Talisman has been at the forefront of economic transparency since the release of our first corporate responsibility report for the year ended December 31, 2000. We believed then, as we do now, that an important first step in establishing greater economic transparency can be achieved through the public disclosure of revenue payments to host governments.

The importance of transparency has been clearly stated by the Publish What You Pay Coalition in their appeal statement, which calls for mandatory disclosure of payments to, and transactions with, governments by multinational natural resource companies, their subsidiaries and business partners. Additional information regarding the Publish What You Pay Coalition can be found online at www.publishwhatyoupay.org.

In 2003, Talisman’s economic activity included exploration, land purchases and infrastructure expansion.

In 2003, we endeavoured to improve upon our economic transparency disclosure. In this regard, we met with Global Witness, a non-governmental organization at the forefront of the transparency initiative, to explain our approach to fiscal transparency and to obtain their constructive feedback on our efforts.

Fiscal Contributions to Host Governments

During 2003, Talisman expensed royalties and current taxes of $1.2 billion. Not all of this expense represents cash payments to host governments. Under certain contractual terms, royalties and taxes represent the entitlement of the host government to a portion of Talisman’s share of production. Talisman does not distinguish between cash payments and ’commodity-based payments’ in determining the Company’s total fiscal contribution to host governments. Talisman values these commodities at their respective market prices at the time of production. For more information, see the Financial and Operating statistics table.

With respect to other material payments ($1 million or greater), Talisman paid $2.7 million to the Government of Indonesia in accordance with the terms of a contract extension and $2.7 million to the Government of Qatar as a signing bonus.

Innovation Leading to Sustainable Value Creation

Our operations bring direct benefits to the communities in which we operate, including the creation of jobs, expansion of local infrastructure and support of community projects that create opportunities for a better future. As such, key stakeholder benefits related to our economic activity including capital spending, remuneration to employees, dividends paid to shareholders, taxes and corporate community contributions have been listed in the table entitled “Stakeholder Benefits”.

At Talisman, acting responsibly also means finding ways of reducing our environmental impact, using industry best practice to extract oil from regions considered already exhausted or too costly and using new technologies and innovation to create economic benefit in all our operations. Here are a few examples.

Deep Water Windfarm Could Provide Economic Benefits

In 2003, Talisman announced a plan to investigate the construction of a deep water Windfarm in conjunction with Scottish and Southern Electricity at a projected cost of about $2.3 billion at our Beatrice oil fields, located 120 kilometres northeast of Aberdeen, Scotland. The proposed project could generate enough energy to power a million average UK homes while extending the life of our Beatrice facility and adding value to the local economy.

Scotland’s First Minister, Jack McConnell MSP, (right) accompanied by Paul Blakeley, Vice President, Talisman (UK) was given special insight into life aboard Talisman (UK)’s Beatrice Alpha platform on the day he revealed Government support for the proposed windfarm development on the field.

Talisman expects to complete the two 4-megawatt demonstration units in the summer of 2006 as precursors for the larger project. If the demonstration units are successful, the Company sees the potential to move ahead with a massive project, including building up to 200 turbines linked to the Beatrice platform that could generate up to 1,000 megawatts.

The project is the largest renewable energy development in Scotland and could supply nearly 25% of the power needed to meet the Scottish Executives target of generating 40% of Scotland’s electricity from renewables by 2020.

CO₂ Reductions Improve Bottom Line

In 2003, Talisman approved the construction of a gas-fired cogeneration facility at our Edson, Alberta gas plant, the largest Talisman operated gas plant in Canada. When completed in 2005, the facility will produce environmentally friendly utility steam for use in the gas plant and additional electrical power to serve area homes. It should also further improve our aggregate PCI.

Though capital costs associated with the project are about $21 million, Talisman expects to recover those costs through power sales over the next eight years. Further, based on a recent emission study, Talisman could realize a reduction of 104,000 tonnes of indirect CO2 emissions (through increased boiler and power efficiency) annually.

Conserved Gas Provides Economic Boost at Talisman’s Renwick Site

An emphasis on conservation at Talisman’s Renwick Battery site near Leamington, Ontario is producing greater volumes of natural gas and generating more money for the Company’s bottom line.

Gas was formerly a waste product that oil and gas producers burned off from many local oil wells. Today, this gas is conserved and can heat almost half of Leamington’s 10,000 homes.

Talisman has reduced the “flaring” of natural gas at its 26 oil well sites in Ontario, creating an increase in available gas produced locally, which is now piped directly into local pipelines. The Renwick site produces about one million cubic feet per day of natural gas and nearly 325 million cubic feet per year, as well as 10 cubic meters (63 barrels or 10,000 liters) of propane and butane mix per day.