Talisman Energy

Capex

Talisman Energy plans to spend $4.4 billion on exploration and development in 2008, down from an estimated $4.6 billion in 2007. The major underpinnings of this program are:

• Increased investment in Southeast Asia and Norway, reflecting project developments and exploration opportunities.
• Some reduction in spending on UK development projects, reflecting the completion of a number of projects in 2007, and consistent with taking a more measured pace. Developments at Auk and Burghley are being progressed.
• Some reduction in North American spending in light of uncertainty in both natural gas prices and Alberta royalties, although North America will still account for over one-third of total spending.

The Company expects production from continuing operations to grow 5-10% annually to 2010. Production in 2008 is expected to be between 435,000 and 460,000 boe/d, with the range primarily defined by ongoing commissioning of the Tweedsmuir field in the North Sea.

2008 Capital Program

Total exploration and development spending in 2008 will be reduced by about 6% from an estimated $4,650 million in 2007. Of the planned $4,375 million exploration and development budget, 45% is being allocated to the North Sea, 34% to North America, 17% in Southeast Asia and 4% for the rest of the world. Approximately three quarters of spending is on development projects and one quarter is earmarked for exploration.

Spending in Norway and Southeast Asia is expected to increase by approximately $400 million this year (an increase of 34%). The Company has a number of development projects underway in these regions including Rev and Yme in Norway and the Northern Fields and Song Doc developments in Southeast Asia.

In addition, the Company will continue drilling in its highly prospective offshore exploration block in Vietnam. The Company is also increasing exploration activity in Norway with six wells planned.

Spending will be reduced in the UK North Sea in 2008, following the completion of a number of field developments in 2007. The Company will progress the development of the Burghley field toward approval, as well as a major redevelopment of the Auk field and continued appraisal of the Cayley discovery.

The Company is reducing spending in North America, drilling higher return prospects, following up on drilling successes in 2007 and adding drilling locations in order to high grade its prospect inventory. In addition, Talisman will step up work on its non-conventional tight gas and shale opportunities and drill a number of wells in the US Foothills.

North America
The Company plans to spend $1.5 billion in North America in 2008, participating in 300 gross wells (230 net). Spending over 2007 and 2008 has been reduced by approximately $1 billion compared to the outlook a year ago. The majority of North American spending will continue to be directed towards natural gas drilling. At planned spending levels, Talisman believes it can sustain existing production levels in North America, generating free cash flow at current natural gas prices, while maintaining flexibility.

Talisman will build on its success in the multi-zone Outer Foothills play in Alberta and British Columbia, following up on a number of promising discoveries made in Ojay, Hinton and Solomon in 2007. Development of our tighter gas opportunities in Wild River, Edson and Bigstone provide a large number of relatively low risk wells with outcomes that are predictable.

Major drilling programs are planned for the Alberta and BC Foothills again in 2008 where Talisman has a strategic land position supported by its midstream operations. However, spending in some parts of the Alberta Foothills is being reduced due to proposed royalty changes, which have made some higher cost, high deliverability gas wells uneconomic. We believe Talisman's expertise as the leading gas driller in the Canadian Foothills is transferable to the Western US, where the Company plans to drill two wells in the first half of 2008. If successful, we will increase our focus in this new and exciting area.

The Company has large unconventional natural gas resources within its existing land base and plans are underway to continue evaluating this potential and develop it as a long term strategic resource. This includes initiatives in the Montney play in the Greater Arch area as well as a better understanding of the shale potential in Appalachia, Quebec and Western Canada.

Capital costs are expected to moderate in 2008, although the Company expects unit operating costs to increase 10-15% reflecting increased production in the Outer Foothills and higher property taxes.

North Sea
Planned spending in 2008 is relatively unchanged at approximately $2 billion, although with the capital spend largely complete at Blane, Duart, Enoch and Tweedsmuir, there is a shift in spending from the UK towards Norway. Total UK capital expenditure is expected to decrease to $1,140 million and to increase to $850 million (up 35%) in Scandinavia. This includes $100 million of exploration spending in the UK and $170 million in Norway.

The UK development program will focus on continuing exploitation of existing core areas, progressing new projects at Burghley and starting redevelopment of the Auk field, which was acquired at the end of 2006. Development drilling programs will continue primarily at Montrose, Claymore and Tartan. A key part of the UK exploration program will be the continued appraisal of the Cayley discovery.

In Norway, the Company will continue the development of the Rev field, with production due to start in 2008, and the Yme field, with production due to start in 2009. Since 2003, Talisman has built the third largest acreage holding in Norway and 2008 will see six exploration wells drilled.

Southeast Asia
In Southeast Asia, the Company plans to increase spending by approximately $180 million (33%) in 2008 on existing project developments, ongoing exploration and appraisal of our offshore acreage in Vietnam and prospect identification and delineation in Indonesia. The majority of the spending increase will be in the PM-3 Commercial Arrangement Area between Malaysia and Vietnam as we progress completion of the Northern Fields development where first natural gas sales are expected in mid-2008 and first oil in the first half of 2009.

In Vietnam, we will see first production from Song Doc, and on Block 15-2/01 Talisman will progress unitization and development plans around the Hai Su Trang and Te Giac Trang discoveries. In Indonesia, gas volumes are flowing through the pipeline from Corridor to West Java and are expected to build through the year and work is progressing on the next tranche of gas sales contracts.

The Company has a very active drilling program planned in 2008. In addition to participating in 57 development wells (mainly on Northern Fields and Song Doc), Talisman plans to spend approximately $200 million on exploration. In Vietnam, we are very encouraged by the Hai Su Den exploration well, which is testing a large basement structure and we plan to drill up to four additional exploration and three appraisal wells in Block 15-2/01 this year.

Overall production volumes in Southeast Asia are expected to be relatively flat in 2008, with a significant increase expected in 2009, following completion of the Northern Fields project and with increasing Indonesian natural gas volumes going to West Java.

Algeria, Tunisia, Trinidad and International Exploration
Capital expenditure on developments is expected to be $42 million in Algeria, Trinidad and Tunisia.

Excluding North America, exploration spending in 2008 is budgeted at approximately $600 million. The most likely places for substantial resource additions in 2008 are in Vietnam and Norway. Key wells planned for Norway include Bjorn (currently drilling) and Trow, Marsvin and TR3. In Vietnam, two key wells (Hai Su Nau and Hai Su Bac) are expected to spud in the first quarter.

In the UK, the Company plans to drill four exploration wells and one appraisal well. In Indonesia, Talisman plans to shoot seismic over the deepwater Sageri and Pasangkayu blocks in Indonesia, preparing for drilling in 2009. In South America, the Company expects to acquire seismic in Colombia and start the drilling of one exploration well, while in Peru a well to appraise the earlier discovery is expected to spud towards the end of 2008.

In Alaska, the Company will acquire additional seismic data during 2008.

Future Plans

Strategic Planning

In May 2008, the Company announced a new strategy with a four-part action plan. Progress to the end of September 2008 includes:

1. Focusing the Portfolio
- Talisman has sold, or initiated the sale of, assets in Canada (Lac La Biche, remaining oil sands leases), the UK (Beatrice), the Netherlands, Denmark and Trinidad and Tobago.

2. Grow Existing Areas
- Natural gas production has started at the Northern Fields in Southeast Asia. Oil production is on schedule for the first half of 2009.
- Development of the Rev Field in Norway is nearing completion. First oil from the Yme redevelopment is expected in the second half of 2009.
- Excluding asset sales, third quarter production is up 10% compared to a year ago: Southeast Asia natural gas up 20%, North Sea oil up 18%, North America natural gas up 6%.
- The Company signed a memorandum of understanding with Pertamina to examine opportunities for enhanced oil recovery in Indonesia.
- The Company is preparing a development plan for its two discoveries in Vietnam.

3. New Growth Opportunities
- Talisman has spent $1.1 billion on unconventional programs in North America.
- The Company has drilled 114 unconventional wells in new play areas and 96 in heritage unconventional areas.
- Talisman successfully tested its first shale wells in Quebec and Pennsylvania.
- Talisman has become one of the top landholders in the Groundbirch shale play (BC).

4. Optimize Global Exploration
- The first exploration well in Block K44 in the Kurdistan region of Northern Iraq is drilling.
- The Company is drilling a well in Colombia and was recently awarded two blocks in the heavy oil bid round.
- The Company is preparing to drill an appraisal well at the Situche discovery in Peru, which is expected to spud early in 2009.
- In Indonesia, Talisman was awarded two Joint Study Agreements in the offshore Sageri area.
- The Company participated in a commercial oil discovery in Australia (Kitan).

Production

The Company expects production from continuing operations to grow 5-10% annually to 2010. Production in 2008 is expected to be between 435,000 and 460,000 boe/d, with the range primarily defined by ongoing commissioning of the Tweedsmuir field in the North Sea.

2007 production averaged 485,000 boe/d up from 470,000 boe/d in 2005. Oil and liquids production was up 5% to 261,634 bbls/d. The increase came predominantly from Southeast Asia (up 16,106 bbls/d). Talisman increased its natural gas production by 2% to 1,342 mmcf/d.

Production in the fourth quarter averaged 486,000 boe/d, a decrease of 6% over the same period in 2005. This is after asset sales, which had an impact of 12,200 boe/d during the quarter. Talisman's North American gas production averaged 942 mmcf/d during the quarter, an increase of 4% over the previous year despite the loss of 23 mmcf/d due to asset sales.

Production for 2005 averaged 470,000 boe/d, an increase of 7% over 2004.

Reserves

The Company replaced 102% of its production with proved reserves (excluding net acquisitions and dispositions) in 2007, with a three year average of 113%. Regionally, the Company replaced 148% of production in Scandinavia, 116% in the UK and 112% of North American natural gas production. The replacement ratio in Southeast Asia was only 76%, however, this does not take into account recent drilling successes offshore Vietnam.

Approximately 36% of Talisman's proved reserves are in North America, 29% in the North Sea and 29% in Southeast Asia. Total proved reserves were down slightly from year-end 2006, reflecting non-core asset sales. At year end, the Company had 2.6 billion boe of proved and probable reserves with a reserve life index of 16 years.

Proved Reserves (Million BOE)

December 31, 2006: 1,667
Discoveries, extensions and additions: 109
Net acquisitions and dispositions: (10)
Net revisions and transfers: 58
Production: (164)
December 31, 2007: 1,660

Probable Reserves at December 31, 2007: 972

Talisman replaced 116% of production through drilling additions and revisions to proved reserves in 2006. Talisman increased its total proved reserves by 2% to 1.67 billion boe. Net of royalties, the Company had 1.37 billion boe of proved reserves (up 4%). At year-end, Talisman had 5.4 tcf of proved natural gas reserves and 767 mmbbls of proved oil and liquids reserves.

Talisman replaced 189% of production from all sources in 2005 (proved reserves) and 120% through drilling and revisions. At year end, Talisman had 5.4 tcf of proved natural gas reserves (up 4%) and 736 mmbbls of proved oil and liquids reserves (up 19%). Talisman increased its total proved reserves by 10% to 1.6 billion boe. Net of royalties, Talisman had 1.3 billion boe of proved reserves (up 9%).

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