Exhibit 99.7

|     |  | 
|---- |  | 
|2012 |  | 

|
|
|
|

CONSOLIDATED FINANCIAL
STATEMENTS

---

For the year ended December 31, 2012

|
|
|
|
|
|
|
|
|
|
|
|
|

LOGO

---



REPORT OF MANAGEMENT

Management is responsible for the Consolidated Financial Statements.

Management
has prepared the Consolidated Financial Statements in accordance with International Financial Reporting Standards. If alternative accounting methods exist, management has chosen those it
deems most appropriate in the circumstances. Financial statements are not precise since they include certain amounts based on estimates and judgments. Management has ensured that the Consolidated
Financial Statements are presented fairly in all material respects.

The
Board of Directors is responsible for reviewing and approving the Consolidated Financial Statements and Management's Discussion and Analysis and, primarily through its Audit Committee, ensures
that management fulfils its responsibilities for financial reporting.

The
Audit Committee is appointed by the Board of Directors and is composed entirely of unrelated, independent directors. The Audit Committee meets regularly with management, and with the internal and
external auditors, to discuss internal controls and reporting issues and to satisfy itself that each party is properly discharging its responsibilities. It reviews the Consolidated Financial
Statements and the external auditors' report. The Audit Committee also considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the external
auditors.

Ernst &
Young LLP, the external auditors, have audited the Consolidated Financial Statements in accordance with auditing standards generally accepted in Canada and the standards of the
Public Company Accounting Oversight Board (United States) on behalf of the shareholders. Ernst & Young LLP have full and free access to the Audit Committee.

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
rules 13a-15(f) and 15d-15(f) under the United States Securities Exchange Act of 1934, as amended.

Management
has conducted an evaluation of the Company's internal control over financial reporting based on criteria established inInternal
Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based
on management's assessment as at December 31, 2012, the end of the Company's fiscal year, management has concluded that the Company's internal control over financial reporting
is effective.

The
results of management's assessment were reviewed with the Audit Committee of the Company's Board of Directors. Ernst & Young LLP, the independent registered public accounting firm
that audited the Company's Consolidated Financial Statements included herewith, independently assessed the effectiveness of the Company's internal control over financial reporting. Ernst &
Young LLP's attestation is located in the Independent Auditors' Report on Internal Controls under Standards of the Public Company Accounting Oversight Board (United States), which is an
exhibit to the Company's Annual Report on Form 40-F.

|                                      |  |                                                              
|------------------------------------- |  | -------------------------------------------------------------
|GRAPHIC                               |  | GRAPHIC                                                      
|Harold N. Kvisle                      |  | L. Scott Thomson                                             
|President and Chief Executive Officer |  | Executive Vice-President, Finance and Chief Financial Officer
|February 28, 2013                     |  |                                                              

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       1

---



INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROLS UNDER STANDARDS OF THE PUBLIC
COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES)

To the Shareholders ofTalisman Energy Inc.

We
have auditedTalisman Energy Inc.'s internal control over financial reporting as at December 31, 2012, based on criteria established in Internal
Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Talisman Energy Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Talisman Energy Inc. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2012, based on the COSO criteria.

We
also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the Consolidated
Balance Sheets of Talisman Energy Inc. as at December 31, 2012 and 2011 and the Consolidated Statements of Income, Comprehensive Income, Changes in Shareholders' Equity and Cash Flows
for the three-year period ended December 31, 2012 and our report dated February 28, 2013 expressed an unqualified opinion thereon.

LOGO

Chartered
Accountants

Calgary,
Canada
February 28, 2013

2TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



INDEPENDENT AUDITORS' REPORT OF 
REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders ofTalisman Energy Inc.

We
have audited the accompanying Consolidated Financial Statements ofTalisman Energy Inc., which comprise the Consolidated Balance Sheets as at
December 31, 2012 and 2011 and the Consolidated Statements of Income, Comprehensive Income, Changes in Shareholders' Equity and Cash Flows for the three-year period ended
December 31, 2012 and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal
control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We
believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of Talisman Energy Inc.
as at December 31, 2012 and 2011 and its financial performance and cash flows for the three-year period ended December 31, 2012 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.

Other Matter

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Talisman
Energy Inc.'s internal control over financial reporting as at December 31, 2012, based on criteria established inInternal
Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
February 28, 2013 expressed an unqualified opinion on Talisman Energy Inc.'s internal control over financial reporting.

LOGO

Chartered
Accountants

Calgary,
Canada
February 28, 2013

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       3

---



CONSOLIDATED BALANCE SHEETS

|                                                 |                                             |        |       |       
|------------------------------------------------ | ------------------------------------------- | ------ | ----- | ------
|December 31 (millions of US$)                    |                                             | 2012   |       | 2011  
|                                                
|ASSETS                                           |                                             |        |       |       
|CURRENT                                          |                                             |        |       |       
|                                                 |                                             |       
|                                                 | Cash and cash equivalents (note 28)         |        | 721   |       
|                                                 |                                             |       
|                                                 | Accounts receivable (note 9)                |        | 1,210 |       
|                                                 |                                             |       
|                                                 | Risk management (note 22)                   |        | 48    |       
|                                                 |                                             |       
|                                                 | Income and other taxes receivable           |        | 10    |       
|                                                 |                                             |       
|                                                 | Inventories (note 10)                       |        | 150   |       
|                                                 |                                             |       
|                                                 | Prepaid expenses                            |        | 23    |       
|                                                
|                                                 |                                             | 2,162  |       | 2,254 
|                                                
|Other assets (note 11)                           |                                             | 115    |       | 101   
|                                                 |                                             |       
|Investments (note 12)                            |                                             | 747    |       | 395   
|                                                 |                                             |       
|Risk management (note 22)                        |                                             | 26     |       | 24    
|                                                 |                                             |       
|Goodwill (note 8)                                |                                             | 1,014  |       | 1,317 
|                                                 |                                             |       
|Property, plant and equipment (note 13)          |                                             | 13,005 |       | 15,909
|                                                 |                                             |       
|Exploration and evaluation assets (note 13)      |                                             | 3,516  |       | 3,954 
|                                                 |                                             |       
|Deferred tax assets (note 26)                    |                                             | 1,273  |       | 272   
|                                                
|                                                 |                                             | 19,696 |       | 21,972
|                                                
|TOTAL ASSETS                                     |                                             | 21,858 |       | 24,226
|                                                
|LIABILITIES                                      |                                             |        |       |       
|CURRENT                                          |                                             |        |       |       
|                                                 |                                             |       
|                                                 | Bank indebtedness                           |        |      |       
|                                                 |                                             |       
|                                                 | Accounts payable and accrued liabilities    |        | 2,250 |       
|                                                 |                                             |       
|                                                 | Risk management (note 22)                   |        | 81    |       
|                                                 |                                             |       
|                                                 | Income and other taxes payable              |        | 137   |       
|                                                 |                                             |       
|                                                 | Current portion of long-term debt (note 17) |        | 8     |       
|                                                
|                                                 |                                             | 2,476  |       | 3,463 
|                                                
|Decommissioning liabilities (note 15)            |                                             | 2,743  |       | 2,982 
|                                                 |                                             |       
|Other long-term obligations (note 18)            |                                             | 313    |       | 346   
|                                                 |                                             |       
|Risk management (note 22)                        |                                             | 1      |       |      
|                                                 |                                             |       
|Long-term debt (note 17)                         |                                             | 4,434  |       | 4,485 
|                                                 |                                             |       
|Deferred tax liabilities (note 26)               |                                             | 1,981  |       | 2,932 
|                                                
|                                                 |                                             | 9,472  |       | 10,745
|                                                
|Contingencies and commitments (note 23)          |                                             |        |       |       
|SHAREHOLDERS' EQUITY                             |                                             |        |       |       
|                                                 |                                             |       
|Common shares (note 20)                          |                                             | 1,639  |       | 1,561 
|                                                 |                                             |       
|Preferred shares (note 20)                       |                                             | 191    |       | 191   
|                                                 |                                             |       
|Contributed surplus                              |                                             | 121    |       | 186   
|                                                 |                                             |       
|Retained earnings                                |                                             | 7,148  |       | 7,292 
|                                                 |                                             |       
|Accumulated other comprehensive income (note 21) |                                             | 811    |       | 788   
|                                                
|                                                 |                                             | 9,910  |       | 10,018
|                                                
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       |                                             | 21,858 |       | 24,226
|                                                

See accompanying notes.

On
behalf of the Board:

LOGO

LOGOCharles R. Williamson

William R. P. DaltonChairman of the Board

Director


4TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



CONSOLIDATED STATEMENTS OF INCOME

|                                                                |                                                                 |       |        |       |       |       |      
|--------------------------------------------------------------- | --------------------------------------------------------------- | ----- | ------ | ----- | ----- | ----- | -----
|Years ended December 31 (millions of US$)                       |                                                                 | 2012  |        | 2011  |       | 2010  |      
|                                                                |                                                                
|REVENUE                                                         |                                                                 |       |        |       |       |       |      
|                                                                |                                                                 |       |       
|                                                                | Sales                                                           |       | 7,229  |       | 8,194 |       | 6,875
|                                                                |                                                                 |       |       
|                                                                | Other income (note 24)                                          |       | 83     |       | 78    |       | 107  
|                                                                |                                                                
|Total revenue and other income                                  |                                                                 | 7,312 |        | 8,272 |       | 6,982 |      
|                                                                |                                                                
|EXPENSES                                                        |                                                                 |       |        |       |       |       |      
|                                                                |                                                                 |       |       
|                                                                | Operating                                                       |       | 2,452  |       | 2,190 |       | 1,890
|                                                                |                                                                 |       |       
|                                                                | Transportation                                                  |       | 221    |       | 216   |       | 221  
|                                                                |                                                                 |       |       
|                                                                | General and administrative                                      |       | 510    |       | 431   |       | 371  
|                                                                |                                                                 |       |       
|                                                                | Depreciation, depletion and amortization (note 13)              |       | 2,501  |       | 1,949 |       | 1,788
|                                                                |                                                                 |       |       
|                                                                | Impairment (note 14)                                            |       | 2,744  |       | 226   |       | 301  
|                                                                |                                                                 |       |       
|                                                                | Dry hole                                                        |       | 269    |       | 241   |       | 113  
|                                                                |                                                                 |       |       
|                                                                | Exploration                                                     |       | 346    |       | 427   |       | 374  
|                                                                |                                                                 |       |       
|                                                                | Finance costs (note 16)                                         |       | 276    |       | 278   |       | 276  
|                                                                |                                                                 |       |       
|                                                                | Share-based payments expense (recovery) (note 20)               |       | (62    | )     | (310  | )     | 212  
|                                                                |                                                                 |       |       
|                                                                | (Gain) loss on held-for-trading financial instruments (note 22) |       | 93     |       | 210   |       | (87  
|                                                                |                                                                 |       |       
|                                                                | Gain on disposals (note 4)                                      |       | (1,624 | )     | (192  | )     | (520 
|                                                                |                                                                 |       |       
|                                                                | Gain on revaluation of investment (note 12)                     |       | (365   | )     |      |       |     
|                                                                |                                                                 |       |       
|                                                                | Other, net (note 25)                                            |       | 125    |       | 161   |       | 72   
|                                                                |                                                                
|Total expenses                                                  |                                                                 | 7,486 |        | 5,827 |       | 5,011 |      
|                                                                |                                                                
|Income (loss) before taxes                                      |                                                                 | (174  | )      | 2,445 |       | 1,971 |      
|                                                                |                                                                
|Income taxes (note 26)                                          |                                                                 |       |        |       |       |       |      
|                                                                |                                                                 |       |       
|                                                                | Current income tax                                              |       | 874    |       | 1,441 |       | 1,136
|                                                                |                                                                 |       |       
|                                                                | Deferred income tax (recovery)                                  |       | (1,180 | )     | 228   |       | (110 
|                                                                |                                                                
|                                                                |                                                                 | (306  | )      | 1,669 |       | 1,026 |      
|                                                                |                                                                
|Net income                                                      |                                                                 | 132   |        | 776   |       | 945   |      
|                                                                |                                                                
|Per common share (US$):                                         |                                                                 |       |        |       |       |       |      
|                                                                |                                                                 |       |       
|                                                                | Net income                                                      |       | 0.12   |       | 0.76  |       | 0.93 
|                                                                |                                                                 |       |       
|                                                                | Diluted net income                                              |       | 0.01   |       | 0.38  |       | 0.93 
|                                                                |                                                                
|Weighted average number of common shares outstanding (millions) |                                                                 |       |        |       |       |       |      
|                                                                |                                                                 |       |       
|                                                                | Basic (note 29)                                                 |       | 1,025  |       | 1,023 |       | 1,018
|                                                                |                                                                 |       |       
|                                                                | Diluted (note 29)                                               |       | 1,033  |       | 1,038 |       | 1,018
|                                                                |                                                                

See accompanying notes.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       5

---



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

|                                                                                   |                                   |      |   |      |   |      |    
|---------------------------------------------------------------------------------- | --------------------------------- | ---- | - | ---- | - | ---- | ---
|Years ended December 31 (millions of US$)                                          |                                   | 2012 |   | 2011 |   | 2010 |    
|                                                                                   |                                  
|Net income                                                                         |                                   | 132  |   | 776  |   | 945  |    
|                                                                                   |                                   |      |  
|Foreign currency translation(1)                                                    |                                   |     |   |     |   | (408 | )  
|                                                                                   |                                   |      |  
|Actuarial gains (losses) relating to pension and other post-employment benefits(2) |                                   | 10   |   | (26  | ) | (12  | )  
|                                                                                   |                                   |      |  
|Gains on derivatives designated as cash flow hedges                                |                                   |      |   |      |   |      |    
|                                                                                   |                                   |      |  
|                                                                                   | Gains arising during the year(3)  |      |  |      |  |      | 13 
|                                                                                   |                                   |      |  
|                                                                                   | Gains recognized in net income(4) |      |  |      |  |      | (11
|                                                                                   |                                  
|                                                                                   |                                   |     |   |     |   | 2    |    
|                                                                                   |                                  
|Other comprehensive income (loss)                                                  |                                   | 10   |   | (26  | ) | (418 | )  
|                                                                                   |                                  
|Comprehensive income                                                               |                                   | 142  |   | 750  |   | 527  |    
|                                                                                   |                                  

See accompanying notes.

6TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                     |  |       |   |       |   |       |  
|-------------------------------------------------------------------- |  | ----- | - | ----- | - | ----- | -
|Years ended December 31 (millions of US$)                            |  | 2012  |   | 2011  |   | 2010  |  
|                                                                     | 
|COMMON SHARES                                                        |  |       |   |       |   |       |  
|                                                                     |  |       |  
|Balance at beginning of year                                         |  | 1,561 |   | 1,480 |   | 1,401 |  
|                                                                     |  |       |  
|Issued on exercise of stock options                                  |  | 15    |   | 175   |   | 95    |  
|                                                                     |  |       |  
|Shares purchased and held in trust for long-term PSU plan (note 20)  |  | (25   | ) | (94   | ) | (81   | )
|                                                                     |  |       |  
|Shares released from trust for 2008 PSU plan (note 20)               |  |      |   |      |   | 65    |  
|                                                                     |  |       |  
|Shares released from trust for long-term PSU plan (note 20)          |  | 88    |   |      |   |      |  
|                                                                     | 
|Balance at end of year                                               |  | 1,639 |   | 1,561 |   | 1,480 |  
|                                                                     | 
|PREFERRED SHARES                                                     |  |       |   |       |   |       |  
|                                                                     |  |       |  
|Balance at beginning of year                                         |  | 191   |   |      |   |      |  
|                                                                     |  |       |  
|Issued (note 20)                                                     |  |      |   | 191   |   |      |  
|                                                                     | 
|Balance at end of year                                               |  | 191   |   | 191   |   |      |  
|                                                                     | 
|CONTRIBUTED SURPLUS                                                  |  |       |   |       |   |       |  
|                                                                     |  |       |  
|Balance at beginning of year                                         |  | 186   |   | 108   |   | 117   |  
|                                                                     |  |       |  
|Settlement of 2008 PSU plan (note 20)                                |  |      |   |      |   | (9    | )
|                                                                     |  |       |  
|Settlement of long-term PSU plan grant (note 20)                     |  | (88   | ) |      |   |      |  
|                                                                     |  |       |  
|Share-based payments (note 20)                                       |  | 23    |   | 78    |   |      |  
|                                                                     | 
|Balance at end of year                                               |  | 121   |   | 186   |   | 108   |  
|                                                                     | 
|RETAINED EARNINGS                                                    |  |       |   |       |   |       |  
|                                                                     |  |       |  
|Balance at beginning of year                                         |  | 7,292 |   | 6,819 |   | 6,135 |  
|                                                                     |  |       |  
|Net income                                                           |  | 132   |   | 776   |   | 945   |  
|                                                                     |  |       |  
|Actuarial gains (losses) transferred to retained earnings            |  | 10    |   | (26   | ) | (12   | )
|                                                                     |  |       |  
|Common share dividends (note 20)                                     |  | (277  | ) | (277  | ) | (249  | )
|                                                                     |  |       |  
|Preferred share dividends (note 20)                                  |  | (9    | ) |      |   |      |  
|                                                                     | 
|Balance at end of year                                               |  | 7,148 |   | 7,292 |   | 6,819 |  
|                                                                     | 
|ACCUMULATED OTHER COMPREHENSIVE INCOME                               |  |       |   |       |   |       |  
|                                                                     |  |       |  
|Balance at beginning of year                                         |  | 788   |   | 788   |   | 1,194 |  
|                                                                     |  |       |  
|Other comprehensive income (loss)                                    |  | 10    |   | (26   | ) | (418  | )
|                                                                     |  |       |  
|Transfer of accumulated foreign currency loss to net income (note 4) |  | 23    |   |      |   |      |  
|                                                                     |  |       |  
|Actuarial (gains) losses transferred to retained earnings            |  | (10   | ) | 26    |   | 12    |  
|                                                                     | 
|Balance at end of year                                               |  | 811   |   | 788   |   | 788   |  
|                                                                     | 

See accompanying notes.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       7

---



CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                      |                                                       |        |        |        |        |        |       
|--------------------------------------------------------------------- | ----------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------
|Years ended December 31 (millions of US$)                             |                                                       | 2012   |        | 2011   |        | 2010   |       
|                                                                      |                                                      
|OPERATING ACTIVITIES                                                  |                                                       |        |        |        |        |        |       
|                                                                      |                                                       |        |       
|Net income                                                            |                                                       | 132    |        | 776    |        | 945    |       
|                                                                      |                                                       |        |       
|Add: Finance costs (cash and non-cash) (note 16)                      |                                                       | 276    |        | 278    |        | 276    |       
|                                                                      |                                                       |        |       
|Dividends from equity investments                                     |                                                       |       |        | 9      |        |       |       
|                                                                      |                                                       |        |       
|Items not involving cash (note 27)                                    |                                                       | 2,433  |        | 2,124  |        | 1,556  |       
|                                                                      |                                                      
|                                                                      |                                                       | 2,841  |        | 3,187  |        | 2,777  |       
|                                                                      |                                                       |        |       
|Changes in non-cash working capital (note 27)                         |                                                       | (125   | )      | (375   | )      | 367    |       
|                                                                      |                                                      
|Cash provided by operating activities                                 |                                                       | 2,716  |        | 2,812  |        | 3,144  |       
|                                                                      |                                                      
|INVESTING ACTIVITIES                                                  |                                                       |        |        |        |        |        |       
|Capital expenditures                                                  |                                                       |        |        |        |        |        |       
|                                                                      |                                                       |        |       
|                                                                      | Exploration, development and other                    |        | (3,658 | )      | (4,303 | )      | (3,566
|                                                                      |                                                       |        |       
|                                                                      | Corporate acquisitions, net of cash acquired (note 6) |        |       |        | (156   | )      | (183  
|                                                                      |                                                       |        |       
|                                                                      | Property acquisitions (note 5 and note 6)             |        | (109   | )      | (737   | )      | (1,340
|                                                                      |                                                       |        |       
|Proceeds of resource property dispositions (note 4)                   |                                                       | 964    |        | 527    |        | 2,194  |       
|                                                                      |                                                       |        |       
|Repayment of note receivable (note 22)                                |                                                       |       |        | 40     |        |       |       
|                                                                      |                                                       |        |       
|Acquisition deposit                                                   |                                                       |       |        | 18     |        | (630   | )     
|                                                                      |                                                       |        |       
|Investments                                                           |                                                       | (20    | )      | 54     |        |       |       
|                                                                      |                                                       |        |       
|Proceeds on reduction in UK investment, net of cash disposed (note 4) |                                                       | 1,349  |        |       |        |       |       
|                                                                      |                                                       |        |       
|Changes in non-cash working capital                                   |                                                       | 8      |        | 18     |        | 274    |       
|                                                                      |                                                      
|Cash used in investing activities                                     |                                                       | (1,466 | )      | (4,539 | )      | (3,251 | )     
|                                                                      |                                                      
|FINANCING ACTIVITIES                                                  |                                                       |        |        |        |        |        |       
|                                                                      |                                                       |        |       
|Long-term debt repaid (note 17)                                       |                                                       | (1,807 | )      | (313   | )      | (10    | )     
|                                                                      |                                                       |        |       
|Long-term debt issued (note 17)                                       |                                                       | 1,336  |        | 1,044  |        | 595    |       
|                                                                      |                                                       |        |       
|Common shares issued (note 20)                                        |                                                       | 13     |        | 114    |        | 55     |       
|                                                                      |                                                       |        |       
|Common shares purchased (note 20)                                     |                                                       | (25    | )      | (94    | )      | (75    | )     
|                                                                      |                                                       |        |       
|Preferred shares issued (note 20)                                     |                                                       |       |        | 191    |        |       |       
|                                                                      |                                                       |        |       
|Finance costs (cash)                                                  |                                                       | (190   | )      | (202   | )      | (197   | )     
|                                                                      |                                                       |        |       
|Common share dividends (note 20)                                      |                                                       | (277   | )      | (277   | )      | (249   | )     
|                                                                      |                                                       |        |       
|Preferred share dividends (note 20)                                   |                                                       | (9     | )      |       |        |       |       
|                                                                      |                                                       |        |       
|Deferred credits and other                                            |                                                       | 13     |        | (9     | )      | (2     | )     
|                                                                      |                                                       |        |       
|Changes in non-cash working capital                                   |                                                       | (6     | )      | 11     |        | (1     | )     
|                                                                      |                                                      
|Cash (used in) provided by financing activities                       |                                                       | (952   | )      | 465    |        | 116    |       
|                                                                      |                                                      
|Effect of translation on foreign currency cash and cash equivalents   |                                                       | 9      |        | 23     |        | 51     |       
|                                                                      |                                                      
|Net increase (decrease) in cash and cash equivalents                  |                                                       | 307    |        | (1,239 | )      | 60     |       
|                                                                      |                                                       |        |       
|Cash and cash equivalents net of bank indebtedness, beginning of year |                                                       | 414    |        | 1,653  |        | 1,593  |       
|                                                                      |                                                      
|Cash and cash equivalents net of bank indebtedness, end of year       |                                                       | 721    |        | 414    |        | 1,653  |       
|                                                                      |                                                      
|Cash and cash equivalents (note 28)                                   |                                                       | 721    |        | 474    |        | 1,655  |       
|                                                                      |                                                       |        |       
|Bank indebtedness                                                     |                                                       |       |        | (60    | )      | (2     | )     
|                                                                      |                                                      
|Cash and cash equivalents net of bank indebtedness, end of year       |                                                       | 721    |        | 414    |        | 1,653  |       
|                                                                      |                                                      

See accompanying notes.

8TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in millions of US dollars, except as noted)

1. Corporate Information

Talisman Energy Inc. ('Talisman' or 'the Company') is a public company incorporated pursuant to the laws of Canada and domiciled in Alberta,
Canada, with common shares listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol 'TLM'. The registered office is located at Suite 2000,
888  3rd Street SW, Calgary, Alberta, Canada, T2P 5C5.

The
Company is in the business of exploration, development, production and marketing of crude oil, natural gas and natural gas liquids (NGLs).

The
Consolidated Financial Statements as at and for the year ended December 31, 2012 were authorized for issuance by the Board of Directors on February 28, 2013.

2. Basis of Preparation

The Consolidated Financial Statements of Talisman Energy Inc. and its subsidiaries have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The
Consolidated Financial Statements have been prepared on a going concern basis using the historical cost convention, except for derivative financial instruments and
available-for-sale financial assets that have been measured at fair value.

The
preparation of Consolidated Financial Statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the
Company's accounting policies. The areas of accounting that require a high degree of judgment or which are based upon significant estimates are disclosed in note 3(y).

3. Significant Accounting Policies

a) Consolidation

The Consolidated Financial Statements include the accounts of Talisman and its subsidiaries, being those companies over which the Company, either directly or indirectly, has
control through a majority of the voting rights or the right to exercise control or to obtain the majority of the benefits and be exposed to the majority of the risks. Subsidiaries are consolidated
from the date on which control is obtained until the date that such control ceases, using consistent accounting policies. The trust holding common shares, to settle the Company's obligation arising
from its long-term performance share unit plan, is also consolidated since it is a special purpose entity controlled by the Company (note 20). All intercompany balances and
transactions, including unrealized profits arising from such transactions, are eliminated upon consolidation. Unrealized losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

b) Joint Ventures and Investments

A jointly controlled asset offers joint ownership by the venturers of the assets contributed to the joint venture, without the formation of a corporation, partnership or
other entity.

A
jointly controlled entity is a company, partnership or other entity in which each venturer has an interest and jointly controls the assets of the entity, earning its own income and incurring its own
liabilities and expenses. Interests in jointly controlled entities are accounted for using proportionate consolidation. For transactions where Talisman contributes a subsidiary to a jointly controlled
entity in exchange for an interest in a joint venture, and this contribution results in a loss of control in the subsidiary, Talisman restricts any gain arising on the contribution to the ownership
interest held by the other party to the joint venture.

Substantially
all of Talisman's activities are conducted jointly with others, and the Consolidated Financial Statements reflect only the Company's proportionate interest in such activities.

Interests
in entities over which Talisman has significant influence, but not control or joint control, are accounted for using the equity method. Talisman's share of the income of equity investments
is recorded in the Consolidated Statements of Income. Dividends from equity investments are included in cash provided by operating activities. Interests in entities over which Talisman does not have
significant influence are accounted for as available-for-sale financial assets. Both equity investments and investments classified as available-for-sale
assets are tested for possible impairment whenever events or changes in circumstances indicate that the carrying value of the investment may not be recoverable.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       9

---



c) Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is the aggregate of the consideration transferred, measured at acquisition date
fair value. Acquisition costs incurred are expensed. When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in
accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts acquired.

Contingent
consideration to be transferred by the Company is recognized at fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration recorded as a financial
asset or liability are recognized in net income in accordance with IAS 39Financial Instruments: Recognition and Measurement.

Goodwill
represents the excess of the consideration transferred over the fair value of identifiable assets acquired and liabilities assumed in business combinations. Goodwill is not amortized but is
subject to impairment reviews annually, or more frequently as economic events dictate, as described in note 3(i).

Where
goodwill forms part of an operating segment and part of the operation within that segment is disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion
of the segment retained.

d) Accounts Receivable

Accounts receivable are recorded based on the Company's revenue recognition policy. The allowance for doubtful accounts is management's best estimate of accounts receivable
balances that may not be collectible, and is reviewed quarterly.

e) Inventories

Inventories are valued at the lower of cost and net realizable value. Cost comprises direct purchase costs, cost of production and taxes, and is determined using the
first-in first-out method for product inventories and by the average cost method for materials and supplies. Net realizable value is determined by reference to prices existing
at the balance sheet date less any costs expected to be incurred to completion and disposal.

f) Property, Plant and Equipment (PP&E)

PP&E, comprising oil and gas development and production properties and corporate assets, is stated at cost less accumulated depreciation, depletion and amortization and
accumulated impairment losses.

Oil
and gas development and production expenditure is generally accounted for using the principles of the successful efforts method of accounting. Expenditure on the construction, installation and
completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells is capitalized within PP&E.

The
initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning
liability and capitalized borrowing costs for qualifying assets. The capitalized value of a finance lease is also included within PP&E.

Expenditure
on turnarounds comprises the cost of replacement assets or parts of assets and inspection and overhaul costs. Where an asset or part of an asset is replaced and it is probable that future
economic benefits will flow to the Company from the replacement, the expenditure is capitalized and the replaced part is derecognized. Inspection and overhaul costs relating to turnarounds, which
generally occur annually, and all other repairs and maintenance costs are expensed when incurred.

Well
injection costs incurred to stimulate depleted wells are charged as an expense when incurred. Certain stimulation costs which increase production and reserves, extending beyond one year, are
deferred in PP&E and depleted using the unit of production method.

Exchanges
of development and production assets are measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset
exchanged is reliably measurable. The cost of the acquired asset is measured at the fair value of the asset exchanged, unless the fair value of the asset received is more clearly evident. Where fair
value is not used, the cost of the acquired asset is measured at the carrying amount of the asset exchanged. The gain or loss arising is recognized in net income.

The
Company assesses at each reporting date whether there is an indication that its PP&E may be impaired or subject to impairment reversals. If any indication exists, the Company estimates the asset's
recoverable amount using the methodology described in note 3(h).

10TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



g) Exploration and Evaluation (E&E) Assets

Exploration well costs are initially capitalized and, if subsequently determined to have not found sufficient reserves to justify commercial production, are charged to dry hole
expense. Exploration well costs that have found sufficient reserves to justify commercial production, but those reserves cannot be classified as proved, continue to be capitalized as long as
sufficient progress is being made to assess the reserves and economic viability of the well and/or related project. All such carried costs are subject to technical, commercial and management review at
each reporting date to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off. When proved reserves of oil
and natural gas are determined and development is sanctioned, the relevant expenditure is tested for potential impairment and then transferred to PP&E (see note 3(h) for details of the
impairment methodology). If a project no longer meets these criteria, it is tested for impairment and transferred back from PP&E to E&E assets.

Undeveloped
land costs are classified initially as E&E assets and transferred to PP&E as proved reserves are assigned.

All
other exploration costs, including geological and geophysical costs and annual lease rentals, are charged to exploration expense when incurred.

For
exchanges or parts of exchanges that involve principally E&E assets, the exchange is accounted for at the carrying amount of the asset exchanged.

h) Impairment of Assets

The Company tests PP&E and E&E assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable,
for example, changes in assumptions relating to future prices, future costs and reserves. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are
identifiable cash inflows that are largely independent of the cash inflows of other groups of assets, known as a cash-generating unit (CGU). If any such indication of impairment exists, an
estimate of the CGU's recoverable amount is made. A CGU's recoverable
amount is the higher of its fair value less costs to sell and its value in use. These assessments require the use of estimates and assumptions regarding long-term commodity prices,
discount rates, future capital expenditures requirements, reserves determination and life of field. In addition, the Company will consider market data related to recent transactions for similar
assets. E&E assets are also tested for possible impairment when transferred to PP&E.

A
previously recognized impairment loss is reversed only if there has been a change in the estimates or assumptions used to determine the CGU's recoverable amount since the impairment loss was
recognized. If that is the case, the carrying amount of the CGU is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of
depletion, had no impairment loss been recognized for the CGU in prior periods. Such a reversal is recognized in net income, following which the depletion charge is adjusted in future periods to
allocate the CGU's revised carrying amount on a systematic basis over its remaining useful life.

i) Goodwill

Goodwill is tested for impairment annually and when circumstances indicate that the carrying amount may be impaired. The impairment test requires that goodwill be allocated to
CGUs, which Talisman has determined by aggregating locations having similar economic characteristics and/or which are in similar geographic locations, and which correspond with the operating segments
described in note 31, except for locations within the Other segment, which are generally grouped by country. Impairment is determined for goodwill by assessing the recoverable amount (based on
fair value less costs to sell) of each segment or country, as appropriate, to which the goodwill relates. Where the recoverable amount of the segment or country, as appropriate, is less than the
carrying amount, an impairment loss is recognized. Goodwill impairment losses cannot be reversed.

j) Depreciation, Depletion and Amortization (DD&A)

Capitalized costs of proved oil and gas properties are depleted using the unit of production method. For purposes of these calculations, production and reserves of natural gas
are converted to barrels (bbls) on an energy equivalent basis at a ratio of six thousand cubic feet (mcf) of natural gas for one barrel (bbl) of oil. Depletion and depreciation rates are
updated in each reporting period that a significant change in circumstances, including reserves revisions, occurs.

Successful
exploratory wells and development costs are depleted over proved developed reserves. Significant development costs incurred in connection with proved undeveloped reserves are excluded from
depletion until the reserves are developed.

Acquired
resource properties with proved reserves, including offshore platform costs, are depleted over total proved reserves. Acquisition costs of probable reserves are not depleted or amortized
while under active evaluation for commercial reserves. Costs are transferred to depletable costs as proved reserves are recognized.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       11

---



Costs
associated with significant development projects are not depleted until the asset is substantially complete and ready for its intended use. Unproved land acquisition costs that are individually
material are not amortized, but are assessed for impairment and transferred to depletable costs as proved reserves are recognized. Unproved land acquisition costs that are individually immaterial are
amortized on a straight-line basis over the average lease term. Gas plants are depreciated on a straight-line basis over their estimated remaining useful lives, not to exceed
the estimated remaining productive lives of related fields. Pipelines and corporate assets are depreciated using the straight-line method at annual rates of 4% and 533%,
respectively. Gas plants and pipelines in the North Sea are depleted using the unit of production method based on the related fields.

k) Non-Current Assets Held for Sale

Non-current assets classified as held for sale and associated liabilities are measured at the lower of carrying amount and fair value less costs to sell, and are
presented as current on the Consolidated Balance Sheets.

Non-current
assets are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as
met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected
to qualify for recognition as a completed sale within one year from the date of classification.

PP&E
is not depreciated once classified as held for sale.

l) Decommissioning and Environmental Liabilities

Decommissioning liabilities are recognized when the Company has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will
be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. A corresponding amount equivalent to the liability is recognized as part of the cost of the
related PP&E or E&E asset.

Decommissioning
liabilities are carried on the Consolidated Balance Sheet at their discounted present value, which is remeasured each reporting period in order to reflect the period end discount rate.
The liabilities are calculated using a weighted average credit-adjusted risk free rate, and are accreted over time for the change in their present value, with this accretion expense included in
finance costs on the Consolidated Statements of Income. Actual expenditures incurred are charged against the accumulated obligation. Any difference between the recorded decommissioning liability and
the actual retirement costs incurred is recorded as a gain or loss.

The
increase in capitalized costs is amortized to income on a basis consistent with DD&A of the underlying assets. Subsequent changes in the estimated decommissioning liabilities are capitalized and
amortized over the remaining useful life of the underlying asset.

Liabilities
for environmental costs are recognized when an obligation exists and the associated costs can be reliably estimated. Generally, the timing of recognition of these liabilities coincides
with the commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The amount recognized is the best estimate of the expenditure required. Where the
liability will not be settled for a number of years, the amount recognized is the present value of the estimated future expenditure. These estimates are included in decommissioning liabilities.

m) Finance Costs and Long-Term Debt

Finance costs include interest and other costs that Talisman incurs in connection with the borrowing of funds, as well as accretion expense relating to the Company's
decommissioning liabilities.

Finance
costs associated with major development projects are capitalized and included in the carrying amounts of the related assets until they are completed and ready for use. These costs are
subsequently amortized to income with the related assets. The amount of borrowing costs capitalized for the period is determined by applying the weighted average interest rate applicable to
appropriate borrowings outstanding during the period to the average amount of capitalized expenditure for the qualifying assets.

All
other finance costs are recognized on the Consolidated Statements of Income in the period in which they are incurred.

The
classification of debt instruments in the Consolidated Balance Sheets reflects contractual requirements and management's intent in respect of the refinancing of those instruments. In particular,
the classification of bankers' acceptances, when outstanding, reflects management's intent to refinance a short-term obligation with a committed long-term facility with the
same lender.

n) Foreign and Reporting Currency

Talisman's functional currency is the US$.

Prior
to January 1, 2011 in the UK and prior to January 1, 2010 in Canada and Norway, the Company's operations were translated from UK£, C$ and NOK, respectively, into US$
using the current rate method whereby assets and liabilities were translated at

12TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



year-end
exchange rates, while revenues and expenses were converted using average rates for the period. Gains and losses arising on translation from UK£, C$ and NOK to US$ were
deferred and included in a separate component of shareholders' equity described as accumulated other comprehensive income.

As
a result of changes in the composition of revenue and costs and changes in intercompany loan arrangements, management has determined that the functional currency of the Company's UK operation is
more closely linked to the US$. Accordingly, effective January 1, 2011, this operation has been accounted for as a US$ functional currency entity. As a result, foreign currency translation
adjustments remained in accumulated other comprehensive income until Talisman reduced its ownership in its UK subsidiary (note 4). Following the change in the functional currency of the UK
operation on January 1, 2011, the debt denominated in UK£ was no longer designated as a hedge of Talisman's net investment in the UK and, accordingly, foreign exchange gains and
losses are recorded on the Consolidated Statements of Income.

The
Company's operations in Canada and Norway are accounted for as US$ functional currency entities. As a result, foreign currency translation adjustments remain in accumulated other comprehensive
income until Talisman reduces its net investment in its Canadian or Norwegian subsidiaries.

Foreign
operations are translated as follows: monetary assets and liabilities at exchange rates in effect at the balance sheet date, non-monetary assets and liabilities at rates in effect
on the dates the assets were acquired or liabilities were assumed, and revenues and expenses at rates of exchange prevailing on the transaction dates. Gains and losses on translation are reflected in
income when incurred.

o) Employee Benefit Plans

The cost of providing benefits under the Company's defined benefit pension plans and non-pension post-employment benefit plans is determined using the
projected benefit method pro-rated on service and management's best estimate of expected plan investment performance, salary escalation and employee retirement ages. There is uncertainty
relating to the assumptions used to calculate the net benefit expense and accrued benefit obligation, due to their long-term nature.

The
discount rate used to determine the accrued benefit obligation is determined by reference to market interest rates at the measurement date on high quality debt instruments with cash flows that
match the timing and amount of expected benefit payments. The Company recognizes all actuarial gains and losses immediately in other comprehensive income (loss) and transfers them to retained earnings
in the year recorded.

Payments
to defined contribution plans are expensed as incurred, which is as the related service is rendered.

The
pension benefits of key management personnel represent the attributable amount of the net benefit expense of the plans in which they participate.

p) Financial Instruments

The Company classifies its financial instruments into one of the following categories: held-for-trading assets and liabilities, assets
available-for-sale, loans and receivables, assets
held-to-maturity and other financial liabilities. All financial assets and liabilities are recognized on the Consolidated Balance Sheets when the Company becomes a party to the
contractual requirements of the instrument. All financial instruments are measured at fair value on initial recognition. Transaction costs are included in the initial carrying amount of financial
instruments except for held-for-trading items, in which case they are expensed as incurred. Measurement in subsequent periods depends on the classification of the financial
instrument.

In
conducting its business, the Company may use derivative financial instruments in order to manage risks associated with fluctuations in commodity prices, interest rates and foreign currency
exchange rates.

Non-Hedge Financial Instruments

Held-for-trading financial assets and liabilities are subsequently measured at fair value with changes in fair value recognized in net income. Financial
assets available-for-sale are subsequently measured at fair value with changes in fair value recognized in other comprehensive income (loss), net of tax. Financial assets
held-to-maturity, loans and receivables and other financial liabilities are subsequently measured at amortized cost using the effective interest rate method.

Cash
equivalents are classified as loans and receivables and are measured at carrying value, which approximates fair value, due to the short-term nature of these instruments. Accounts
receivable and certain other assets that are financial instruments are classified as loans and receivables. Bank indebtedness, accounts payable and accrued liabilities, certain other
long-term obligations and current and long-term debt are classified as other financial liabilities. Financial liabilities are derecognized when the obligation under the
liability is discharged, cancelled or expires. Financial instruments that are derivative contracts are considered held-for-trading unless they are designated as a hedge. The
financial derivative contracts outstanding at December 31, 2012 are disclosed in note 22.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       13

---



Derivatives
embedded in other financial instruments and non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to
those of the host contract. Contracts are assessed for embedded derivatives when the Company becomes a party to them, including at the date of a business combination. Embedded derivatives requiring
separation are measured at fair value at each balance sheet date and any gains or losses arising from changes in fair value are recognized in net income.

Hedges

The Company may designate financial instruments as a hedging instrument for accounting purposes. Hedge accounting requires the designation of a hedging relationship, including
a hedged and a hedging item, identification of the risk exposure being hedged and an expectation that the hedging relationship will be highly effective throughout its term. In addition, in the case of
anticipated transactions, it must also be highly probable that the transaction designated as being hedged will occur. The Company assesses, both
at the hedge's inception and on an ongoing basis, whether the derivative financial instruments designated as hedges are highly effective in offsetting changes in fair value or cash flows of the hedged
items. If the derivative financial instrument that has been designated as a hedge is terminated or is no longer designated as part of the hedging relationship, the gain or loss on the hedge at that
date is deferred in other comprehensive income (loss) and recognized in net income concurrently with the anticipated transaction. If the forecast transaction is no longer expected to occur, the gain
or loss on the hedge at that date is recognized immediately in net income. The Company had the following hedges during the periods covered by these Consolidated Financial Statements:



Own Use Exemption

Contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the Company's
expected purchase, sale or usage requirements fall within the exemption from IAS 32 and IAS 39, which is known as the 'own use' exemption. The Company enters into physical commodity
contracts in the normal course of business, including contracts with fixed terms. The Company's production is expected to be sufficient to deliver all required volumes under these contracts. No
amounts are recognized in the Consolidated Financial Statements related to these contracts until such time as the associated volumes are delivered.

q) Comprehensive Income and Equity

The Consolidated Statements of Comprehensive Income reflects net income and items of other comprehensive income (loss) which comprise changes in the fair value of financial
instruments designated as cash flow hedges, to the extent they are effective, gains and losses recovered from other comprehensive income (loss) and recognized in net income, and actuarial gains and
losses arising in relation to the Company's employee benefit plans. Until December 31, 2010, foreign currency translation gains or losses arising from the translation of the Company's foreign
operations or reductions in the net investments therein and translation from the Company's functional currency to its presentation currency also gave rise to other comprehensive income (loss). See
note 3(n) for more details.

r) Income Taxes

Income taxes comprise current tax, deferred tax and Petroleum Revenue Tax (PRT) and are recognized on the Consolidated Statements of Income except to the extent they relate to
items recognized in other comprehensive income (loss) or directly in equity. PRT is treated as an income tax and deferred PRT is accounted for on a temporary difference basis.

Interest
and penalties assessed by taxing authorities on any underpayment of income tax are accrued and classified as a component of income taxes on the Consolidated Statements of Income.

Certain
of the Company's contractual arrangements in foreign jurisdictions stipulate that income taxes be paid by the respective national oil company out of its entitlement share of production. Such
amounts are included in income taxes at the statutory tax rate in effect at the time of production.

14TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



The
Company recognizes in its financial statements the best estimate of the impact of a tax position by determining if the available evidence indicates whether it is more likely than not, based solely
on technical merits, that the position will be sustained on audit. The Company estimates the amount to be recorded by weighting all possible outcomes by their associated probabilities.

Current Tax

Current tax is based on estimated taxable income and tax rates which are determined pursuant to the tax laws that are enacted or substantively enacted at the balance
sheet date.

Deferred Tax

Deferred tax is determined using the liability method. Under the liability method, deferred tax is calculated based on the differences between assets and liabilities reported
for financial accounting purposes and those reported for income tax purposes. Deferred tax assets and liabilities are measured using substantively enacted tax rates. The impact of a change in tax rate
is recognized in net income in the period in which the tax rate is substantively enacted.

Deferred
tax assets and liabilities are offset only when a legally enforceable right of offset exists and the deferred tax assets and liabilities arose in the same tax jurisdiction and relate to the
same taxable entity.

s) Revenue Recognition

Revenues associated with the sale of crude oil, natural gas and NGLs are recognized at the fair value of the consideration received or receivable when the significant risks and
rewards of ownership have been transferred, which is when title passes from the Company to the customer. For the Company's international operations, generally, customers take title when the crude oil
is loaded onto a tanker. The Company employs the entitlement method in accounting for crude oil and natural gas sales and records a receivable from a joint interest participant if a participant sells
more than its proportionate share of crude oil or natural gas production. Crude oil and natural gas produced and sold, below or above the Company's working interest share in the related resource
properties, results in production underliftings, or overliftings. Underliftings are recorded as inventory at the cost to produce and transport the product to storage tanks, and overliftings are
recorded in accounts payable and accrued at the sales value. Underliftings are reversed from inventory when the crude oil is lifted and sold, with the sales proceeds recorded as revenue and the cost
of the inventory expensed. Overliftings are reversed from accounts payable and accrued liabilities when sufficient volumes are produced to make up the overlifted volume. Amounts received under
take-or-pay gas sales contracts in respect of undelivered volumes are accounted for as deferred income in accounts payable and accrued liabilities and recognized as revenue
when volumes are delivered. Transportation expenses are reported as a separate expense and are not netted against revenue.

A
significant portion of the Company's operations outside North America and the North Sea are governed by Production Sharing Contracts (PSCs). Under PSCs, revenues are derived from cost recovery oil
and gas and profit oil and gas. Generally, cost recovery oil and gas allows the Company to recover its capital and production costs and, as appropriate, the costs carried by the Company on behalf of
state oil companies from production. Profit oil and gas is allocated to the host government and contract parties in accordance with their respective equity interests.

All
taxes collected from customers that are remitted to governments are excluded from revenues.

Certain
of the Company's foreign operations are conducted jointly with the respective national oil companies. These operations are reflected in the Consolidated Financial Statements based on
Talisman's working interest in such activities. All other government takes, other than income taxes, are considered to be royalty interests. Royalties on production from these joint foreign operations
represent the entitlement of the respective governments to a portion of Talisman's share of crude oil, natural gas and NGLs production and are recorded using rates in effect under the terms of
contracts at the time of production.

Sales
as reported represents the Company's share of revenues from the sale of crude oil, natural gas and NGLs and is presented after deduction of royalty payments to governments and other mineral
interest owners.

t) Leases

Leases that transfer substantially all of the benefits and risks of ownership to Talisman are accounted for at the commencement of the lease term as finance leases and recorded
as PP&E at the fair value of the leased asset, or, if lower, at the present value of the minimum lease payments, together with an offsetting liability. Finance charges are allocated to each period so
as to achieve a constant rate of interest on the remaining balance of the liability and are recognized in net income. Capitalized leased assets are depreciated over the shorter of the estimated useful
life of the asset or the lease term.

All
other leases are accounted for as operating leases and the lease costs are expensed as incurred.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       15

---



u) Share-Based Payments

Talisman has stock option plans, cash unit plans, a performance share unit (PSU) plan, deferred share unit plans and restricted share unit plans, under which it receives
services from employees and directors as consideration for cash payments or equity instruments of the Company. The long-term PSU plan must be settled in shares. The cash unit, deferred
share unit and restricted share unit plans must be settled in cash. The stock option plans may be settled in cash at the option of the holder or the underlying share can be purchased.

Equity-Settled Awards

The Company uses the Black-Scholes pricing model to estimate the fair value of equity-settled awards.

For
the PSU plans, the Company determines the fair value of the units on the date of grant and recognizes the fair value over the vesting period as share-based payments expense and contributed
surplus.

Cash-Settled Awards

The Company uses the Black-Scholes pricing model to estimate the fair value of cash-settled awards. Fair value is established initially at the grant date and the
obligation is revalued each reporting period until the awards are settled with any changes in the obligation recognized as share-based payments expense (recovery) on the Consolidated Statements of
Income, except for the changes related to deferred share units, which are included in general and administrative expenses.

The
stock option plans are classified as liability instruments and remeasured at their fair value at the end of each reporting period.

For
plans having vesting conditions, the total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of
each reporting period, the Company revises its estimates of the number of options and units that are expected to vest based on the vesting conditions and recognizes the impact of the revision to
original estimates, if any, in net income.

v) Net Income and Diluted Net Income Per Share

Net income per share is calculated by dividing net income less after-tax cumulative preferred share dividends by the weighted average number of common shares outstanding.
Diluted net income per share is calculated giving effect to the potential dilution that could occur if stock options were exercised in exchange for common shares.

The
method the Company uses to determine the dilutive impact of stock options assumes that any proceeds from the exercise of in-the-money stock options would be used to
purchase common shares at the average market price during the period. In periods when a share-based payments recovery is reported, net income used in the dilution calculation is reduced by the amount
of the recovery.

For
stock options that may be settled in cash or shares at the employees' option, the more dilutive impact of cash settlement and equity settlement is used in calculating diluted net income per share
regardless of how the stock option plan is accounted for. Stock options that are reported as cash-settled for accounting purposes may require an adjustment to the numerator in the diluted
net income per share calculation for any changes in net income that would result if the stock options had been reported as equity instruments.

w) Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit with banks and interest-bearing short-term investments with an original maturity of three months or less. Cash and
cash equivalents are stated at cost, which approximates fair value.

For
the purpose of the Consolidated Statements of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of bank indebtedness.

x) Segmented Information

The Company's reporting segments are established on the basis of having similar economic characteristics and/or which are in similar geographic locations and those components
of the Company that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Effective
January 1, 2011, the composition of the Company's segments changed such that the activities in the UK and Norway are reported as a single North Sea segment since, in management's
judgment, the assets in those locations share similar economic characteristics. Comparative period balances have been restated accordingly. See note 31 for disclosure of segmented information.

16TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



y) Significant Accounting Judgments, Estimates and Assumptions

To facilitate the timely preparation of the Consolidated Financial Statements, management has made estimates and assumptions regarding certain assets and liabilities and
contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods noted. Such estimates relate primarily to
unsettled transactions and events as of the date of the Consolidated Financial Statements. Accordingly, actual results may differ from estimated amounts.

DD&A,
the fair value of PP&E and E&E assets, amounts recognized for impairment charges and reversals and the recognition of assets acquired and liabilities assumed upon a business combination are
impacted by estimates of oil and natural gas reserves, contingent resources, commodity prices, and capital and operating costs required to develop and produce those reserves. The Company also used a
variety of market metrics, described in note 14, in assessing the fair value of the PP&E and E&E assets. By their nature, market metrics, estimates of reserves and resources and the related
future cash flows are subject to measurement uncertainty, and the impact of differences between actual and estimated amounts on the Consolidated Financial Statements of future periods could be
material. The measurement of impairment charges and reversals is also dependent upon management's judgment in determining CGUs.

Inherent
in the calculation of decommissioning liabilities are numerous assumptions and judgments, including the ultimate settlement amounts, inflation factors, credit-adjusted discount rates, timing
of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to assumptions impact the amount of decommissioning liabilities, a
corresponding adjustment is made to the PP&E and/or E&E assets balance.

The
values of pension assets and obligations and the amount of the net benefit expense charged to net income depend on certain actuarial and economic assumptions which, by their nature, are subject to
measurement uncertainty.

The
measurement of income tax expense, and the related provisions on the Consolidated Balance Sheets, is subject to uncertainty associated with future recoverability of oil and natural gas reserves,
commodity prices, the timing of future events and changes in legislation, tax rates and interpretations by tax authorities.

The
fair values of financial instruments are estimated based upon market and third party inputs. These estimates are subject to change with fluctuations in commodity prices, interest rates, foreign
currency exchange rates and estimates of non-performance risk.

The
fair values of equity-settled and cash-settled share-based payment awards are estimated using the Black-Scholes pricing model. These estimates depend on certain assumptions, including
share price volatility, risk free interest rate, the term of the awards, the forfeiture rate and the annual dividend yield which, by their nature, are subject to measurement uncertainty.

The
designation of the Company's functional currency is a management judgment based on the composition of revenue and costs in the locations in which it operates.

Provisions
are recorded when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Where appropriate, the future cash flow estimates are adjusted to reflect risks specific to the liability.

Contingent
liabilities are possible obligations whose existence will only be confirmed by future events not wholly within the control of the Company. Contingent liabilities are not recognized in the
financial statements but are disclosed unless the possibility of an outflow of economic resources is considered remote. The evaluation of the likelihood of the contingent events requires management
judgment as to the probability of exposure to potential loss.

z) Accounting Standards and Interpretations Issued but Not Yet Effective

The following pronouncements from the IASB are applicable to Talisman and will become effective for future reporting periods, but have not yet been adopted. The Company intends
to adopt these standards, if applicable, when they become effective on January 1, 2013:

Effective January 1, 2013

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       17

---





Effective Subsequent to 2013

18TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---





4. Disposals

Sale of 49% Equity Interest of Talisman Energy (UK) Limited to China Petrochemical Corporation
(Sinopec)

On December 17, 2012, Talisman completed the sale of 49% of its equity interest in Talisman Energy (UK) Limited (TEUK), now renamed TSEUK,
which owns substantially all of Talisman's UK assets, to Addax Petroleum UK Limited (APUK), an indirect wholly-owned subsidiary of Sinopec, for cash consideration of $1.5 billion based on an
effective date of January 1, 2012. The $1.5 billion cash consideration is comprised of $1,349 million in cash ($1,467 million in cash received net of $118 million
cash disposed) and $33 million of working capital and other adjustments.

The
transaction resulted in a non-taxable gain of $860 million, which is included in the 'Gain on disposals' on the Consolidated Statements of Income. Talisman will continue to hold
51% of the joint venture company, with APUK holding the remaining 49%. Since TSEUK is a jointly controlled entity, the Company is proportionately consolidating its interest within the North Sea
segment for the period December 17, 2012 through December 31, 2012. As a result of the transaction, $23 million of exchange losses previously accumulated in other comprehensive
income were included in the 'Gain on disposals' on the Consolidated Statements of Income.

North America Dispositions

In 2012, Talisman completed sales of oil and gas producing assets in western Canada for proceeds of $437 million, resulting in gains of
$189 million, net of tax of $67 million.

In
2012, Talisman sold non-core coal assets in northeast British Columbia for cash consideration of $496 million after transaction costs. The carrying value of these assets was $nil
and a gain of $372 million was recorded, net of tax of $124 million.

Asset Sales Completed in 2011

During 2011, Talisman completed a transaction creating a strategic partnership with Sasol to develop the Farrell Creek assets in Talisman's Montney
shale play in British Columbia. Talisman sold 50% of its working interests in the Farrell
Creek assets for approximately $1 billion, comprising $238 million in cash and approximately $800 million of certain future development costs. The transaction resulted in a
pre-tax gain of $89 million, which is included in 'Gain on disposals' on the Consolidated Statements of Income.

Also
in 2011, Talisman completed an additional transaction with Sasol to develop the Cypress A assets in Talisman's Montney shale play in British Columbia. Talisman sold 50% of its
working interests in the Cypress A assets for approximately $1.1 billion, comprising $257 million in cash and approximately $800 million of certain future development
costs. The transaction resulted in a pre-tax gain of $113 million, which is included in 'Gain on disposals' on the Consolidated Statements of Income.

Asset Sales Completed in 2010

During the year ended December 31, 2010, Talisman completed the sale of oil and gas producing properties in North America with a carrying
value of approximately $2 billion for aggregate proceeds of approximately $2.2 billion. The net investment in the Company's Canadian operations was reduced as a result of the
transactions occurring in 2010 and, accordingly, $367 million of exchange gains previously accumulated in other comprehensive income were included in the gains of $520 million, which are
included in 'Gain on disposals' on the Consolidated Statements of Income. Tax of $38 million was recorded in respect of these transactions.

During
2010, Talisman completed the sale of oil and gas producing assets in Tunisia (included in the Other segment) for proceeds of $23 million, resulting in a loss of $5 million, net of
tax of $nil. The operating results related to these assets held for sale were included in net income for the year ended December 31, 2010 and the loss was included in 'Gain on disposals' on the
Consolidated Statements of Income.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       19

---



5. Property Acquisitions

During the year ended December 31, 2012, Talisman completed an agreement with the Kurdistan Regional Government for a further investment of
$50 million in the Kurdamir Block arising from the Company's decision to enter the next exploration sub-period of the licence.

During
the year ended December 31, 2011, the Company acquired additional undeveloped land in the Eagle Ford shale play for approximately $145 million and undeveloped land in the Alberta
Duvernay shale play for approximately $510 million.

During
the year ended December 31, 2010, the Company acquired undeveloped land in the Eagle Ford shale play for approximately $910 million and a 35% working interest in the
PL378 Grosbeak discovery and a 20% interest in the PL375 Beta discovery in Norway for $192 million.

6. Business Combinations

Kinabalu PSC

The Company entered into a new PSC with PETRONAS, the national oil company of Malaysia, acquiring ownership of a 60% working interest in the Kinabalu
PSC, as well as assuming operatorship on December 26, 2012. As consideration for receipt of the PSC interest, the Company paid to PETRONAS a financial commitment in the amount of
$50 million in January 2013.

This
acquisition, which builds on the Company's acreage position in Malaysia and is being reported in the Southeast Asia segment, was accounted for using the acquisition method. The fair values of the
identifiable assets acquired and liabilities assumed by Talisman, after working capital and other adjustments, were preliminarily allocated as follows:

|Fair value of share of net assets acquired  |                   |     |   
|------------------------------------------- | ----------------- | --- | --
|                                            |                  
|Property, plant and equipment               |                   | 61  |   
|                                            |                   |     |   
|Exploration and evaluation assets           |                   | 39  |   
|                                            |                   |     |   
|Decommissioning liability                   |                   | (53 | ) 
|                                            |                   |     |   
|Deferred tax liability                      |                   | (19 | ) 
|                                            |                  
|Total identifiable net assets at fair value |                   | 28  |   
|                                            |                   |     |   
|Goodwill arising on acquisition (note 8)    |                   | 22  |   
|                                            |                  
|Total cost of acquisition                   |                   | 50  |   
|                                            |                  
|Satisfied by:                               |                   |     |   
|                                            |                   |     |   
|                                            | Cash paid in 2013 |     | 50
|                                            |                  

The goodwill arising on this acquisition is attributable to the difference between the accounting fair value and the tax basis of the net assets acquired, and
is not expected to be deductible for income tax purposes.

Revenue
and net income from Kinabalu PSC did not have a material impact on the Company during 2012, since the effective date of transaction was December 26, 2012. It is impractical to disclose
information of revenue or net income had the transaction closed on
January 1, 2012, as reliable information is not readily available. The Company did not incur any transaction costs as part of the acquisition.

No
contingent consideration or contingent liabilities arose from this transaction.

Equión

On January 24, 2011, Talisman, together with Ecopetrol, completed the acquisition of BP Exploration Company (Colombia) Limited, renamed
Equión. Talisman acquired a 49% interest in Equión for cash consideration of $785 million. Since Equión is a jointly controlled entity, the Company
is proportionately consolidating its interest, which is reported in the Other segment.

The
recognition of assets acquired and liabilities assumed has been updated as a result of the completion of the Company's process to evaluate the acquired reserves, and reflects additional
market-based information for certain acquired assets.

The
assets acquired through this transaction include interests in producing properties and investments in companies having interests in oil and gas pipelines in Colombia.

20TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



This
acquisition, which builds on the Company's acreage position in Colombia, was accounted for using the acquisition method. The fair values of the identifiable assets acquired and liabilities
assumed by Talisman, after working capital and other adjustments, were as follows:

|Fair value of share of net assets acquired  |                           |      |    
|------------------------------------------- | ------------------------- | ---- | ---
|                                            |                          
|Property, plant and equipment               |                           | 559  |    
|                                            |                           |      |    
|Cash                                        |                           | 16   |    
|                                            |                           |      |    
|Accounts receivable                         |                           | 81   |    
|                                            |                           |      |    
|Inventories                                 |                           | 16   |    
|                                            |                           |      |    
|Investments                                 |                           | 350  |    
|                                            |                           |      |    
|Indemnification asset                       |                           | 52   |    
|                                            |                           |      |    
|Accounts payable                            |                           | (113 | )  
|                                            |                           |      |    
|Other current liabilities                   |                           | (52  | )  
|                                            |                           |      |    
|Decommissioning liability                   |                           | (25  | )  
|                                            |                           |      |    
|Provisions                                  |                           | (52  | )  
|                                            |                           |      |    
|Deferred tax liability                      |                           | (209 | )  
|                                            |                          
|Total identifiable net assets at fair value |                           | 623  |    
|                                            |                           |      |    
|Goodwill arising on acquisition (note 8)    |                           | 162  |    
|                                            |                          
|Total cost of acquisition                   |                           | 785  |    
|                                            |                          
|Satisfied by:                               |                           |      |    
|                                            |                           |      |    
|                                            | Cash deposit paid in 2010 |      | 613
|                                            |                           |      |    
|                                            | Cash paid in 2011         |      | 172
|                                            |                          
|Total cash paid                             |                           | 785  |    
|                                            |                          

The fair value of the acquired accounts receivable approximates the carrying value due to their short-term nature. None of the accounts receivable
were impaired and the full contractual amount was collected.

The
goodwill arising on acquisition is attributable to the difference between the accounting fair value and the tax basis of the net assets acquired, and is not expected to be deductible for income
tax purposes.

From
the date of acquisition, Equión contributed revenue of $287 million and net income of $110 million to the Company's Consolidated Statements of Income during the year
ended December 31, 2011. Had the transaction closed on January 1, 2011, the incremental revenue and net income reported by Talisman would have been immaterial.

Transaction
costs of $11 million were expensed in 2010 and included in other expenses on the Consolidated Statements of Income and shown as a component of cash provided by operating activities
in the Consolidated Statements of Cash Flows.

As
part of the purchase transaction, Talisman assumed provisions of $52 million for which the vendor has indemnified the Company. Accordingly, a non-current asset was recorded in
the same amount.

No
contingent consideration arose from this transaction.

Jambi Merang

On January 13, 2010, Talisman acquired 100% of the share capital of Hess (Indonesia-Jambi Merang) Limited, a company which owns a 25% interest
in the Jambi Merang PSC, for cash consideration of $183 million.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       21

---



This
acquisition, which facilitates Talisman's strategy to increase its presence in Indonesia and is being reported in the Southeast Asia segment, was accounted for using the acquisition method. The
fair values of the identifiable assets acquired and liabilities assumed by Talisman were as follows:

|Fair value of net assets acquired           |           |     |    
|------------------------------------------- | --------- | --- | ---
|                                            |          
|Property, plant and equipment               |           | 181 |    
|                                            |           |     |    
|Accounts receivable                         |           | 26  |    
|                                            |           |     |    
|Other assets                                |           | 13  |    
|                                            |           |     |    
|Accounts payable                            |           | (20 | )  
|                                            |           |     |    
|Other current liabilities                   |           | (17 | )  
|                                            |           |     |    
|Deferred tax liability                      |           | (43 | )  
|                                            |          
|Total identifiable net assets at fair value |           | 140 |    
|                                            |           |     |    
|Goodwill arising on acquisition (note 8)    |           | 43  |    
|                                            |          
|Total cost of acquisition                   |           | 183 |    
|                                            |          
|Satisfied by:                               |           |     |    
|                                            |           |     |    
|                                            | Cash paid |     | 183
|                                            |          

The fair value of the acquired accounts receivable approximates the carrying value due to their short-term nature. None of the accounts receivable
acquired were impaired and the full contractual amount was collected.

The
goodwill recognized above is attributable to the difference between the accounting fair value and the tax basis of the net assets acquired, and is not expected to be deductible for income
tax purposes.

Revenue
and net income from Jambi Merang did not have a material impact on the Company during 2010, since first production was achieved in April 2011.

Transaction
costs of $1 million were expensed in 2010 and included in other expenses in the Consolidated Statements of Income and shown as a component of cash provided by operating activities
in the Consolidated Statements of Cash Flows.

No
contingent consideration or contingent liabilities arose from this transaction.

7. Jointly Controlled Entities

Talisman accounts for jointly controlled entities using proportionate consolidation. Summarized financial information for the Company's share in
jointly controlled entities, comprising Equión (49%), Talisman Sasol Montney Partnership (50%) and TSEUK (51%), is as follows:

|                                        |  |           |   |                                       |  |          |   |       |  |       |   |         |  |       |   |      
|--------------------------------------- |  | --------- | - | ------------------------------------- |  | -------- | - | ----- |  | ----- | - | ------- |  | ----- | - | -----
|                                        |  |           |   |                                       |  |          |   |       |  |       |   |         |  |       |   |      
|                                        |  |           |   |                                       |  |          |   |       |  |       |   |         |  |       |   |      
|                                        |  |           |   |                                       |  |          |   |       |  |       |   |         |  |       |   |      
|                                        |  | Equión(2) |   | Talisman Sasol
Montney Partnership(2) |  | TSEUK(2) |   | Total
|December 31                             |  | 2012      |   | 2011                                  |  | 2012     |   | 2011  |  | 2012  |   | 2011(1) |  | 2012  |   | 2011 
|                                       
|Current assets                          |  | 272       |   | 237                                   |  | 75       |   | 130   |  | 259   |   |        |  | 606   |   | 367  
|                                        |  |          
|Non-current assets                      |  | 794       |   | 1,182                                 |  | 530      |   | 558   |  | 1,799 |   |        |  | 3,123 |   | 1,740
|                                       
|Total assets                            |  | 1,066     |   | 1,419                                 |  | 605      |   | 688   |  | 2,058 |   |        |  | 3,729 |   | 2,107
|                                       
|Current liabilities                     |  | 253       |   | 274                                   |  | 15       |   | 13    |  | 306   |   |        |  | 574   |   | 287  
|                                        |  |          
|Non-current liabilities                 |  | 372       |   | 253                                   |  | 4        |   | 7     |  | 1,952 |   |        |  | 2,328 |   | 260  
|                                       
|Total liabilities                       |  | 625       |   | 527                                   |  | 19       |   | 20    |  | 2,258 |   |        |  | 2,902 |   | 547  
|                                       
|Years ended December 31                 |  | 2012      |   | 2011                                  |  | 2012     |   | 2011  |  | 2012  |   | 2011    |  | 2012  |   | 2011 
|                                       
|Total revenue and other income          |  | 403       |   | 287                                   |  | 58       |   | 34    |  | 58    |   |        |  | 519   |   | 321  
|                                        |  |          
|Total expenses (including income taxes) |  | 407       |   | 177                                   |  | 109      |   | 31    |  | 104   |   |        |  | 620   |   | 208  
|                                       
|Net income (loss)                       |  | (4        | ) | 110                                   |  | (51      | ) | 3     |  | (46   | ) |        |  | (101  | ) | 113  
|                                       

As at and for the year ended December 31, 2012, the Company proportionately consolidated TSEUK and Equión. Upon adoption of IFRS 11 Joint Arrangementson January 1,
2013, the Company will be required to use the equity method of accounting for its investments in TSEUK and
Equión. Talisman's interest in the Talisman Sasol Montney Partnership will be accounted for as a joint

22TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



operation
and continue to be proportionately consolidated as Talisman shares its interests in the partnership assets based on the Company's 50% ownership interest and is jointly and severally liable
for the obligations of the partnership.

8. Goodwill

Changes in the carrying amount of the Company's goodwill are as follows:

|                             |  |       |   |       |  
|---------------------------- |  | ----- | - | ----- | -
|Continuity of goodwill       |  | 2012  |   | 2011  |  
|                             | 
|Balance, beginning of year   |  | 1,317 |   | 1,164 |  
|                             |  |       |  
|Acquisitions                 |  | 22    |   | 162   |  
|                             |  |       |  
|Disposals                    |  | (325  | ) | (9    | )
|                             |  |       |  
|Foreign currency translation |  |      |   |      |  
|                             | 
|Balance, end of year         |  | 1,014 |   | 1,317 |  
|                             | 

Goodwill has no tax basis.

9. Accounts Receivable

|                                |  |       |      |       |  
|------------------------------- |  | ----- | ---- | ----- | -
|December 31                     |  | 2012  |      | 2011  |  
|                                | 
|Trade receivables               |  | 1,243 |      | 1,617 |  
|                                |  |       |     
|Allowance for doubtful accounts |  | (33   | )(1) | (67   | )
|                                | 
|                                |  | 1,210 |      | 1,550 |  
|                                | 

The fair value of accounts receivable approximates the carrying amount due to their short term to maturity. Trade receivables are non-interest
bearing and are generally on 30-90 day terms.

At
December 31, the analysis of trade receivables that were due or past due, but not impaired, was as follows:

|     |  |       |  |                   |  |                           |  |           
|---- |  | ----- |  | ----------------- |  | ------------------------- |  | ----------
|     |  |       |  |                   |  | Past due but not impaired
|    
|     |  | Total |  | Less than
90 days |  | 91-120 days               |  | > 120 days
|    
|2012 |  | 1,210 |  | 1,106             |  | 47                        |  | 57        
|    
|2011 |  | 1,550 |  | 1,483             |  | 12                        |  | 55        
|    

10. Inventories

|                       |  |      |  |     
|---------------------- |  | ---- |  | ----
|December 31            |  | 2012 |  | 2011
|                      
|Materials and supplies |  | 57   |  | 56  
|                       |  |     
|Product                |  | 93   |  | 108 
|                      
|                       |  | 150  |  | 164 
|                      

11. Other Assets

|                                       |  |      |  |     
|-------------------------------------- |  | ---- |  | ----
|December 31                            |  | 2012 |  | 2011
|                                      
|Accrued pension asset (note 30)        |  | 3    |  | 1   
|                                       |  |     
|Decommissioning sinking fund (note 15) |  | 50   |  | 38  
|                                       |  |     
|Indemnification asset (note 6)         |  | 52   |  | 52  
|                                       |  |     
|Other                                  |  | 10   |  | 10  
|                                      
|Total                                  |  | 115  |  | 101 
|                                      

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       23

---



12. Investments

|                                                                       |  |      |  |     
|---------------------------------------------------------------------- |  | ---- |  | ----
|December 31                                                            |  | 2012 |  | 2011
|                                                                      
|Investment in Oleoducto Central S.A (Ocensa)                           |  | 662  |  | 325 
|                                                                       |  |     
|Other investments acquired pursuant to the Equión business combination |  | 18   |  | 25  
|                                                                       |  |     
|Investment in Transasia Pipeline Company Pvt. Ltd.                     |  | 34   |  | 34  
|                                                                       |  |     
|Other                                                                  |  | 33   |  | 11  
|                                                                      
|                                                                       |  | 747  |  | 395 
|                                                                      

Investments comprise Talisman's interests accounted for using the equity method and as available-for-sale financial assets. The
available-for-sale assets are recorded at the estimated fair values and are categorized as level 3 of the fair value hierarchy referred to in note 22.

The
investment in Ocensa was acquired as part of the Equión business combination described in note 6. Ocensa has an interest in a pipeline in Colombia. From the date of
acquisition until November 2012, the investment in Ocensa was held by Equión and was accounted for using the equity method. In November 2012, Talisman, together with
Ecopetrol SA, completed a restructuring of Equión whereby the investment in Ocensa was distributed to the shareholders as a non-cash dividend. This distribution has been
recorded at fair value and the difference between the fair value of the investment in Ocensa and the previous carrying amount has resulted in a pre-tax gain of $365 million
($245 million post-tax), which is included in 'Gain on revaluation of investment' on the Consolidated Statements of Income. In determining the value to be placed on Ocensa, Talisman
considered recent market transactions and the value of the transportation cost savings as well as the value of excess transportation capacity in the Colombian markets.

At
December 31, 2012, Ocensa is accounted for as an available-for-sale financial asset.

Three
other investments were acquired pursuant to the Equión business combination, one of which is accounted for using the equity method and two using the cost method.

The
investment in Transasia Pipeline Company Pvt. Ltd. is accounted for as an available-for-sale financial asset.

24TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



13. Oil and Gas Assets

The cost and accumulated DD&A of the Company's PP&E (including corporate assets) and E&E assets are as follows:

|                                                    |  |        |   |            |   |        |  
|--------------------------------------------------- |  | ------ | - | ---------- | - | ------ | -
|                                                    |  | PP&E   |   | E&E
assets |   | Total  |  
|                                                    | 
|COST                                                |  |        |   |            |   |        |  
|                                                    |  |        |  
|At December 31, 2010                                |  | 25,217 |   | 3,758      |   | 28,975 |  
|                                                    |  |        |  
|Acquisitions through business combinations (note 6) |  | 559    |   |           |   | 559    |  
|                                                    |  |        |  
|Additions                                           |  | 3,491  |   | 1,527      |   | 5,018  |  
|                                                    |  |        |  
|Disposals and derecognition                         |  | (384   | ) | (192       | ) | (576   | )
|                                                    |  |        |  
|Transfers from E&E assets to PP&E                   |  | 654    |   | (654       | ) |       |  
|                                                    |  |        |  
|Change in decommissioning liabilities               |  | 363    |   |           |   | 363    |  
|                                                    |  |        |  
|Expensed to dry hole                                |  |       |   | (241       | ) | (241   | )
|                                                    | 
|At December 31, 2011                                |  | 29,900 |   | 4,198      |   | 34,098 |  
|                                                    |  |        |  
|Acquisitions through business combinations (note 6) |  | 61     |   | 39         |   | 100    |  
|                                                    |  |        |  
|Additions                                           |  | 3,115  |   | 621        |   | 3,736  |  
|                                                    |  |        |  
|Disposals and derecognition                         |  | (759   | ) | (43        | ) | (802   | )
|                                                    |  |        |  
|Transfers from E&E assets to PP&E                   |  | 549    |   | (549       | ) |       |  
|                                                    |  |        |  
|Transfers from PP&E to E&E assets                   |  | (1,751 | ) | 1,751      |   |       |  
|                                                    |  |        |  
|Change in decommissioning liabilities               |  | 648    |   | 45         |   | 693    |  
|                                                    |  |        |  
|Expensed to dry hole                                |  |       |   | (269       | ) | (269   | )
|                                                    |  |        |  
|Disposals  TEUK                                    |  | (4,701 | ) | (19        | ) | (4,720 | )
|                                                    | 
|At December 31, 2012                                |  | 27,062 |   | 5,774      |   | 32,836 |  
|                                                    | 
|ACCUMULATED DD&A                                    |  |        |   |            |   |        |  
|                                                    |  |        |  
|At December 31, 2010                                |  | 11,951 |   | 316        |   | 12,267 |  
|                                                    |  |        |  
|Charge for the year                                 |  | 1,949  |   |           |   | 1,949  |  
|                                                    |  |        |  
|Disposals and derecognition                         |  | (88    | ) | (119       | ) | (207   | )
|                                                    |  |        |  
|Impairment losses                                   |  | 313    |   | 47         |   | 360    |  
|                                                    |  |        |  
|Impairment reversal                                 |  | (134   | ) |           |   | (134   | )
|                                                    | 
|At December 31, 2011                                |  | 13,991 |   | 244        |   | 14,235 |  
|                                                    |  |        |  
|Charge for the year                                 |  | 2,508  |   |           |   | 2,508  |  
|                                                    |  |        |  
|Disposals and derecognition                         |  | (551   | ) | (24        | ) | (575   | )
|                                                    |  |        |  
|Impairment losses                                   |  | 2,280  |   | 464        |   | 2,744  |  
|                                                    |  |        |  
|Transfers from PP&E to E&E assets                   |  | (1,574 | ) | 1,574      |   |       |  
|                                                    |  |        |  
|Disposals  TEUK                                    |  | (2,597 | ) |           |   | (2,597 | )
|                                                    | 
|At December 31, 2012                                |  | 14,057 |   | 2,258      |   | 16,315 |  
|                                                    | 
|NET BOOK VALUE                                      |  |        |   |            |   |        |  
|                                                    |  |        |  
|At December 31, 2012                                |  | 13,005 |   | 3,516      |   | 16,521 |  
|                                                    | 
|At December 31, 2011                                |  | 15,909 |   | 3,954      |   | 19,863 |  
|                                                    | 
|At January 1, 2010                                  |  | 13,266 |   | 3,442      |   | 16,708 |  
|                                                    | 

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       25

---



The Company reclassified the cost of certain properties in the North Sea segment, net of impairment charges from the PP&E category to the E&E category as a
result of previously sanctioned development plans being re-evaluated and the associated proved reserves being reclassified to probable and contingent resources.

Included
in PP&E are capitalized interest costs of $233 million (2011  $161 million) relating to projects under construction and development.
During the year ended December 31, 2012, interest costs of $110 million (2011  $85 million;
2010  $81 million) were capitalized.

An
incremental DD&A expense of $224 million was booked in the fourth quarter of 2012 to reflect reserves revisions, of which $187 million related to the elimination of proved reserves
and full write-off of the book values of the associated fields. For 2011, the impact of adjusting the DD&A expense in the fourth quarter for reserves revisions was an incremental
$24 million.

Non-Depleted Capital

PP&E and E&E assets include the following costs that were not subject to DD&A:

|                                                                        |                |       |       |      
|----------------------------------------------------------------------- | -------------- | ----- | ----- | -----
|December 31                                                             |                | 2012  |       | 2011 
|                                                                       
|Undeveloped land                                                        |                |       |       |      
|                                                                        |                |      
|                                                                        | North America  |       | 2,060 |      
|                                                                        |                |      
|                                                                        | Southeast Asia |       | 304   |      
|                                                                        |                |      
|                                                                        | Other          |       | 207   |      
|                                                                        |                |      
|Acquired unproved reserve costs not associated with producing fields(1) |                |       |       |      
|                                                                        |                |      
|                                                                        | Southeast Asia |       | 46    |      
|                                                                        |                |      
|                                                                        | North Sea      |       | 204   |      
|                                                                        |                |      
|                                                                        | Other          |       |      |      
|                                                                        |                |      
|Exploration costs(2)                                                    |                |       |       |      
|                                                                        |                |      
|                                                                        | North America  |       | 19    |      
|                                                                        |                |      
|                                                                        | Southeast Asia |       | 176   |      
|                                                                        |                |      
|                                                                        | North Sea      |       | 247   |      
|                                                                        |                |      
|                                                                        | Other          |       | 253   |      
|                                                                       
|E&E assets                                                              |                | 3,516 |       | 3,954
|                                                                        |                |      
|Development projects(3)                                                 |                |       |       |      
|                                                                        |                |      
|                                                                        | North America  |       | 552   |      
|                                                                        |                |      
|                                                                        | Southeast Asia |       | 753   |      
|                                                                        |                |      
|                                                                        | North Sea      |       | 240   |      
|                                                                        |                |      
|                                                                        | Other          |       | 376   |      
|                                                                       
|                                                                        |                | 5,437 |       | 6,516
|                                                                       

Costs relating to wells drilled prior to 2012 continue to be capitalized, since management's ongoing assessment includes further planned activity. The number of
wells drilled prior to 2012 and related costs are as follows:

|               |  | Years       |  | Number of wells(1) |  | Cost
|-------------- |  | ----------- |  | ------------------ |  | ----
|              
|Southeast Asia |  | 2007  2011 |  | 24                 |  | 141 
|               |  |            
|North Sea      |  | 2007  2011 |  | 11                 |  | 435 
|               |  |            
|Other          |  | 2009  2011 |  | 31                 |  | 243 
|              
|               |  |             |  | 66                 |  | 819 
|              

North Sea and other international wells relate to projects that are in the process of being evaluated, including the drilling of additional appraisal wells and
the completion of additional seismic analysis. Some of these projects are in the final stages of project sanction.

26TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



14. Impairment

Impairment of Assets

|                        |            |       |       |      |     |     
|----------------------- | ---------- | ----- | ----- | ---- | --- | ----
|Years ended December 31 |            | 2012  |       | 2011 |     | 2010
|                       
|Impairment losses       |            |       |       |      |     |     
|                        |            |      
|                        | E&E assets |       | 464   |      | 47  |     
|                        |            |      
|                        | PP&E       |       | 2,280 |      | 313 |     
|                       
|                        |            | 2,744 |       | 360  |     | 301 
|                       
|Impairment reversals    |            |       |       |      |     |     
|                        |            |      
|                        | E&E assets |       |      |      |    |     
|                        |            |      
|                        | PP&E       |       |      |      | 134 |     
|                       
|                        |            |      |       | 134  |     |    
|                       
|Net impairment          |            | 2,744 |       | 226  |     | 301 
|                       

At December 31, 2012, the Company assessed the carrying amount of its oil and gas assets for indicators of impairment such as changes in future prices,
future costs and reserves. The Company generally calculates the recoverable amount as the fair value less costs to sell using a discounted cash flow model. The discount rate is derived from the
Company's post-tax weighted average cost of capital. Any country-specific risks are adjusted for within the cash flows. The rate to be applied is reassessed each year. The calculation is
sensitive to the following assumptions which have been based on a long-term view of global oil and gas supply and demand as well as extensive industry experience:

The
following assumptions were used in developing the cash flow model and applied over the expected life of the respective fields within each cash-generating unit:

|                                |  | 2013   |  | 2014 and
beyond
|------------------------------- |  | ------ |  | ---------------
|                               
|WTI ($/bbl)                     |  | 90.00  |  | 88.63          
|                                |  |       
|Dated Brent ($/bbl)             |  | 100.00 |  | 95.36          
|                                |  |       
|Henry Hub natural gas ($/mmbtu) |  | 3.60   |  | 4.88           
|                                |  |       
|AECO (C$/gj)                    |  | 2.82   |  | 4.00           
|                                |  |       
|US$/C$                          |  | 1.00   |  | 1.00           
|                                |  |       
|US$/UK£                         |  | 1.60   |  | 1.60           
|                                |  |       
|Post-tax discount rate          |  | 10%    |  | 10%            
|                               

In addition to discounted cash flows, the Company also considered a variety of market metrics in assessing fair value less cost to sell in certain areas. Market
metric information was obtained from recent transactions involving similar assets. In determining the fair value of the Company's investment in shale properties, the Company considered the price per
flowing barrel and the land values per undeveloped acre based on comparable transactions as well as contingent resource valuation from publicly available information.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       27

---



During
2012, the Company recorded impairment expense of $363 million in North America of which $194 million pre-tax ($138 million after-tax) relates to
lower long-term gas price assumptions and reserves reduction in conventional areas, and impairment expense of $60 million pre-tax ($45 million
after-tax) was recorded in respect of conventional assets disposed of in the third quarter. In addition, the Company concluded during the third quarter that it would not commit capital in
the foreseeable future to exploration and evaluation activities in Quebec, where the prohibition regarding hydraulic fracturing for shale gas developments has been reaffirmed. Accordingly, the Company
fully impaired its Quebec exploration and evaluation assets and recorded an impairment expense of $109 million pre-tax ($82 million after-tax).

Impairments
of $2.1 billion were recorded for the North Sea, primarily related to the Yme project in Norway. In 2012, the Yme project experienced significant delays, quality issues and cost
overruns and is subject to arbitration with the platform contractor. In the third quarter, Talisman made a decision to de-man the platform for safety related reasons and it has not been
re-manned since. Given the uncertainty of the timing for first oil, Talisman removed Yme from its forward projections and recorded impairment losses of $1,475 million
pre-tax ($373 million after-tax). At the end of the third quarter, this represented an impairment of the remaining book value of the property, plant and equipment of
Yme, leaving a deferred tax asset of $521 million relating to the investment in the project. Capital expenditures incurred during the fourth quarter, capitalized interest and revised
decommissioning liabilities totaling $99 million pre-tax ($28 million after-tax) were also impaired in full. Management continues to work with all stakeholders to
evaluate project options.

During
the year, the Rev field in Norway experienced a significant drop in reservoir pressure, resulting in a decline in production. As a result, the Company made a downward revision of its estimates
of recoverable reserves and recorded an impairment expense of $250 million pre-tax ($55 million after-tax). During 2012, the Company also recorded an impairment
expense of $74 million pre-tax ($17 million after-tax) in respect of other Norwegian exploration assets upon completion of the commercial feasibility studies of
these assets. In addition, a revision to decommissioning cost estimates in Gyda resulted in the Company recording an impairment expense of $41 million pre-tax ($9 million
after-tax).

In
the UK, impairment expense of $158 million pre-tax ($66 million after-tax) was recorded in respect of certain development areas largely due to fourth quarter reserves
revisions and increased future cost estimates.

In
2012, the Company decided to cease exploration activities in the Marañon Basin in northern Peru and exit the country. As a result, $171 million of impairment expense was
recorded. The Company will fulfil its outstanding legal obligations as it exits Peru. In addition, impairment expense of $41 million was recorded during the year ended December 31, 2012,
in respect of exploration and evaluation assets in Poland.

During
the year ended December 31, 2012, the Company recorded $72 million of impairment related to exploration acreage being relinquished in the Kurdistan Region of Iraq.

During
the year ended December 31, 2011, the Company recorded impairment of $129 million in North America due principally to reduced third party tariffs in the Company's midstream
operations and lower conventional natural gas reserves. Impairments of $231 million in the North Sea were recorded in respect of oil and gas PP&E ($184 million) and E&E assets
($47 million). Of the $231 million, $102 million was as a result of a change in legislation announced by the UK government in March 2011 that raises the combined
corporation tax and supplementary charge rate from 50% to 62% for oil and gas companies with fields not subject to PRT, and 75% to 81% with fields subject to PRT. See note 26 for further
details. Additional impairment expense of $129 million in the North Sea arose due to a reduction in year-end reserves in a field in Norway.

Also
during 2011, an impairment reversal of $134 million resulted from price increases and an increase in estimated reserves for oil and gas assets that were previously impaired in the North
Sea and Southeast Asia.

During
the year ended December 31, 2010, the Company recorded $301 million of impairments, of which $189 million related to PP&E and $112 million to E&E assets. In North
America, natural gas assets of $92 million were written down due to the decline in natural gas price assumptions and $24 million of exploration acreage was relinquished. In the North
Sea, oil and gas assets of $76 million and E&E assets of $23 million were written down due to a change in reserves estimates, a change in the estimated timing of cash flows and changes
in investment decisions. In addition, $65 million of exploration acreage was relinquished. In Southeast Asia, $21 million was recorded relating to oil assets due to an increase in
estimated future costs.

Impairment of Goodwill

As part of impairment testing, goodwill is allocated to the CGU or groups of CGU to which it relates. Goodwill was assessed for impairment as at
December 31, 2012 using fair value less costs to sell. Fair value less costs to sell was estimated for each CGU, with allocated goodwill, based on the assumptions used in the asset
impairment test.

No
reasonably possible change in assumptions would cause goodwill to become impaired.

28TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



15. Decommissioning Liabilities

|                                             |  |        |   |       |  
|-------------------------------------------- |  | ------ | - | ----- | -
|Continuity of decommissioning liabilities    |  | 2012   |   | 2011  |  
|                                             | 
|Balance, beginning of year                   |  | 3,035  |   | 2,610 |  
|                                             |  |        |  
|Liabilities incurred during the year         |  | 190    |   | 115   |  
|                                             |  |        |  
|Liabilities settled during the year          |  | (53    | ) | (44   | )
|                                             |  |        |  
|Accretion expense (note 16)                  |  | 85     |   | 76    |  
|                                             |  |        |  
|Revisions in estimated cash flows            |  | 251    |   | 204   |  
|                                             |  |        |  
|Change in discount rate                      |  | 307    |   | 74    |  
|                                             |  |        |  
|Disposals                                    |  | (1,023 | ) |      |  
|                                             | 
|Balance, end of year                         |  | 2,792  |   | 3,035 |  
|                                             | 
|Expected to be settled within one year       |  | 49     |   | 53    |  
|                                             |  |        |  
|Expected to be settled in more than one year |  | 2,743  |   | 2,982 |  
|                                             | 
|                                             |  | 2,792  |   | 3,035 |  
|                                             | 

Revisions in estimated cash flows occurring in 2012 related to cost increases in the North Sea as well as cost increases and a revision of the expected timing
of settlement of liabilities in North America. The liabilities incurred during the year related principally to new wells and facilities in the North Sea and Southeast Asia, as well as the addition of
the decommissioning liabilities at Kinabalu.

The
Company provides for the future cost of decommissioning oil and natural gas properties and facilities on a discounted basis. At December 31, 2012, the estimated undiscounted decommissioning
liabilities associated with oil and gas properties and facilities were $4.1 billion (2011  $5.0 billion). The majority of the payments to settle
this provision will occur over a period of 35 years and will be funded from the general resources of the Company as they arise. The provision for the costs of decommissioning production
facilities and pipelines at the end of their economic lives has been estimated using existing technology, at current prices or long-term assumptions and based upon the expected timing of
the activity. The provision has been discounted using a weighted average credit-adjusted risk free rate of 2.3% (2011  3.1%), which excludes the impact of
inflation. Total accretion expense for the year ended December 31, 2012 of $85 million (2011  $76 million) has been included in finance
costs on the Consolidated Statements of Income.

While
the provision is based on the best estimate of future costs and the economic lives of the facilities and pipelines, there is uncertainty regarding both the amount and timing of the costs to
be incurred.

The
Company provided letters of credit at January 1, 2013 in an amount of $1.6 billion as security for the costs of decommissioning obligations in the UK. Under the contractual
arrangements pursuant to which APUK acquired 49% of the share capital of TEUK, APUK's parent company, Sinopec, has provided an unconditional and irrevocable guarantee for 49% of the UK decommissioning
obligations.

The
Company has established a decommissioning sinking fund of $50 million at December 31, 2012 (2011  $38 million) that represents secured
funding for its decommissioning obligations in Southeast Asia.

16. Finance Costs

|                                              |  |      |   |      |   |      |  
|--------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|Years ended December 31                       |  | 2012 |   | 2011 |   | 2010 |  
|                                              | 
|Interest on long-term debt                    |  | 256  |   | 240  |   | 235  |  
|                                              |  |      |  
|Miscellaneous interest expense and other fees |  | 45   |   | 47   |   | 43   |  
|                                              |  |      |  
|Accretion expense (note 15)                   |  | 85   |   | 76   |   | 79   |  
|                                              |  |      |  
|Less: interest capitalized                    |  | (110 | ) | (85  | ) | (81  | )
|                                              | 
|                                              |  | 276  |   | 278  |   | 276  |  
|                                              | 

The interest rate applied in determining the amount of interest capitalized in 2012 was approximately 6.1% (2011  6.1%;
2010  6.4%).

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       29

---



17. Long-Term Debt

|                                    |                                             |       |     |       |    
|----------------------------------- | ------------------------------------------- | ----- | --- | ----- | ---
|December 31                         |                                             | 2012  |     | 2011  |    
|                                    |                                            
|Bank Credit Facilities              |                                             |      |     | 648   |    
|                                    |                                             |       |    
|Commercial Paper                    |                                             |      |     | 402   |    
|                                    |                                             |       |    
|Tangguh Project Financing           |                                             | 89    |     | 97    |    
|                                    |                                             |       |    
|Debentures and Notes (Unsecured)(1) |                                             |       |     |       |    
|                                    |                                             |       |    
|                                    | 8.25% notes (US$50 million), due 2014       |       | 50  |       | 50 
|                                    |                                             |       |    
|                                    | 5.125% notes (US$375 million), due 2015(2)  |       | 374 |       | 374
|                                    |                                             |       |    
|                                    | 8.50% notes (US$150 million), due 2016      |       | 150 |       | 150
|                                    |                                             |       |    
|                                    | 6.625% notes (UK£250 million), due 2017     |       | 404 |       | 385
|                                    |                                             |       |    
|                                    | 7.75% notes (US$700 million), due 2019      |       | 695 |       | 694
|                                    |                                             |       |    
|                                    | 3.75% notes (US$600 million), due 2021      |       | 593 |       | 592
|                                    |                                             |       |    
|                                    | 7.25% debentures (US$300 million), due 2027 |       | 300 |       | 300
|                                    |                                             |       |    
|                                    | 5.75% notes (US$125 million), due 2035      |       | 123 |       | 123
|                                    |                                             |       |    
|                                    | 5.85% notes (US$500 million), due 2037      |       | 494 |       | 493
|                                    |                                             |       |    
|                                    | 6.25% notes (US$600 million), due 2038      |       | 587 |       | 587
|                                    |                                             |       |    
|                                    | 5.50% notes (US$600 million), due 2042      |       | 583 |       |   
|                                    |                                            
|Gross debt(3)                       |                                             | 4,442 |     | 4,895 |    
|                                    |                                             |       |    
|Less: current portion               |                                             | (8    | )   | (410  | )  
|                                    |                                            
|Long-term debt                      |                                             | 4,434 |     | 4,485 |    
|                                    |                                            

Bank Credit Facilities and Commercial Paper

At December 31, 2012, Talisman had unsecured credit facilities totaling $4.1 billion, consisting of facilities of $3.9 billion
(Facility No. 1) and $200 million (Facility No. 2). These facilities mature in November 2014, although the maturity date may be extended from time to time upon
agreement between the Company and the respective lenders. Prior to the maturity date, the Company may borrow, repay and reborrow at its discretion. All facilities must be repaid on the
maturity date.

Borrowings
under Facility No. 1 are available in the form of prime loans, C$ or US$ bankers' acceptances, US$ base rate loans or LIBOR-based loans. In addition, drawings to a total of
$1 billion are available in the form of letters of credit. Borrowings under Facility No. 2 are available in the form of prime loans, C$ or US$ guaranteed notes, US$ base rate loans and
LIBOR-based loans. During 2012, the Company repaid the outstanding bankers' acceptance program in full.

The
Company established a US commercial paper program in November 2011. The authorized amount under this program is $1 billion. The amount available under the commercial paper program is
limited to the availability of backup funds under the Company's bank credit facilities. During 2012, the Commercial Paper program was repaid in full.

At
December 31, 2012, available borrowing capacity under the bank credit facilities was $4 billion.

Tangguh Project Financing

In connection with the acquisition of its interest in the Tangguh LNG Project, Talisman became a participant in a series of project financing
facilities, the Company's share of which is up to $105 million. Approximately $89 million was outstanding under these facilities at December 31, 2012
(2011  $97 million), of which $8 million is due for repayment in 2013. The amount outstanding is secured by Talisman's interest in the Tangguh LNG
Project, having a net book value of $245 million. Draws under these facilities bear interest at LIBOR plus 0.19% through to LIBOR plus 0.33% per annum and will mature in 2021.

Debentures and Notes

On May 15, 2012, Talisman completed a $600 million offering of 5.5% notes due May 15, 2042. Proceeds, net of the discount and
issuance costs were $583 million. Interest on the notes is payable semi-annually. The notes are redeemable at the option of the Company at a make-whole premium. The
notes are unsecured and unsubordinated and rank equally with all of the Company's other unsecured and unsubordinated indebtedness.

30TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Other

The Company has a financing structure whereby subsidiaries have $1.3 billion drawn on bank facilities that have been offset against equal
amounts of cash deposited by another subsidiary with the same bank under a right of offset agreement. The Company intends to offset these amounts at maturity.

Repayment Schedule

The Company's contractual minimum repayments of gross long-term debt are as follows:

|Year               |  |      
|------------------ |  | -----
|                  
|2013               |  | 8    
|                   |  |      
|2014               |  | 59   
|                   |  |      
|2015               |  | 384  
|                   |  |      
|2016               |  | 161  
|                   |  |      
|2017               |  | 415  
|                   |  |      
|Subsequent to 2017 |  | 3,415
|                  
|Gross debt         |  | 4,442
|                  

18. Other Long-Term Obligations

|                                                                       |  |      |  |     
|---------------------------------------------------------------------- |  | ---- |  | ----
|December 31                                                            |  | 2012 |  | 2011
|                                                                      
|Accrued pension and other post-employment benefits liability (note 30) |  | 129  |  | 163 
|                                                                       |  |     
|Deferred credits                                                       |  | 21   |  | 25  
|                                                                       |  |     
|Long-term portion of discounted obligations under finance leases       |  | 55   |  | 66  
|                                                                       |  |     
|Long-term portion of share-based payments liability (note 20)          |  | 21   |  | 14  
|                                                                       |  |     
|Acquired provisions (note 6)                                           |  | 52   |  | 52  
|                                                                       |  |     
|Other                                                                  |  | 35   |  | 26  
|                                                                      
|                                                                       |  | 313  |  | 346 
|                                                                      

The fair value of financial liabilities included above approximates the carrying amount.

Finance Leases

The Company has entered into two leasing arrangements for the modification, refitting and use of Floating Storage Offloading (FSO) vessels for use in
its operations. Elements of the leasing arrangements have been defined by the Company as finance leases. The imputed rates of interest on these leases, which expire in 2016 and 2019, are 6% and 10%,
respectively. Of the total discounted liability of $73 million (2011  $84 million), $18 million
(2011  $18 million) is included in accounts payable and accrued liabilities.

The
future minimum lease payments for finance leases and the present value of minimum finance lease payments by payment date are as follows:

|                                            |  |                  |   |                           |  |                  |   |                          
|------------------------------------------- |  | ---------------- | - | ------------------------- |  | ---------------- | - | -------------------------
|                                            |  | 2012             |   | 2011                     
|                                           
|                                            |  | Minimum
payments |   | Present
value of
payments |  | Minimum
payments |   | Present
value of
payments
|                                           
|Within one year                             |  | 18               |   | 18                        |  | 18               |   | 18                       
|                                            |  |                 
|After one year but not more than five years |  | 63               |   | 46                        |  | 68               |   | 51                       
|                                            |  |                 
|More than five years                        |  | 15               |   | 9                         |  | 28               |   | 15                       
|                                           
|Total minimum lease payments                |  | 96               |   | 73                        |  | 114              |   | 84                       
|                                            |  |                 
|Less amounts representing accretion         |  | (23              | ) |                          |  | (30              | ) |                         
|                                           
|Present value of minimum lease payments     |  | 73               |   | 73                        |  | 84               |   | 84                       
|                                           

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       31

---



19. Capital Disclosures

Talisman's objective in managing capital is to retain access to capital markets, ensure its ability to meet all financial obligations and meet its
operational and strategic objectives.

Talisman's
capital structure consists of shareholders' equity and debt. The Company makes adjustments to its capital structure based on changes in economic conditions and its planned requirements.
Talisman has the ability to adjust its capital structure by issuing new equity or debt, selling assets to reduce debt, controlling the amount it returns to shareholders and making adjustments to its
capital expenditure program.

Talisman
monitors its balance sheet with reference to its liquidity and a debt-to-cash flow ratio. The main factors in assessing the Company's liquidity are cash flow (defined
below), cash provided by and used in investing activities and available bank credit facilities. The debt-to-cash flow ratio at December 31, 2012 and 2011 was
as follows:

|                  |  |        |  |       
|----------------- |  | ------ |  | ------
|                  |  | 2012   |  | 2011  
|                 
|Debt              |  | 4,446  |  | 4,967 
|                  |  |       
|Cash flow         |  | 3,149  |  | 3,572 
|                 
|Debt-to-cash flow |  | 1.41:1 |  | 1.39:1
|                 

The calculation of debt is as follows:

|                                            |  |       |   |       |  
|------------------------------------------- |  | ----- | - | ----- | -
|                                            |  | 2012  |   | 2011  |  
|                                            | 
|Gross debt and bank indebtedness            |  | 4,442 |   | 4,955 |  
|                                            |  |       |  
|Add: Production payments and finance leases |  | 93    |   | 109   |  
|                                            |  |       |  
|Less: Non-recourse debt                     |  | (89   | ) | (97   | )
|                                            | 
|Debt                                        |  | 4,446 |   | 4,967 |  
|                                            | 

The calculation of cash flow is as follows:

|                                                                  |  |       |   |       |  
|----------------------------------------------------------------- |  | ----- | - | ----- | -
|                                                                  |  | 2012  |   | 2011  |  
|                                                                  | 
|Cash provided by operating activities                             |  | 2,716 |   | 2,812 |  
|                                                                  |  |       |  
|Changes in non-cash operating working capital                     |  | 125   |   | 375   |  
|                                                                  |  |       |  
|Add: Exploration expenditure                                      |  | 346   |   | 427   |  
|                                                                  |  |       |  
|Less: Amounts attributable to assets subject to non-recourse debt |  | (38   | ) | (42   | )
|                                                                  | 
|Cash flow                                                         |  | 3,149 |   | 3,572 |  
|                                                                  | 

Talisman is in compliance with all of its debt covenants. The Company's principal financial covenant under its primary bank credit facility is a
debt-to-cash flow ratio of less than 3.5:1, calculated quarterly on a trailing 12-month basis as of the last day of each fiscal quarter.

20. Share Capital and Share-Based Payments(1)

Authorized

Talisman's authorized share capital consists of an unlimited number of common shares without nominal or par value and an unlimited number of first
and second preferred shares.

32TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Common Shares Issued

|                                                                      |  |               |   |        |   |               |   |        |   |               |   |        |  
|--------------------------------------------------------------------- |  | ------------- | - | ------ | - | ------------- | - | ------ | - | ------------- | - | ------ | -
|Continuity of common shares                                           |  | 2012          |   | 2011   |   | 2010          |  
|                                                                      | 
|                                                                      |  | Shares        |   | Amount |   | Shares        |   | Amount |   | Shares        |   | Amount |  
|                                                                      | 
|Balance, beginning of year                                            |  | 1,021,422,470 |   | 1,561  |   | 1,019,290,939 |   | 1,480  |   | 1,014,876,564 |   | 1,401  |  
|                                                                      |  |               |  
|Issued on exercise of stock options                                   |  | 1,190,223     |   | 15     |   | 7,500,131     |   | 175    |   | 4,835,056     |   | 95     |  
|                                                                      |  |               |  
|Shares purchased and held in trust for long-term PSU plan (see below) |  | (2,022,000    | ) | (25    | ) | (5,368,600    | ) | (94    | ) | (4,482,681    | ) | (81    | )
|                                                                      |  |               |  
|Shares released from trust for 2008 PSU plan                          |  |              |   |       |   |              |   |       |   | 4,062,000     |   | 65     |  
|                                                                      |  |               |  
|Shares released from trust for long-term PSU plan                     |  | 4,859,037     |   | 88     |   |              |   |       |   |              |   |       |  
|                                                                      | 
|Balance, end of year                                                  |  | 1,025,449,730 |   | 1,639  |   | 1,021,422,470 |   | 1,561  |   | 1,019,290,939 |   | 1,480  |  
|                                                                      | 

During 2012, Talisman declared common share dividends of $0.27 per share (2011  $0.27 per share;
2010  C$0.25 per share) for an aggregate dividend of $277 million (2011  $277 million;
2010  $249 million). Subsequent to December 31, 2012, 1,313,810 stock options were exercised for shares and no further common shares were purchased
and held in trust for the long-term PSU plan. There were 1,026,763,540 common shares outstanding at February 28, 2013.

Holders
of common shares are entitled to receive notice of and to attend all meetings of shareholders. Each common share carries with it the right to one vote. Subject to the rights of holders of
other classes of shares who are entitled to receive dividends in priority to or rateably with the common shares, the Board of Directors may declare dividends on the common shares to the exclusion of
any other class of shares of the Company. In the event of liquidation, dissolution or winding up of the Company or any other distribution of assets of the Company among its shareholders for the
purpose of winding up its affairs, and subject to the rights of other classes of shares on a priority basis, the holders of common shares are entitled to participate rateably in any distribution of
any assets of the Company.

Preferred Shares Issued

|                                                                        |  |           |  |        |  |           |  |        |  |        |  |       
|----------------------------------------------------------------------- |  | --------- |  | ------ |  | --------- |  | ------ |  | ------ |  | ------
|Continuity of preferred shares                                          |  | 2012      |  | 2011   |  | 2010     
|                                                                       
|                                                                        |  | Shares    |  | Amount |  | Shares    |  | Amount |  | Shares |  | Amount
|                                                                       
|Cumulative Redeemable Rate Reset First Preferred Shares, 4.2% Series 1: |  |           |  |        |  |           |  |        |  |        |  |       
|                                                                        |  |          
|Balance, beginning of year                                              |  | 8,000,000 |  | 191    |  |          |  |       |  |       |  |      
|                                                                        |  |          
|Issued                                                                  |  |          |  |       |  | 8,000,000 |  | 191    |  |       |  |      
|                                                                       
|Balance, end of year                                                    |  | 8,000,000 |  | 191    |  | 8,000,000 |  | 191    |  |       |  |      
|                                                                       

On December 13, 2011, Talisman issued 8,000,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series 1 at a price of C$25 per
share for aggregate gross proceeds of C$200 million. Net proceeds, after deducting underwriting fees, were C$194 million ($191 million).

Holders
of Series 1 preferred shares are entitled to receive a cumulative quarterly fixed dividend of 4.2% annually for the initial period ending December 31, 2016, as and when declared
by the Board of Directors. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 2.77%.

The
Company may redeem all or a portion of the outstanding Series 1 preferred shares for C$25 per share plus accrued and unpaid dividends, on December 31, 2016 and on December 31
every five years thereafter. Holders of Series 1 preferred shares will have the right to convert their shares into Cumulative Rate Reset First Preferred Shares, Series 2 (Series 2
preferred shares), subject to certain conditions, on December 31, 2016 and on December 31 every five years thereafter. Holders of Series 2 preferred shares will be entitled to
receive cumulative quarterly floating rate dividends at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.77%.

In
the event of the liquidation, dissolution or winding up of the Company, the holders of Series 1 preferred shares will be entitled to receive C$25 per share together with all dividends
accrued and unpaid to the date of payment before any amount will be paid or any assets of the Company distributed to the holders of any shares ranking junior to the Series 1 preferred shares.
The holders of Series 1 preferred shares will not be entitled to share in any further distribution of the assets of the Company.

Holders
of Series 1 preferred shares are not entitled to voting rights or to receive notice of or to attend shareholders' meetings unless dividends on the Series 1 preferred shares are
in arrears to the extent of eight quarterly dividends, whether or not consecutive.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       33

---



During
the year ended December 31, 2012, Talisman declared preferred share dividends of C$1.10 per share (2011  C$nil;
2010  C$nil), including dividends for the full year of 2012 and a pro-rata amount from the date of issuance of the Series 1 preferred shares
on December 13, 2011 until December 31, 2011, for an aggregate dividend of $9 million (2011  $nil;
2010  $nil).

Stock Option Plans

Talisman has stock option plans that govern the granting of options to employees and directors. All options issued by the Company permit the holder
to purchase one common share of the Company at the stated exercise price per share or to receive a cash payment equal to the appreciated value of the shares underlying the stock option. Options
granted under the plans are generally exercisable after three years and expire 10 years after the grant date. Commencing in 2006, options granted to new employees vest evenly on an annual basis
over a three-year period. Option exercise prices approximate the market price for the common shares on the date the options are granted.

|                                                                   |  |                                     |   |                                      |  |                                     |   |                                      |  |                                     |   |                                     
|------------------------------------------------------------------ |  | ----------------------------------- | - | ------------------------------------ |  | ----------------------------------- | - | ------------------------------------ |  | ----------------------------------- | - | ------------------------------------
|Continuity of stock options                                        |  | 2012                                |   | 2011                                 |  | 2010                               
|                                                                  
|                                                                   |  | Number
of shares underlying options |   | Weighted average exercise price (C$) |  | Number
of shares
underlying options |   | Weighted
average
exercise
price (C$) |  | Number
of shares
underlying options |   | Weighted
average
exercise
price (C$)
|                                                                  
|Outstanding, beginning of year                                     |  | 59,092,044                          |   | 16.82                                |  | 62,959,223                          |   | 15.89                                |  | 69,489,526                          |   | 15.22                               
|                                                                   |  |                                    
|Granted                                                            |  | 8,985,070                           |   | 12.53                                |  | 6,686,170                           |   | 23.29                                |  | 7,743,117                           |   | 17.42                               
|                                                                   |  |                                    
|Exercised for common shares                                        |  | (1,190,223                          | ) | 9.03                                 |  | (7,500,131                          | ) | 14.54                                |  | (4,835,056                          | ) | 11.75                               
|                                                                   |  |                                    
|Surrendered for cash                                               |  | (192,712                            | ) | 10.24                                |  | (642,889                            | ) | 15.62                                |  | (6,254,804                          | ) | 12.59                               
|                                                                   |  |                                    
|Expired or forfeited                                               |  | (6,858,082                          | ) | 17.22                                |  | (2,410,329                          | ) | 17.40                                |  | (3,183,560                          | ) | 17.81                               
|                                                                  
|Outstanding, end of year                                           |  | 59,836,097                          |   | 16.28                                |  | 59,092,044                          |   | 16.82                                |  | 62,959,223                          |   | 15.89                               
|                                                                  
|Exercisable, end of year                                           |  | 41,565,657                          |   | 16.00                                |  | 39,242,566                          |   | 16.33                                |  | 35,790,358                          |   | 15.59                               
|                                                                  
|Options available for future grants pursuant to Stock Option Plans |  | 37,388,284                          |   |                                      |  | 39,523,835                          |   |                                      |  | 42,653,842                          |   |                                     
|                                                                  

The range of exercise prices of the Company's outstanding stock options is as follows:

|December 31, 2012             |  |                                     |  | Outstanding options                  |  | Exercisable options             
|----------------------------- |  | ----------------------------------- |  | ------------------------------------ |  | --------------------------------
|                             
|Range of exercise prices (C$) |  | Number
of shares underlying options |  | Weighted average exercise price (C$) |  | Weighted average years to expiry
|                             
|6.60  9.99                   |  | 3,853,924                           |  | 7.43                                 |  | 1                               
|                              |  |                                    
|10.00  12.99                 |  | 9,085,530                           |  | 12.32                                |  | 8                               
|                              |  |                                    
|13.00  15.99                 |  | 13,874,788                          |  | 13.62                                |  | 5                               
|                              |  |                                    
|16.00  18.99                 |  | 16,767,521                          |  | 17.75                                |  | 6                               
|                              |  |                                    
|19.00  21.99                 |  | 10,667,134                          |  | 20.04                                |  | 4                               
|                              |  |                                    
|22.00  23.92                 |  | 5,587,200                           |  | 23.84                                |  | 8                               
|                             
|6.60  23.92                  |  | 59,836,097                          |  | 16.28                                |  | 5                               
|                             

The fair value of the liability for the stock option plans at December 31, 2012 was $140 million
(2011  $209 million), of which $121 million (2011  $196 million) is included in accounts payable and
accrued liabilities on the Consolidated Balance Sheets.

Subsequent
to December 31, 2012, 259,500 stock options were surrendered for cash, 1,313,810 were exercised for shares, 117,270 were granted and 1,922,532 were forfeited or expired, with
56,457,525 stock options outstanding at February 28, 2013.

34TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Cash Unit Plan

In addition to the Company's stock option plans, Talisman's subsidiaries issue stock appreciation rights under cash unit plans. Cash units are
similar to stock options except that the holder does not have a right to purchase the underlying shares of the Company. Units granted under the cash unit plans are generally exercisable after three
years and expire 10 years after the grant date. Commencing in 2007, cash units granted to new employees vest evenly on an annual basis over a three-year period. Cash unit exercise
prices approximate the market price for the common shares on the date the options are granted.

|Continuity of cash units       |  | 2012            |   | 2011                                 |  | 2010           
|------------------------------ |  | --------------- | - | ------------------------------------ |  | ---------------
|                              
|                               |  | Number
of units |   | Weighted average exercise price (C$) |  | Number
of units
|                              
|Outstanding, beginning of year |  | 9,461,164       |   | 17.35                                |  | 10,112,792     
|                               |  |                
|Granted                        |  | 2,703,360       |   | 12.38                                |  | 1,547,670      
|                               |  |                
|Exercised                      |  | (100,576        | ) | 9.19                                 |  | (1,636,458     
|                               |  |                
|Expired or forfeited           |  | (1,136,965      | ) | 16.62                                |  | (562,840       
|                               |  |                
|Divested                       |  | (4,131,877      | ) | 16.54                                |  |               
|                              
|Outstanding, end of year       |  | 6,795,106       |   | 16.06                                |  | 9,461,164      
|                              
|Exercisable, end of year       |  | 3,974,245       |   | 16.40                                |  | 6,234,650      
|                              

The range of exercise prices of the Company's cash units is as follows:

|December 31, 2012             |  |                 |  |                                      |  | Outstanding units                |  | Exercisable units
|----------------------------- |  | --------------- |  | ------------------------------------ |  | -------------------------------- |  | -----------------
|                             
|Range of exercise prices (C$) |  | Number
of units |  | Weighted average exercise price (C$) |  | Weighted average years to expiry |  | Number
of units  
|                             
|6.60  9.99                   |  | 407,507         |  | 7.71                                 |  | 1                                |  | 407,507          
|                              |  |                
|10.00  12.99                 |  | 1,634,270       |  | 12.27                                |  | 9                                |  | 57,675           
|                              |  |                
|13.00  15.99                 |  | 1,434,922       |  | 13.80                                |  | 5                                |  | 1,142,762        
|                              |  |                
|16.00  18.99                 |  | 1,209,480       |  | 17.66                                |  | 6                                |  | 849,083          
|                              |  |                
|19.00  21.99                 |  | 1,470,527       |  | 20.00                                |  | 4                                |  | 1,455,232        
|                              |  |                
|22.00  24.47                 |  | 638,400         |  | 24.09                                |  | 8                                |  | 61,986           
|                             
|6.60  24.47                  |  | 6,795,106       |  | 16.06                                |  | 6                                |  | 3,974,245        
|                             

The fair value of the liability for the cash unit plan at December 31, 2012 was $14 million
(2011  $28 million), of which $12 million (2011  $27 million) is included in accounts payable and
accrued liabilities on the Consolidated Balance Sheets.

Subsequent
to December 31, 2012, 143,306 cash units were exercised, 57,007 were granted and 191,104 were forfeited or expired, with 6,517,703 cash units outstanding at
February 28, 2013.

Long-Term Performance Share Unit (PSU) Plan

In 2009, the Company implemented a long-term PSU plan that allows for the granting of PSUs to employees, vesting after three years to
varying degrees (0%  150%) subject to predetermined performance measures being achieved. Each PSU represents the right, subject to performance, to receive one
common share of the Company. Participants in the PSU plan are credited with additional PSUs corresponding to any associated dividend payments (referred to as 'dividend equivalent PSUs').

|                                 |  |                 |   |                 |   |                 |  
|-------------------------------- |  | --------------- | - | --------------- | - | --------------- | -
|Continuity of long-term PSU plan |  | 2012            |   | 2011            |   | 2010            |  
|                                 | 
|                                 |  | Number
of units |   | Number
of units |   | Number
of units |  
|                                 | 
|Outstanding, beginning of year   |  | 11,219,027      |   | 8,173,762       |   | 5,520,158       |  
|                                 |  |                 |  
|Granted                          |  | 11,652,041      |   | 3,450,930       |   | 3,768,840       |  
|                                 |  |                 |  
|Expired or forfeited             |  | (2,056,761      | ) | (605,949        | ) | (1,221,258      | )
|                                 |  |                 |  
|Released                         |  | (4,672,151      | ) |                |   |                |  
|                                 |  |                 |  
|Dividend equivalent PSUs         |  | 394,544         |   | 200,284         |   | 106,022         |  
|                                 | 
|Outstanding, end of year         |  | 16,536,700      |   | 11,219,027      |   | 8,173,762       |  
|                                 | 

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       35

---



To satisfy the Company's obligations to deliver common shares to settle the PSUs, Talisman has arranged for a third party trustee to hold common shares which were purchased on the open market. During
2012, the Company purchased 2,022,000 common shares on the open market for $25 million. For accounting purposes, the cost of the purchase of the common shares held in trust has been
accounted for as a reduction in outstanding common shares and the trust has been consolidated since it is a special purpose entity controlled by the Company. The Company is not exposed to fluctuations
in the stock price in respect of the shares held in trust. Additional purchases of common shares to satisfy the Company's obligations are contemplated.

The
2010 long-term PSU grant vested on December 31, 2012 and settlement is expected to occur during the first quarter of 2013. Based on the Company's performance relative to the
predetermined performance measures, the Board of Directors approved the vesting of 90% of the PSUs granted.

Subsequent
to December 31, 2012, 622,578 PSUs were granted and 1,186,873 were forfeited or expired with 15,972,405 outstanding at February 28, 2013. Between January 1 and
February 28, 2013, no further common shares were purchased on the open market.

Deferred Share Unit (DSU) Plan

Talisman issues DSUs to directors in lieu of cash compensation. Each DSU represents the right to receive a cash payment on retirement equal to the
market value of the Company's shares at the time of surrender. Dividends are credited as additional DSUs when paid. At December 31, 2012, there were 565,751
(2011  394,655) units outstanding and the fair value of the liability was $6 million (2011  $5 million),
which is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets. Recovery of $1 million (2011  $1 million
recovery; 2010  $3 million expense) related to the DSUs is recognized in general and administrative expenses on the Consolidated Statements
of Income.

Restricted Share Unit (RSU) Plans

Talisman has RSU plans that grant RSUs to eligible employees. All RSUs issued by the Company permit the holder to receive a cash payment equal to the
market value of the stock. Participants are also credited with additional RSUs corresponding to any associated notional dividend payments (referred to as 'dividend equivalent RSUs'). Typically, RSUs
granted under the plans are paid three years after the grant date. At December 31, 2012, there were 529,367 (2011  404,863) units outstanding (including
dividend equivalent RSUs) and the fair value of the liability was $3 million (2011  $2 million), which is included in accounts payable and accrued
liabilities on the Consolidated Balance Sheets.

Share-Based Payments Expense

The Company uses the Black-Scholes option pricing model to estimate the fair value of equity-settled share-based payment plans, with the following
assumptions:

|                               |  |      |  |      |  |     
|------------------------------ |  | ---- |  | ---- |  | ----
|                               |  | 2012 |  | 2011 |  | 2010
|                              
|Expected volatility            |  | 42%  |  | 45%  |  | 42% 
|                               |  |     
|Risk free interest rate        |  | 1.4% |  | 1.3% |  | 2.6%
|                               |  |     
|Expected term (years)          |  | 5    |  | 5    |  | 5   
|                               |  |     
|Expected forfeiture rate       |  | 4.2% |  | 3.5% |  | 3.4%
|                               |  |     
|Expected annual dividend yield |  | 1.6% |  | 1.2% |  | 1.1%
|                              

The expected volatility is based on the historical volatility of the Company's common shares over a historical period that matches the expected term of the
share-based payment plans. The risk free rate is based on Government of Canada bond yields for terms that match the expected term of the share-based payment plans. The expected term for each option
tranche is estimated at the end of each reporting period. The expected dividend rate takes into account historical dividend payments and the Company's expectation for future payments.

During
the year ended December 31, 2012, the Company recorded share-based payments recovery of $62 million (2011  $310 million recovery;
2010  $212 million expense) in respect of the plans described above as follows: stock options  $82 million
recovery (2011  $332 million recovery; 2010  $146 million expense), cash
units  $4 million recovery (2011  $56 million recovery;
2010  $18 million expense), 2008 PSU plan  $nil (2011  $nil;
2010  $3 million recovery), long-term PSU plan  $23 million expense
(2011  $78 million expense; 2010  $51 million expense) and
RSUs  $1 million expense (2011  $nil; 2010  $nil).

During
the year ended December 31, 2012, the Company recorded a net decrease in contributed surplus of $65 million relating to its long-term PSU plan ($88 million
related to settlement offset by expenses of $23 million), compared to a net increase of $78 million for the year ended December 31, 2011 which related to share-based payment
expenses of the long-term PSU plan and a net decrease of $9 million for the year ended December 31, 2010 which related to the settlement of the 2008 PSU plan.

36TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



During
the year ended December 31, 2012, the Company paid cash of $2 million (2011  $14 million;
2010  $54 million) to employees in settlement of fully accrued option liabilities for options exercised. In addition, the Company capitalized share-based
payments expense of $15 million (2011  $9 million; 2010  $3 million).

Of
the combined liability for cash-settled stock option, cash unit, DSU and RSU plans of $163 million (2011  $244 million),
$142 million (2011  $230 million) is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets and $21 million
(2011  $14 million) is included in other long-term obligations.

The
total number of options and cash units expected to vest as at December 31, 2012 was 67 million, with a weighted average remaining contractual life of six years, a weighted
average exercise price of $16.28 and an aggregate intrinsic value of $16 million.

21. Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income are as follows:

|                                                                                |                                |      |   |      |   |       |    
|------------------------------------------------------------------------------- | ------------------------------ | ---- | - | ---- | - | ----- | ---
|                                                                                |                                | 2012 |   | 2011 |   | 2010  |    
|                                                                                |                               
|Balance, beginning of year                                                      |                                |      |   |      |   |       |    
|                                                                                |                                |      |  
|Derivative financial instruments designated as cash flow hedges                 |                                | 2    |   | 2    |   |      |    
|                                                                                |                                |      |  
|Foreign currency translation adjustments                                        |                                | 786  |   | 786  |   | 1,194 |    
|                                                                                |                               
|                                                                                |                                | 788  |   | 788  |   | 1,194 |    
|                                                                                |                               
|Other comprehensive income (loss) for the year                                  |                                |      |   |      |   |       |    
|                                                                                |                                |      |  
|Derivative financial instruments designated as cash flow hedges                 |                                |      |   |      |   |       |    
|                                                                                |                                |      |  
|                                                                                | Gains arising during the year  |      |  |      |  |       | 13 
|                                                                                |                                |      |  
|                                                                                | Gains recognized in net income |      |  |      |  |       | (11
|                                                                                |                                |      |  
|Foreign currency translation adjustments                                        |                                |     |   |     |   | (408  | )  
|                                                                                |                                |      |  
|Transfer of accumulated foreign currency loss to net income (note 4)            |                                | 23   |   |     |   |      |    
|                                                                                |                                |      |  
|Actuarial gains (losses) relating to pension and other post-employment benefits |                                | 10   |   | (26  | ) | (12   | )  
|                                                                                |                               
|                                                                                |                                | 33   |   | (26  | ) | (418  | )  
|                                                                                |                               
|Actuarial (gains) losses transferred to retained earnings                       |                                | (10  | ) | 26   |   | 12    |    
|                                                                                |                               
|Balance, end of year                                                            |                                |      |   |      |   |       |    
|                                                                                |                                |      |  
|Derivative financial instruments designated as cash flow hedges                 |                                | 2    |   | 2    |   | 2     |    
|                                                                                |                                |      |  
|Foreign currency translation adjustments                                        |                                | 809  |   | 786  |   | 786   |    
|                                                                                |                               
|                                                                                |                                | 811  |   | 788  |   | 788   |    
|                                                                                |                               

22. Financial Instruments

Talisman's financial assets and liabilities at December 31, 2012 consisted of cash and cash equivalents, accounts receivable,
non-equity accounted investments, bank indebtedness, accounts payable and accrued liabilities, long-term debt (including the current portion) and risk management assets and
liabilities arising from the use of derivative financial instruments.

The
Company is exposed to financial risks arising from its financial assets and liabilities. The financial risks include market risk related to foreign exchange rates, interest rates and commodity
prices, credit risk and liquidity risk.

Fair Value of Financial Assets and Liabilities

The fair values of cash and cash equivalents, accounts receivable, bank indebtedness, and accounts payable and accrued liabilities approximate their
carrying values due to the short-term maturity of those instruments.

Borrowings
under bank credit facilities are short-term in nature and are market rate-based, thus, carrying value approximates fair value. The fair value of public debentures
and notes is based on market quotations, which reflect the discounted present value of the principal and interest payments using the effective yield for instruments having the same term and
risk characteristics. The fair values of private notes are based on estimations provided by third parties. The fair value of Talisman's floating rate debt is determined by discounting future estimated
coupon payments at the current market interest rate. The fair value of Talisman's long-term debt at December 31, 2012 was $5.2 billion
(2011  $5.1 billion), while the carrying value was $4.4 billion (2011  $4.9 billion).

The
fair values of all other financial assets and liabilities approximate their carrying values.

Risk
management assets and liabilities are recorded at their estimated fair values. To estimate fair value, the Company uses quoted market prices when available, or models that utilize observable
market data. In addition to market information, the Company incorporates transaction-specific details that market participants would utilize in a fair value measurement, including the impact of

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       37

---



non-performance
risk. The Company's non-performance risk is determined based on third party quotes for the Company's debt instruments with maturity dates that are similar, or
in close approximation, to the maturity dates of the corresponding financial instrument. The Company's risk management liabilities decreased by $2 million as a result of incorporating
non-performance risk. The Company characterizes inputs used in determining fair value using a hierarchy that prioritizes inputs depending on the degree to which they are observable. The
three levels of the fair value hierarchy are as follows:

In
forming estimates, the Company utilizes the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the
measurement is categorized based upon the lowest level of input that is significant to the fair value measurement. The valuation of over the counter financial swaps and collars is based on similar
transactions observable in active markets or industry standard models that rely primarily on market observable inputs. Substantially all of the assumptions for industry standard models are observable
in active markets throughout the full term of the instrument. These are categorized as level 2.

Fair
values for cross-currency and interest rate derivative instruments are determined based on the estimated cash payment or receipt necessary to settle the contract. Cash payments or receipts are
based on discounted cash flow analysis using current market rates and prices. Fair values for commodity price derivatives are based on discounted cash flow analysis using current market rates and
prices and option pricing models using forward pricing curves and implied volatility, as appropriate, which are compared to quotes received from financial institutions for reasonability.

The
following table presents the Company's risk management assets and liabilities measured at fair value for each hierarchy level at December 31, 2012:

|                    |  | Fair value measurements using
|------------------- |  | -----------------------------
|                   
|                    |  | Level 1 inputs               
|                   
|ASSETS              |  |                              
|                    |  |                              
|Interest rate swaps |  |                             
|                   
|LIABILITIES         |  |                              
|                    |  |                              
|Commodity contracts |  |                             
|                   

The following table sets forth a reconciliation of changes in the fair value of the assets classified as level 3 in the fair value hierarchy
during 2012:

|                                       |  |      |  |      |  
|-------------------------------------- |  | ---- |  | ---- | -
|                                       |  | 2012 |  | 2011 |  
|                                       | 
|Balance, beginning of year             |  |     |  | 42   |  
|                                       |  |      | 
|Realized and unrealized gains (losses) |  |     |  | (2   | )
|                                       |  |      | 
|Cash received                          |  |     |  | (40  | )
|                                       | 
|Balance, end of year                   |  |     |  |     |  
|                                       | 

During the year ended December 31, 2011, a note receivable relating to a 2008 asset disposition and classified as level 3 in the fair value
hierarchy was settled for $40 million and a deferred gain of $15 million was recognized, which is included in 'Gain on disposals' on the Consolidated Statements of Income. No other
transfers in or out of level 3 occurred during 2012 or 2011.

Unobservable
inputs utilized to determine the fair value of the note receivable included the weighted average cost of capital and volatility of the common shares of the counterparty.

38TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Risk Management Assets, Liabilities, Gains and Losses

|                            |  |                            |  |      |  |     
|--------------------------- |  | -------------------------- |  | ---- |  | ----
|Derivative instrument       |  | Balance sheet presentation |  | 2012 |  | 2011
|                           
|Interest rate swaps         |  | Current assets             |  | 13   |  | 12  
|                            |  |                           
|Interest rate swaps         |  | Non-current assets         |  | 19   |  | 24  
|                            |  |                           
|Cross-currency swaps        |  | Current assets             |  |     |  |    
|                            |  |                           
|Commodity contracts         |  | Current assets             |  | 35   |  | 30  
|                            |  |                           
|Commodity contracts         |  | Non-current assets         |  | 7    |  |    
|                           
|Risk management assets      |  |                            |  | 74   |  | 66  
|                           
|Commodity contracts         |  | Current liabilities        |  | 81   |  |    
|                            |  |                           
|Commodity contracts         |  | Non-current liabilities    |  | 1    |  |    
|                           
|Risk management liabilities |  |                            |  | 82   |  |    
|                           

During the year ended December 31, 2012, the Company recorded a loss on held-for-trading financial instruments of
$93 million (2011  $210 million loss; 2010  $87 million gain).

Currency Risk

Talisman operates internationally and is therefore exposed to foreign exchange risk. Talisman's primary exposure is from fluctuations in the US$
relative to the C$, UK£, and NOK.

Talisman
manages its foreign exchange exposure in a number of ways. By denominating most of its borrowings in US$, the Company is able to reduce some of its economic exposure to currency fluctuations.
Talisman also manages its translation exposure by generally matching internal borrowings with its subsidiaries' functional currencies. The Company purchases foreign currencies, mostly at spot value,
to meet its current foreign currency obligations as they come due.

Prior
to 2011, the Company designated loans denominated in UK£ as an effective net investment hedge of its UK operations. During the year ended December 31, 2010, losses of
$14 million were included in other comprehensive loss. These losses are attributable to the translation of Talisman's UK£250 million denominated debt. Following a change in
the functional
currency of the UK operations on January 1, 2011, foreign exchange gains of $2 million were recorded as a reduction of other expenses during the year ended
December 31, 2011. In 2012, as a result of the sale of 49% equity interest of TEUK to Sinopec, $23 million of exchange losses previously accumulated in other comprehensive income
were included in the 'Gain on disposals' on the Consolidated Statements of Income (note 4).

In
respect of financial instruments existing at December 31, 2012, a 1% strengthening of the US$ against the other currencies noted above, with all other variables assumed constant, would have
resulted in an increase of $5 million in net income and a $nil impact on other comprehensive loss during the year ended December 31, 2012. A similar weakening of the US$ would have had
the opposite impact.

In
conjunction with the issuance of the C$350 million 4.44% medium term notes in January 2006, the Company entered into a cross-currency swap in order to hedge the foreign exchange
exposure on this C$ denominated liability. As a result, the Company was effectively paying interest semi-annually in US$ at a rate of 5.054% on a notional amount of $304 million.
The cross-currency swap was designated as a cash flow hedge. The notes were repaid in January 2011 and the hedge was settled.

Interest Rate Risk

Talisman is exposed to interest rate risk principally by virtue of its borrowings. Borrowing at floating rates exposes Talisman to
short-term movements in interest rates. Borrowing at fixed rates exposes Talisman to reset risk (i.e. at debt maturity). Risk management activities aim to manage the mix of
fixed-to-floating debt to best manage the trade-off between longer term interest rate reset risk and shorter term volatility in interest rates.

In
order to mitigate its exposure to interest rate changes, Talisman enters into interest rate swaps from time to time to manage the ratio of fixed rate debt to floating rate debt. At
December 31, 2012, the Company had fixed-to-floating interest rate swap contracts with a total notional amount of $300 million that expire on May 15, 2015.
During the year ended December 31, 2012, the fair value of the fixed-to-floating interest rate swaps decreased by $4 million.

In
respect of financial instruments existing at December 31, 2012, a 1% increase in interest rates would have resulted in a $5 million decrease in net income and a $nil impact on other
comprehensive income during the year ended December 31, 2012.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       39

---



Credit Risk

Talisman is exposed to credit risk, which is the risk that a customer or counterparty will fail to perform an obligation or settle a liability,
resulting in financial loss to the Company. Talisman manages exposure to credit risk by adopting credit risk guidelines approved by the Board of Directors that limit transactions according to
counterparty creditworthiness. The Company routinely assesses the financial strength of its joint participants and customers, in accordance with the credit risk guidelines. Talisman's credit policy
requires collateral to be obtained from counterparties considered to present a material risk of
non-payment, which would include entities internally assessed as high risk or those with ratings below investment grade. Collateral received from customers at December 31, 2012
included $135 million of letters of credit. At December 31, 2012, an allowance of $33 million, representing the Company's 51% share of the $65 million allowance recorded in
TEUK in 2011, consisted of a balance due from a counterparty that had filed for bankruptcy.

A
significant proportion of Talisman's accounts receivable balance is with customers in the oil and gas industry and is subject to normal industry credit risks. At December 31, 2012,
approximately 91% of the Company's trade accounts receivable was current and the largest single counterparty exposure, accounting for 21% of the total, was with a very highly rated counterparty.
Concentration of credit risk is mitigated by having a broad domestic and international customer base of highly rated counterparties.

The
Company also has credit risk arising from cash and cash equivalents held with banks and financial institutions. The Company's policy allows it to deposit cash balances at financial institutions
subject to a sliding scale limit, depending on creditworthiness.

The
maximum credit exposure associated with financial assets is the carrying values.

Liquidity Risk

Talisman is exposed to liquidity risk, which is the risk that the Company may be unable to generate or obtain sufficient cash to meet its commitments
as they come due. Talisman mitigates this risk through its management of cash, debt, committed credit capacity and its capital program.

Talisman
manages its liquidity requirements by use of both short-term and long-term cash forecasts, and by maintaining appropriate undrawn capacity under committed bank credit
facilities. The Company has in place facilities totaling $4.1 billion that are fully committed through 2014. At December 31, 2012, $nil of commercial paper and $nil in the form of
bankers' acceptances was drawn and $91 million was supporting letters of credit. Available borrowing capacity was $4 billion at December 31, 2012.

In
addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted. At January 1, 2013, letters of credit totaling $2.1 billion
had been issued under these facilities, of which $1.6 billion were provided as security for the costs of decommissioning obligations in the UK. Under the contractual arrangements pursuant to
which APUK acquired 49% of the share capital of TEUK, APUK's parent company, Sinopec, has provided an unconditional and irrevocable guarantee for 49% of the UK decommissioning obligations. The
remaining outstanding letters of credit relate primarily to a retirement compensation arrangement, guarantees of minimum work commitments and decommissioning obligations in other areas.

The
Company has no significant debt maturities until 2014.

Except
for commodity price derivative contracts that mature as noted below, long-term debt that matures as outlined in note 17 and other long-term obligations
detailed in note 18, all of the Company's financial liabilities are due within one year.

40TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Commodity Price Risk

Talisman is exposed to commodity price risk since its revenues are dependent on the price of crude oil, natural gas and NGLs. Talisman enters into
derivative instruments from time to time to mitigate commodity price risk volatility under guidelines approved by the Board of Directors. The Company may hedge a portion of its future production to
protect cash flows to allow it to meet its strategic objectives.

The
Company had the following commodity price derivative contracts outstanding at December 31, 2012, none of which are designated as hedges:

|Two-way collars (Oil) |  | Term           |  | bbls/d |  | Floor/ceiling
$/bbl |  | Fair value asset
(liability) |  
|--------------------- |  | -------------- |  | ------ |  | ------------------- |  | ---------------------------- | -
|                      | 
|Dated Brent oil index |  | Jan  Dec 2013 |  | 6,000  |  | 90.00/121.63        |  |                             |  
|                      |  |                | 
|Dated Brent oil index |  | Jan  Dec 2013 |  | 10,000 |  | 90.00/101.91        |  | (30                          | )
|                      |  |                | 
|Dated Brent oil index |  | Jan  Dec 2013 |  | 10,000 |  | 90.00/105.33        |  | (23                          | )
|                      |  |                | 
|WTI                   |  | Jan  Dec 2013 |  | 10,000 |  | 85.00/104.05        |  | 3                            |  
|                      | 
|                      |  |                |  |        |  |                     |  | (50                          | )
|                      | 

|Fixed price swaps (Oil) |  | Term           |  | bbls/d |  | $/bbl  |  | Fair value asset
(liability) |  
|----------------------- |  | -------------- |  | ------ |  | ------ |  | ---------------------------- | -
|                        | 
|Dated Brent oil index   |  | Jan  Dec 2013 |  | 7,500  |  | 110.01 |  | 6                            |  
|                        |  |                | 
|Dated Brent oil index   |  | Jan  Dec 2013 |  | 26,500 |  | 105.22 |  | (25                          | )
|                        |  |                | 
|Dated Brent oil index   |  | Jan  Mar 2014 |  | 9,000  |  | 103.12 |  | (1                           | )
|                        | 
|                        |  |                |  |        |  |        |  | (20                          | )
|                        | 

|Two-way collars (Gas) |  | Term           |  | mcf/d  |  | Floor/ceiling
$/mcf |  | Fair value asset
|--------------------- |  | -------------- |  | ------ |  | ------------------- |  | ----------------
|                     
|NYMEX HH LD           |  | Jan  Dec 2013 |  | 47,468 |  | 3.16/4.67           |  | 1               
|                      |  |               
|NYMEX HH LD           |  | Jan  Dec 2013 |  | 94,936 |  | 3.16/4.74           |  | 1               
|                      |  |               
|NYMEX HH LD           |  | Jan  Dec 2013 |  | 94,936 |  | 3.69/4.86           |  | 10              
|                      |  |               
|NYMEX HH LD           |  | Jan  Dec 2013 |  | 94,936 |  | 3.79/4.69           |  | 11              
|                      |  |               
|NYMEX HH LD           |  | Jan  Dec 2014 |  | 94,936 |  | 4.21/4.71           |  | 7               
|                     
|                      |  |                |  |        |  |                     |  | 30              
|                     

Subsequent to December 31, 2012, the Company entered into a Dated Brent swap for the first quarter of 2014 of 1,000 bbls/d for $104.15/bbl, a
Dated Brent swap for the first half of 2014 of 10,000 bbls/d for $103.06/bbl, a Dated Brent swap for the second half of 2014 of 9,000 bbls/d for $103.67/bbl, a WTI swap for 2014 of
2,500 bbls/d for $91.91 and a NYMEX swap for 2014 of 85,443 mcf/d for $4.25/mcf.

In
respect of outstanding financial instruments and assuming forward commodity prices in existence at December 31, 2012, an increase of $1/bbl in the price of oil and an increase of $0.10/mcf
in the price of gas would have reduced the net fair value of commodity derivatives, thereby resulting in a decrease in net income of $21 million during the year ended December 31, 2012.
A similar decrease in commodity prices would result in an increase in net income of approximately $24 million during the year ended December 31, 2012.

23. Contingencies and Commitments

Provisions and Contingencies

Talisman's provision for decommissioning is presented in note 15. With the exception of the provisions acquired as part of the
Equión acquisition described in note 6, the other provisions recorded by the Company are not material.

From
time to time, Talisman is the subject of litigation arising out of the Company's operations. Damages claimed under such litigation may be material or may be indeterminate and the outcome of such
litigation may materially impact the Company's financial condition or results of operations. While Talisman assesses the merits of each lawsuit and defends itself accordingly, the Company may be
required to incur significant expenses or devote significant resources to defend itself against such litigation. These claims are not currently expected to have a material impact on the Company's
financial position.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       41

---



The
New York Attorney General has commenced an investigation, pursuant to theMartin Act, into the disclosure practices of companies engaged in
hydraulic fracturing in the New York state area. TheMartin Actprovides broad authority to commence and conduct investigations, whether upon
receipt of a complaint, or on the Attorney General's own initiative. Subpoenas have been issued to a number of companies, including Talisman. The Company has been cooperating with the New York
Attorney General in the investigation. No enforcement action has been taken against Talisman, nor has the Company been advised that any enforcement action is imminent.

Estimated Future Minimum Commitments(1)(2)

Estimated future commitments for 2013 and beyond are as follows:

|                                             |  | 2013  |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | Subsequent
to 2017 |  | Total
|-------------------------------------------- |  | ----- |  | ---- |  | ---- |  | ---- |  | ---- |  | ------------------ |  | -----
|                                            
|Office leases                                |  | 49    |  | 44   |  | 19   |  | 14   |  | 11   |  | 54                 |  | 191  
|                                             |  |      
|Vessel leases                                |  | 125   |  | 19   |  | 90   |  | 86   |  | 97   |  | 154                |  | 571  
|                                             |  |      
|Transportation and processing commitments(3) |  | 329   |  | 276  |  | 260  |  | 339  |  | 205  |  | 939                |  | 2,348
|                                             |  |      
|Decommissioning liabilities                  |  | 49    |  | 83   |  | 77   |  | 103  |  | 117  |  | 3,645              |  | 4,074
|                                             |  |      
|PP&E and E&E assets(4)                       |  | 413   |  | 232  |  | 128  |  | 66   |  | 11   |  |                   |  | 850  
|                                             |  |      
|Other service contracts                      |  | 248   |  | 167  |  | 79   |  | 61   |  | 64   |  | 9                  |  | 628  
|                                            
|                                             |  | 1,213 |  | 821  |  | 653  |  | 669  |  | 505  |  | 4,801              |  | 8,662
|                                            

There have been no significant changes in the Company's expected future payment commitments, and the timing of those payments, since
December 31, 2012.

Talisman's
estimated undiscounted decommissioning liabilities at December 31, 2012 were $4.1 billion (2011  $5.0 billion), approximately 40%
of which relates to its UK operations. At December 31, 2012, Talisman had accrued $2.8 billion (2011  $3.0 billion), representing the
discounted amount of this liability. The Company had provided letters of credit at January 1, 2013 in an amount of $1.6 billion as security for the costs of decommissioning obligations
in the UK. Under the contractual arrangements pursuant to which APUK acquired 49% of the share capital of TEUK, APUK's parent company, Sinopec, has provided an unconditional and irrevocable guarantee
for 49% of the UK decommissioning obligations. The Company has also issued guarantees as security for certain minimum work, future dismantlement, site restoration and abandonment obligations in lieu
of letters of credit. Talisman has $280 million of abandonment letters of credit in place from January 1, 2013 until December 31, 2013 in respect of assets held by
third parties.

Talisman
leases certain of its ocean-going vessels and corporate offices, all of which, with the exception of the leasing arrangements described in note 18, are accounted for as operating
leases. In addition to the minimum lease payments, Talisman has ongoing operating commitments associated with the vessels. The majority of the vessel leases have an average life of five years, the
office leases have an average life of 10 years and the transportation commitment contracts have average lives of between 10 and 15 years.

Talisman
has firm commitments for gathering, processing and transportation services that require the Company to pay tariffs to third parties for processing or shipment of certain minimum quantities of
crude oil, natural gas and NGLs. The Company has recorded a provision for any commitments where sufficient production would not be met.

In
the case of an operating lease entered into by Talisman as the operator of a jointly controlled asset, the amounts reported represent the net operating lease expense and net future minimum lease
payments. These net amounts are after deducting amounts reimbursed, or to be reimbursed, by joint venture partners, whether the joint venture partners have co-signed the lease
or not. Where Talisman is not the operator of a jointly controlled asset, Talisman's share of the lease expense and future minimum lease payments is included in the amounts shown, whether Talisman has
co-signed the lease or not. Where lease rentals are dependent on a variable factor, the future minimum lease payments are based on the factor as at the inception of the lease.

During
the year ended December 31, 2012, Talisman incurred net rental expense of $369 million (2011  $461 million;
2010  $578 million) in respect of its operating leases.

Long-Term Sales Contracts

In order to support the Company's investments in natural gas projects outside of North America and the North Sea, Talisman has entered into a number
of long-term sales contracts.

42TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



The
majority of Talisman's Corridor natural gas production in Indonesia is currently sold under long-term sales agreements with PT Chevron Pacific Indonesia (Chevron), Gas Supply
Pte. Ltd. (Gas Supply) and PT Perusahaan Gas Negara (Persero), Tbk (PGN). Under two sales agreements with Chevron, the majority of sales are priced at approximately 76% of the equivalent
value of the Indonesia Crude Price for Duri crude oil. One of the agreements with Chevron is currently scheduled to expire in 2013 while the second agreement is due to expire in 2021. The minimum
volume commitment under the second agreement is approximately 294 bcf over its remaining nine-year life.

Under
the sales agreement with Gas Supply, sales to Singapore from Corridor are referenced to the spot price of high sulphur fuel oil in Singapore. The minimum volume commitment is approximately
197 bcf over the remaining 11-year life of the contract. Sales from Corridor to PGN for their markets in West Java are sold under a long-term contract with no associated
transportation costs. The minimum volume commitment is approximately 523 bcf over the remaining 11-year life of the contract. Subsequent to December 31, 2012, an agreement
has been reached with PGN to increase the contract price for the sale of Corridor gas under the PGN West Java Gas Sales Agreement. Under the new agreement, the gas price will increase in stages
effective September 2012.

The
balance of the gas production from Corridor is sold under medium to long-term agreements which vary in length from two to seven years and are generally at fixed prices with fixed
annual escalation.

At
Jambi Merang, the majority of gas production is sold under long-term agreements which contain fixed prices with fixed annual escalation and are in place until the current termination
date of the PSC, which is February 2019.

The
Company is subject to volume delivery requirements for approximately 90 mmcf/d at a price that is referenced to the Singapore high sulphur fuel oil spot market in relation to a
long-term sales contract in Malaysia, currently scheduled to end in
2018. In the event these delivery requirements are not met in a contract year, volumes delivered in the subsequent contract year are subject to a 25% price discount for the equivalent volume of
unexcused shortage that was not delivered in the prior year.

Currently,
the Company anticipates having sufficient production to meet future delivery requirements.

24. Other Income

|                                       |  |      |  |      |  |     
|-------------------------------------- |  | ---- |  | ---- |  | ----
|Years ended December 31                |  | 2012 |  | 2011 |  | 2010
|                                      
|Pipeline and customer treating tariffs |  | 46   |  | 53   |  | 75  
|                                       |  |     
|Investment income                      |  | 9    |  | 6    |  | 11  
|                                       |  |     
|Marketing income                       |  | 28   |  | 19   |  | 21  
|                                      
|                                       |  | 83   |  | 78   |  | 107 
|                                      

25. Other Expenses, Net

|                                |  |      |  |      |   |      |  
|------------------------------- |  | ---- |  | ---- | - | ---- | -
|Years ended December 31         |  | 2012 |  | 2011 |   | 2010 |  
|                                | 
|Foreign exchange (gain) loss    |  | 33   |  | (12  | ) | (15  | )
|                                |  |      | 
|PP&E derecognition              |  | 20   |  | 26   |   | 28   |  
|                                |  |      | 
|Taxes, interest and penalties   |  | 1    |  | 18   |   | 5    |  
|                                |  |      | 
|Inventory writedowns            |  | 1    |  | 8    |   | 1    |  
|                                |  |      | 
|Allowance for doubtful accounts |  |     |  | 65   |   |     |  
|                                |  |      | 
|Other miscellaneous             |  | 70   |  | 56   |   | 53   |  
|                                | 
|                                |  | 125  |  | 161  |   | 72   |  
|                                | 

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       43

---



26. Income Taxes

Current Tax Expense (Recovery)

|                                   |  |               |  |                |   |           |   |       |   |       |  
|---------------------------------- |  | ------------- |  | -------------- | - | --------- | - | ----- | - | ----- | -
|                                   |  | North America |  | Southeast Asia |   | North Sea |   | Other |   | Total |  
|                                   | 
|Year ended December 31, 2012       |  |               |  |                |   |           |   |       |   |       |  
|                                   |  |               | 
|Current tax                        |  | (4)           |  | 500            |   | 117       |   | 153   |   | 766   |  
|                                   |  |               | 
|Adjustments related to prior years |  | 2             |  | (1             | ) |          |   | 5     |   | 6     |  
|                                   |  |               | 
|Petroleum Revenue Tax              |  |              |  | 46             |   | 56        |   |      |   | 102   |  
|                                   | 
|                                   |  | (2)           |  | 545            |   | 173       |   | 158   |   | 874   |  
|                                   | 
|Year ended December 31, 2011       |  |               |  |                |   |           |   |       |   |       |  
|                                   |  |               | 
|Current tax                        |  | 6             |  | 402            |   | 769       |   | 149   |   | 1,326 |  
|                                   |  |               | 
|Adjustments related to prior years |  | 11            |  | (10            | ) | (4        | ) | (3    | ) | (6    | )
|                                   |  |               | 
|Petroleum Revenue Tax              |  |              |  | 52             |   | 69        |   |      |   | 121   |  
|                                   | 
|                                   |  | 17            |  | 444            |   | 834       |   | 146   |   | 1,441 |  
|                                   | 
|Year ended December 31, 2010       |  |               |  |                |   |           |   |       |   |       |  
|                                   |  |               | 
|Current tax                        |  | 13            |  | 292            |   | 624       |   | 69    |   | 998   |  
|                                   |  |               | 
|Adjustments related to prior years |  |              |  | 5              |   | 20        |   | (11   | ) | 14    |  
|                                   |  |               | 
|Petroleum Revenue Tax              |  |              |  | 39             |   | 85        |   |      |   | 124   |  
|                                   | 
|                                   |  | 13            |  | 336            |   | 729       |   | 58    |   | 1,136 |  
|                                   | 

Deferred Tax Expense (Recovery)

|                                                |  |               |  |                |   |           |   |       |   |        |  
|----------------------------------------------- |  | ------------- |  | -------------- | - | --------- | - | ----- | - | ------ | -
|                                                |  | North America |  | Southeast Asia |   | North Sea |   | Other |   | Total  |  
|                                                | 
|Year ended December 31, 2012                    |  |               |  |                |   |           |   |       |   |        |  
|                                                |  |               | 
|Origination (reversal) of temporary differences |  | (352)         |  | (8             | ) | (1,463    | ) | 76    |   | (1,747 | )
|                                                |  |               | 
|Adjustments related to prior years              |  | (2)           |  | 6              |   |          |   | 18    |   | 22     |  
|                                                |  |               | 
|Petroleum Revenue Tax                           |  |              |  | (1             | ) | (33       | ) |      |   | (34    | )
|                                                |  |               | 
|Changes in tax rates                            |  | 5             |  |               |   | 137       |   | 8     |   | 150    |  
|                                                |  |               | 
|Derecognized asset                              |  | 429           |  |               |   |          |   |      |   | 429    |  
|                                                | 
|                                                |  | 80            |  | (3             | ) | (1,359    | ) | 102   |   | (1,180 | )
|                                                | 
|Year ended December 31, 2011                    |  |               |  |                |   |           |   |       |   |        |  
|                                                |  |               | 
|Origination (reversal) of temporary differences |  | (206)         |  | 34             |   | 202       |   | (73   | ) | (43    | )
|                                                |  |               | 
|Adjustments related to prior years              |  | (15)          |  | 10             |   |          |   | 3     |   | (2     | )
|                                                |  |               | 
|Petroleum Revenue Tax                           |  |              |  | 12             |   | 40        |   |      |   | 52     |  
|                                                |  |               | 
|Changes in tax rates                            |  | (4)           |  |               |   | 225       |   |      |   | 221    |  
|                                                | 
|                                                |  | (225)         |  | 56             |   | 467       |   | (70   | ) | 228    |  
|                                                | 
|Year ended December 31, 2010                    |  |               |  |                |   |           |   |       |   |        |  
|                                                |  |               | 
|Origination (reversal) of temporary differences |  | 40            |  | (19            | ) | (39       | ) | (30   | ) | (48    | )
|                                                |  |               | 
|Adjustments related to prior years              |  | (48)          |  | (5             | ) |          |   | 11    |   | (42    | )
|                                                |  |               | 
|Petroleum Revenue Tax                           |  |              |  | (12            | ) | (8        | ) |      |   | (20    | )
|                                                | 
|                                                |  | (8)           |  | (36            | ) | (47       | ) | (19   | ) | (110   | )
|                                                | 

During 2011, the Company made elections for its Canadian subsidiaries to file tax returns in US$ with effect from the beginning of their 2011 and 2012 tax
years. Tax on foreign exchange on tax pools has not been recorded since the effective dates of these elections.

44TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Deferred Tax Assets and Liabilities

The most significant components of the net deferred tax liability are as follows:

|                                       |  |                     |  |                             |   |                       |   |       |   |        |  
|-------------------------------------- |  | ------------------- |  | --------------------------- | - | --------------------- | - | ----- | - | ------ | -
|                                       |  | PP&E and
E&E assets |  | Decommissioning liabilities |   | Tax loss carryforward |   | Other |   | Total  |  
|                                       | 
|At December 31, 2010                   |  | 4,125               |  | (1,317                      | ) | (430                  | ) | (127  | ) | 2,251  |  
|                                       |  |                     | 
|Charged (credited) to tax expense, net |  | 1,017               |  | (418                        | ) | (517                  | ) | 146   |   | 228    |  
|                                       |  |                     | 
|Credited to equity                     |  |                    |  |                            |   |                      |   | (15   | ) | (15    | )
|                                       |  |                     | 
|Acquisition adjustments                |  | 219                 |  | (8                          | ) |                      |   |      |   | 211    |  
|                                       |  |                     | 
|Other                                  |  |                    |  |                            |   |                      |   | (15   | ) | (15    | )
|                                       | 
|At December 31, 2011                   |  | 5,361               |  | (1,743                      | ) | (947                  | ) | (11   | ) | 2,660  |  
|                                       |  |                     | 
|Charged (credited) to tax expense, net |  | (1,603)             |  | 334                         |   | 129                   |   | (40   | ) | (1,180 | )
|                                       |  |                     | 
|Credited to equity                     |  |                    |  |                            |   |                      |   | 11    |   | 11     |  
|                                       |  |                     | 
|Acquisition adjustments                |  | (1,385)             |  | 578                         |   |                      |   | 23    |   | (784   | )
|                                       |  |                     | 
|Other                                  |  |                    |  |                            |   |                      |   | 1     |   | 1      |  
|                                       | 
|At December 31, 2012                   |  | 2,373               |  | (831                        | ) | (818                  | ) | (16   | ) | 708    |  
|                                       | 

Other movements in the net deferred tax liability relate mostly to reclassifications between assets and liabilities, currency adjustments and risk management
assets and liabilities.

At
December 31, 2012, Talisman had unused non-capital tax losses of $2.3 billion (2011  $2.6 billion) in respect of which a
deferred tax asset was recorded. These majority of losses arose in the US and expire between 2028 and 2032. The remaining losses are generated from Canada and expire starting 2014. Income projections
based upon discounted cash flow models, using assumptions consistent with those presented in note 14, show sufficient taxable income to utilize these losses within the carryforward period.

The
majority of the $1.3 billion (2011  $480 million; 2010  $294 million) of unused
non-capital tax losses in respect of which no deferred tax asset has been recognized arose in US and Southeast Asia.

No
deferred tax liability has been recognized for temporary differences associated with investments in subsidiaries, associates, branches and joint ventures since the Company is in a position to
control or jointly control the entity and it is considered probable that these temporary differences will not reverse in the foreseeable future.

The
Company has experienced cumulative losses from its US operations in recent years. As a result, during 2012, the Company derecognized deferred taxes assets of $429 million related to its
US operations.

Effective Tax Rate

The following provides a reconciliation of the Canadian statutory tax rate of 25.05% (2011  26.76%;
2010  28.26%) to the effective tax rate on the Company's total income before income taxes.

|                                                       |                                     |        |      |        |     |        |     
|------------------------------------------------------ | ----------------------------------- | ------ | ---- | ------ | --- | ------ | ----
|Years ended December 31                                |                                     | 2012   |      | 2011   |     | 2010   |     
|                                                       |                                    
|Income (loss) before taxes                             |                                     | (174   | )    | 2,445  |     | 1,971  |     
|                                                       |                                     |        |     
|Statutory income tax rate (%)                          |                                     | 25.05% |      | 26.76% |     | 28.26% |     
|                                                       |                                     |        |     
|Income taxes calculated at the Canadian statutory rate |                                     | (44    | )    | 654    |     | 557    |     
|                                                       |                                     |        |     
|Increase (decrease) in income taxes resulting from:    |                                     |        |      |        |     |        |     
|                                                       |                                     |        |     
|                                                       | Change in statutory tax rates, net  |        | 137  |        | 221 |        |    
|                                                       |                                     |        |     
|                                                       | Non-taxable income                  |        | (602 | )      | (54 | )      | (187
|                                                       |                                     |        |     
|                                                       | Deductible PRT expense              |        | (26  | )      | (81 | )      | (46 
|                                                       |                                     |        |     
|                                                       | Higher foreign tax rates            |        | (270 | )      | 799 |        | 533 
|                                                       |                                     |        |     
|                                                       | Derecognition of deferred tax asset |        | 429  |        |    |        |    
|                                                       |                                     |        |     
|                                                       | Share-based payments                |        | (17  | )      | (72 | )      | 163 
|                                                       |                                     |        |     
|                                                       | Uplift                              |        | (60  | )      | (74 | )      | (72 
|                                                       |                                     |        |     
|                                                       | Other                               |        | 79   |        | 103 |        | (26 
|                                                       |                                    
|Income tax (recovery) expense (excluding PRT)          |                                     | (374   | )    | 1,496  |     | 922    |     
|                                                       |                                    

On December 17, 2012, Talisman completed the sale of a 49% equity interest in TEUK, which owns substantially all of the UK assets. The sale was
non-taxable resulting in a significant reduction in the effective tax rate. In addition, the UK government restricted tax

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       45

---



relief
for decommissioning expenditures to a 50% tax rate from the UK tax rate of 62%. This measure was substantively enacted in July 2012 and the deferred income tax expense associated with
the legislative change was approximately $137 million.

In
March 2011, the UK government announced that, from March 24, 2011, the rate of supplementary charge levied on ring fence profits increased from 20% to 32%. Supplementary charge is
levied on ring fence profits in addition to the ring fence corporation tax rate of 30%, which remains unchanged. Consequently, there is now a combined UK corporation tax and supplementary charge rate
of 62% for oil and gas companies with fields not subject to PRT and 75% to 81% with fields subject to PRT. If the price of oil falls below a certain level (currently expected to be $75/bbl) for a
sustained period of time, the UK government has indicated that it will reduce the supplementary charge rate back towards 20% on a "staged and affordable basis" while prices remain low. As a result of
this legislative change, the Company recorded additional current income tax expense of $101 million and additional deferred tax expense of $225 million during the year ended
December 31, 2011.

In
2010, changes to Canadian and foreign statutory tax rates did not materially impact the Company's income tax expense.

Unrecognized Tax Benefit

Changes in the Company's unrecognized tax benefit are as follows:

|                                                     |  |      |  |      |  
|---------------------------------------------------- |  | ---- |  | ---- | -
|                                                     |  | 2012 |  | 2011 |  
|                                                     | 
|Unrecognized tax benefit, beginning of year          |  | 46   |  | 49   |  
|                                                     |  |      | 
|Increase due to prior period tax positions           |  | 12   |  | 22   |  
|                                                     |  |      | 
|Decrease due to prior period tax positions           |  |     |  | (7   | )
|                                                     |  |      | 
|Decrease due to settlement with taxation authorities |  |     |  | (18  | )
|                                                     | 
|Unrecognized tax benefit, end of year                |  | 58   |  | 46   |  
|                                                     | 

Talisman's entire unrecognized tax benefit as at December 31, 2012 and December 31, 2011, if recognized, would affect the Company's effective
tax rate.

The
settlement with taxation authorities occurring in 2011 was the result of the Company settling a tax position in Norway regarding the deductibility of insurance premiums.

No
significant change in the total unrecognized tax benefit is expected in 2013.

27. Supplemental Cash Flow Information

Items Not Involving Cash

|                                                                 |  |        |   |       |   |       |  
|---------------------------------------------------------------- |  | ------ | - | ----- | - | ----- | -
|Years ended December 31                                          |  | 2012   |   | 2011  |   | 2010  |  
|                                                                 | 
|Depreciation, depletion and amortization                         |  | 2,501  |   | 1,949 |   | 1,788 |  
|                                                                 |  |        |  
|Impairment, net of reversals                                     |  | 2,744  |   | 226   |   | 301   |  
|                                                                 |  |        |  
|Dry hole                                                         |  | 269    |   | 241   |   | 113   |  
|                                                                 |  |        |  
|Share-based payments expense (recovery)                          |  | (65    | ) | (324  | ) | 158   |  
|                                                                 |  |        |  
|Gains on disposals                                               |  | (1,624 | ) | (192  | ) | (520  | )
|                                                                 |  |        |  
|Unrealized (gain) loss on held-for-trading financial instruments |  | 48     |   | (61   | ) | (258  | )
|                                                                 |  |        |  
|Deferred income tax (recovery)                                   |  | (1,180 | ) | 228   |   | (110  | )
|                                                                 |  |        |  
|Foreign exchange                                                 |  | 40     |   | (11   | ) | 3     |  
|                                                                 |  |        |  
|PP&E derecognition                                               |  | 20     |   | 26    |   | 28    |  
|                                                                 |  |        |  
|Gain on revaluation of investment (note 12)                      |  | (365   | ) |      |   |      |  
|                                                                 |  |        |  
|Other                                                            |  | 45     |   | 42    |   | 53    |  
|                                                                 | 
|                                                                 |  | 2,433  |   | 2,124 |   | 1,556 |  
|                                                                 | 

46TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Changes in Non-Cash Operating Working Capital

|                                         |  |      |   |      |   |      |  
|---------------------------------------- |  | ---- | - | ---- | - | ---- | -
|Years ended December 31                  |  | 2012 |   | 2011 |   | 2010 |  
|                                         | 
|Accounts receivable                      |  | 262  |   | (292 | ) | (47  | )
|                                         |  |      |  
|Inventories                              |  | (15  | ) | (26  | ) | (14  | )
|                                         |  |      |  
|Prepaid expenses                         |  | 1    |   | (4   | ) | (12  | )
|                                         |  |      |  
|Decommissioning expenditures(1)          |  | (56  | ) | (34  | ) | (17  | )
|                                         |  |      |  
|Accounts payable and accrued liabilities |  | (29  | ) | 142  |   | 294  |  
|                                         |  |      |  
|Income and other taxes payable           |  | (288 | ) | (161 | ) | 163  |  
|                                         | 
|                                         |  | (125 | ) | (375 | ) | 367  |  
|                                         | 

Other Cash Flow Information

|                        |  |       |  |       |  |     
|----------------------- |  | ----- |  | ----- |  | ----
|Years ended December 31 |  | 2012  |  | 2011  |  | 2010
|                       
|Cash interest paid      |  | 291   |  | 254   |  | 240 
|                       
|Cash interest received  |  | 8     |  | 5     |  | 11  
|                       
|Cash income taxes paid  |  | 1,159 |  | 1,592 |  | 974 
|                       

In respect of its exploration and evaluation activities, the Company has included exploration expenditure of $346 million within cash provided by
operating activities, and exploration capital expenditure and acquisitions of $551 million and $78 million, respectively, within cash used in investing activities.

28. Cash and Cash Equivalents

Of the cash and cash equivalents balance of $721 million, $564 million has been invested in bank deposits and the remainder in highly
rated investments with original maturities of less than three months.

29. Net Income Per Share  Basic and Diluted

|                                                               |  |       |  |       |  |      
|-------------------------------------------------------------- |  | ----- |  | ----- |  | -----
|(millions)                                                     |  | 2012  |  | 2011  |  | 2010 
|                                                              
|Weighted average number of common shares outstanding  basic   |  | 1,025 |  | 1,023 |  | 1,018
|                                                               |  |      
|Dilution effect of stock options and PSUs                      |  | 8     |  | 15    |  |     
|                                                              
|Weighted average number of common shares outstanding  diluted |  | 1,033 |  | 1,038 |  | 1,018
|                                                              

Outstanding stock options and PSUs are the only instruments that are dilutive to net income per share.

Basic
net income per share is calculated by dividing net income less after-tax cumulative preferred share dividends, by the weighted average number of common shares outstanding during the
year, excluding shares held in trust to settle long-term PSU plan obligations.

For
the diluted net income per share calculation, the net income is adjusted for the change in the fair value of stock options. The weighted average number of shares outstanding during the year is
adjusted for options expected to be exercised and management's best estimate of shares expected to be issued in settlement of the Company's obligations pursuant to the long-term
PSU plan.

30. Employee Benefits

The Company sponsors both defined benefit and defined contribution pension arrangements covering substantially all employees in Canada, the UK,
Norway, the US and Indonesia. The Company also provides non-pension post-employment benefits to its Canadian retirees.

Defined
benefit pension plans are based on years of service and final average salary. The defined benefit pensions in the UK and Norway, which account for 48% of the accrued benefit obligation at
December 31, 2012, will increase at the rate of inflation. Although the Company has no commitment to provide for increases related to inflation on its Canadian defined benefit pension plans,
the benefits have generally been increased annually by one-half of the rate of inflation since 2003.

Talisman
uses actuarial reports prepared by independent actuaries on the defined benefit pension plans for funding and accounting purposes. The Company uses a December 31 measurement date to
value its benefit plan assets and obligations. The most recent actuarial valuation of the Canadian employee and executive registered pension plans for funding purposes was at December 31,

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       47

---



2010,
with the next valuation no later than December 31, 2013. The most recent actuarial valuation of the UK pension scheme for funding purposes was at March 31, 2012, with the next
valuation at March 31, 2015.

Actuarial Assumptions

The following significant actuarial assumptions were employed to determine the net benefit expense and the accrued benefit obligations:

|                                                     |  |      |  |      |  |     
|---------------------------------------------------- |  | ---- |  | ---- |  | ----
|                                                     |  | 2012 |  | 2011 |  | 2010
|                                                    
|Accrued benefit obligation                           |  |      |  |      |  |     
|                                                     |  |     
|Discount rate (%)                                    |  | 4.3  |  | 4.3  |  | 5.2 
|                                                     |  |     
|Rate of compensation increase (%)                    |  | 4.4  |  | 4.7  |  | 4.8 
|                                                     |  |     
|Benefit expense                                      |  |      |  |      |  |     
|                                                     |  |     
|Discount rate (%)                                    |  | 4.2  |  | 5.2  |  | 5.8 
|                                                     |  |     
|Expected long-term rate of return on plan assets (%) |  | 5.0  |  | 5.9  |  | 6.1 
|                                                     |  |     
|Assumed health care cost trend rates                 |  |      |  |      |  |     
|                                                     |  |     
|Initial health care cost trend rate (%)              |  | 9    |  | 10   |  | 10  
|                                                     |  |     
|Health care cost trend rate declines to (%)          |  | 5    |  | 5    |  | 5   
|                                                     |  |     
|Year that cost trend reaches final rate              |  | 2036 |  | 2036 |  | 2036
|                                                    

The discount rate assumptions reflect the prevailing rates available on high quality, fixed-income debt instruments.

The
expected long-term rate of return on plan assets is established by developing a forward-looking, long-term return assumption for each asset class, taking into account
factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset
allocation and the long-term return assumption for each asset class.

Investment Policies

The Canadian defined benefit registered pension plan's investment policy provides a framework for managing the plan assets, without undue risk of
capital loss and with a reasonable expectation of a rate of return or appreciation in value. Investment managers must manage the plan assets to reasonably track the return of the appropriate index.
Equity investments are passively managed to replicate the S&P/TSX Index, the S&P 500 Index and the MSCI EAFE Index. Foreign equity investments are hedged to the Canadian dollar. Investments in
bonds and debentures are managed passively to replicate the DEX Long Term Bond Index and are limited to those meeting minimum credit ratings. Assets are periodically re-balanced to the
target asset allocation described below.

The
UK pension scheme's investment policy is designed to invest the plan's assets in such a manner that the members' benefit entitlements can be paid as and when they fall due. This is achieved
through asset diversification so as to limit the impact of any single risk. Asset classes considered for the UK pension scheme's investments are UK government and corporate bonds, UK and global
equities and diversified growth funds. Most plan assets are actively managed, with assets re-balanced to the target asset allocation, described below, within a 5% tolerance range.

Plan Assets

The approximate target allocation percentage for the Canadian defined benefit registered pension plans, which account for 32% of total plan assets,
is 50% equities and 50% bonds. The approximate target allocation for the UK defined benefit pension plan, which accounts for 45% of total defined benefit plan's assets, is 45% UK equities, 35%
diversified growth fund and 20% UK bonds. Plan assets do not include any common shares of Talisman, other than through Canadian or US equity pooled funds, or any assets used by
the Company.

The
allocation of the assets of the defined benefit plans is as follows:

|                      |  |      |  |      |  |     
|--------------------- |  | ---- |  | ---- |  | ----
|                      |  | 2012 |  | 2011 |  | 2010
|                     
|Equity securities (%) |  | 38   |  | 61   |  | 64  
|                      |  |     
|Fixed income (%)      |  | 35   |  | 31   |  | 30  
|                      |  |     
|Cash (%)              |  | 8    |  | 6    |  | 4   
|                      |  |     
|Real estate (%)       |  | 3    |  | 2    |  | 2   
|                      |  |     
|Other (%)             |  | 16   |  |     |  |    
|                     
|                      |  | 100  |  | 100  |  | 100 
|                     

48TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



The Company characterizes inputs used in determining fair value using a hierarchy that prioritizes inputs depending on the degree to which they are observable.
Refer to note 22 for details concerning the three levels of the fair value hierarchy.

The
fair values of defined benefit plan assets at December 31, 2012 by asset category were as follows:

|              |                         | Level 1 inputs |   | Level 2 inputs |    | Level 3 inputs |   | Total fair value
|------------- | ----------------------- | -------------- | - | -------------- | -- | -------------- | - | ----------------
|             
|Cash          |                         | 17             |   |               |    |               |   | 17              
|              |                         |               
|Pooled Funds: |                         |                |   |                |    |                |   |                 
|              |                         |               
|              | Canadian companies      |                |  |                | 7  |                |  |                 
|              |                         |               
|              | US companies            |                |  |                | 15 |                |  |                 
|              |                         |               
|              | International companies |                |  |                | 65 |                |  |                 
|              |                         |               
|              | Bonds                   |                |  |                | 81 |                |  |                 
|              |                         |               
|              | Real estate             |                |  |                |   |                | 8 |                 
|              |                         |               
|              | Other                   |                |  |                | 36 |                |  |                 
|             
|              |                         | 17             |   | 204            |    | 8              |   | 229             
|             

Obligation, Assets and Funded Status

Information about the Company's defined benefit pension plans is as follows:

|                                                         |  |                                             |   |                                             |   |         |   |         |  
|-------------------------------------------------------- |  | ------------------------------------------- | - | ------------------------------------------- | - | ------- | - | ------- | -
|                                                         |  | 2012
Pension plans grouped
by funded status |   | 2011
Pension plans grouped
by funded status |  
|                                                         | 
|                                                         |  | Surplus                                     |   | Deficit                                     |   | Surplus |   | Deficit |  
|                                                         | 
|Accrued benefit obligation                               |  |                                             |   |                                             |   |         |   |         |  
|                                                         |  |                                             |  
|Accrued benefit obligation, beginning of year            |  | 63                                          |   | 355                                         |   | 209     |   | 139     |  
|                                                         |  |                                             |  
|Divestitures (note 4)                                    |  |                                            |   | (93                                         | ) |        |   |        |  
|                                                         |  |                                             |  
|Transition of plans from a surplus to a deficit position |  |                                            |   |                                            |   | (145    | ) | 145     |  
|                                                         |  |                                             |  
|Transition of plans from a deficit to a surplus position |  |                                            |   |                                            |   |        |   |        |  
|                                                         |  |                                             |  
|Current service cost                                     |  |                                            |   | 24                                          |   |        |   | 28      |  
|                                                         |  |                                             |  
|Interest cost                                            |  | 3                                           |   | 11                                          |   | 3       |   | 15      |  
|                                                         |  |                                             |  
|Actuarial (gain) loss                                    |  | 2                                           |   | (20                                         | ) | 2       |   | 39      |  
|                                                         |  |                                             |  
|Plan participants' contributions                         |  |                                            |   | 1                                           |   |        |   | 1       |  
|                                                         |  |                                             |  
|Benefits paid                                            |  | (5                                          | ) | (16                                         | ) | (5      | ) | (8      | )
|                                                         |  |                                             |  
|Foreign currency translation                             |  | 2                                           |   | 11                                          |   | (1      | ) | (4      | )
|                                                         |  |                                             |  
|Other                                                    |  |                                            |   | 4                                           |   |        |   |        |  
|                                                         | 
|Accrued benefit obligation, end of year                  |  | 65                                          |   | 277                                         |   | 63      |   | 355     |  
|                                                         | 
|Plan assets                                              |  |                                             |   |                                             |   |         |   |         |  
|                                                         |  |                                             |  
|Fair value of plan assets, beginning of year             |  | 64                                          |   | 205                                         |   | 214     |   | 43      |  
|                                                         |  |                                             |  
|Divestitures (note 4)                                    |  |                                            |   | (77                                         | ) |        |   |        |  
|                                                         |  |                                             |  
|Transition of plans from a surplus to a deficit position |  |                                            |   |                                            |   | (146    | ) | 146     |  
|                                                         |  |                                             |  
|Transition of plans from a deficit to a surplus position |  |                                            |   |                                            |   |        |   |        |  
|                                                         |  |                                             |  
|Expected return on plan assets                           |  | 3                                           |   | 7                                           |   | 4       |   | 12      |  
|                                                         |  |                                             |  
|Actuarial gain (loss) on plan assets                     |  | 3                                           |   | 3                                           |   |        |   | (15     | )
|                                                         |  |                                             |  
|Employer contributions                                   |  |                                            |   | 33                                          |   |        |   | 26      |  
|                                                         |  |                                             |  
|Plan participants' contributions                         |  |                                            |   | 1                                           |   |        |   | 1       |  
|                                                         |  |                                             |  
|Benefits paid                                            |  | (5                                          | ) | (16                                         | ) | (5      | ) | (8      | )
|                                                         |  |                                             |  
|Foreign currency translation                             |  | 2                                           |   | 7                                           |   | (3      | ) |        |  
|                                                         |  |                                             |  
|Other                                                    |  | 1                                           |   | (2                                          | ) |        |   |        |  
|                                                         | 
|Fair value of plan assets, end of year                   |  | 68                                          |   | 161                                         |   | 64      |   | 205     |  
|                                                         | 
|Funded status  surplus (deficit)(1)                     |  | 3                                           |   | (116                                        | ) | 1       |   | (150    | )
|                                                         | 

During 2013, the Company expects to make contributions of $21 million to its defined benefit pension plans.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       49

---



At
December 31, 2012, the actuarial net present value of the accrued benefit obligation for non-pension post-employment benefits was $13 million
(2011  $13 million). Non-pension post-employment benefits include medical, dental and life insurance benefits for current and
future Canadian retired employees.

Of
the aggregate accrued benefit obligation of $340 million at December 31, 2012, $106 million related to plans that are unfunded. The $96 million deficit of three unfunded
plans is secured by letters of credit in the amount of $125 million.

History of Deficit and Experience Gains and Losses

|                                                  |  |      |   |      |   |      |  
|------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|Years ended December 31                           |  | 2012 |   | 2011 |   | 2010 |  
|                                                  | 
|Accrued benefit obligation at December 31         |  | 340  |   | 418  |   | 348  |  
|                                                  |  |      |  
|Fair value of plan assets at December 31          |  | 229  |   | 269  |   | 257  |  
|                                                  | 
|Net deficit                                       |  | (111 | ) | (149 | ) | (91  | )
|                                                  | 
|Experience gain (loss) on plan liabilities        |  | 18   |   | (41  | ) | (28  | )
|                                                  |  |      |  
|Actual return less expected return on plan assets |  | 6    |   | (16  | ) | 16   |  
|                                                  | 

Net Benefit Expense

The net benefit expense for the pension plans recognized in the Consolidated Statements of Income is as follows:

|                                       |  |      |   |      |   |      |  
|-------------------------------------- |  | ---- | - | ---- | - | ---- | -
|Years ended December 31                |  | 2012 |   | 2011 |   | 2010 |  
|                                       | 
|Current service cost  defined benefit |  | 24   |   | 28   |   | 24   |  
|                                       |  |      |  
|Interest cost                          |  | 14   |   | 18   |   | 17   |  
|                                       |  |      |  
|Expected return on plan assets         |  | (10  | ) | (16  | ) | (13  | )
|                                       |  |      |  
|Other                                  |  | 3    |   | 2    |   | 1    |  
|                                       | 
|Defined benefit plan expense           |  | 31   |   | 32   |   | 29   |  
|                                       |  |      |  
|Defined contribution plan expense      |  | 19   |   | 14   |   | 13   |  
|                                       | 
|Net benefit expense                    |  | 50   |   | 46   |   | 42   |  
|                                       | 

The actual return on plan assets in 2012 was $16 million (2011  $nil;
2010  $29 million).

During
the year ended December 31, 2012, the net benefit expense for non-pension post-employment benefits was $1 million
(2011  $1 million; 2010  $1 million).

The
pension and non-pension post-employment benefits of key management personnel are disclosed in note 32.

Sensitivity Information

A 1% increase or decrease in the assumed medical cost trend rate would have an immaterial impact on both the accrued benefit obligation at
December 31, 2012 and the aggregate of current service and interest costs during the year ended December 31, 2012.

50TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



31. Segmented Information

Talisman's activities are conducted in four geographic segments: North America, the North Sea, Southeast Asia and Other. The North America segment
includes operations in Canada and the US. The Southeast Asia segment includes operations and exploration activities in Indonesia, Malaysia, Vietnam and Papua New Guinea and
non-operated production in Australia/Timor-Leste. The North Sea segment includes operations and exploration activities in the UK and Norway. The Company also has non-operated
production in Algeria, operations and exploration activities in Colombia, and exploration activities in Sierra Leone and the Kurdistan Region of Iraq. In 2012, the Company announced its intent to exit
Peru and expects to complete the process in 2013. For ease of reference, the activities in Algeria, Colombia, Peru, Poland, Sierra Leone and the Kurdistan Region of Iraq are referred to collectively
as the Other geographic segment. All activities relate to the exploration, development, production and transportation of oil, liquids and natural gas.

|                                                      |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   |        |   |        |   |        |  
|----------------------------------------------------- |  | ---------------- | - | ----------------- | - | ------------ | - | -------- | - | ----- | - | ----- |  | ------ | - | ----- |  | ----- |  | ----- | - | ----- |  | ---- | - | ------ | - | ------ | - | ------ | -
|                                                      |  | North America(1) |   | Southeast Asia(2) |   | North Sea(3) |   | Other(4) |   | Total |  
|                                                      | 
|(millions of US$)                                     |  | 2012             |   | 2011              |   | 2010         |   | 2012     |   | 2011  |   | 2010  |  | 2012   |   | 2011  |  | 2010  |  | 2012  |   | 2011  |  | 2010 |   | 2012   |   | 2011   |   | 2010   |  
|                                                      | 
|Revenue                                               |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   |        |   |        |   |        |  
|                                                      |  |                  |  
|Sales                                                 |  | 1,435            |   | 1,695             |   | 1,679        |   | 2,190    |   | 1,882 |   | 1,476 |  | 2,981  |   | 4,074 |  | 3,526 |  | 623   |   | 543   |  | 194  |   | 7,229  |   | 8,194  |   | 6,875  |  
|                                                      |  |                  |  
|Other income                                          |  | 72               |   | 63                |   | 85           |   | 3        |   | 1     |   | 1     |  | 8      |   | 14    |  | 21    |  |      |   |      |  |     |   | 83     |   | 78     |   | 107    |  
|                                                      | 
|Total revenue and other income                        |  | 1,507            |   | 1,758             |   | 1,764        |   | 2,193    |   | 1,883 |   | 1,477 |  | 2,989  |   | 4,088 |  | 3,547 |  | 623   |   | 543   |  | 194  |   | 7,312  |   | 8,272  |   | 6,982  |  
|                                                      | 
|Segmented expenses                                    |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   |        |   |        |   |        |  
|                                                      |  |                  |  
|Operating                                             |  | 564              |   | 454               |   | 487          |   | 418      |   | 372   |   | 280   |  | 1,383  |   | 1,292 |  | 1,096 |  | 87    |   | 72    |  | 27   |   | 2,452  |   | 2,190  |   | 1,890  |  
|                                                      |  |                  |  
|Transportation                                        |  | 92               |   | 68                |   | 59           |   | 53       |   | 55    |   | 60    |  | 69     |   | 84    |  | 95    |  | 7     |   | 9     |  | 7    |   | 221    |   | 216    |   | 221    |  
|                                                      |  |                  |  
|DD&A                                                  |  | 1,140            |   | 852               |   | 717          |   | 427      |   | 305   |   | 277   |  | 796    |   | 671   |  | 766   |  | 138   |   | 121   |  | 28   |   | 2,501  |   | 1,949  |   | 1,788  |  
|                                                      |  |                  |  
|Impairment                                            |  | 363              |   | 129               |   | 116          |   |         |   | (16   | ) | 21    |  | 2,097  |   | 113   |  | 164   |  | 284   |   |      |  |     |   | 2,744  |   | 226    |   | 301    |  
|                                                      |  |                  |  
|Dry hole                                              |  | 22               |   | 6                 |   | (11          | ) | 77       |   | 127   |   | 31    |  | 45     |   | 106   |  | 70    |  | 125   |   | 2     |  | 23   |   | 269    |   | 241    |   | 113    |  
|                                                      |  |                  |  
|Exploration                                           |  | 29               |   | 70                |   | 52           |   | 92       |   | 208   |   | 116   |  | 47     |   | 40    |  | 47    |  | 178   |   | 109   |  | 159  |   | 346    |   | 427    |   | 374    |  
|                                                      |  |                  |  
|Other                                                 |  | 81               |   | 22                |   | (25          | ) | (19      | ) | 17    |   | 16    |  | 42     |   | 105   |  | 91    |  | (12   | ) | 29    |  | 5    |   | 92     |   | 173    |   | 87     |  
|                                                      | 
|Total segmented expenses                              |  | 2,291            |   | 1,601             |   | 1,395        |   | 1,048    |   | 1,068 |   | 801   |  | 4,479  |   | 2,411 |  | 2,329 |  | 807   |   | 342   |  | 249  |   | 8,625  |   | 5,422  |   | 4,774  |  
|                                                      | 
|Segmented income (loss) before taxes                  |  | (784             | ) | 157               |   | 369          |   | 1,145    |   | 815   |   | 676   |  | (1,490 | ) | 1,677 |  | 1,218 |  | (184  | ) | 201   |  | (55  | ) | (1,313 | ) | 2,850  |   | 2,208  |  
|                                                      | 
|Non-segmented expenses                                |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   |        |   |        |   |        |  
|                                                      |  |                  |  
|General and administrative                            |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 510    |   | 431    |   | 371    |  
|                                                      |  |                  |  
|Finance costs                                         |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 276    |   | 278    |   | 276    |  
|                                                      |  |                  |  
|Share-based payments (recovery) expense               |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | (62    | ) | (310   | ) | 212    |  
|                                                      |  |                  |  
|Currency translation                                  |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 33     |   | (12    | ) | (15    | )
|                                                      |  |                  |  
|(Gain) loss on held-for-trading financial instruments |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 93     |   | 210    |   | (87    | )
|                                                      |  |                  |  
|Gain on disposals                                     |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | (1,624 | ) | (192   | ) | (520   | )
|                                                      |  |                  |  
|Gain on revaluation of investment                     |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | (365   | ) |       |   |       |  
|                                                      | 
|Total non-segmented expenses                          |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | (1,139 | ) | 405    |   | 237    |  
|                                                      | 
|Income (loss) before taxes                            |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | (174   | ) | 2,445  |   | 1,971  |  
|                                                      | 
|Capital expenditures                                  |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   |        |   |        |   |        |  
|                                                      |  |                  |  
|Exploration                                           |  | 157              |   | 198               |   | 216          |   | 59       |   | 257   |   | 125   |  | 86     |   | 128   |  | 133   |  | 249   |   | 138   |  | 119  |   | 551    |   | 721    |   | 593    |  
|                                                      |  |                  |  
|Development                                           |  | 1,404            |   | 1,960             |   | 1,481        |   | 362      |   | 230   |   | 317   |  | 1,087  |   | 1,077 |  | 984   |  | 106   |   | 157   |  | 95   |   | 2,959  |   | 3,424  |   | 2,877  |  
|                                                      |  |                  |  
|Midstream                                             |  | 1                |   | (3                | ) | 3            |   |         |   |      |   |      |  |       |   |      |  |      |  |      |   |      |  |     |   | 1      |   | (3     | ) | 3      |  
|                                                      | 
|Exploration and development                           |  | 1,562            |   | 2,155             |   | 1,700        |   | 421      |   | 487   |   | 442   |  | 1,173  |   | 1,205 |  | 1,117 |  | 355   |   | 295   |  | 214  |   | 3,511  |   | 4,142  |   | 3,473  |  
|                                                      | 
|Acquisitions                                          |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 160    |   | 1,319  |   | 1,530  |  
|                                                      |  |                  |  
|Proceeds on dispositions                              |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | (964   | ) | (569   | ) | (2,273 | )
|                                                      |  |                  |  
|Other non-segmented                                   |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 138    |   | 159    |   | 78     |  
|                                                      | 
|Net capital expenditures                              |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 2,845  |   | 5,051  |   | 2,808  |  
|                                                      | 
|Property, plant and equipment                         |  | 7,145            |   | 6,740             |   | 5,351        |   | 2,582    |   | 2,501 |   | 2,296 |  | 2,449  |   | 5,809 |  | 5,368 |  | 829   |   | 859   |  | 251  |   | 13,005 |   | 15,909 |   | 13,266 |  
|                                                      |  |                  |  
|Exploration and evaluation assets                     |  | 2,078            |   | 2,370             |   | 1,886        |   | 527      |   | 498   |   | 627   |  | 451    |   | 538   |  | 540   |  | 460   |   | 548   |  | 389  |   | 3,516  |   | 3,954  |   | 3,442  |  
|                                                      |  |                  |  
|Goodwill                                              |  | 133              |   | 140               |   | 149          |   | 170      |   | 149   |   | 149   |  | 549    |   | 866   |  | 866   |  | 162   |   | 162   |  |     |   | 1,014  |   | 1,317  |   | 1,164  |  
|                                                      |  |                  |  
|Other                                                 |  | 685              |   | 987               |   | 2,389        |   | 637      |   | 560   |   | 628   |  | 1,675  |   | 645   |  | 920   |  | 1,252 |   | 788   |  | 141  |   | 4,249  |   | 2,980  |   | 4,078  |  
|                                                      | 
|Segmented assets                                      |  | 10,041           |   | 10,237            |   | 9,775        |   | 3,916    |   | 3,708 |   | 3,700 |  | 5,124  |   | 7,858 |  | 7,694 |  | 2,703 |   | 2,357 |  | 781  |   | 21,784 |   | 24,160 |   | 21,950 |  
|                                                      |  |                  |  
|Non-segmented assets                                  |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 74     |   | 66     |   | 144    |  
|                                                      | 
|Total assets                                          |  |                  |   |                   |   |              |   |          |   |       |   |       |  |        |   |       |  |       |  |       |   |       |  |      |   | 21,858 |   | 24,226 |   | 22,094 |  
|                                                      | 
|Decommissioning liabilities                           |  | 476              |   | 394               |   | 210          |   | 347      |   | 208   |   | 189   |  | 1,897  |   | 2,390 |  | 2,196 |  | 72    |   | 43    |  | 15   |   | 2,792  |   | 3,035  |   | 2,610  |  
|                                                      | 

|
|

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       51

---



1
North America

2012

2011

2010Canada

853

1,127

1,454US

654

631

310Total revenue and other income

1,507

1,758

1,764Canada

3,588

3,937

3,920US

3,557

2,803

1,431Property, plant and equipment

7,145

6,740

5,351Canada

1,070

1,207

685US

1,008

1,163

1,201Exploration and evaluation assets

2,078

2,370

1,886


|
|

2
Southeast Asia

2012

2011

2010Indonesia

1,157

1,126

839Malaysia

549

532

481Vietnam

72

65

52Australia

415

160

105Total revenue and other income

2,193

1,883

1,477Indonesia

1,040

1,023

986Malaysia

852

883

1,053Vietnam

494

297

19Papua New Guinea

44

47

26Australia

152

251

212Property, plant and equipment

2,582

2,501

2,296Indonesia

11

12

27Malaysia

72

41

29Vietnam

14

5

253Papua New Guinea

430

440

318Exploration and evaluation assets

527

498

627


|
|

3
North Sea

2012

2011

2010UK

2,075

2,835

2,190Norway

914

1,253

1,357Total revenue and other income

2,989

4,088

3,547UK

1,989

3,927

3,763Norway

460

1,882

1,605Property, plant and equipment

2,449

5,809

5,368UK

197

210

260Norway

254

328

280Exploration and evaluation assets

451

538

540


|
|

4
Other

2012

2011

2010Algeria

213

256

194Colombia

410

287

Total revenue and other income

623

543

194Algeria

273

284

251Colombia

556

575

Property, plant and equipment

829

859

251Colombia

124

75

49Kurdistan

323

303

239Peru



133

98Other

13

37

3Exploration and evaluation assets

460

548

389


52TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



32. Related Party Disclosures

Major Subsidiaries(1)

The Consolidated Financial Statements include the financial statements of Talisman Energy Inc. and the directly or indirectly owned
subsidiaries. Transactions between subsidiaries are eliminated on consolidation. There were no related party transactions with entities or other parties outside the consolidated group during the years
ended December 31, 2012 and 2011. The following table lists the material operating subsidiaries owned directly or indirectly by Talisman as at December 31:

|Name of Subsidiary                 |  | Jurisdiction of
Incorporation |  | Percentage of Voting
Securities Owned
|---------------------------------- |  | ----------------------------- |  | -------------------------------------
|                                  
|Talisman Energy Canada Partnership |  | Alberta                       |  | 100%                                 
|Talisman Energy USA Inc            |  | Delaware                      |  | 100%                                 
|Talisman Energy Norge AS           |  | Norway                        |  | 100%                                 
|Talisman (Corridor) Ltd            |  | Barbados                      |  | 100%                                 
|Talisman (Vietnam 15-2/01) Ltd.    |  | Alberta                       |  | 100%                                 
|Talisman Malaysia Limited          |  | Barbados                      |  | 100%                                 
|Talisman Malaysia (PM3) Limited    |  | Barbados                      |  | 100%                                 
|Talisman (Algeria) BV              |  | The Netherlands               |  | 100%                                 
|                                  

Key Management Personnel Compensation

The compensation of key management personnel, consisting of the Company's directors and executive officers, is as follows:

|                                           |  |      |  |      |  |     
|------------------------------------------ |  | ---- |  | ---- |  | ----
|Years ended December 31                    |  | 2012 |  | 2011 |  | 2010
|                                          
|Short-term benefits                        |  | 15   |  | 15   |  | 14  
|                                           |  |     
|Pension and other post-employment benefits |  | 6    |  | 5    |  | 4   
|                                           |  |     
|Termination benefits                       |  | 15   |  | 4    |  |    
|                                           |  |     
|Share-based payments                       |  | 13   |  | 11   |  | 15  
|                                          
|                                           |  | 49   |  | 35   |  | 33  
|                                          

Short-term benefits comprise salaries and fees, annual bonuses, cash, vehicle and other benefits.

The
amount of pension benefits reported represents the attributable amount of the net benefit expense of the plans in which the key management personnel participate.

Termination
benefits comprise amounts paid and accrued.

The
share-based payments amount reported represents the cost to the Company of key management's participation in share-based payment plans, as measured by the fair value that the individual received
based on the value of the shares exercised in the current period.

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       53

---



SUPPLEMENTARY OIL AND GAS INFORMATION(Unaudited)

The supplemental data on the Company's oil and gas activities was prepared in accordance with the FASB standard Extractive Activities  Oil & Gas. Activities not
directly associated with conventional crude oil and
natural gas production are excluded from all aspects of this supplementary oil and gas information. Comparable information prepared in accordance with Canadian disclosure requirements (National
Instrument 51-101 of the Canadian Securities Administrators) is contained in Appendix A of Talisman's Annual Information Form. Refer to the annual information form for additional disclosures
under the Canadian Oil and Gas Evaluation Handbook (COGEH) rules.

Results of Operations from Oil and Gas Producing Activities

|                                                        |  |                                                                         |   |               |   |           |  |                |   |           |   |              |   |          |   |       |   |       |  
|------------------------------------------------------- |  | ----------------------------------------------------------------------- | - | ------------- | - | --------- |  | -------------- | - | --------- | - | ------------ | - | -------- | - | ----- | - | ----- | -
|                                                        |  |                                                                         |   | North America |   | North Sea |  | Southeast Asia |   |           |   |              |  
|Years ended December 31
($ millions)                    |  | Canada                                                                  |   | USA           |   | UK(2)     |  | Norway         |   | Indonesia |   | Other SEA(3) |   | Other(4) |   | Total |  
|                                                        | 
|2012                                                    |  |                                                                         |   |               |   |           |  |                |   |           |   |              |   |          |   |       |  
|Net oil and gas revenue derived from proved reserves(1) |  | 755                                                                     |   | 654           |   | 2,068     |  | 912            |   | 1,157     |   | 1,033        |   | 623      |   | 7,202 |  
|                                                        |  |                                                                         |   |               |  
|Less:                                                   |  | Production costs                                                        |   | 333           |   | 222       |  | 1,035          |   | 348       |   | 167          |   | 251      |   | 87    |   | 2,443 |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Transportation                                                          |   | 34            |   | 58        |  | 28             |   | 41        |   | 52           |   | 1        |   | 7     |   | 221   |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Exploration and dry hole expense                                        |   | 39            |   | 12        |  | 12             |   | 80        |   | 28           |   | 142      |   | 303   |   | 616   |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Depreciation, depletion, amortization, accretion and impairment expense |   | 909           |   | 610       |  | 788            |   | 2,166     |   | 96           |   | 326      |   | 425   |   | 5,320 |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Tax expense (recovery)                                                  |   | (130          | ) |          |  | 105            |   | (1,429    | ) | 372          |   | 167      |   | 67    |   | (848  | )
|                                                        | 
|Results of operations                                   |  | (430                                                                    | ) | (248          | ) | 100       |  | (294           | ) | 442       |   | 146          |   | (266     | ) | (550  | )
|                                                        | 
|2011                                                    |  |                                                                         |   |               |   |           |  |                |   |           |   |              |   |          |   |       |  
|Net oil and gas revenue derived from proved reserves(1) |  | 1,040                                                                   |   | 633           |   | 2,823     |  | 1,252          |   | 1,126     |   | 756          |   | 543      |   | 8,173 |  
|                                                        |  |                                                                         |   |               |  
|Less:                                                   |  | Production costs                                                        |   | 328           |   | 121       |  | 921            |   | 367       |   | 146          |   | 226      |   | 72    |   | 2,181 |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Transportation                                                          |   | 35            |   | 33        |  | 37             |   | 47        |   | 55           |   |         |   | 9     |   | 216   |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Exploration and dry hole expense                                        |   | 54            |   | 29        |  | 64             |   | 81        |   | 114          |   | 218      |   | 107   |   | 667   |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Depreciation, depletion, amortization, accretion and impairment expense |   | 581           |   | 352       |  | 492            |   | 354       |   | 73           |   | 217      |   | 120   |   | 2,189 |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Tax expense                                                             |   | 12            |   | 38        |  | 847            |   | 329       |   | 365          |   | 100      |   | 91    |   | 1,782 |  
|                                                        | 
|Results of operations                                   |  | 30                                                                      |   | 60            |   | 462       |  | 74             |   | 373       |   | (5           | ) | 144      |   | 1,138 |  
|                                                        | 
|2010                                                    |  |                                                                         |   |               |   |           |  |                |   |           |   |              |   |          |   |       |  
|Net oil and gas revenue derived from proved reserves(1) |  | 1,365                                                                   |   | 304           |   | 2,172     |  | 1,354          |   | 852       |   | 624          |   | 194      |   | 6,865 |  
|                                                        |  |                                                                         |   |               |  
|Less:                                                   |  | Production costs                                                        |   | 421           |   | 59        |  | 793            |   | 296       |   | 127          |   | 153      |   | 27    |   | 1,876 |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Transportation                                                          |   | 48            |   | 11        |  | 33             |   | 62        |   | 60           |   |         |   | 7     |   | 221   |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Exploration and dry hole expense                                        |   | 43            |   | 2         |  | 76             |   | 41        |   | 55           |   | 90       |   | 179   |   | 486   |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Depreciation, depletion, amortization, accretion and impairment expense |   | 562           |   | 221       |  | 553            |   | 440       |   | 50           |   | 247      |   | 29    |   | 2,102 |  
|                                                        |  |                                                                         |   |               |  
|                                                        |  | Tax expense                                                             |   | 75            |   | 4         |  | 396            |   | 401       |   | 269          |   | 80       |   | 15    |   | 1,240 |  
|                                                        | 
|Results of operations                                   |  | 216                                                                     |   | 7             |   | 321       |  | 114            |   | 291       |   | 54           |   | (63      | ) | 940   |  
|                                                        | 

54TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Capitalized Costs Relating to Oil and Gas Activities

|                                     |  |                                                      |  |               |  |           |  |                |  |           |  |              |  |          |  |        |  |       
|------------------------------------ |  | ---------------------------------------------------- |  | ------------- |  | --------- |  | -------------- |  | --------- |  | ------------ |  | -------- |  | ------ |  | ------
|                                     |  |                                                      |  | North America |  | North Sea |  | Southeast Asia |  |           |  |             
|Years ended December 31
($ millions) |  | Canada                                               |  | USA           |  | UK(1)     |  | Norway         |  | Indonesia |  | Other
SEA(2) |  | Other(3) |  | Total 
|                                    
|2012                                 |  |                                                      |  |               |  |           |  |                |  |           |  |              |  |          |  |       
|Proved properties                    |  | 6,938                                                |  | 5,171         |  | 4,770     |  | 2,902          |  | 1,457     |  | 3,503        |  | 1,068    |  | 25,809
|                                     |  |                                                      |  |              
|Unproved properties                  |  | 1,186                                                |  | 1,006         |  | 197       |  | 1,968          |  | 194       |  | 330          |  | 891      |  | 5,772 
|                                     |  |                                                      |  |              
|Incomplete wells and facilities      |  | 8                                                    |  |              |  | 8         |  | 2              |  | 2         |  | 6            |  | 170      |  | 196   
|                                    
|                                     |  |                                                      |  | 8,132         |  | 6,177     |  | 4,975          |  | 4,872     |  | 1,653        |  | 3,839    |  | 2,129  |  | 31,777
|                                    
|Less:                                |  | Accumulated depreciation, depletion and amortization |  | 4,075         |  | 1,646     |  | 2,795          |  | 4,165     |  | 602          |  | 1,792    |  | 850    |  | 15,925
|                                    
|Net capitalized costs                |  | 4,057                                                |  | 4,531         |  | 2,180     |  | 707            |  | 1,051     |  | 2,047        |  | 1,279    |  | 15,852
|                                    
|2011                                 |  |                                                      |  |               |  |           |  |                |  |           |  |              |  |          |  |       
|Proved properties                    |  | 7,037                                                |  | 3,798         |  | 8,730     |  | 3,890          |  | 1,415     |  | 3,110        |  | 1,323    |  | 29,303
|                                     |  |                                                      |  |              
|Unproved properties                  |  | 1,196                                                |  | 1,165         |  | 195       |  | 276            |  | 192       |  | 259          |  | 389      |  | 3,672 
|                                     |  |                                                      |  |              
|Incomplete wells and facilities      |  | 8                                                    |  |              |  | 15        |  | 52             |  | 1         |  | 45           |  | 161      |  | 282   
|                                    
|                                     |  |                                                      |  | 8,241         |  | 4,963     |  | 8,940          |  | 4,218     |  | 1,608        |  | 3,414    |  | 1,873  |  | 33,257
|                                    
|Less:                                |  | Accumulated depreciation, depletion and amortization |  | 3,660         |  | 1,040     |  | 4,806          |  | 2,012     |  | 577          |  | 1,463    |  | 476    |  | 14,034
|                                    
|Net capitalized costs                |  | 4,581                                                |  | 3,923         |  | 4,134     |  | 2,206          |  | 1,031     |  | 1,951        |  | 1,397    |  | 19,223
|                                    
|2010                                 |  |                                                      |  |               |  |           |  |                |  |           |  |              |  |          |  |       
|Proved properties                    |  | 6,554                                                |  | 2,113         |  | 8,092     |  | 3,280          |  | 1,358     |  | 2,556        |  | 611      |  | 24,564
|                                     |  |                                                      |  |              
|Unproved properties                  |  | 669                                                  |  | 1,202         |  | 253       |  | 258            |  | 137       |  | 574          |  | 346      |  | 3,439 
|                                     |  |                                                      |  |              
|Incomplete wells and facilities      |  | 15                                                   |  |              |  | 28        |  | 16             |  | 16        |  | 27           |  | 43       |  | 145   
|                                    
|                                     |  |                                                      |  | 7,238         |  | 3,315     |  | 8,373          |  | 3,554     |  | 1,511        |  | 3,157    |  | 1,000  |  | 28,148
|                                    
|Less:                                |  | Accumulated depreciation, depletion and amortization |  | 3,152         |  | 693       |  | 4,347          |  | 1,669     |  | 499          |  | 1,251    |  | 364    |  | 11,975
|                                    
|Net capitalized costs                |  | 4,086                                                |  | 2,622         |  | 4,026     |  | 1,885          |  | 1,012     |  | 1,906        |  | 636      |  | 16,173
|                                    

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       55

---



Costs Incurred in Oil and Gas Activities

|                                     |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |       |  |      
|------------------------------------ |  | ------------------- |  | ------------- | - | --------- |  | -------------- |  | --------- |  | ------------ |  | -------- | - | ----- |  | -----
|                                     |  |                     |  | North America |   | North Sea |  | Southeast Asia |  |           |  |             
|Years ended December 31
($ millions) |  | Canada              |  | USA           |   | UK(1)     |  | Norway         |  | Indonesia |  | Other
SEA(2) |  | Other(3) |   | Total
|                                    
|2012                                 |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |      
|Property acquisition costs           |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |      
|                                     |  | Proved              |  |              |   | 2         |  |               |  |          |  |             |  | 19       |   |      |  | 21   
|                                     |  |                     |  |              
|                                     |  | Unproved            |  | 7             |   | 37        |  |               |  |          |  |             |  | 91       |   | 66    |  | 201  
|                                     |  |                     |  |              
|Exploration costs                    |  | 191                 |  | 11            |   | 53        |  | 79             |  | 32        |  | 117          |  | 351      |   | 834  
|                                     |  |                     |  |              
|Development costs                    |  | 324                 |  | 1,097         |   | 608       |  | 502            |  | 103       |  | 264          |  | 105      |   | 3,003
|                                     |  |                     |  |              
|Decommissioning costs                |  | 81                  |  | 53            |   | 305       |  | 156            |  | 3         |  | 78           |  | 33       |   | 709  
|                                    
|Total costs incurred                 |  | 603                 |  | 1,200         |   | 966       |  | 737            |  | 138       |  | 569          |  | 555      |   | 4,768
|                                    
|2011                                 |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |      
|Property acquisition costs           |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |      
|                                     |  | Proved properties   |  | 3             |   | 208       |  |               |  | 15        |  |             |  | 11       |   | 570   |  | 807  
|                                     |  |                     |  |              
|                                     |  | Unproved properties |  | 590           |   | 51        |  |               |  |          |  |             |  | 26       |   | 17    |  | 684  
|                                     |  |                     |  |              
|Exploration costs                    |  | 93                  |  | 14            |   | 52        |  | 116            |  | 105       |  | 349          |  | 248      |   | 977  
|                                     |  |                     |  |              
|Development costs                    |  | 528                 |  | 1,427         |   | 554       |  | 520            |  | 129       |  | 96           |  | 157      |   | 3,411
|                                     |  |                     |  |              
|Decommissioning costs                |  | 177                 |  | 35            |   | 34        |  | 95             |  | 13        |  | 3            |  | (2       | ) | 355  
|                                    
|Total costs incurred                 |  | 1,391               |  | 1,735         |   | 640       |  | 746            |  | 247       |  | 485          |  | 990      |   | 6,234
|                                    
|2010                                 |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |      
|Property acquisition costs           |  |                     |  |               |   |           |  |                |  |           |  |              |  |          |   |      
|                                     |  | Proved              |  | 5             |   | 133       |  |               |  |          |  | 117          |  |         |   |      |  | 255  
|                                     |  |                     |  |              
|                                     |  | Unproved            |  | 3             |   | 1,029     |  |               |  | 191       |  | 54           |  | 39       |   | 52    |  | 1,368
|                                     |  |                     |  |              
|Exploration costs                    |  | 199                 |  | 19            |   | 93        |  | 87             |  | 72        |  | 163          |  | 234      |   | 867  
|                                     |  |                     |  |              
|Development costs                    |  | 581                 |  | 909           |   | 497       |  | 485            |  | 74        |  | 250          |  | 100      |   | 2,896
|                                     |  |                     |  |              
|Decommissioning costs                |  | 66                  |  | (11           | ) | 470       |  | 18             |  | 6         |  | 17           |  | 7        |   | 573  
|                                    
|Total costs incurred                 |  | 854                 |  | 2,079         |   | 1,060     |  | 781            |  | 323       |  | 469          |  | 393      |   | 5,959
|                                    

56TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



DISCOUNTED FUTURE NET CASH FLOWS

Standardized Measure of Discounted Future Net Cash Flows from Proved Reserves

Future
net cash flows were calculated by applying the prescribed average annual prices to the Company's estimated future production of proved reserves and deducting estimates of future development,
asset retirement, production and transportation costs, and income taxes. Future costs have been estimated based on existing economic and operating conditions. Future income taxes have been estimated
based on statutory tax rates enacted at year-end using existing tax and cost pools. The present values of the estimated future cash flows were determined by applying a 10% discount rate
prescribed by the US Financial Accounting Standards Board.

In
order to increase the comparability between companies, the standardized measure of discounted future net cash flows necessarily employs uniform assumptions that do not necessarily reflect
management's best estimate of future events and anticipated outcomes. There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production
and timing of development expenditures. Accordingly, the Company does not believe that the standardized measure of discounted future
net cash flows will be representative of actual future net cash flows and should not be considered to represent the fair market value of the oil and gas properties. Actual future net cash flows will
differ significantly from estimates due to, but not limited to, the following:

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       57

---



The
standardized measure of discounted future net cash flows was prepared using the following prices:

|                           |  |        |  |        |  |      
|-------------------------- |  | ------ |  | ------ |  | -----
|Average Prices             |  | 2012   |  | 2011   |  | 2010 
|                          
|Crude oil & liquidsUS$/bbl |  |        |  |        |  |      
|                           |  |       
|Canada(1)                  |  | 61.51  |  | 76.79  |  | 62.25
|                           |  |       
|USA(1)                     |  | 73.76  |  | 74.91  |  | 57.66
|                           |  |       
|UK                         |  | 111.19 |  | 111.01 |  | 78.97
|                           |  |       
|Norway                     |  | 103.21 |  | 108.34 |  | 78.21
|                           |  |       
|Indonesia                  |  | 102.57 |  | 111.89 |  | 78.71
|                           |  |       
|Other Southeast Asia(2)    |  | 115.83 |  | 112.11 |  | 75.83
|                           |  |       
|Other(3)                   |  | 106.92 |  | 108.69 |  | 78.10
|                          
|Total Company              |  | 96.11  |  | 104.26 |  | 75.79
|                          
|Natural gasUS$/mcf         |  |        |  |        |  |      
|                           |  |       
|Canada(1)                  |  | 2.48   |  | 3.92   |  | 4.05 
|                           |  |       
|USA(1)                     |  | 2.81   |  | 4.19   |  | 4.63 
|                           |  |       
|UK                         |  | 7.75   |  | 6.51   |  | 4.57 
|                           |  |       
|Norway                     |  | 6.78   |  | 7.25   |  | 4.95 
|                           |  |       
|Indonesia                  |  | 8.31   |  | 7.64   |  | 6.61 
|                           |  |       
|Other Southeast Asia(2)    |  | 7.78   |  | 7.61   |  | 5.65 
|                           |  |       
|Other(3)                   |  | 4.09   |  | 3.65   |  |     
|                          
|Total Company              |  | 4.86   |  | 5.27   |  | 5.22 
|                          

In order to derive the prices in the cash flow, the following benchmark prices and exchange rates were used:

|                    |  |        |  |        |  |      
|------------------- |  | ------ |  | ------ |  | -----
|                    |  | 2012   |  | 2011   |  | 2010 
|                   
|WTI ($/bbl)         |  | 94.71  |  | 96.19  |  | 79.42
|                    |  |       
|Dated Brent ($/bbl) |  | 111.13 |  | 110.96 |  | 79.02
|                    |  |       
|HH gas ($/mmbtu)    |  | 2.76   |  | 4.12   |  | 4.37 
|                    |  |       
|AECO-C (C$/GJ)      |  | 2.23   |  | 3.57   |  | 3.82 
|                    |  |       
|US$/C$              |  | 1.00   |  | 1.01   |  | 0.97 
|                    |  |       
|US$/UK£             |  | 1.59   |  | 1.61   |  | 1.60 
|                   

58TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Standardized Measure of Discounted Future Net Cash Flows from Proved Reserves

|                                                             |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|------------------------------------------------------------ | -------------------------------- | ------------- | ------ | --------- | ------ | -------------- | ------- | ------ | ------ | --------- | ------ | ------------ | ------ | -------- | ---- | ------- | -------
|                                                             |                                  | North America |        | North Sea |        | Southeast Asia |         |        |        |           |       
|Years ended December 31
(millions of $)                      |                                  | Canada        |        | US        |        | UK             |         | Norway |        | Indonesia |        | Other SEA(2) |        | Other(3) |      | Total   |        
|                                                             |                                 
|2012                                                         |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|                                                             |                                  |               |       
|Future Cash Inflows(1)                                       |                                  | 6,192         |        | 5,625     |        | 11,305         |         | 1,720  |        | 9,241     |        | 4,479        |        | 3,071    |      | 41,633  |        
|                                                             |                                  |               |       
|Future Costs                                                 |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|                                                             |                                  |               |       
|Transportation                                               |                                  | (262          | )      | (438      | )      | (200           | )       | (36    | )      | (489      | )      | (26          | )      | (95      | )    | (1,546  | )      
|                                                             |                                  |               |       
|Production                                                   |                                  | (2,644        | )      | (1,538    | )      | (6,465         | )       | (1,031 | )      | (1,397    | )      | (1,540       | )      | (473     | )    | (15,088 | )      
|                                                             |                                  |               |       
|Development and Site Restoration                             |                                  | (1,517        | )      | (1,406    | )      | (3,428         | )       | (832   | )      | (613      | )      | (547         | )      | (238     | )    | (8,581  | )      
|                                                             |                                 
|Future costs                                                 |                                  | (4,423        | )      | (3,382    | )      | (10,093        | )       | (1,899 | )      | (2,499    | )      | (2,113       | )      | (806     | )    | (25,215 | )      
|                                                             |                                 
|Future Inflows before Income taxes                           |                                  | 1,769         |        | 2,243     |        | 1,212          |         | (179   | )      | 6,742     |        | 2,366        |        | 2,265    |      | 16,418  |        
|                                                             |                                  |               |       
|Future Income & Production revenue taxes                     |                                  | (104          | )      |          |        | (990           | )       | 1,209  |        | (2,803    | )      | (715         | )      | (696     | )    | (4,099  | )      
|                                                             |                                 
|Net cash flows                                               |                                  | 1,665         |        | 2,243     |        | 222            |         | 1,030  |        | 3,939     |        | 1,651        |        | 1,569    |      | 12,319  |        
|                                                             |                                 
|Less 10% annual discount for estimated timing of cash flows. |                                  | (462          | )      | (816      | )      | 79             |         | (736   | )      | (1,386    | )      | (342         | )      | (364     | )    | (4,027  | )      
|                                                             |                                 
|Discounted cash flows                                        |                                  | 1,203         |        | 1,427     |        | 301            |         | 294    |        | 2,553     |        | 1,309        |        | 1,205    |      | 8,292   |        
|                                                             |                                 
|2011                                                         |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|                                                             |                                  |               |       
|Future cash inflows(1)                                       |                                  | 9,951         |        | 9,775     |        | 27,326         |         | 6,195  |        | 9,864     |        | 4,711        |        | 3,320    |      | 71,142  |        
|                                                             |                                  |               |       
|Future costs                                                 |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|                                                             |                                  |               |       
|                                                             | Transportation                   |               | (315   | )         | (480   | )              | (414    | )      | (150   | )         | (540   | )            |       |          | (75  | )       | (1,974 
|                                                             |                                  |               |       
|                                                             | Production                       |               | (3,576 | )         | (1,984 | )              | (14,327 | )      | (2,811 | )         | (1,207 | )            | (1,526 | )        | (479 | )       | (25,910
|                                                             |                                  |               |       
|                                                             | Development and site restoration |               | (1,490 | )         | (2,336 | )              | (6,491  | )      | (1,276 | )         | (805   | )            | (779   | )        | (364 | )       | (13,541
|                                                             |                                 
|Future costs                                                 |                                  | (5,381        | )      | (4,800    | )      | (21,232        | )       | (4,237 | )      | (2,552    | )      | (2,305       | )      | (918     | )    | (41,425 | )      
|                                                             |                                 
|Future inflows before income taxes                           |                                  | 4,570         |        | 4,975     |        | 6,094          |         | 1,958  |        | 7,312     |        | 2,406        |        | 2,402    |      | 29,717  |        
|                                                             |                                  |               |       
|Future income & production revenue taxes                     |                                  | (809          | )      | (358      | )      | (4,447         | )       | (342   | )      | (3,061    | )      | (784         | )      | (764     | )    | (10,565 | )      
|                                                             |                                 
|Net cash flows                                               |                                  | 3,761         |        | 4,617     |        | 1,647          |         | 1,616  |        | 4,251     |        | 1,622        |        | 1,638    |      | 19,152  |        
|                                                             |                                 
|Less 10% annual discount for estimated timing of cash flows  |                                  | (1,516        | )      | (2,144    | )      | (236           | )       | (318   | )      | (1,551    | )      | (365         | )      | (448     | )    | (6,578  | )      
|                                                             |                                 
|Discounted cash flows                                        |                                  | 2,245         |        | 2,473     |        | 1,411          |         | 1,298  |        | 2,700     |        | 1,257        |        | 1,190    |      | 12,574  |        
|                                                             |                                 
|2010                                                         |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|                                                             |                                  |               |       
|Future cash inflows(1)                                       |                                  | 10,027        |        | 6,029     |        | 20,952         |         | 4,551  |        | 9,612     |        | 3,165        |        | 1,479    |      | 55,815  |        
|                                                             |                                  |               |       
|Future costs                                                 |                                  |               |        |           |        |                |         |        |        |           |        |              |        |          |      |         |        
|                                                             |                                  |               |       
|                                                             | Transportation                   |               | (381   | )         | (189   | )              | (398    | )      | (166   | )         | (794   | )            |       |          | (48  | )       | (1,976 
|                                                             |                                  |               |       
|                                                             | Production                       |               | (3,801 | )         | (1,014 | )              | (11,037 | )      | (2,123 | )         | (1,103 | )            | (1,143 | )        | (268 | )       | (20,489
|                                                             |                                  |               |       
|                                                             | Development and site restoration |               | (1,697 | )         | (1,289 | )              | (4,970  | )      | (852   | )         | (830   | )            | (474   | )        | (121 | )       | (10,233
|                                                             |                                 
|Future costs                                                 |                                  | (5,879        | )      | (2,492    | )      | (16,405        | )       | (3,141 | )      | (2,727    | )      | (1,617       | )      | (437     | )    | (32,698 | )      
|                                                             |                                 
|Future inflows before income taxes                           |                                  | 4,148         |        | 3,537     |        | 4,547          |         | 1,410  |        | 6,885     |        | 1,548        |        | 1,042    |      | 23,117  |        
|                                                             |                                  |               |       
|Future income & production revenue taxes                     |                                  | (1,003        | )      | (437      | )      | (2,787         | )       | (45    | )      | (2,845    | )      | (329         | )      | (347     | )    | (7,793  | )      
|                                                             |                                 
|Net cash flows                                               |                                  | 3,145         |        | 3,100     |        | 1,760          |         | 1,365  |        | 4,040     |        | 1,219        |        | 695      |      | 15,324  |        
|                                                             |                                 
|Less 10% annual discount for estimated timing of cash flows  |                                  | (1,258        | )      | (1,588    | )      | (18            | )       | (202   | )      | (1,709    | )      | (222         | )      | (219     | )    | (5,216  | )      
|                                                             |                                 
|Discounted cash flows                                        |                                  | 1,887         |        | 1,512     |        | 1,742          |         | 1,163  |        | 2,331     |        | 997          |        | 476      |      | 10,108  |        
|                                                             |                                 

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       59

---



Principal Sources of Changes in Standardized Measure of Discounted Future Net
Cash Flows

|                                                           |  |        |   |        |   |        |  
|---------------------------------------------------------- |  | ------ | - | ------ | - | ------ | -
|Year ended December 31 ($ millions)                        |  | 2012   |   | 2011   |   | 2010   |  
|                                                           | 
|Sales of oil & gas produced net of production costs        |  | (4,538 | ) | (5,776 | ) | (4,768 | )
|                                                           |  |        |  
|Net change in prices                                       |  | (2,198 | ) | 8,351  |   | 5,416  |  
|                                                           |  |        |  
|Net change in transportation costs                         |  | (91    | ) | 62     |   | (197   | )
|                                                           |  |        |  
|Net changes in production costs                            |  | (668   | ) | (2,755 | ) | 391    |  
|                                                           |  |        |  
|Net changes in future development & site restoration costs |  | (887   | ) | (2,052 | ) | (27    | )
|                                                           |  |        |  
|Development costs incurred during year                     |  | 2,176  |   | 1,560  |   | 1,603  |  
|                                                           |  |        |  
|Extensions, discoveries and improved recovery              |  | (195   | ) | 2,132  |   | 1,990  |  
|                                                           |  |        |  
|Revisions of previous reserve estimates                    |  | (642   | ) | 513    |   | 679    |  
|                                                           |  |        |  
|Net purchases                                              |  | 2      |   | 1,039  |   | 189    |  
|                                                           |  |        |  
|Net sales of reserves in place                             |  | (3,066 | ) | (75    | ) | (893   | )
|                                                           |  |        |  
|Accretion of discount                                      |  | 1,987  |   | 1,556  |   | 1,099  |  
|                                                           |  |        |  
|Net change in taxes                                        |  | 3,947  |   | (1,847 | ) | (2,453 | )
|                                                           |  |        |  
|Other                                                      |  | (109   | ) | (242   | ) | (37    | )
|                                                           | 
|Net change                                                 |  | (4,282 | ) | 2,466  |   | 2,992  |  
|                                                           | 

60TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---



Continuity of Net Proved Reserves

|                                      |  |        |   |      |   |        |   |        |   |           |   |                      |   |               |   |       |   |        |  
|------------------------------------- |  | ------ | - | ---- | - | ------ | - | ------ | - | --------- | - | -------------------- | - | ------------- | - | ----- | - | ------ | -
|                                      |  | Canada |   | US   |   | UK     |   | Norway |   | Indonesia |   | Other
Southeast
Asia |   | Latin
America |   | Other |   | Total  |  
|                                      | 
|Oil and Liquids (mmbbls)              |  |        |   |      |   |        |   |        |   |           |   |                      |   |               |   |       |   |        |  
|                                      |  |        |  
|Total Proved                          |  |        |   |      |   |        |   |        |   |           |   |                      |   |               |   |       |   |        |  
|                                      |  |        |  
|Proved reserves at December 31, 2009  |  | 89.4   |   |     |   | 266.1  |   | 55.9   |   | 12.7      |   | 28.6                 |   |              |   | 21.0  |   | 473.7  |  
|                                      |  |        |  
|Discoveries, additions and extensions |  | 4.7    |   | 2.5  |   | 6.8    |   | 9.7    |   | 1.4       |   | 2.5                  |   |              |   | 1.0   |   | 28.6   |  
|                                      |  |        |  
|Purchase of reserves                  |  |       |   | 0.9  |   |       |   |       |   | 1.5       |   |                     |   |              |   |      |   | 2.4    |  
|                                      |  |        |  
|Sale of reserves                      |  | (15.1  | ) | (0.2 | ) |       |   |       |   |          |   |                     |   |              |   | (0.5  | ) | (15.8  | )
|                                      |  |        |  
|Net revisions and transfers           |  | (2.4   | ) | 0.1  |   | 18.0   |   | 1.8    |   | (0.8      | ) | 0.6                  |   |              |   | (0.2  | ) | 17.1   |  
|                                      |  |        |  
|2010 Production                       |  | (6.6   | ) | (0.1 | ) | (27.0  | ) | (14.2  | ) | (2.0      | ) | (6.1                 | ) |              |   | (2.4  | ) | (58.4  | )
|                                      | 
|Proved reserves at December 31, 2010  |  | 70.0   |   | 3.2  |   | 263.9  |   | 53.2   |   | 12.8      |   | 25.6                 |   |              |   | 18.9  |   | 447.6  |  
|                                      |  |        |  
|Discoveries, additions and extensions |  | 2.1    |   | 13.7 |   | (4.1   | ) | 2.3    |   | 0.4       |   | 9.7                  |   |              |   | (0.9  | ) | 23.2   |  
|                                      |  |        |  
|Purchase of reserves                  |  |       |   | 0.6  |   |       |   |       |   |          |   |                     |   | 15.1          |   |      |   | 15.7   |  
|                                      |  |        |  
|Sale of reserves                      |  | (0.3   | ) |     |   |       |   |       |   |          |   |                     |   |              |   |      |   | (0.3   | )
|                                      |  |        |  
|Net revisions and transfers           |  | (3.5   | ) | 0.3  |   | 10.4   |   | 7.2    |   | 4.1       |   | 0.5                  |   |              |   | (0.1  | ) | 18.9   |  
|                                      |  |        |  
|2011 Production                       |  | (6.3   | ) | (0.5 | ) | (25.2  | ) | (10.0  | ) | (1.8      | ) | (5.5                 | ) | (2.3          | ) | (2.4  | ) | (54.0  | )
|                                      | 
|Proved reserves at December 31, 2011  |  | 62.0   |   | 17.3 |   | 245.0  |   | 52.7   |   | 15.5      |   | 30.3                 |   | 12.8          |   | 15.5  |   | 451.1  |  
|                                      |  |        |  
|Discoveries, additions and extensions |  | 10.3   |   | 11.4 |   | 9.4    |   | (26.2  | ) | 0.2       |   | 1.5                  |   | 3.9           |   | (0.9  | ) | 9.6    |  
|                                      |  |        |  
|Purchase of reserves                  |  |       |   |     |   |       |   |       |   |          |   | 1.1                  |   |              |   |      |   | 1.1    |  
|                                      |  |        |  
|Sale of reserves                      |  | (11.8  | ) |     |   | (114.5 | ) | (2.7   | ) | (1.1      | ) |                     |   |              |   |      |   | (130.1 | )
|                                      |  |        |  
|Net revisions and transfers           |  | 5.1    |   | (1.5 | ) | (21.6  | ) | (2.1   | ) | (2.0      | ) | 1.5                  |   | 0.1           |   | 0.2   |   | (20.3  | )
|                                      |  |        |  
|2012 Production(1)                    |  | (5.7   | ) | (2.5 | ) | (18.9  | ) | (7.2   | ) | (2.1      | ) | (7.2                 | ) | (3.3          | ) | (1.9  | ) | (48.8  | )
|                                      | 
|Proved reserves at December 31, 2012  |  | 59.9   |   | 24.7 |   | 99.4   |   | 14.5   |   | 10.5      |   | 27.2                 |   | 13.5          |   | 12.9  |   | 262.6  |  
|                                      | 
|Proved developed                      |  |        |   |      |   |        |   |        |   |           |   |                      |   |               |   |       |   |        |  
|                                      |  |        |  
|December 31, 2009                     |  | 82.1   |   |     |   | 196.0  |   | 26.1   |   | 11.0      |   | 21.2                 |   |              |   | 13.0  |   | 349.4  |  
|                                      |  |        |  
|December 31, 2010                     |  | 65.6   |   | 0.7  |   | 210.6  |   | 21.6   |   | 8.6       |   | 18.6                 |   |              |   | 9.8   |   | 335.5  |  
|                                      |  |        |  
|December 31, 2011                     |  | 59.9   |   | 7.3  |   | 201.9  |   | 17.0   |   | 9.9       |   | 19.0                 |   | 6.7           |   | 9.0   |   | 330.7  |  
|                                      | 
|December 31, 2012                     |  | 55.8   |   | 10.3 |   | 84.0   |   | 8.4    |   | 7.0       |   | 15.0                 |   | 8.8           |   | 7.6   |   | 196.9  |  
|                                      | 

TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012       61

---



Continuity of Net Proved Reserves (continued)

|                                      |  |         |   |         |   |       |   |        |   |           |   |                      |   |               |   |       |   |         |  
|------------------------------------- |  | ------- | - | ------- | - | ----- | - | ------ | - | --------- | - | -------------------- | - | ------------- | - | ----- | - | ------- | -
|                                      |  | Canada  |   | US      |   | UK    |   | Norway |   | Indonesia |   | Other
Southeast
Asia |   | Latin
America |   | Other |   | Total   |  
|                                      | 
|Natural Gas(bcf)                      |  |         |   |         |   |       |   |        |   |           |   |                      |   |               |   |       |   |         |  
|                                      |  |         |  
|Total Proved                          |  |         |   |         |   |       |   |        |   |           |   |                      |   |               |   |       |   |         |  
|                                      |  |         |  
|Proved reserves at December 31, 2009  |  | 2,043.0 |   | 566.2   |   | 24.5  |   | 93.0   |   | 1,374.1   |   | 261.4                |   |              |   | 1.7   |   | 4,363.9 |  
|                                      |  |         |  
|Discoveries, additions and extensions |  | 263.7   |   | 738.6   |   | 0.1   |   | 6.7    |   | 8.1       |   | (22.6                | ) |              |   |      |   | 994.6   |  
|                                      |  |         |  
|Purchase of reserves                  |  |        |   | 17.5    |   |      |   |       |   | 42.4      |   |                     |   |              |   |      |   | 59.9    |  
|                                      |  |         |  
|Sale of reserves                      |  | (772.5  | ) | (5.8    | ) |      |   |       |   |          |   |                     |   |              |   | (1.6  | ) | (779.9  | )
|                                      |  |         |  
|Net revisions and transfers           |  | 11.2    |   | 10.3    |   | 4.9   |   | 12.1   |   | (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, 2010  |  | 1,354.5 |   | 1,257.9 |   | 23.8  |   | 79.6   |   | 1,269.2   |   | 225.8                |   |              |   |      |   | 4,210.8 |  
|                                      |  |         |  
|Discoveries, additions and extensions |  | 251.1   |   | 799.4   |   | (0.2  | ) | 4.6    |   | 36.1      |   | 9.2                  |   |              |   |      |   | 1,100.2 |  
|                                      |  |         |  
|Purchase of reserves                  |  |        |   | 3.6     |   |      |   |       |   |          |   |                     |   | 93.5          |   |      |   | 97.1    |  
|                                      |  |         |  
|Sale of reserves                      |  | (165.5  | ) |        |   |      |   |       |   |          |   |                     |   |              |   |      |   | (165.5  | )
|                                      |  |         |  
|Net revisions and transfers           |  | 3.5     |   | 66.8    |   | (1.4  | ) | (1.3   | ) | (94.1     | ) | (13.0                | ) | 0.2           |   |      |   | (39.3   | )
|                                      |  |         |  
|2011 Production                       |  | (150.9  | ) | (141.9  | ) | (3.5  | ) | (15.3  | ) | (104.0    | ) | (33.2                | ) | (10.2         | ) |      |   | (459.0  | )
|                                      | 
|Proved reserves at December 31, 2011  |  | 1,292.7 |   | 1,985.8 |   | 18.7  |   | 67.6   |   | 1,107.2   |   | 188.8                |   | 83.5          |   |      |   | 4,744.3 |  
|                                      |  |         |  
|Discoveries, additions and extensions |  | 65.4    |   | (550.0  | ) | 35.6  |   | 17.1   |   | 0.3       |   | 2.7                  |   | (9.6          | ) |      |   | (438.5  | )
|                                      |  |         |  
|Purchase of reserves                  |  |        |   |        |   |      |   |       |   |          |   | 1.9                  |   |              |   |      |   | 1.9     |  
|                                      |  |         |  
|Sale of reserves                      |  | (97.2   | ) |        |   | (20.3 | ) |       |   | (9.1      | ) |                     |   |              |   |      |   | (126.6  | )
|                                      |  |         |  
|Net revisions and transfers           |  | (101.4  | ) | 66.0    |   | 0.9   |   | (42.0  | ) | (3.9      | ) | 7.5                  |   | 3.8           |   |      |   | (69.1   | )
|                                      |  |         |  
|2012 Production(1)                    |  | (137.2  | ) | (176.8  | ) | (1.9  | ) | (9.6   | ) | (99.8     | ) | (32.3                | ) | (11.5         | ) |      |   | (469.1  | )
|                                      | 
|Proved reserves at December 31, 2012  |  | 1,022.3 |   | 1,325.0 |   | 33.0  |   | 33.1   |   | 994.7     |   | 168.6                |   | 66.2          |   |      |   | 3,642.9 |  
|                                      | 
|Proved developed                      |  |         |   |         |   |       |   |        |   |           |   |                      |   |               |   |       |   |         |  
|                                      |  |         |  
|December 31, 2009                     |  | 1,663.5 |   | 171.1   |   | 22.4  |   | 91.2   |   | 915.2     |   | 225.5                |   |              |   | 0.8   |   | 3,089.7 |  
|                                      |  |         |  
|December 31, 2010                     |  | 1,011.4 |   | 584.9   |   | 22.0  |   | 73.3   |   | 763.7     |   | 187.2                |   |              |   |      |   | 2,642.5 |  
|                                      |  |         |  
|December 31, 2011                     |  | 936.5   |   | 814.7   |   | 18.2  |   | 63.1   |   | 688.5     |   | 149.7                |   | 62.3          |   |      |   | 2,733.0 |  
|                                      |  |         |  
|December 31, 2012                     |  | 712.3   |   | 839.6   |   | 8.2   |   | 13.8   |   | 591.5     |   | 125.3                |   | 66.2          |   |      |   | 2,356.9 |  
|                                      | 

62TALISMAN ENERGYCONSOLIDATED FINANCIAL STATEMENTS 2012

---





|
|
|

LOGO

|
|

TALISMAN ENERGY INC.

Suite 2000, 888  3rd Street SW
Calgary, Alberta, Canada T2P 5C5

P403.237.1234F403.237.1902 Etlm@talisman-energy.com

www.talisman-energy.com



---

|
|
|
|
|
|
|
|
|
|
|

---



QuickLinks