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Press release from Marketwire

Talisman Energy 2011

157% Reserves Replacement Underlying Production Growth Up 9% Fourth Quarter Cash Flow Up 25%

Wednesday, February 15, 2012

Talisman Energy 201105:00 EST Wednesday, February 15, 2012CALGARY, ALBERTA--(Marketwire - Feb. 15, 2012) - Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) reported its operating and (unaudited) financial results for 2011. All values in this release are in US$ unless otherwise stated.Cash flow(1) was $3.4 billion, up 16% year over year. Fourth quarter cash flow was up 25% over the same period last year, due to higher oil prices. Net income was $776 million, down 18% due to higher DD&A, lower gains on asset sales, and higher operating expenses and taxes. Earnings from operations1 increased 9% year over year, to $604 million. Production averaged 426,000 boe/d, an increase in underlying production of 9% over the previous year. Proved reserves replacement was 157%, at a cost of less than $20/boe. The company's three-year replacement cost trend continues to improve. Shale volumes in North America more than doubled year over year, to 500 mmcfe/d. The company commenced drilling in the Duvernay shale play. The non-operated Kitan project was commissioned and started producing oil in October. The company drilled a successful well in PNG at year-end as part of its gas aggregation strategy and continues its active drilling program in Colombia. (1) The terms "cash flow" and "earnings from operations" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release."2011 saw its share of successes as well as challenges for the company," said John A. Manzoni, President and Chief Executive Officer. "North American natural gas prices fell by a third, ending the year below $3, and we saw a significant tax increase in the UK. In addition, our own delivery, particularly in the North Sea, fell short of expectations."There were also a large number of positives during the year. Oil prices remained high and helped drive annual cash flow up by 16%. The company grew underlying production by 9% with record shale volumes, two new projects in Southeast Asia and production from Colombia. We have built out our Eagle Ford organization to full capacity from a standing start and started piloting the liquids-rich Duvernay shale, which we will test through this year. "We have an active exploration and appraisal drilling program in Colombia, which continues to demonstrate success. We drilled two encouraging development wells in Piedemonte and continue to appraise Block 6 and the Akacias discovery in Block 9. In Southeast Asia, gas prices averaged $9.30/mcf in 2011, and the business is expected to grow at an average rate of approximately 8% per year over the next few years. "Talisman drilled a successful gas condensate well at year-end in Papua New Guinea (PNG), providing ongoing confidence in our gas aggregation strategy. We are also making excellent progress towards bringing in a strategic partner. In the Kurdistan Region of northern Iraq, we have confirmed a substantial natural gas and condensate discovery with our recent Topkhana well."We have reduced replacement costs by 50% over the last three years, improving our long-term profitability. In 2011, our reserves replacement cost was less than $20/boe, with costs in North America less than $10/boe. We replaced 157% of production with proved reserves last year. "In setting our plans for 2012, our expectation is that North American gas prices will remain low, but that oil will be underpinned at $85/bbl or more. Our priorities are profitability versus headline growth, while preserving our balance sheet. We will reduce exploration and development spending from approximately $4.5 billion to around $4 billion, with 80% of this investment directed towards liquids-rich opportunities. Areas of increased investment this year will include the liquids-rich Eagle Ford and Duvernay shale plays, as well as Colombia. "We will continue to focus our portfolio and seek to divest some non-core assets in our North American business, reduce our exposure in the North Sea, and take decisions on exiting some exploration areas as we drill them over the course of the next 12 months. Talisman's balanced portfolio provides options to redirect capital, and to adjust focus as external conditions change. "As a result of the reduction in spending and the shift to liquids, we expect underlying production growth of 0 - 5% this year. However, we are setting Talisman up for an increase in liquids production in 2013 and beyond. For example, we expect to grow liquids production in North America from approximately 25,000 bbls/d in 2012 to over 60,000 bbls/d by 2015. And we remain confident in our projection of 5 - 10% average annual production growth through the medium term." Financial ResultsThe financial information contained in this release is unaudited. The company expects to file its audited Consolidated Financial Statements for the year ended December 31, 2011, along with the related Management's Discussion and Analysis, Annual Information Form and Annual Report on Form 40-F, by March 5, 2012.The company announced its capital spending plans for 2012 on January 10, 2012. For additional information, please visit Talisman's website at www.talisman-energy.com.Financial ResultsDecember 31Three Months EndedYear Ended2011201020112010Cash flow(2) ($ million)8246593,4342,954Cash flow per share(2)0.810.653.362.90Net income (loss) ($ million)(117)(350)776945Net income (loss) per share(0.11)(0.34)0.760.93Earnings from operations(2) ($ million)114129604552Earnings from operations per share(2)0.110.130.590.54Average shares outstanding - basic (million)1,0211,0181,0231,018(2) The terms "cash flow," "cash flow per share," "earnings from operations," "earnings from operations per share," "exploration and development spending" and "net debt" are non-GAAP measures. Please see the advisories and reconciliations elsewhere in this news release.Cash flow was $3.4 billion for the year, up from $3.0 billion in 2010, with higher oil prices offsetting higher royalties, operating expenses and cash taxes. Cash flow for the quarter was $824 million versus $659 million a year ago.Net income was $776 million versus $945 million in 2010, reflecting higher DD&A with new projects in Southeast Asia and the acquisition of producing assets in Colombia; lower gains on asset sales in 2011; higher operating expenses and taxes; and lower mark-to-market gains on derivatives. The company recorded a net loss of $117 million in the fourth quarter, compared to a net loss of $350 million in 2010.Earnings from operations, which exclude non-operational items, were $604 million in 2011, compared to $552 million in 2010.Exploration and development spending(2) for the year totaled $4.6 billion. North America accounted for 49% of spending, the North Sea 27%, and Southeast Asia 15%. Year-end net debt(2) was $4.5 billion.Production December 31Three Months EndedYear Ended2011201020112010Oil and liquids (mbbls/d)North America26212323North Sea9112198113Southeast Asia38333439Other25152314Total oil and liquids (mbbls/d)180190178189Natural gas (mmcf/d)North America969780899778North Sea5610952104Southeast Asia508469506485Other39-34-Total natural gas (mmcf/d)1,5721,3581,4911,367Total (mboe/d)442417426417Assets sold - North America (mboe/d)-8-27Production from ongoing operations (mboe/d)442409426390Production averaged 426,000 boe/d, an increase of 9% from ongoing operations over the previous year, due principally to increased volumes in North America and Colombia. The increase was partially offset by lower North Sea production. NetbacksDecember 31Three Months EndedYear Ended2011201020112010Total company netback ($/boe)33.8134.2937.2531.42Oil and liquids netback ($/bbl)57.6652.5560.3444.94Natural gas netback ($/mcf)2.903.163.463.36During 2011, the company's average gross netback was $37.25/boe, 19% higher than in 2010 due primarily to higher global oil and liquids prices.WTI oil prices averaged $95.13/bbl for the year, up 20% from 2010. NYMEX natural gas averaged $4.07/mmbtu, compared to $4.39/mmbtu a year ago.Gross Proved Reserves(3)Proved Reserves SEC PricingmmboeDecember 31, 20101,382.5Discoveries, extensions and additions240.7Net acquisitions and dispositions9.5Price revisions7.6Other revisions2.7Production(155.4)December 31, 20111,487.6(3) The reserves data and other oil and gas information included herein is determined in accordance with SEC standards. Reserves are Talisman share working interest plus royalty interest before royalties payable. Please see advisories elsewhere in this news release.The company increased gross proved reserves by 8% in 2011. Talisman added 243 million boe of proved reserves (excluding price revisions) compared to production of 155 million boe, replacing 157% of 2011 production. North America accounted for the largest increase in reserves as a result of successful drilling programs in the Marcellus, Montney and Eagle Ford shale plays. Price-related revisions increased proved reserves by 8 million boe, principally related to the company's North Sea operations. At year-end, North America, Southeast Asia and the North Sea accounted for 48%, 26% and 21% respectively of the company's gross proved reserves. Proved undeveloped reserves accounted for 37% of the company total. North America ProductionDecember 31Three Months EndedYear Ended2011201020112010Shale (mmcfe/d)Marcellus486272413181Montney/other56625632Eagle Ford548314Total shale (mmcfe/d)596342500217Conventional total (mboe/d)889490117Assets sold (mboe/d)-8-27Total NAO production (mboe/d)187151173153We are shifting our focus to the liquids-rich parts of our portfolio. We expect to grow our liquids production in North America from approximately 25,000 bbls/d in 2012, to over 60,000 bbls/d by 2015.North American exploration and development spending for the year was $2.2 billion, the majority of which was spent in the Marcellus and Eagle Ford shale plays. Production from ongoing operations increased by 37%, with natural gas production increasing by 41% due principally to successful development in the Marcellus and Eagle Ford. Shale production doubled year over year, averaging 500 mmcfe/d.In the Marcellus we ended the year with 10 operated rigs. Production is expected to remain relatively flat going forward as we reduce activity in light of low natural gas prices. The company may reduce to as few as three rigs over the course of the year.In the liquids-rich Eagle Ford we ended the year with 10 operated rigs. In 2012, we expect this to increase to 14 rigs. Production is expected to at least double from approximately 30 mmcfe/d as we build out our drilling programs and secure access to additional egress.In the Montney, we plan to reduce our program to four rigs, from 11 in the fourth quarter of last year, primarily due to low gas prices. We will continue our program to optimize recovery in the thick Montney shale. In the second quarter of the year, Talisman acquired a significant amount of acreage in the liquids-rich Duvernay shale in Alberta, where we now hold approximately 360,000 net acres. We commenced a pilot program last year and plan to drill at least six wells in 2012. The company continued to develop its conventional assets with exploration and development spending of more than $400 million. This year we will focus on expanding our liquids-rich Wild River play, as well as continuing the pilot programs in the Cardium oil and wet gas windows.Southeast AsiaProduction December 31Three Months EndedYear Ended2011201020112010Malaysia liquids (mbbls/d)15171721Malaysia gas (mmcf/d)9910211398Malaysia total (mboe/d)31353637Indonesia liquids (mbbls/d)11111012Indonesia gas (mmcf/d)409367393387Indonesia total (mboe/d)80727676Vietnam (mboe/d)2222Australia (mboe/d)10354Total (mboe/d)123112119119Southeast Asia is a self-funding growth area with natural gas prices averaging $9.30/mcf in 2011. The majority of our gas sales contracts in the region are linked to oil price benchmarks. We achieved solid delivery against production and profitability objectives in 2011 and expect more of the same this year.Natural gas sales totaled 506 mmcf/d, an increase of 4% year over year as a result of improved production efficiency at PM-3 and the startup of Jambi Merang. Overall annual oil and gas production was flat compared to the prior year due to turnarounds, natural declines and a one-time re-determination in 2010 of the South Angsi field in Malaysia. Talisman's exploration and development spending in the region was $695 million.In Malaysia, overall annual production from ongoing operations was unchanged year over year. In PM-3 CAA, the company focused on optimization initiatives to support strong regional natural gas demand, increasing gas production by 15%. In Indonesia, fourth quarter gas production was 11% higher over the same period last year, due to Jambi Merang producing for a full quarter and higher uptime at Tangguh. Ongoing facilities development at Corridor continues to secure gas production for long-term supply contracts. In December, the Suban field was unitized with an adjacent PSC, reducing Talisman's share in the field from 36% to approximately 32%. This reduced year-end reserves and will impact production by approximately 4,500 boe/d; this has been factored into 2012 guidance.In Vietnam, production averaged 1,900 bbls/d. The Hai Su Trang and Hai Su Den (HST/HSD) development was sanctioned in December 2011, with first production planned for the second half of 2013.Production in Australia averaged 4,600 bbls/d, an increase of 31% over the previous year, with the commissioning of the Kitan field completed in the fourth quarter.North SeaProduction (mboe/d)December 31Three Months EndedYear Ended2011201020112010UK64857177Norway36543554Total (mboe/d)100139106131We continue to invest in the North Sea to maintain the integrity of a mature set of assets and to improve operational efficiency in order to sustain steady production.North Sea exploration and development spending was $1.2 billion in 2011, focused on developments at Auk South and Auk North in the UK, Yme in Norway and the Claymore replacement compression project in the UK. The region contributed $600 million for reinvestment elsewhere in the business in a high netback environment. Production decreased 19% year over year, averaging 106,000 boe/d as a result of extended turnarounds and natural reservoir declines.In the UK, a planned turnaround at Claymore was extended to complete remediation work in the third quarter; production recommenced early in the fourth quarter. The UK Tartan platform, which was shut down throughout the fourth quarter for safety-related upgrades, is expected to recommence production by the end of the first quarter of 2012. In Norway, after the annual turnaround was completed at Rev, issues related to the host platform delayed the restart of production until the end of the third quarter. Natural declines also contributed to reduced production in the year. Work to ensure the Yme platform meets contract requirements and Norwegian specifications continues to be behind schedule. Talisman is in discussions with the contractor to agree the best path to improving productivity, and completing the necessary work. We expect to be able to define a path forward during the first quarter of 2012. International ExplorationThe major focus of the exploration program this year will be Colombia, where we are in the process of moving discoveries in CPO-9 and CPE-6 from the evaluation phase into commerciality. We will continue to high grade the exploration portfolio by seeking new organic options and rationalizing others at an earlier stage in the cycle. In Colombia, production averaged 13,400 boe/d in 2011. In the Piedemonte development, two development wells were successfully drilled with encouraging results, and two additional development wells were spudded in the third quarter. Drilling continues, with two rigs currently in the field. In the heavy oil region of Colombia, a portion of CPE-6 was converted to an Exploration and Production Contract following the success of our stratigraphic well program. Talisman is participating in a six-well stratigraphic/appraisal drilling program, expected to finish in the early part of 2012. In block CPO-9, the Akacias-1 well has produced over 325,000 boe since May 2011 on a long-term test. In the fourth quarter, the first appraisal well on the Akacias structure was drilled and will be tested this year. We intend to continue appraisal activity on the field and will seek a declaration of commerciality in 2012.In Papua New Guinea, the Stanley appraisal well confirmed the existence of a significant gas accumulation. The Horizon-operated Elevala-2 well that was drilling over year-end 2011 was side-tracked and then rig released in late January 2012, with initial gas and liquid results that are very encouraging. Talisman remains confident in our target to successfully aggregate 2 - 4 tcf of gas. The company is also making excellent progress to bring in a strategic partner. In Peru, Talisman spudded the Situche Norte-4X exploration well, which is currently drilling. In the Kurdistan Region of northern Iraq, the Topkhana-1 exploration well finished drilling with a significant gas and condensate discovery, and the Kurdamir-2 exploration well was spudded. In Poland, Talisman drilled the first exploration well of a three-well program and spudded the second well in December. In Indonesia, Talisman drilled the Lempuk-1 deepwater well, which has been plugged and abandoned with gas shows.Preferred Share Dividend DeclarationThe company has declared the first quarterly dividend on its Cumulative Redeemable Rate Reset First Preferred Shares, Series 1 (the "Series 1 Preferred Shares") which were issued last December. A dividend of C$0.3136 per Series 1 Preferred Share will be paid on April 2, 2012 to shareholders of record at the close of business on March 12, 2012.Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North America, the North Sea and Southeast Asia. The company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York Stock Exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.Forward-Looking InformationThis news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding: business strategy, priorities and plans; planned spending reductions; planned capital allocation; production and production growth; expected North American production; planned shift to liquids in North America and timing of such shift; planned drilling and testing in the Duvernay shale; planned rigs in the Marcellus, Montney and Eagle Ford shale; planned development in Wild River and continuing piloting in the Cardium; expected first production at the HST/HSD development; expected recommencement at the Tartan platform; expected timing of plans for Yme; exit from some of the company's exploration areas, divestitures in North America and reducing exposure in the North Sea; planned rigs and drilling in Colombia and intention to seek declaration of commerciality in the Akacias field; target aggregation in Papua New Guinea; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.The factors or assumptions on which the forward-looking information is based include: assumptions inherent in current guidance; projected capital investment levels; the flexibility of capital spending plans and the associated sources of funding; the successful and timely implementation of capital projects; the continuation of tax, royalty and regulatory regimes; ability to obtain regulatory and partner approval; commodity price and cost assumptions; and other risks and uncertainties described in the filings made by the company with securities regulatory authorities. The company believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct. Forward-looking information for periods past 2012 assumes escalating commodity prices. Closing of any transactions will be subject to receipt of all necessary regulatory approvals and completion of definitive agreements. Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this news release. The material risk factors include, but are not limited to: the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market prices and demand and unpredictable facilities outages; risks and uncertainties involving geology of oil and gas deposits; uncertainty related to securing sufficient egress and markets to meet shale gas production; the uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk; the uncertainty of estimates and projections relating to production, costs and expenses, including decommissioning liabilities; risks related to capital allocation decisions, including potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations in oil and gas prices, foreign currency exchange rates, interest rates and tax or royalty rates; the outcome and effects of any future acquisitions and dispositions; health, safety, security and environmental risks, including risks related to the possibility of major accidents; environmental regulatory and compliance risks, including with respect to greenhouse gases and hydraulic fracturing; uncertainties as to the availability and cost of credit and other financing and changes in capital markets; risks in conducting foreign operations (for example, civil, political and fiscal instability and corruption); risks related to the attraction, retention and development of personnel; changes in general economic and business conditions; the possibility that government policies, regulations or laws may change or governmental approvals may be delayed or withheld, including with respect to shale gas drilling; and results of the company's risk mitigation strategies, including insurance and any hedging activities.The foregoing list of risk factors is not exhaustive. Additional information on these and other factors which could affect the company's operations, financial results or strategy are included in Talisman's most recent Annual Information Form. In addition, information is available in the company's other reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission. Forward-looking information is based on the estimates and opinions of the company's management at the time the information is presented. The company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law. Oil and Gas InformationReserves National Instrument 51-101 ("NI 51-101") of the Canadian Securities Administrators imposes oil and gas disclosure standards for Canadian public companies engaged in oil and gas activities. Talisman has obtained an exemption from Canadian securities regulatory authorities to permit it to provide certain disclosures in accordance with the US disclosure standards, in addition to the disclosure mandated by NI 51-101, in order to provide for comparability of oil and gas disclosure with that provided by US and other international issuers. Accordingly, the reserves data and certain other oil and gas information included in this news release are disclosed in accordance with US disclosure standards. A separate exemption granted to Talisman also permits it to disclose internally evaluated reserves data. Any reserves and resources data contained in this news release reflects Talisman's estimates of its reserves and resources. While Talisman annually obtains an independent audit of a portion of its proved and probable reserves, no independent qualified reserves evaluator or auditor was involved in the preparation of the reserves and resources data disclosed in this news release.Production and Reserves Volumes Unless otherwise stated, production volumes and reserves estimates are stated on a company interest basis prior to the deduction of royalties and similar payments. In the US, net production volumes and reserve estimates are reported after the deduction of these amounts. Reserve Replacement The reserves replacement ratio was calculated by dividing the sum of yearly changes (discoveries, extensions and additions and other revisions, before acquisitions and dispositions and excluding price revisions) to estimated proved oil and gas reserves during 2011 by the company's production for 2011. The company uses reserves replacement ratio as an indicator of the company's ability to replenish annual production volumes and grow its reserves. It should be noted that reserves replacement ratio is a statistical indicator that has limitations. As an annual measure, the ratio is limited because it typically varies widely, based on the extent and timing of new discoveries, project sanctioning and property acquisitions. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not include cost, value or timing of future production of new reserves, it cannot be used as a measure of value creation.Replacement CostsIn this news release, Talisman discloses a reduction in replacement costs. Replacement costs are used by the company to determine the cost of reserves additions in a period. Talisman's reported replacement costs may not be comparable to similarly titled measures used by other companies. Replacement costs may not reflect full cycle replacement costs. Replacement costs' predictive and comparative value is limited for the aforementioned reasons. Replacement costs are calculated by dividing exploration and development capital spending (including discontinued operations, but excluding midstream) by gross proved reserves additions.BOE Conversion Throughout this news release, barrels of oil equivalent (boe) are calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil (bbl). This news release also includes references to mcf equivalents (mcfes) which are calculated at a conversion rate of one barrel of oil to six thousand cubic feet of gas. Boes and Mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf:1bbl and an mcfe conversion ratio of 1bbl:6mcf are based on an energy equivalence conversion method primarily applicable at the burner tip and do not represent a value equivalency at the well head.Netbacks Talisman also discloses netbacks for the company in this news release. Netbacks per boe are calculated by deducting from the sales price associated royalties, operating and transportation costs.US Dollars and IFRS Dollar amounts are presented in US dollars, except where otherwise indicated. The financial information in this news release is presented in accordance with International Financial Reporting Standards (IFRS). IFRS differs from generally accepted accounting principles in the US. Non-GAAP Financial Measures Included in this news release are references to financial measures commonly used in the oil and gas industry such as cash flow, earnings from operations, capital expenditures including exploration expensed and net debt. These terms are not defined by IFRS. Consequently, these are referred to as non-GAAP measures. Talisman's reported results of such measures may not be comparable to similarly titled measures reported by other companies. Cash Flow $ million, except per share amountsThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Cash provided by operating activities5114922,8123,144Changes in non-cash working capital127280397(367)Add: Exploration expenditure92142427374Less: Finance costs (cash)(51)(55)(202)(197)Cash flow8246593,4342,954Cash flow per share0.810.653.362.90Diluted cash flow per share0.810.653.312.90(1) The three month period and year ended December 31, 2011 includes a provision for a doubtful account (net of tax) of $22 million.Cash flow, as commonly used in the oil and gas industry, represents net income before exploration costs, DD&A, future taxes and other non-cash expenses. Cash flow is used by the company to assess operating results between years and between peer companies using different accounting policies. Cash flow should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income as determined in accordance with IFRS as an indicator of the company's performance or liquidity. Cash flow per share is cash flow divided by the average number of common shares outstanding during the period. Diluted cash flow per share is cash flow divided by the diluted number of common shares outstanding during the period. A reconciliation of cash provided by operating activities to cash flow is provided above.Earnings from Operations $ million, except per share amountsThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Net income (loss)(117)(350)776945Loss (gain) on disposal and income from assets sold (tax adjusted)11(75)(141)(550)Unrealized loss (gain) on financial instruments (tax adjusted)13964(63)(250)Share-based payments(tax adjusted)235313(303)279Foreign exchange on debt (tax adjusted)(1)-(1)-Impairment losses (tax adjusted)65126104158Provision for doubtful account (tax adjusted)22-22-Deferred tax adjustments36051210(30)Earnings from operations114129604552Earnings from operations per share0.110.130.590.54Diluted earnings from operations per share0.110.130.580.54Unrealized loss (gain) on financial instruments relates to the change in the period of the mark-to-market value of the company's outstanding commodity derivatives that are classified as held-for-trading financial instruments. Share-based payments relate principally to the mark-to-market value of the company's outstanding stock options and cash units at December 31. The company uses the Black-Scholes option pricing model to estimate the fair value of its share-based payment plans. Deferred tax adjustments include deferred taxes relating to unrealized foreign exchange gains and losses associated with the impact of fluctuations in the Canadian dollar on foreign denominated debt, intercompany loans and tax pool balances, as well as a remeasurement of UK deferred tax assets and liabilities in response to a statutory rate change. Earnings from operations are calculated by adjusting the company's net income (loss) per the financial statements, for certain items of a non-operational nature, on an after tax basis. The company uses this information to evaluate performance of core operational activities on a comparable basis between periods. Earnings from operations should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with IFRS as an indicator of the company's performance or liquidity. Earnings from operations per share are earnings from operations divided by the average number of common shares outstanding during the period. Diluted earnings from operations per share are earnings from operations divided by the diluted number of common shares outstanding during the period. A reconciliation of net income (loss) to earnings from operations is provided above. Capital Expenditure Including Exploration Expensed $ millionThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Exploration, development and other1,2871,0954,3033,566Exploration expensed92142427374Capital expenditure including exploration expensed1,3791,2374,730 3,940Capital expenditure including exploration expensed is calculated by adjusting the capital expenditure per the financial statements for exploration costs that were expensed as incurred.Exploration and Development Expenditure Including Exploration Expensed $ millionThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Exploration and development1,2021,0594,1423,192Exploration expensed92142427374Exploration and development expenditure including exploration expensed1,2941,2014,569 3,566North America Exploration and Development Expenditure Including Exploration Expensed $ millionThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Exploration and development6635952,1551,700Exploration expensed1677052Exploration and development expenditure including exploration expensed6796022,225 1,752North Sea Exploration and Development Expenditure Including Exploration Expensed $ millionThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Exploration and development2602281,2051,117Exploration expensed12144047Exploration and development expenditure including exploration expensed2722421,245 1,164Southeast Asia Exploration and Development Expenditure Including Exploration Expensed $ millionThree months endedYear endedDec. 31, 2011Dec. 31, 2010Dec. 31, 2011Dec. 31, 2010Exploration and development181154487442Exploration expensed3653208116Exploration and development expenditure including exploration expensed217207695 558Exploration and development expenditure including exploration expensed is calculated by adjusting the exploration and development expenditure per the financial statements for exploration costs that were expensed as incurred.Net Debt $ millionDecember 31, 2011December 31, 2010Long-term debt4,8954,204Bank indebtedness602Cash and cash equivalents(474)(1,655)Net debt4,4812,551Net debt is calculated by adjusting the company's long-term debt per the financial statements for bank indebtedness, cash and cash equivalents. The company uses this information to assess its true debt position and eliminate the impact of timing differences.Talisman Energy Inc.Highlights(unaudited)Three months endedYear endedDecember 31December 312011201020112010Financial(millions of US$ unless otherwise stated)Cash flow (1)8246593,4342,954Net income (loss)(117)(350)776945Capital expenditure including exploration expensed (1)1,3791,2374,7303,940Per common share (US$)Cash flow (1)0.810.653.362.90Net income (loss)(0.11)(0.34)0.760.93Production(Daily Average - Gross)Oil and liquids (bbls/d)North America25,66920,77323,16023,133North Sea90,896120,94097,507113,047Southeast Asia38,17333,68134,37238,481Other24,81014,97222,69713,983Total oil and liquids179,548190,366177,736188,644Natural gas (mmcf/d)North America969780899778North Sea5610952104Southeast Asia508469506485Other39-34-Total natural gas1,5721,3581,4911,367Total mboe/d (2)442417426417PricesOil and liquids (US$/bbl)North America78.7362.9375.1962.59North Sea108.8287.08110.7580.13Southeast Asia110.3592.90115.8280.54Other103.3497.42110.3282.69Total oil and liquids104.0986.27107.0478.19Natural gas (US$/mcf)North America3.414.373.934.79North Sea8.817.578.626.35Southeast Asia9.297.139.306.72Other4.22-4.22-Total natural gas5.525.585.925.59Total (US$/boe) (2)62.0057.6065.3553.80(1) Cash flow, capital expenditure including exploration expensed and cash flow per share are non-GAAP measures.(2) Barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil.Talisman Energy Inc.Condensed Consolidated Balance Sheets(unaudited)December 31,December 31,January 1,(millions of US$)201120102010AssetsCurrentCash and cash equivalents4741,6551,628Accounts receivable1,5501,2871,216Risk management4211929Inventories164144141Prepaid expenses24208Assets held for sale--222,2543,2253,044Other assets10166774Investments39512134Risk management242540Goodwill1,3171,1641,183Property, plant and equipment15,90913,26613,254Exploration and evaluation assets3,9543,4422,212Deferred tax assets27218414721,97218,86916,944Total assets24,22622,09419,988LiabilitiesCurrentBank indebtedness60235Accounts payable and accrued liabilities2,6222,7222,040Risk management-117266Income and other taxes payable371513341Current portion of long-term debt41035910Liabilities associated with assets held for sale--73,4633,7132,699Decommissioning liabilities2,9822,5802,003Other long-term obligations346326316Risk management--6Long-term debt4,4853,8453,601Deferred tax liabilities2,9322,4352,51610,7459,1868,442Shareholders' equityCommon shares1,5611,4801,401Preferred Shares191--Contributed surplus186108117Retained earnings7,2926,8196,135Accumulated other comprehensive income7887881,19410,0189,1958,847Total liabilities and shareholders' equity24,22622,09419,988Talisman Energy Inc.Condensed Consolidated Statements of Income(unaudited)Three months endedYear endedDecember 31December 31(millions of US$)2011201020112010RevenueSales2,0621,8358,1946,875Other income202878107Total revenue and other income2,0821,8638,2726,982ExpensesOperating6304742,1901,890Transportation5755216221General and administrative128102431371Depreciation, depletion and amortization5464471,9491,788Impairment124211226301Dry hole6842241113Exploration92142427374Finance costs6973278276Share-based payments expense (recovery)35236(310)212(Gain) loss on held-for-trading financial instruments79124210(87)(Gain) loss on asset disposals14(93)(192)(520)Other, net1183816172Total expenses1,9601,8515,8275,011Income before taxes122122,4451,971TaxesCurrent income tax2904381,4411,136Deferred income tax (recovery)(51)(76)228(110)2393621,6691,026Net income (loss)(117)(350)776945Per common share (US$):Net income (loss)(0.11)(0.34)0.760.93Diluted net income (loss)(0.11)(0.34)0.380.93Weighted average number of common shares outstanding (millions)Basic1,0211,0181,0231,018Diluted1,0211,0181,0381,018Talisman Energy Inc.Condensed Consolidated Statements of Cash Flows(unaudited)Three months endedYear endedDecember 31December 31(millions of US$)2011201020112010Operating activitiesNet income (loss)(117)(350)776945Add: Finance costs (cash and non-cash)6973278276Dividends from equity investments--9-Items not involving cash8098492,1241,5567615723,1872,777Changes in non-cash working capital(250)(80)(375)367Cash provided by operating activities5114922,8123,144Investing activitiesCapital expendituresExploration, development and other(1,287)(1,095)(4,303)(3,566)Corporate acquisitions, net of cash acquired--(156)(183)Property acquisitions(6)(904)(737)(1,340)Proceeds of resource property dispositions(7)5365272,194Repayment of note receivable--40-Acquisition deposit-(18)18(630)Investments--54-Changes in non-cash working capital2517718274Cash used in investing activities(1,275)(1,304)(4,539)(3,251)Financing activitiesLong-term debt repaid(3)-(313)(10)Long-term debt issued8125951,044595Common shares issued54311455Common shares purchased(4)(26)(94)(75)Preferred shares issued191-191-Finance costs (cash)(51)(55)(202)(197)Common share dividends(139)(127)(277)(249)Deferred credits and other(1)10(9)(2)Changes in non-cash working capital(21)211(1)Cash provided by financing activities789442465116Effect of translation on foreign currency cash and cash equivalents(3)102351Net increase (decrease) in cash and cash equivalents22(360)(1,239)60Cash and cash equivalents net of bank indebtedness, beginning of period3922,0131,6531,593Cash and cash equivalents net of bank indebtedness, end of period4141,6534141,653Cash and cash equivalents4741,6554741,655Bank indebtedness(60)(2)(60)(2)Cash and cash equivalents net of bank indebtedness, end of period4141,6534141,653Items not involving cash are as follows:Three months endedYear endedDecember 31December 31(millions of US$)2011201020112010Depreciation, depletion and amortization5464471,9491,788Impairment, net of reversals124211226301Dry hole6842241113Share-based payments expense (recovery)34207(324)158(Gain) loss on asset disposals14(93)(192)(520)Unrealized (gain) loss on held-for-trading financial instruments4073(61)(258)Deferred income tax(51)(76)228(110)Foreign exchange(1)8(11)3PP&E derecognition782628Other282242538098492,1241,556Talisman Energy Inc.Segmented Information(unaudited)North America (1) North Sea (2)Three months endedYear ended Three months endedYear endedDecember 31December 31 December 31December 31(millions of US$)20112010201120102011201020112010RevenueSales4193851,6951,6799661,0144,0743,526Other income18226385261421Total revenue and other income4374071,7581,7649681,0204,0883,547Segmented expensesOperating1201204544873762591,2921,096Transportation1912685922268495DD&A243192852717169177671766Impairment129911291161199113164Dry hole246(11)31510670Exploration167705212144047Other15322(25)835810591Total segmented expenses5444291,6011,3957046382,4112,329Segmented income (loss) before taxes(107)(22)1573692643821,6771,218Non-segmented expensesGeneral and administrativeFinance costsShare-based payments recoveryCurrency translation(Gain) loss on held-for-trading financial instruments(Gain) loss on asset disposalsTotal non-segmented expensesIncome before taxesCapital expendituresExploration30481982162321128133Development6365441,9601,4812372071,077984Midstream(3)3(3)3----Exploration and development6635952,1551,7002602281,2051,117AcquisitionsProceeds on dispositionsOther non-segmentedNet capital expendituresProperty, plant and equipment6,7405,3515,8095,368Exploration and evaluation assets2,3701,886538540Goodwill140149866866Other9872,389645920Segmented assets10,2379,7757,8587,694Non-segmented assetsTotal assetsDecommissioning liabilities3942102,3902,1961. North America2011201020112010Canada2683131,1271,454US16994631310Total revenue and other income4374071,7581,764Canada3,9373,920US2,8031,431Property, plant and equipment6,7405,351Canada1,207685US1,1631,201Exploration and evaluation assets2,3701,8862. North Sea2011201020112010UK6566442,8352,190Norway3123761,2531,357Total revenue and other income9681,0204,0883,547UK3,9273,763Norway1,8821,605Property, plant and equipment5,8095,368UK210260Norway328280Exploration and evaluation assets538540Talisman Energy Inc.Segmented Information(unaudited)Southeast Asia (3)Other (4)TotalThree months endedYear endedThree months endedYear endedThree months endedYear endedDecember 31December 31December 31December 31December 31December 31(millions of US$)201120102011201020112010201120102011201020112010RevenueSales5283751,8821,476149615431942,0621,8358,1946,875Other income--11----202878107Total revenue and other income5283751,8831,477149615431942,0821,8638,2726,982Segmented expensesOperating1128837228022772276304742,1901,890Transportation1316556031975755216221DD&A9370305277418121285464471,9491,788Impairment(16)21(16)21----124211226301Dry hole352712731-62236842241113Exploration3653208116286810915992142427374Other12(9)17169-2951195217387Total segmented expenses2852661,068801103903422491,6361,4235,4224,774Segmented income (loss) before taxes24310981567646(29)201(55)4464402,8502,208Non-segmented expensesGeneral and administrative128102431371Finance costs6973278276Share-based payments expense (recovery)35236(310)212Currency translation(1)(14)(12)(15)(Gain) loss on held-for-trading financial instruments79124210(87)(Gain) loss on asset disposals14(93)(192)(520)Total non-segmented expenses324428405237Income before taxes122122,4451,971Capital expendituresExploration68532571255661138119177183721593Development1131012303174221157951,0288733,4242,877Midstream--------(3)3(3)3Exploration and development18115448744298822952141,2021,0594,1423,473Acquisitions(197)8981,3191,530Proceeds on dispositions5(538)(569)(2,273)Other non-segmented823215978Net capital expenditures1,0921,4515,0512,808Property, plant and equipment2,5012,29685925115,90913,266Exploration and evaluation assets4986275483893,9543,442Goodwill149149162-1,3171,164Other5606287881412,9804,078Segmented assets3,7083,7002,35778124,16021,950Non-segmented assets66144Total assets24,22622,094Decommissioning liabilities20818943153,0352,6103. Southeast Asia2011201020112010Indonesia259201974839Malaysia153123565481Vietnam401118352Australia7640161105Total revenue and other income5283751,8831,477Indonesia1,023986Malaysia8831,053Vietnam29719Papua New Guinea4726Australia251212Property, plant and equipment2,5012,296Indonesia1227Malaysia4129Vietnam5253Papua New Guinea440318Exploration and evaluation assets4986274. Other2011201020112010Algeria6161256194Colombia88-287-Total revenue and other income14961543194Algeria284251Colombia575-Property, plant and equipment859251Colombia7549Kurdistan303239Peru13398Other373Exploration and evaluation assets548389RESERVE ESTIMATESThe following tables sets forth Talisman's reserves as at December 31, 2011. The reserves estimates included in these tables were prepared using the standards of the US Securities and Exchange Commission ("SEC"), which requires that proved and probable reserves be estimated using existing economic conditions. The price used for calculating reserves is an unweighted arithmetic average of the historic first-day-of-the-month price for each month within the completed 12-month period unless the prices are defined by contractual obligations (excluding escalations based on future conditions).SEC Continuity of Gross Reserves 1,7OtherSoutheastLatinCanadaUSUKNorwayIndonesiaAsiaAmericaOtherTotalOil and Liquids (mmbbls)Total ProvedProved reserves at December 31, 2008 11154.3-216.756.632.439.4-45.1544.5Discoveries, additions and extensions4.8-5.21.1(1.7)7.4-12.229.0Purchase of reserves0.2---1.0---1.2Sale of reserves(45.7)-(0.2)(4.0)---(3.8)(53.7)Net revisions and transfers--77.014.51.13.8-(8.6)87.82009 Production(12.6)-(31.2)(12.3)(4.2)(10.7)-(5.9)(76.9)Proved reserves at December 31, 2009101.0-267.555.928.639.9-39.0531.9Discoveries, additions and extensions5.03.46.89.73.43.0-2.233.5Purchase of reserves-1.2--3.5---4.7Sale of reserves(18.5)(0.2)-----(0.7)(19.4)Net revisions and transfers0.2-18.01.80.96.7-0.227.82010 Production(8.4)(0.1)(27.0)(14.2)(4.3)(9.7)-(5.1)(68.8)Proved reserves at December 31, 201079.34.3265.353.232.139.9-35.6509.7Discoveries, additions and extensions3.118.3(4.2)2.31.013.7-0.634.8Purchase of reserves-0.7----18.8-19.5Sale of reserves(0.3)-------(0.3)Net revisions and transfers(1.7)0.610.77.2(0.2)1.1(0.1)1.519.12011 Production(7.7)(0.8)(25.5)(10.0)(4.0)(8.5)(2.8)(5.5)(64.8)Proved reserves at December 31, 201172.723.1246.352.728.946.215.932.2518.0Proved developedDecember 31, 2008 11143.4-173.324.826.024.9-35.2427.6December 31, 200992.6-197.126.123.231.2-23.7393.9December 31, 201074.60.9211.921.621.430.8-19.6380.8December 31, 201170.39.7203.117.020.031.18.319.8379.3OtherSoutheastLatinCanadaUSUKNorwayIndonesiaAsiaAmericaOtherTotalNatural Gas (bcf)Total ProvedProved reserves at December 31, 2008 112,507.0137.995.6101.91,886.0386.6-223.45,338.4Discoveries, additions and extensions201.2544.5-(0.5)88.627.9--861.7Purchase of reserves15.9---8.7---24.6Sale of reserves(137.6)(1.5)(67.0)----(220.5)(426.6)Net revisions and transfers(75.3)0.12.912.714.8(11.1)-(1.0)(56.9)2009 Production(262.7)(30.3)(7.0)(21.1)(120.6)(26.7)-(0.1)(468.5)Proved reserves at December 31, 20092,248.5650.724.593.01,877.5376.7-1.85,272.7Discoveries, additions and extensions286.4874.70.16.721.2(37.4)--1,151.7Purchase of reserves-23.0--60.7---83.7Sale of reserves(867.3)(7.3)-----(1.8)(876.4)Net revisions and transfers33.212.54.912.1(3.0)44.6--104.32010 Production(203.6)(80.5)(5.7)(32.2)(141.2)(35.9)--(499.1)Proved reserves at December 31, 20101,497.21,473.123.879.61,815.2348.0--5,236.9Discoveries, additions and extensions265.9953.7(0.2)4.64.27.3--1,235.5Purchase of reserves-4.8----116.9-121.7Sale of reserves(180.3)-------(180.3)Net revisions and transfers(31.6)87.3(1.2)(1.3)(107.3)1.6--(52.5)2011 Production(160.0)(167.5)(3.6)(15.3)(143.4)(41.3)(12.5)-(543.6)Proved reserves at December 31, 20111,391.22,351.418.867.61,568.7315.6104.4-5,817.7Proved developedDecember 31, 2008 112,066.8117.965.599.01,348.9199.0-1.23,898.3December 31, 20091,840.9197.922.491.21,231.6320.8-0.83,705.6December 31, 20101,134.7687.522.073.31,083.1281.3--3,281.9December 31, 20111,016.8965.018.363.1965.9250.477.9-3,357.4SEC Continuity of NET Reserves 1,8,9OtherSoutheastLatinCanadaUSUKNorwayIndonesiaAsiaAmericaOtherTotalOil and Liquids (mmbbls)Total ProvedProved reserves at December 31, 2008 11131.5-215.456.616.127.1-26.3473.0Discoveries, additions and extensions4.0-5.21.1(0.5)5.3-6.521.6Purchase of reserves0.1---0.7---0.8Sale of reserves(39.0)-(0.2)(4.0)---(3.7)(46.9)Net revisions and transfers2.7-76.814.5(1.8)3.8-(4.7)91.32009 Production(9.9)-(31.1)(12.3)(1.8)(7.6)-(3.4)(66.1)Proved reserves at December 31, 200989.4-266.155.912.728.6-21.0473.7Discoveries, additions and extensions4.72.56.89.71.42.5-1.028.6Purchase of reserves-0.9--1.5---2.4Sale of reserves(15.1)(0.2)-----(0.5)(15.8)Net revisions and transfers(2.4)0.118.01.8(0.8)0.6-(0.2)17.12010 Production(6.6)(0.1)(27.0)(14.2)(2.0)(6.1)-(2.4)(58.4)Proved reserves at December 31, 201070.03.2263.953.212.825.6-18.9447.6Discoveries, additions and extensions2.113.7(4.1)2.30.49.7-(0.9)23.2Purchase of reserves-0.6----15.1-15.7Sale of reserves(0.3)-------(0.3)Net revisions and transfers(3.5)0.310.47.24.10.5-(0.1)18.92011 Production(6.3)(0.5)(25.2)(10.0)(1.8)(5.5)(2.3)(2.4)(54.0)Proved reserves at December 31, 201162.017.3245.052.715.530.312.815.5451.1Proved developed--December 31, 2008 11122.0-172.024.813.517.720.2370.2December 31, 200982.1-196.026.111.021.213.0349.4December 31, 201065.60.7210.621.68.618.69.8335.5December 31, 201159.97.3201.917.09.919.06.79.0330.7OtherSoutheastLatinCanadaUSUKNorwayIndonesiaAsiaAmericaOtherTotalNatural Gas (bcf)Total ProvedProved reserves at December 31, 2008 112,169.2119.295.6101.91,407.7289.7222.84,406.1Discoveries, additions and extensions185.6474.6-(0.5)62.825.3-747.8Purchase of reserves14.2---7.5--21.7Sale of reserves(115.8)(1.4)(67.0)--(220.0)(404.2)Net revisions and transfers28.2-2.912.7(19.5)(33.3)(1.0)(10.0)2009 Production(238.4)(26.2)(7.0)(21.1)(84.4)(20.3)(0.1)(397.5)Proved reserves at December 31, 20092,043.0566.224.593.01,374.1261.41.74,363.9Discoveries, additions and extensions263.7738.60.16.78.1(22.6)-994.6Purchase of reserves-17.5--42.4--59.9Sale of reserves(772.5)(5.8)----(1.6)(779.9)Net revisions and transfers11.210.34.912.1(57.2)14.3(0.1)(4.5)2010 Production(190.9)(68.9)(5.7)(32.2)(98.2)(27.3)-(423.2)Proved reserves at December 31, 20101,354.51,257.923.879.61,269.2225.8-4,210.8Discoveries, additions and extensions251.1799.4(0.2)4.636.19.2--1,100.2Purchase of reserves-3.6----93.6-97.2Sale of reserves(165.5)-------(165.5)Net revisions and transfers3.566.8(1.4)(1.3)(94.1)(13.0)0.1-(39.4)2011 Production(150.9)(141.9)(3.5)(15.3)(104.0)(33.2)(10.2)-(459.0)Proved reserves at December 31, 20111,292.71,985.818.767.61,107.2188.883.5-4,744.3Proved developed--December 31, 2008 111,785.8101.865.599.01,022.2149.01.23,224.5December 31, 20091,663.5171.122.491.2915.2225.50.83,089.7December 31, 20101,011.4584.922.073.3763.7187.2-2,642.5December 31, 2011936.5814.718.263.1688.5149.762.3-2,733.0Summary of Oil and Gas ReservesProvedProvedTotalProbableProbableTotalDeveloped 1,2Undeveloped 1,3Proved 1Developed 4,5Undeveloped 4,6Probable 4Year ended December 31, 2011Gross 7Net 8,9Gross 7Net 8,9Gross 7Net 8,9Gross 7Net 8,9Gross 7Net 8,9Gross 7Net 8,9Oil and NGL (mmbls)North AmericaCanada70.359.92.42.172.762.014.511.51.81.416.312.9United States9.77.313.410.023.117.32.21.82.21.74.43.5North SeaUK203.1201.943.243.1246.3245.063.963.5118.8118.7182.7182.2Norway17.017.035.735.752.752.76.96.931.831.838.738.7Southeast AsiaIndonesia20.09.98.95.628.915.51.40.49.36.810.77.2Malaysia20.59.83.31.523.811.324.39.212.63.536.912.7Australia9.98.6--9.98.64.03.30.80.74.84.0Vietnam0.70.611.89.812.510.40.50.410.78.611.29.0Latin AmericaColombia 108.36.77.66.115.912.83.12.57.05.610.18.1Peru--------21.220.021.220.0OtherAlgeria19.89.012.46.532.215.57.53.04.21.611.74.6Total379.3330.7138.7120.4518.0451.1128.3102.5220.4200.4348.7302.9Natural Gas (bcf)North AmericaCanada1,016.8936.5374.4356.21,391.21,292.7327.8295.1194.4182.8522.2477.9United States965.0814.71,386.41,171.12,351.41,985.8166.4140.0610.9518.2777.3658.2North SeaUK18.318.20.50.518.818.78.98.5133.6133.5142.5142.0Norway63.163.14.54.567.667.619.419.445.645.665.065.0Southeast AsiaIndonesia965.9688.5602.8418.71,568.71,107.24.74.0506.4366.7511.1370.7Malaysia250.2149.556.831.5307.0181.0125.268.3168.799.5293.9167.8Australia------------Vietnam0.20.28.47.68.67.80.10.16.86.26.96.3Latin AmericaColombia 1077.962.326.521.2104.483.5------Peru------------OtherAlgeria------------Total3,357.42,733.02,460.32,011.35,817.74,744.3652.5535.41,666.41,352.52,318.91,887.9"Proved" reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible - from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for estimation. "Proved Developed" reserves are those reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Additional oil and gas expected to be obtained through installed extraction equipment and infrastructure operational at the time of the reserves estimate are included as proved developed reserves. "Proved Undeveloped" reserves are those reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells for which a relatively major expenditure is required for recompletion. Inclusion of reserves on undrilled acreage is limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. Probable reserves can be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir. Includes reserves assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. "Probable Developed" reserves are those reserves that are less certain to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well. Additional oil and gas expected to be obtained through installed extraction equipment and infrastructure operational at the time of the reserves estimate are included as probable developed reserves. "Probable Undeveloped" reserves are those reserves that are less certain to be recovered from new wells on undrilled acreage, or from existing wells for which a relatively major expenditure is required for recompletion. "Gross" reserves refer to the sum of (i) working interest reserves before deduction of royalty burdens payable, and (ii) royalty interest reserves. The Canadian Oil and Gas Evaluation Handbook ("COGEH") refers to this sum of reserves as "Company interest reserves". Royalty interest reserves for Canada were approximately 0.6 mmboe (proved) and 0.2 mmboe (probable) as at December 31, 2011. The inclusion of royalty interest volumes in gross reserves does not conform to COGEH standards applicable under NI 51-101. "Net" reserves are the remaining reserves of Talisman, after deduction of estimated royalty burdens and including royalty interests in the amount set out in note 7 above. Interests of various governments, other than working interests or income taxes, are accounted for as royalties. Royalties are reflected in "net" reserves using effective rates over the life of the contract. Reserves reported under Colombia include those reserves held through Talisman's 49% interest in Equion, which is accounted for using proportionate consolidation, as well as those reserves attributed to Talisman's other Colombia assets. December 31, 2008 reserves are based on a single day December 31, 2008 pricing methodology. FOR FURTHER INFORMATION PLEASE CONTACT: David Mann, Vice-President,Talisman Energy Inc. - Media and General InquiriesCorporate & Investor Communications(403) 237-1196(403) 237-1210 (FAX)tlm@talisman-energy.comORLyle McLeod, Vice-President,Talisman Energy Inc. - Shareholder and Investor InquiriesInvestor Relations403-237-1020(403) 237-1210 (FAX)tlm@talisman-energy.comwww.talisman-energy.com