Revised Policy on Business Conduct and Ethics

During this process, internal groups and area specialists affected by regulatory initiatives and new developments were consulted, including the legal, audit, corporate responsibility, environment, human resources, accounting, community and aboriginal relations and international operations groups. A key update to the policy was the development of human rights and community relations principles for all Talisman employees and operations. The business conduct and human rights policies of a number of peer companies were also reviewed to benchmark content.

Evolution of corporate responsibility at Talisman

January 1993

Talisman Energy Inc. was incorporated, Code of Business Conduct adopted

August 1998

Acquired 25% interest in Sudan project

December 1999

Adopted International Code of Ethics for Canadian Business

May 2000

Shareholders vote for increased reporting and disclosure on Sudan investment

April 2001

CR Report issued on Sudan operations

April 2002

CR Report issued on Sudan and Colombia

April 2003

CR Report issued on Talisman’s global operations

December 2003

Revised Policy on Business Conduct and Ethics adopted

April 2004

CR Report issued on global operations, expanded disclosure

Several related policies such as our Corporate Contributions Policy, Aboriginal Relations Guidelines and Compliance Guidelines for Anti-Bribery Legislation deal more specifically with particular aspects of our corporate responsibility program.

Managing Corporate Responsibility

Talisman has had a dedicated Corporate Responsibility Group since 2000 to assist other departments in coordinating compliance with these policies and other corporate responsibility efforts across the Company by implementing appropriate management, monitoring and reporting systems. This group is also responsible for preparing this annual, externally reviewed corporate responsibility report and for overseeing corporate contributions and stakeholder engagement processes.

Responsibility for Talisman’s social, health, safety and environmental performance rests with the Board of Directors and, as such, issues are reviewed at the Board level and not by a specific committee. Comprehensive corporate responsibility reviews and country specific updates are provided to the Board of Directors annually. Health, safety and environment reports are also provided to the Board of Directors at each Board meeting. Other reports are provided throughout the year as deemed appropriate.

The Company’s senior management team provides strategic direction for the corporate responsibility program and actively reviews and monitors progress towards set goals and objectives at corporate responsibility meetings that are held on a regular basis.

On an individual level, specific performance contract clauses allocate responsibility for corporate responsibility initiatives to the President and Chief Executive Officer; Executive Vice President, Corporate and Legal; Executive Vice President, Corporate Services; Executive Vice President, Exploration; Executive Vice President, Finance and Chief Financial Officer; Executive Vice President, Frontier and International Operations; Executive Vice President, Marketing; Executive Vice President, North American Operations; and various managers. Achievement against these objectives and others, combined with the overall success of the Company, links directly to the annual compensation of these individuals.

Policies and Systems

Talisman’s Policy on Business Conduct and Ethics generally states Talisman’s standards of ethical conduct and is supported by the Company’s internal control system. Many of the subjects dealt within this policy are discussed in greater length in Talisman’s procedures manual.

We periodically check our business activities to test conformance with this Policy. This process requires that all Talisman employees, officers and members of our Board of Directors, as well as certain contract personnel annually complete a Certificate of Compliance regarding the Policy on Business Conduct and Ethics. Further, employees, officers, contractors and directors are required to promptly report any suspected exceptions to this Policy, which are then assessed and, if necessary, investigated by the internal audit department. Exceptions arising from either reporting mechanism are reviewed and any concerns are then presented to the Chief Executive Officer and the Board of Directors for further action, as warranted.

In 2003, responses were received from employees and contractors in North America (2,044), the North Sea (596) and the rest of world (254). Submissions included 11 potential exceptions, which were all assessed and found to be immaterial.

Governance

Talisman’s approach to corporate governance is based on guidelines established by the Toronto Stock Exchange. We address these guidelines through Board composition, stated responsibilities of the Board and through various committees of the Board. For more information on our corporate governance structure see the Company’s corporate governance statement, which is schedule “B” of Talisman’s Management Proxy Circular.

National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), came into effect in September 2003, legislating new requirements for oil and gas reporting including new Board responsibilities for oversight of reserves reporting. Accordingly, Talisman’s Board created a new Reserves Committee, adopted Terms of Reference for the Reserves Committee and modified the Terms of Reference of the Board to reflect the new responsibilities.

In November 2003, the New York Stock Exchange published its final Corporate Governance listing standards. As a foreign private issuer, Talisman will be subject to only a limited number of the new rules. However, in March 2004, Talisman voluntarily modified a number of its corporate governance practices to ensure that we substantially satisfy all of the New York Stock Exchange corporate governance listing standards applicable to US companies.

In January 2004, the securities regulators finalized new multilateral instruments governing audit committees and certifications of filings. In March 2004, Talisman amended the mandate of its Audit Committee to reflect the new standards.

Also in January 2004, a new multilateral policy and instrument was proposed to replace the existing Toronto Stock Exchange (TSX) guidelines. Talisman is reviewing these proposals and, if necessary, will make further changes to its corporate governance structure in 2004 to ensure that the Company remains compliant with all current corporate governance requirements.

External Risk Assessment

Talisman reviews numerous international and domestic investment opportunities every year. In addition to the technical and economic evaluation of these opportunities, we complete an evaluation of the non-technical, above-ground issues related to the commercial, legal, political, regulatory, environmental, security and human rights situations in the country of interest prior to any investments.

Before actively pursuing any investment, Talisman also evaluates the investment against internal policies such as our Policy on Business Conduct and Ethics, as well as international and industry standards, such as the Corruption of Foreign Public Officials Act. Our decision to invest is based on these non-technical evaluations as well as our technical assessments.