Talisman Targets 10% Production per Share Growth in 2005

Talisman Energy has announced a record $3.1 billion exploration and development program for 2005, representing an increase of approximately 15% over 2004. North America and the North Sea account for 80% of expected spending. The budget includes $1.5 billion for drilling as the Company continues to add significant new production volumes through the drill bit.

Talisman expects 5% production growth in 2005, with a mid-point estimate of approximately 460,000 boe/d. With continued share repurchases, the Company intends to increase production per share by approximately 10% in 2005. Production in 2004 is estimated at 437,000 boe/d with production per share up 10% over the previous year.

Talisman expects to generate $3.6-3.8 billion in cash flow in 2005, based on a US$40/bbl WTI oil price, a US$6.25/mmbtu NYMEX natural gas price and a US$/C$ exchange rate of $0.80. The Company plans to release its final 2004 results on March 2, 2005.

"2004 was a stellar year for Talisman and the momentum is continuing into 2005," said Dr. Jim Buckee, President and Chief Executive Officer. "We expect to generate a record $10 in cash flow per share this year, an increase of 25% over 2004. Unit operating costs could fall by more than 5% this year with new low cost production in Trinidad and the stronger Canadian dollar. The Company continues to layer in growth in each of its core operating areas with a view to increasing our production by 100,000 boe/d between now and the end of 2007.

"We made a number of large domestic natural gas discoveries last year, which show signs of continuing in 2005, reinforcing our position as the leading deep gas explorer in Western Canada. In addition, we will continue our successful drilling program in the northeastern United States. We plan to spend over $1.4 billion in North America, with almost 90% directed at natural gas projects. Talisman expects to participate in over 500 gross wells including 10-12 high impact exploration wells, increasing our North American natural gas production by 4-5% this year.

"In the North Sea, Talisman increased production by an estimated 7% in 2004, bringing the North Tartan field onstream and adding additional exploration acreage in Norway. The Company's largest single project in 2005 will be development of the Tweedsmuir and Tweedsmuir South fields in the North Sea. Production is expected to start late in 2006, adding approximately 45,000 boe/d net to Talisman in 2007.

"The major contributor to growth in 2004 was the PM-3 project in Malaysia/Vietnam, which averaged over 40,000 boe/d for the year, net to Talisman. This year, we expect to start production from the South Angsi field, which will add an estimated 6,500 bbls/d net to Talisman this year and 12,000 bbls/d next year. We also expect to sanction development of the PM-3 northern fields.

"In Indonesia, Talisman has a 36% interest in the Corridor PSC with very large natural gas reserves. In August, the Company announced a long-term contract for the sale of 2.3 tcf to the Indonesian national gas transmission and distribution company. In 2005, we will start expansion of our gas processing facilities with deliveries expected in the first quarter of 2007.

"Production doubled in Algeria in 2004, averaging over 13,000 bbls/d. This year, we expect to sanction the MLSE development project and we will commence facilities expansion to handle increased liquids volumes in 2007. Production is about to start in Trinidad and is expected to average approximately 14,000 bbls/d net to Talisman in 2005. We have up to eight exploration wells planned in Trinidad, including our first two onshore locations.

"In addition, we will continue our high impact wildcat exploration drilling programs in Colombia and Peru and plan to spud our first well in Qatar this year. We will also spend upwards of $20 million in Alaska with a view to drilling our next exploration well there in 2006.

"The Company increased its dividend payment in 2004, repurchased approximately nine million shares in November and December and increased liquidity with a three for one share split. Our balance sheet is very strong, with net debt at year end 2004 estimated at about $2.5 billion. Of course, the key measure of success for Talisman shareholders is share price performance. Talisman shares ended the year at a new record high closing price of $32.35 per share, an annual increase of 32%."


Talisman expects to generate cash flow of $9.80-10.40 per share in 2005, based on the mid-point of the production guidance range. This is a 25-30% increase over the estimated 2004 figure.

                                   2003     2004(1)           2005(2)
                                   ----     ------            ------
Cash flow ($b)                      2.7        3.0           3.6-3.8
CFPS                               7.07       7.90        9.80-10.40

Average shares outstanding (mm)     386        383               366
Production (000 boe/d)              398        437           445-475

WTI oil (US$/bbl)                 30.99      41.47             40.00
NYMEX gas (US$/mmbtu)              5.44       6.09              6.25
US$/C$                             0.71       0.77              0.80
C$/pounds sterling                 2.29       2.38              2.25


Cash flow estimates are based on the pricing and exchange rate assumptions shown. The number of average shares is contingent on Talisman repurchasing approximately 10 million shares in the first quarter of 2005. Other items affecting cash flow include royalties, operating costs, G&A, interest expense, stock based compensation expense and current income taxes and PRT. Additional information on these assumptions, as well as sensitivities, is provided later in this news release.


Talisman has set targets of 5-10% production per share growth on a go-forward basis. The Company produced approximately 437,000 boe/d in 2004. Fourth quarter production averaged an estimated 447,000 boe/d, a 7% increase over the fourth quarter of 2003.

                                   2003     2004(1)           2005(2)
Oil & Liquids (bbls/d)             ----     ------            ------
North America                    59,578     57,200     54,000-56,000
North Sea                       113,075    121,200   117,000-125,000
Indonesia                        15,758     13,200       5,000-7,000
Malaysia/Vietnam                  8,672     22,400     28,000-30,000
Algeria                           6,594     13,400     15,000-17,000
Sudan                            13,039          -                 -
Trinidad                                         -     12,000-16,000
                                -------    -------   ---------------
                                216,716    227,400   231,000-251,000

Natural Gas (mmcf/d)
North America                       864        890           920-940
North Sea                           109        113           110-120
Indonesia                           112        139           150-170
Malaysia/Vietnam                      5        117           105-115
                                   ----      -----       -----------
                                   1090      1,259       1,285-1,345

000 boe/d                           398        437           445-475

Production per share (boe)         0.38       0.42         0.44-0.47


Production in 2005 is expected to average between 445,000-475,000 boe/d, with most of the increase coming from Trinidad, Malaysia and North America. Production per share is forecast to increase by 10%, contingent on Talisman repurchasing an additional 10 million common shares in the first quarter of 2005. Talisman believes it can sustain 5-10% production per share growth in 2006 and again in 2007, from existing development programs (deep gas in North America, PM-305 in Malaysia, Tweedsmuir in the North Sea, Algeria expansion, Corridor gas sales in Indonesia).

Liquid volumes are expected to increase between 2-10%. The major increases come from first oil production in Trinidad and startup of the South Angsi field in Malaysia. Indonesian oil volumes are lower with the planned relinquishment of the Tanjung concession. Gas volumes are forecast to increase 2-7%. The majority of the increase is expected to come from Talisman's successful deep gas drilling programs in North America.


Talisman has budgeted approximately $3.1 billion in exploration and development spending in 2005, up 15% over 2004.

Exploration & Development ($ million)

                                   2003     2004(1)           2005(2)
                                  -----     ------            ------
North America                     1,109      1,480             1,445
North Sea                           496        550             1,025
Indonesia                            41         25                75
Malaysia/Vietnam                    275        240               235
Algeria                              34         15                55
Trinidad                            130        195               100
Other                                95        151               125
                                  -----      -----             -----

                                  2,180      2,656             3,060

Approximately half of the money will be spent on drilling with 525 domestic and 102 international exploration and development wells planned. The other major budget items are plant and equipment ($1.1 billion) and land/G&G ($300 million).

Exploration and development spending in North America is estimated at $1,445 million (47% of total Company spending). Ninety per cent of conventional North American spending will be gas focused.

Capital spending in the North Sea is expected to increase to just over one billion dollars in 2005. The increase reflects the program to develop the Tweedsmuir fields, with first production expected late in 2006.

Indonesian spending will increase with expansion of the gas processing facility at Grissik in the Corridor Block. Spending in Malaysia and Vietnam is expected to total $235 million, including completion of the South Angsi project and additional gas processing facilities at PM-3. Algerian spending will increase with expansion of the MLN facilities. Spending in Trinidad will drop this year with completion of the Angostura oil and gas development. Approximately two-thirds of the budget in Trinidad will be directed towards exploration, including two onshore wells.


The 2005 sensitivities to changes in volumes, prices and exchange rates are as follows:

                                                Cash flow ($ million)
WTI oil price increase US$1.00/bbl                                55
North American natural gas price increase
(C$0.10/mcf)                                                      24
Exchange rate (US$0.01)                                           50
Volumes + 10% liquids                                            183
Volumes + 10% natural gas                                        180

The sensitivities take into account current Talisman hedges for 2005. Talisman has hedged approximately 1.6% of North American gas production and 2.5% of worldwide liquids production through a combination of financial and physical fixed price contracts and collars. Gas volumes have been hedged at an average price of approximately C$3.50/mcf. Approximately 6,000 bbls/d of oil volumes have been fixed at US$26.97/bbl.

Other key variables include:

Royalties are estimated at 16% of gross revenue (before hedging impact), essentially unchanged from the 2004 rate.

Unit operating and transportation costs are expected to fall by 5-7% in 2005, averaging approximately $7.70/boe. Reasons include an assumed stronger Canadian dollar and commencement of low cost production in Trinidad.

Unit G&A costs are expected to decrease, averaging approximately $1.14/boe in 2005 versus $1.17 in 2004.

Interest expense in both 2004 and 2005 is expected to average approximately $150 million. Estimated cash income tax and cash PRT in 2005 are expected to be essentially unchanged from 2004 estimates. However, these are highly sensitive to commodity price realizations and capital expenditure levels.

Financial Information

All dollar amounts are stated in Canadian dollars, except where otherwise indicated. Unless otherwise indicated below, the Canadian financial information included in this news release is set out in accordance with Canadian generally accepted accounting principles, which differ from generally accepted accounting principles in the U.S. See the notes to the Company's consolidated financial statements for information concerning significant differences between Canadian and U.S. generally accepted accounting principles.

Non-GAAP Financial Measures

Cash flow per share is one measure used by the Company to assess operating results. Cash flow per share is not defined by Canadian or US GAAP and as such does not have a standardized meaning prescribed by Canadian or US GAAP. Cash flow per share may not be comparable to similarly titled measures reported by other companies. Cash flow per share should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income per share as determined in accordance with Canadian or US GAAP as an indicator of the Company's performance or liquidity. Cash flow per share as presented in this news release has been calculated on a consistent basis for the year ended December 31, 2004 and the year ending December 31, 2005.

This news release does not include an estimate of the 2004 and 2005 net income per share as it is not practicable to do so at this time.

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