Talisman’s long-term debt at year end was $2.5 billion, down from a total of $2.6 billion of long-term debt ($2.2 billion) and preferred securities ($431 million) at the end of last year. During 2004, the Company generated $3.1 billion of cash provided by operating activities and spent $2.5 billion on exploration and development and a net $242 million on acquisitions. In addition, the Company financed the redemption of the preferred securities, repurchased nine million common shares and paid dividends of $114 million. At year end, the Company had drawn $328 million of its available $1,335 million bank lines of credit. The Company maintains a debt shelf prospectus in the US under the Multi-Jurisdictional Disclosure System under which it may issue up to US$1 billion of debt securities in the US public debt market until January 2006, at which time the current registration statement could no longer be used and a new registration statement would have to be filed.

In 2005, $241 million (US$200 million) of long-term debt matures. None of this debt has been classified as a current liability as the Company currently has the ability and intention to refinance amounts due within one year with existing bank facilities.

At December 31, 2004, the Company had an excess of current liabilities over current assets of $673 million. In 2005, cash provided by operating activities is expected to range between $3.6 and $3.8 billion, with capital expenditures of $3.1 billion, dividends of $110 million and share repurchases in the amount of approximately $300 million. The Company does not expect working capital to change significantly, but to the extent that funds are required to meet obligations, the Company can draw down on its existing bank credit facilities ($1.0 billion available for drawdown at December 31, 2004).

During 2004, the Company redeemed its outstanding preferred securities, realizing a $23 million gain (net of tax), being the difference between the carrying value and the redemption cost. The redemptions were funded from current cash flow and bank borrowings and gains were credited directly to retained earnings. See note 8 to the Consolidated Financial Statements.

During 2004, the Company implemented a three-for-one share split of its issued and outstanding common shares. All per share statistics included in this MD&A have been restated to reflect this share split. See note 9 to the Consolidated Financial Statements.

The Company repurchased 8,987,400 common shares under its normal course issuer bid (NCIB) during 2004 for a total of $286 million ($31.81/share). Subsequent to year end, the Company repurchased an additional 3,811,300 common shares as at March 2, 2005 under the NCIB for a total of $128 million ($33.57/share). The NCIB expires in March 2005 and the Company has received Board of Directors’ approval to renew the NCIB for another year. This will allow the Company to repurchase up to 5% of the Company’s common shares outstanding at the time of renewal.

Two common share dividends were paid in 2004 for a total of $114 million ($0.30/share). The Company’s dividend is determined semi-annually by the Board of Directors. At year end, there were 375 million common shares outstanding, down from 384 million at December 31, 2003. As at March 2, 2005, there were 371 million common shares outstanding, as well as 19,779,240 stock options outstanding.

At the end of 2004, Talisman’s ratio of debt to cash provided by operating activities was 0.78:1 and of debt to debt plus equity was 34%.

For additional information regarding the Company’s liquidity and capital resources, refer to note 7 to the Consolidated Financial Statements. In addition, refer to the Sensitivities table included in the Outlook Section of this MD&A for possible 2005 impacts of various factors on the Company’s estimated 2005 net income and cash provided by operating activities.

Talisman’s investment grade senior unsecured long-term debt credit ratings remain unchanged with Dominion Bond Rating Service (“DBRS”), Moody’s Investor Service, Inc. (“Moody’s”) and Standard & Poor’s (“S&P”) at BBB (high), Baa1 and BBB+, respectively.