Financial and Operating Statistics

Talisman Generated $4,672 Million in Cash Flow in 2005

Cash flow totalled $4,672 million in 2005 ($12.69/share) versus $2,916 million ($7.61/share) a year earlier. Gross sales were $9,554 million, up $2.7 billion compared to 2004 on higher volumes and prices and decreased hedging losses. Higher sales revenues were partially offset by a stronger Canadian dollar, higher royalties, operating costs and current taxes. Cash flow is a non-GAAP measure. Please refer to the advisories on the inside back cover. Net income for 2005 was $1,561 million ($4.24/share), compared to $654 million ($1.71/share) in 2004. Talisman also calculates net income in accordance with US GAAP. On this basis, net income was $1,496 million in 2005 ($4.07/share) compared to $694 million ($1.81/share) in 2004.

Earnings from Operations up 169%

Talisman's earnings from operations in 2005 were $2,058 million ($5.59/share) compared to $764 million ($1.99/share) the previous year. Earnings from operations are calculated to help investors understand the Company's core operating performance on a consistent, comparable basis.

Earnings from operations in 2005 were up, due largely to higher volumes and prices and decreased dry hole expenses. Offsetting this was the stronger Canadian dollar and increases in royalties, operating expenses, depreciation, depletion, amortization expense and higher taxes. Earnings from operations is a non-GAAP measure. A reconciliation to net income has been provided in the advisories at the back of this Report.

Liquidity and Capital Resources

Talisman's long-term debt at year-end was $4.3 billion, up from a total of $2.5 billion at the end of 2004. The Company generated $4.9 billion of cash from operating activities and spent $3.2 billion on exploration and development while spending $3.1 billion on acquisitions, paid dividends of $125 million and repurchased nine million common shares for $355 million. At year-end, the Company had $1,345 million of available bank lines of credit.

Additional financial information can be found in Talisman's 2005 Annual Report Financial Review, available on our website or by contacting the Company.

Competitive Conditions

The oil and gas industry, both within Canada and internationally, is highly competitive in all aspects of the business, including the acquisition of properties, the exploration for and development of new sources of supply and the marketing of current production. With respect to the exploration, development and marketing of oil and natural gas, the Company's competitors include major integrated oil and gas companies, numerous other independent oil and gas companies, individual producers and operators, and national oil companies.

In addition, oil and gas producers in general compete indirectly against others engaged in supplying alternative forms of energy, fuel and related products to consumers.

Risk

Talisman is exposed to a number of risks inherent in exploring for, developing and producing crude oil and natural gas, including uncertainty of reserves estimates, ability to find, develop or acquire reserves, political risks, operational hazards and responsibilities, volatility of oil and natural gas prices, litigation, environmental risks, dependence on other operators, differences in ownership interests in foreign operations and competition and exchange rate fluctuations to name a few. For more information, see Talisman's Annual Information Form and the advisories at the end of this Report.

Our Strategy

Talisman's international and frontier strategy concentrates on opportunities in sedimentary basins that have a proved hydrocarbon system and significant reserves and production potential. Talisman has developed its international business through exploration, development drilling and corporate and property acquisitions. Looking ahead, our strategy is to expand activity in core producing areas and to add new ventures where appropriate. The Company also actively investigates new ventures outside core producing areas. Talisman also has extensive expertise in reservoir engineering (maximizing recovery from mature fields) and drilling technology (deep horizontal wells, extendedreach drilling) to ensure optimum recovery rates and safe, efficient, low cost drilling operations.

STAKEHOLDER BENEFITS	2005	2004	2003
TSX share price as of December 31	61.60	32.35	24.514
NYSE share price as of December 31	52.88	26.96	18.87 4
Market capitalization (on TSX in millions C$) as of December 31	22,562	12,137	9,412
Exploration and development expenditures	3,179	2,538	2,180
Total remuneration to employees	408	313	249
Corporate community contributions	5	4	5
Dividend paid on common shares	125	114	90
Fiscal contributions to host governments	2,615	1,590	1,106

⁴Post-split adjusted.