Talisman is an independent international upstream oil and gas company whose main business activities include exploration, development, production, transporting and marketing of crude oil, natural gas and natural gas liquids. The Company’s operations in 2004 were conducted principally in four geographic segments: North America, the North Sea, Southeast Asia and Algeria. The Trinidad Angostura project began production in January 2005. Exploration is being advanced in other areas outside the principal geographic segments including Alaska, Colombia, Qatar and Peru. The Company’s indirectly held interest in the Greater Nile Oil Project in Sudan was sold on March 12, 2003. The following is a brief summary of the financial results of each geographic segment. Additional geographic financial results disclosure may be found in note 20 of the Consolidated Financial Statements. The Company’s pre-tax segmented income as discussed below is before corporate general and administration, interest, stock-based compensation, taxes and non-segmented foreign exchange gains and losses. Effective January 1, 2004, with the adoption of the new hedge accounting rules (see notes 1(k) and 11 to the Consolidated Financial Statements) the Company allocates hedging gains and losses on the basis of the percentage of relative hedged production. More detailed analysis of the Company’s results can be found after this Segmented Results Review.

North America (excludes Alaska)
During 2004, the North America operations contributed $877 million or 51% of the Company’s pre-tax segmented income of $1.7 billion, down from $892 million (61% of $1.5 billion) in 2003. Gross sales in North America increased 9% to $3.1 billion due principally to higher commodity prices and natural gas production. North American production averaged 205,000 boe/d, up 1% over 2003, and represented 47% of the Company’s total production in 2004. North American operating expense increased 7% to $421 million due to increased natural gas volumes, higher processing fees and well workover and maintenance costs. DD&A increased to $785 million, up from $688 million due to higher production and 2003 acquisitions. Exploration expense increased to $123 million due to the expanded exploration budget. Total exploration and development spending for North America in 2004 was $1.5 billion, up 31% over 2003.

North Sea
The North Sea pre-tax segmented income increased to $486 million and accounted for 28% of the Company’s pre-tax segmented income during 2004, down from 30% in 2003. North Sea gross sales increased 30% to $2.4 billion due primarily to higher prices and increased liquids production, resulting from current year acquisitions. Production averaged 140,800 boe/d or 32% of the Company’s total production. This 7% increase in production also contributed to increases in operating expenses of $134 million and DD&A expense of $45 million. Royalty expense increased due to prior period adjustments in 2003. Dry hole expense increased to $109 million with the inclusion of costs associated with eight wells. Exploration and development spending for the North Sea was $507 million, up 2% from 2003.

Southeast Asia
Southeast Asia contributed 22% ($379 million) to the Company’s pre-tax segmented income in 2004. Gross sales increased 83% to $1.1 billion with a full year of production from PM-3 CAA in Malaysia/Vietnam and increases from Corridor in Indonesia. Southeast Asia production averaged 79,000 boe/d, an increase of 80% over 2003 and contributed 18% to the Company’s total production. Total operating expenses increased 14% from 2003 to $98 million, but unit costs were down 37% to $3.39 per boe as a result of the increase in production mainly related to the low unit cost PM-3 CAA volumes. DD&A expense increased with the growth in production. Capital spending for Southeast Asia was $255 million, down 19% from 2003.

Algeria
Algeria contributed 6% ($97 million) to the Company’s pre-tax segmented income in 2004. Gross sales increased 170% to $254 million with continuing production increases after startup in 2003. Production for 2004 averaged 13,500 bbls/d. Unit operating costs in 2004 decreased 31% to $3.51/bbl as a result of the production increases. Capital spending for Algeria was $8 million, down 76% from 2003 due to the completion of the initial development phase of the Greater MLN project.

Other Exploration and Development
Development continued on the Angostura oil and gas field located on Block 2(c) offshore Trinidad. Including exploratory drilling on the adjacent Block 3(a) and 3D seismic on the onshore Eastern Block, the Company spent $191 million in Trinidad during 2004. Production from the Angostura field started in January 2005. Elsewhere, during 2004 the Company spent $125 million, the majority of which was in Alaska, Colombia, Qatar and Peru.