- Total expenses 2,178 1,870 ---------------------------------------------------------------------------- Income (loss) before taxes (63) 130 ---------------------------------------------------------------------------- Income taxes Current income tax 433 443 Deferred income tax (recovery) (787) 13 ---------------------------------------------------------------------------- (354) 456 ---------------------------------------------------------------------------- Net income (loss) 291 (326) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Per common share (US$): Net income (loss) 0.28 (0.32) Diluted net income (loss) 0.25 (0.32) ---------------------------------------------------------------------------- Weighted average number of common shares outstanding (millions) Basic 1,023 1,022 Diluted 1,028 1,022 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Talisman Energy Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Three months ended March 31 (millions of US$) 2012 2011 ---------------------------------------------------------------------------- Operating activities Net income (loss) 291 (326) Add: Finance costs (cash and non-cash) 71 76 Items not involving cash 464 1,006 ---------------------------------------------------------------------------- 826 756 Changes in non-cash working capital 154 127 ---------------------------------------------------------------------------- Cash provided by operating activities 980 883 ---------------------------------------------------------------------------- Investing activities Capital expenditures Exploration, development and other (1,011) (910) Corporate acquisitions, net of cash acquired - (175) Property acquisitions (2) (31) Proceeds of resource property dispositions 502 249 Acquisition deposit - 18 Investments (3) 54 Changes in non-cash working capital 70 (140) ---------------------------------------------------------------------------- Cash used in investing activities (444) (935) ---------------------------------------------------------------------------- Financing activities Long-term debt repaid (429) (308) Long-term debt issued 258 - Common shares issued 2 79 Common shares purchased (4) (18) Finance costs (cash) (49) (57) Deferred credits and other (7) (3) Preferred share dividend (3) - Changes in non-cash working capital 7 (1) ---------------------------------------------------------------------------- Cash used in financing activities (225) (308) ---------------------------------------------------------------------------- Effect of translation on foreign currency cash and cash equivalents 7 26 ---------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 318 (334) Cash and cash equivalents net of bank indebtedness, beginning of period 414 1,653 ---------------------------------------------------------------------------- Cash and cash equivalents net of bank indebtedness, end of period 732 1,319 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash and cash equivalents 732 1,327 Bank indebtedness - (8) ---------------------------------------------------------------------------- Cash and cash equivalents net of bank indebtedness, end of period 732 1,319 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Talisman Energy Inc. Segmented Information (unaudited) Southeast North America(1) North Sea(2) Asia(3) -------------------------------------------------- Three months Three months Three months ended ended ended March 31 March 31 March 31 -------------------------------------------------- (millions of US$) 2012 2011 2012 2011 2012 2011 ---------------------------------------------------------------------------- Revenue Sales 363 404 945 1,088 614 386 Other income 21 23 3 5 - - ---------------------------------------------------------------------------- Total revenue and other income 384 427 948 1,093 614 386 ---------------------------------------------------------------------------- Segmented expenses Operating 149 111 312 260 98 72 Transportation 23 16 20 23 14 15 DD&A 273 201 174 186 118 62 Impairment 75 - 978 102 - - Dry hole 11 2 (1) 75 3 24 Exploration 1 29 14 11 18 52 Other 29 7 10 9 1 3 ---------------------------------------------------------------------------- Total segmented expenses 561 366 1,507 666 252 228 ---------------------------------------------------------------------------- Segmented income (loss) before taxes (177) 61 (559) 427 362 158 ---------------------------------------------------------------------------- Non-segmented expenses General and administrative Finance costs Share-based payments (recovery) Currency translation Loss on held-for-trading financial instruments Gain on asset disposals ---------------------------------------------------------------------------- Total non-segmented expenses ---------------------------------------------------------------------------- Income (loss) before taxes ---------------------------------------------------------------------------- Capital expenditure Exploration 33 83 - 51 13 49 Development 561 351 229 245 70 71 ---------------------------------------------------------------------------- Exploration and development 594 434 229 296 83 120 ---------------------------------------------------------------------------- Acquisitions Proceeds on dispositions Other non-segmented ---------------------------------------------------------------------------- Net capital expenditures ---------------------------------------------------------------------------- Property, plant and equipment 6,884 6,740 4,821 5,809 2,466 2,501 Exploration and evaluation assets 2,265 2,370 537 538 497 498 Goodwill 131 140 866 866 149 149 Other 1,127 987 1,379 645 568 560 Assets held for sale 237 - 15 - - - ---------------------------------------------------------------------------- Segmented assets 10,644 10,237 7,618 7,858 3,680 3,708 Non-segmented assets ---------------------------------------------------------------------------- Total assets(5) ---------------------------------------------------------------------------- Decommissioning liabilities(5) 333 394 2,379 2,390 210 208 ---------------------------------------------------------------------------- Other(4) Total -------------------------------------------------- Three months Three months ended ended March 31 March 31 -------------------------------------------------- (millions of US$) 2012 2011 2012 2011 ---------------------------------------------------------------------------- Revenue Sales 167 94 2,089 1,972 Other income 2 - 26 28 ---------------------------------------------------------------------------- Total revenue and other income 169 94 2,115 2,000 ---------------------------------------------------------------------------- Segmented expenses Operating 18 9 577 452 Transportation 2 2 59 56 DD&A 38 20 603 469 Impairment - - 1,053 102 Dry hole 47 3 60 104 Exploration 23 20 56 112 Other 6 - 46 19 ---------------------------------------------------------------------------- Total segmented expenses 134 54 2,454 1,314 ---------------------------------------------------------------------------- Segmented income (loss) before taxes 35 40 (339) 686 ---------------------------------------------------------------------------- Non-segmented expenses General and administrative 121 98 Finance costs 71 76 Share-based payments (recovery) (41) 116 Currency translation 31 39 Loss on held-for-trading financial instruments 47 319 Gain on asset disposals (505) (92) ---------------------------------------------------------------------------- Total non-segmented expenses (276) 556 ---------------------------------------------------------------------------- Income (loss) before taxes (63) 130 ---------------------------------------------------------------------------- Capital expenditure Exploration 56 16 102 199 Development 15 28 875 695 ---------------------------------------------------------------------------- Exploration and development 71 44 977 894 ---------------------------------------------------------------------------- Acquisitions 2 793 Proceeds on dispositions (502) (249) Other non-segmented 31 16 ---------------------------------------------------------------------------- Net capital expenditures 508 1,454 ---------------------------------------------------------------------------- Property, plant and equipment 842 859 15,013 15,909 Exploration and evaluation assets 553 548 3,852 3,954 Goodwill 162 162 1,308 1,317 Other 789 788 3,863 2,980 Assets held for sale - - 252 - ---------------------------------------------------------------------------- Segmented assets 2,346 2,357 24,288 24,160 Non-segmented assets 40 66 ---------------------------------------------------------------------------- Total assets(5) 24,328 24,226 ---------------------------------------------------------------------------- Decommissioning liabilities(5) 44 43 2,966 3,035 ---------------------------------------------------------------------------- 1. North America 2012 2011 ---------------------------------------------------------------------------- Canada 229 290 US 155 137 ---------------------------------------------------------------------------- Total revenue and other income 384 427 ---------------------------------------------------------------------------- Canada 3,748 3,937 US 3,136 2,803 ---------------------------------------------------------------------------- Property, plant and equipment 6,884 6,740 ---------------------------------------------------------------------------- Canada 1,170 1,207 US 1,095 1,163 ---------------------------------------------------------------------------- Exploration and evaluation assets 2,265 2,370 ---------------------------------------------------------------------------- 2. North Sea 2012 2011 ---------------------------------------------------------------------------- UK 663 736 Norway 285 357 ---------------------------------------------------------------------------- Total revenue and other income 948 1,093 ---------------------------------------------------------------------------- UK 3,896 3,927 Norway 925 1,882 ---------------------------------------------------------------------------- Property, plant and equipment 4,821 5,809 ---------------------------------------------------------------------------- UK 209 210 Norway 328 328 ---------------------------------------------------------------------------- Exploration and evaluation assets 537 538 ---------------------------------------------------------------------------- 3. Southeast Asia 2012 2011 ---------------------------------------------------------------------------- Indonesia 288 224 Malaysia 170 123 Vietnam 41 37 Australia 115 2 ---------------------------------------------------------------------------- Total revenue and other income 614 386 ---------------------------------------------------------------------------- Indonesia 1,028 1,023 Malaysia 864 883 Vietnam 313 297 Papua New Guinea 46 47 Australia 215 251 ---------------------------------------------------------------------------- Property, plant and equipment 2,466 2,501 ---------------------------------------------------------------------------- Indonesia 12 12 Malaysia 33 41 Vietnam 15 5 Papua New Guinea 437 440 ---------------------------------------------------------------------------- Exploration and evaluation assets 497 498 ---------------------------------------------------------------------------- 4. Other 2012 2011 ---------------------------------------------------------------------------- Algeria 54 44 Colombia 115 50 ---------------------------------------------------------------------------- Total revenue and other income 169 94 ---------------------------------------------------------------------------- Algeria 274 284 Colombia 568 575 ---------------------------------------------------------------------------- Property, plant and equipment 842 859 ---------------------------------------------------------------------------- Colombia 92 75 Kurdistan 306 303 Peru 108 133 Other 47 37 ---------------------------------------------------------------------------- Exploration and evaluation assets 553 548 ---------------------------------------------------------------------------- 5. Current year represents balances at March 31. Prior year represents balances at December 31.