Talisman Energy Inc.

Talisman Energy Inc.

March 02, 2005 07:00 ET

Talisman Energy Generates $2.9 Billion in Cash Flow in 2004: 179% Proved Reserve Replacement; Production Up 10%


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: TALISMAN ENERGY INC.

TSX, NYSE SYMBOL: TLM

MARCH 2, 2005 - 07:00 ET

Talisman Energy Generates $2.9 Billion in Cash Flow in
2004: 179% Proved Reserve Replacement; Production Up
10%

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

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

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

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

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

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

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

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

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

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

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

Six Consecutive Years of Record Cash Flow

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



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

(1) non-GAAP measure


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

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

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

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

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

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

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

Earnings from operations

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



($ millions, except per share amounts)

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

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


A Very Strong Balance Sheet

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



Talisman Increased Production by 10%

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

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


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

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

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

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



179% Production Replacement

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

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

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


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

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

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

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

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

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

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



Netbacks up 21% in the Fourth Quarter

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

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

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


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

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

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

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

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

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



Additional Information

Capital Spending (1),(3)

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



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

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

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

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



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

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


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



Corporate and Other

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


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

Income Taxes

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



Effective Income Tax Rate

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


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

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

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

Non-GAAP financial measures

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

Forward-looking Statements

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

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

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

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

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

- the uncertainty of reserves estimates and reserves life;

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

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

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

- health, safety and environmental risks;

- uncertainties as to the availability and cost of financing;

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

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

- general economic conditions;

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

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

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

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

Advisory - Reserves Data and Other Oil and Gas Information

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

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

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

Note to US Readers

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

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

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



Talisman Energy Inc.
Highlights

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

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

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


Talisman Energy Inc.
Consolidated Balance Sheets
(Unaudited)

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

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

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

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

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

See accompanying notes.


Talisman Energy Inc.
Consolidated Statements of Income
(Unaudited)

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

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

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

See accompanying notes.


Consolidated Statements of Retained Earnings
(Unaudited)

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

See accompanying notes.


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

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

See accompanying notes.


ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

1. Change in accounting policies

a) Asset Retirement Obligations

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

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

b) Transportation Expenses

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

c) Share split

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



2. Selected Cash Flow Information

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


Segmented Information

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

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

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

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

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

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

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

(4) Excluding corporate acquisitions.

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


Talisman Energy Inc.
Product Netbacks

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

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

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

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

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

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

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

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


Talisman Energy Inc.
Additional Information for US Readers
Product Netbacks

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

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

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

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

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

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

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

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


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

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

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

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

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


Continuity of Proved Net Reserves(1)

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

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

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

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


Continuity of Proved Gross Reserves(1)

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

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

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

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


-30-

Contact Information