Talisman Energy 2011

CALGARY, ALBERTA--(Marketwire - Feb. 15, 2012) - Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) reported its operating and (unaudited) financial results for 2011. All values in this release are in US$ unless otherwise stated.

• Cash flow(1) was $3.4 billion, up 16% year over year. Fourth quarter cash flow was up 25% over the same period last year, due to higher oil prices.
• Net income was $776 million, down 18% due to higher DD&A, lower gains on asset sales, and higher operating expenses and taxes.
• Earnings from operations¹ increased 9% year over year, to $604 million.
• Production averaged 426,000 boe/d, an increase in underlying production of 9% over the previous year.
• Proved reserves replacement was 157%, at a cost of less than $20/boe. The company's three-year replacement cost trend continues to improve.
• Shale volumes in North America more than doubled year over year, to 500 mmcfe/d.
• The company commenced drilling in the Duvernay shale play.
• The non-operated Kitan project was commissioned and started producing oil in October.
• The company drilled a successful well in PNG at year-end as part of its gas aggregation strategy and continues its active drilling program in Colombia.

(1) The terms "cash flow" and "earnings from operations" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.

"2011 saw its share of successes as well as challenges for the company," said John A. Manzoni, President and Chief Executive Officer. "North American natural gas prices fell by a third, ending the year below $3, and we saw a significant tax increase in the UK. In addition, our own delivery, particularly in the North Sea, fell short of expectations.

"There were also a large number of positives during the year. Oil prices remained high and helped drive annual cash flow up by 16%. The company grew underlying production by 9% with record shale volumes, two new projects in Southeast Asia and production from Colombia. We have built out our Eagle Ford organization to full capacity from a standing start and started piloting the liquids-rich Duvernay shale, which we will test through this year.

"We have an active exploration and appraisal drilling program in Colombia, which continues to demonstrate success. We drilled two encouraging development wells in Piedemonte and continue to appraise Block 6 and the Akacias discovery in Block 9. In Southeast Asia, gas prices averaged $9.30/mcf in 2011, and the business is expected to grow at an average rate of approximately 8% per year over the next few years.

"Talisman drilled a successful gas condensate well at year-end in Papua New Guinea (PNG), providing ongoing confidence in our gas aggregation strategy. We are also making excellent progress towards bringing in a strategic partner. In the Kurdistan Region of northern Iraq, we have confirmed a substantial natural gas and condensate discovery with our recent Topkhana well.

"We have reduced replacement costs by 50% over the last three years, improving our long-term profitability. In 2011, our reserves replacement cost was less than $20/boe, with costs in North America less than $10/boe. We replaced 157% of production with proved reserves last year.

"In setting our plans for 2012, our expectation is that North American gas prices will remain low, but that oil will be underpinned at $85/bbl or more. Our priorities are profitability versus headline growth, while preserving our balance sheet. We will reduce exploration and development spending from approximately $4.5 billion to around $4 billion, with 80% of this investment directed towards liquids-rich opportunities. Areas of increased investment this year will include the liquids-rich Eagle Ford and Duvernay shale plays, as well as Colombia.

"We will continue to focus our portfolio and seek to divest some non-core assets in our North American business, reduce our exposure in the North Sea, and take decisions on exiting some exploration areas as we drill them over the course of the next 12 months. Talisman's balanced portfolio provides options to redirect capital, and to adjust focus as external conditions change.

"As a result of the reduction in spending and the shift to liquids, we expect underlying production growth of 0 - 5% this year. However, we are setting Talisman up for an increase in liquids production in 2013 and beyond. For example, we expect to grow liquids production in North America from approximately 25,000 bbls/d in 2012 to over 60,000 bbls/d by 2015. And we remain confident in our projection of 5 - 10% average annual production growth through the medium term."

Financial Results

The financial information contained in this release is unaudited. The company expects to file its audited Consolidated Financial Statements for the year ended December 31, 2011, along with the related Management's Discussion and Analysis, Annual Information Form and Annual Report on Form 40-F, by March 5, 2012.

The company announced its capital spending plans for 2012 on January 10, 2012. For additional information, please visit Talisman's website at www.talisman-energy.com.

Financial Results

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

Cash flow was $3.4 billion for the year, up from $3.0 billion in 2010, with higher oil prices offsetting higher royalties, operating expenses and cash taxes. Cash flow for the quarter was $824 million versus $659 million a year ago.

Net income was $776 million versus $945 million in 2010, reflecting higher DD&A with new projects in Southeast Asia and the acquisition of producing assets in Colombia; lower gains on asset sales in 2011; higher operating expenses and taxes; and lower mark-to-market gains on derivatives. The company recorded a net loss of $117 million in the fourth quarter, compared to a net loss of $350 million in 2010.

Earnings from operations, which exclude non-operational items, were $604 million in 2011, compared to $552 million in 2010.

Exploration and development spending(2) for the year totaled $4.6 billion. North America accounted for 49% of spending, the North Sea 27%, and Southeast Asia 15%. Year-end net debt(2) was $4.5 billion.

Production

Production averaged 426,000 boe/d, an increase of 9% from ongoing operations over the previous year, due principally to increased volumes in North America and Colombia. The increase was partially offset by lower North Sea production.

Netbacks

During 2011, the company's average gross netback was $37.25/boe, 19% higher than in 2010 due primarily to higher global oil and liquids prices.

WTI oil prices averaged $95.13/bbl for the year, up 20% from 2010. NYMEX natural gas averaged $4.07/mmbtu, compared to $4.39/mmbtu a year ago.

(3) The reserves data and other oil and gas information included herein is determined in accordance with SEC standards. Reserves are Talisman share working interest plus royalty interest before royalties payable. Please see advisories elsewhere in this news release.

The company increased gross proved reserves by 8% in 2011. Talisman added 243 million boe of proved reserves (excluding price revisions) compared to production of 155 million boe, replacing 157% of 2011 production. North America accounted for the largest increase in reserves as a result of successful drilling programs in the Marcellus, Montney and Eagle Ford shale plays. Price-related revisions increased proved reserves by 8 million boe, principally related to the company's North Sea operations.

At year-end, North America, Southeast Asia and the North Sea accounted for 48%, 26% and 21% respectively of the company's gross proved reserves. Proved undeveloped reserves accounted for 37% of the company total.

North America

Production

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

North American exploration and development spending for the year was $2.2 billion, the majority of which was spent in the Marcellus and Eagle Ford shale plays.

Production from ongoing operations increased by 37%, with natural gas production increasing by 41% due principally to successful development in the Marcellus and Eagle Ford. Shale production doubled year over year, averaging 500 mmcfe/d.

In the Marcellus we ended the year with 10 operated rigs. Production is expected to remain relatively flat going forward as we reduce activity in light of low natural gas prices. The company may reduce to as few as three rigs over the course of the year.

In the liquids-rich Eagle Ford we ended the year with 10 operated rigs. In 2012, we expect this to increase to 14 rigs. Production is expected to at least double from approximately 30 mmcfe/d as we build out our drilling programs and secure access to additional egress.

In the Montney, we plan to reduce our program to four rigs, from 11 in the fourth quarter of last year, primarily due to low gas prices. We will continue our program to optimize recovery in the thick Montney shale.

In the second quarter of the year, Talisman acquired a significant amount of acreage in the liquids-rich Duvernay shale in Alberta, where we now hold approximately 360,000 net acres. We commenced a pilot program last year and plan to drill at least six wells in 2012.

The company continued to develop its conventional assets with exploration and development spending of more than $400 million. This year we will focus on expanding our liquids-rich Wild River play, as well as continuing the pilot programs in the Cardium oil and wet gas windows.

Southeast Asia

Production

Southeast Asia is a self-funding growth area with natural gas prices averaging $9.30/mcf in 2011. The majority of our gas sales contracts in the region are linked to oil price benchmarks. We achieved solid delivery against production and profitability objectives in 2011 and expect more of the same this year.

Natural gas sales totaled 506 mmcf/d, an increase of 4% year over year as a result of improved production efficiency at PM-3 and the startup of Jambi Merang. Overall annual oil and gas production was flat compared to the prior year due to turnarounds, natural declines and a one-time re-determination in 2010 of the South Angsi field in Malaysia. Talisman's exploration and development spending in the region was $695 million.

In Malaysia, overall annual production from ongoing operations was unchanged year over year. In PM-3 CAA, the company focused on optimization initiatives to support strong regional natural gas demand, increasing gas production by 15%.

In Indonesia, fourth quarter gas production was 11% higher over the same period last year, due to Jambi Merang producing for a full quarter and higher uptime at Tangguh. Ongoing facilities development at Corridor continues to secure gas production for long-term supply contracts.

In December, the Suban field was unitized with an adjacent PSC, reducing Talisman's share in the field from 36% to approximately 32%. This reduced year-end reserves and will impact production by approximately 4,500 boe/d; this has been factored into 2012 guidance.

In Vietnam, production averaged 1,900 bbls/d. The Hai Su Trang and Hai Su Den (HST/HSD) development was sanctioned in December 2011, with first production planned for the second half of 2013.

Production in Australia averaged 4,600 bbls/d, an increase of 31% over the previous year, with the commissioning of the Kitan field completed in the fourth quarter.

North Sea

Production (mboe/d)

We continue to invest in the North Sea to maintain the integrity of a mature set of assets and to improve operational efficiency in order to sustain steady production.

North Sea exploration and development spending was $1.2 billion in 2011, focused on developments at Auk South and Auk North in the UK, Yme in Norway and the Claymore replacement compression project in the UK.

The region contributed $600 million for reinvestment elsewhere in the business in a high netback environment. Production decreased 19% year over year, averaging 106,000 boe/d as a result of extended turnarounds and natural reservoir declines.

In the UK, a planned turnaround at Claymore was extended to complete remediation work in the third quarter; production recommenced early in the fourth quarter. The UK Tartan platform, which was shut down throughout the fourth quarter for safety-related upgrades, is expected to recommence production by the end of the first quarter of 2012.

In Norway, after the annual turnaround was completed at Rev, issues related to the host platform delayed the restart of production until the end of the third quarter. Natural declines also contributed to reduced production in the year. Work to ensure the Yme platform meets contract requirements and Norwegian specifications continues to be behind schedule. Talisman is in discussions with the contractor to agree the best path to improving productivity, and completing the necessary work. We expect to be able to define a path forward during the first quarter of 2012.

International Exploration

The major focus of the exploration program this year will be Colombia, where we are in the process of moving discoveries in CPO-9 and CPE-6 from the evaluation phase into commerciality. We will continue to high grade the exploration portfolio by seeking new organic options and rationalizing others at an earlier stage in the cycle.

In Colombia, production averaged 13,400 boe/d in 2011. In the Piedemonte development, two development wells were successfully drilled with encouraging results, and two additional development wells were spudded in the third quarter. Drilling continues, with two rigs currently in the field.

In the heavy oil region of Colombia, a portion of CPE-6 was converted to an Exploration and Production Contract following the success of our stratigraphic well program. Talisman is participating in a six-well stratigraphic/appraisal drilling program, expected to finish in the early part of 2012. In block CPO-9, the Akacias-1 well has produced over 325,000 boe since May 2011 on a long-term test. In the fourth quarter, the first appraisal well on the Akacias structure was drilled and will be tested this year. We intend to continue appraisal activity on the field and will seek a declaration of commerciality in 2012.

In Papua New Guinea, the Stanley appraisal well confirmed the existence of a significant gas accumulation. The Horizon-operated Elevala-2 well that was drilling over year-end 2011 was side-tracked and then rig released in late January 2012, with initial gas and liquid results that are very encouraging. Talisman remains confident in our target to successfully aggregate 2 - 4 tcf of gas. The company is also making excellent progress to bring in a strategic partner.

In Peru, Talisman spudded the Situche Norte-4X exploration well, which is currently drilling. In the Kurdistan Region of northern Iraq, the Topkhana-1 exploration well finished drilling with a significant gas and condensate discovery, and the Kurdamir-2 exploration well was spudded. In Poland, Talisman drilled the first exploration well of a three-well program and spudded the second well in December. In Indonesia, Talisman drilled the Lempuk-1 deepwater well, which has been plugged and abandoned with gas shows.

Preferred Share Dividend Declaration

The company has declared the first quarterly dividend on its Cumulative Redeemable Rate Reset First Preferred Shares, Series 1 (the "Series 1 Preferred Shares") which were issued last December. A dividend of C$0.3136 per Series 1 Preferred Share will be paid on April 2, 2012 to shareholders of record at the close of business on March 12, 2012.

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; planned spending reductions; planned capital allocation; production and production growth; expected North American production; planned shift to liquids in North America and timing of such shift; planned drilling and testing in the Duvernay shale; planned rigs in the Marcellus, Montney and Eagle Ford shale; planned development in Wild River and continuing piloting in the Cardium; expected first production at the HST/HSD development; expected recommencement at the Tartan platform; expected timing of plans for Yme; exit from some of the company's exploration areas, divestitures in North America and reducing exposure in the North Sea; planned rigs and drilling in Colombia and intention to seek declaration of commerciality in the Akacias field; target aggregation in Papua New Guinea; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.

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. Closing of any transactions will be subject to receipt of all necessary regulatory approvals and completion of definitive agreements.

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 prices and 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, including decommissioning liabilities; risks related to capital allocation decisions, including 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, interest rates and tax or royalty rates; the outcome and effects of any future acquisitions and dispositions; health, safety, security and environmental risks, including risks related to the possibility of major accidents; environmental regulatory and compliance risks, including with respect to greenhouse gases and hydraulic fracturing; uncertainties as to the availability and cost of credit and other financing and changes in capital markets; risks in conducting foreign operations (for example, civil, political and fiscal instability and corruption); risks related to the attraction, retention and development of personnel; changes in general economic and business conditions; the possibility that government policies, regulations or laws may change or governmental approvals may be delayed or withheld, including with respect to shale gas drilling; 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, financial results or strategy are included in Talisman'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. 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.

Oil and Gas Information

Reserves

National Instrument 51-101 ("NI 51-101") of the Canadian Securities Administrators imposes oil and gas disclosure standards for Canadian public companies engaged in oil and gas activities. Talisman has obtained an exemption from Canadian securities regulatory authorities to permit it to provide certain disclosures in accordance with the US disclosure standards, in addition to the disclosure mandated by NI 51-101, in order to provide for comparability of oil and gas disclosure with that provided by US and other international issuers. Accordingly, the reserves data and certain other oil and gas information included in this news release are disclosed in accordance with US disclosure standards.

A separate exemption granted to Talisman also permits it to disclose internally evaluated reserves data. Any reserves and resources data contained in this news release reflects Talisman's estimates of its reserves and resources. While Talisman annually obtains an independent audit of a portion of its proved and probable reserves, no independent qualified reserves evaluator or auditor was involved in the preparation of the reserves and resources data disclosed in this news release.

Production and Reserves Volumes

Unless otherwise stated, production volumes and reserves estimates are stated on a company interest basis prior to the deduction of royalties and similar payments. In the US, net production volumes and reserve estimates are reported after the deduction of these amounts.

Reserve Replacement

The reserves replacement ratio was calculated by dividing the sum of yearly changes (discoveries, extensions and additions and other revisions, before acquisitions and dispositions and excluding price revisions) to estimated proved oil and gas reserves during 2011 by the company's production for 2011. The company uses reserves replacement ratio as an indicator of the company's ability to replenish annual production volumes and grow its reserves. It should be noted that reserves replacement ratio is a statistical indicator that has limitations. As an annual measure, the ratio is limited because it typically varies widely, based on the extent and timing of new discoveries, project sanctioning and property acquisitions. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not include cost, value or timing of future production of new reserves, it cannot be used as a measure of value creation.

Replacement Costs

In this news release, Talisman discloses a reduction in replacement costs. Replacement costs are used by the company to determine the cost of reserves additions in a period. Talisman's reported replacement costs may not be comparable to similarly titled measures used by other companies. Replacement costs may not reflect full cycle replacement costs. Replacement costs' predictive and comparative value is limited for the aforementioned reasons. Replacement costs are calculated by dividing exploration and development capital spending (including discontinued operations, but excluding midstream) by gross proved reserves additions.

BOE Conversion

Throughout this news release, barrels of oil equivalent (boe) are 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 references to mcf equivalents (mcfes) which are calculated at a conversion rate of one barrel of oil to six thousand cubic feet of gas. Boes and Mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf:1bbl and an mcfe conversion ratio of 1bbl:6mcf are based on an energy equivalence conversion method primarily applicable at the burner tip and do not represent a value equivalency at the well head.

Netbacks

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

US Dollars and IFRS

Dollar amounts are presented in US dollars, except where otherwise indicated. The financial information in this news release is presented in accordance with International Financial Reporting Standards (IFRS). IFRS differs from generally accepted accounting principles in the US.

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 expenditures including exploration expensed and net debt. These terms are not defined by 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

$ million, except per share amounts

(1) The three month period and year ended December 31, 2011 includes a provision for a doubtful account (net of tax) of $22 million.

Cash flow, as commonly used in the oil and gas industry, 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 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. A reconciliation of cash provided by operating activities to cash flow is provided above.

Earnings from Operations

$ million, except per share amounts

1. Unrealized loss (gain) on financial instruments relates to the change in the period of the mark-to-market value of the company's outstanding commodity derivatives that are classified as 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 December 31. The company uses the Black-Scholes option pricing model to estimate the fair value of its share-based payment plans.
3. Deferred tax adjustments include deferred taxes relating to unrealized foreign exchange gains and losses associated with the impact of fluctuations in the Canadian dollar on foreign denominated debt, intercompany loans and tax pool balances, as well as a remeasurement of UK deferred tax assets and liabilities in response to a statutory rate change.

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 should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with IFRS as an indicator of the company's performance or liquidity. 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. A reconciliation of net income (loss) to earnings from operations is provided above.

Capital Expenditure Including Exploration Expensed

$ million

Capital expenditure including exploration expensed is calculated by adjusting the capital expenditure per the financial statements for exploration costs that were expensed as incurred.

Exploration and Development Expenditure Including Exploration Expensed

$ million

North America Exploration and Development Expenditure Including Exploration Expensed

$ million

North Sea Exploration and Development Expenditure Including Exploration Expensed

$ million

Southeast Asia Exploration and Development Expenditure Including Exploration Expensed

$ million

Exploration and development expenditure including exploration expensed is calculated by adjusting the exploration and development expenditure per the financial statements for exploration costs that were expensed as incurred.

Net Debt

$ million

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.

(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.