**TalismanEnergy Inc. Consolidated Balance Sheets**

| December 31 (millions of      Canadian dollars)                 | **2003**       |   | 2002   |   |
|-----------------------------------------------------------------|----------------|--------|--------|--------|
|                                                                 |                |   |        |   |
| **Assets**                                                      |           |   |   |   |
| Current                                                         |           |   |   |   |
|    Cash and cash      equivalents                | **98**         |   | 27     |   |
|    Accounts      receivable                      | **760**        |   | 719    |   |
|    Inventories      (note 3)                     | **100**        |   | 147    |   |
|    Prepaid      expenses                         | **17**         |   | 24     |   |
|                                                                 |                |   |        |   |
|                                                            | **975**        |   | 917    |   |
|                                                                 |                |   |        |   |
|                                                            |           |   |   |   |
| Accrued employee pension benefit      asset (note 16)           | **63**         |   | 67     |   |
| Other assets                                                    | **76**         |   | 99     |   |
| Goodwill (note 2)                                               | **473**        |   | 469    |   |
| Property, plant and equipment      (note 4)                     | **9,778**      |   | 10,042 |   |
|                                                                 |                |   |        |   |
|                                                            | **10,390**     |   | 10,677 |   |
|                                                                 |                |   |        |   |
| **Total assets**                                                | **11,365**     |   | 11,594 |   |
|                                                                 |                |   |        |   |
|                                                            |           |   |   |   |
|                                                            |           |   |   |   |
| **Liabilities**                                                 |           |   |   |   |
| Current                                                         |           |   |   |   |
|    Accounts      payable and accrued liabilities | **1,064**      |   | 803    |   |
|    Income and      other taxes payable           | **154**        |   | 186    |   |
|                                                                 |                |   |        |   |
|                                                            | **1,218**      |   | 989    |   |
|                                                                 |                |   |        |   |
|                                                            |           |   |   |   |
| Deferred credits                                                | **57**         |   | 57     |   |
| Provision for future site      restoration (note 10)            | **840**        |   | 813    |   |
| Long-term debt (note 5)                                         | **2,203**      |   | 2,997  |   |
| Future income taxes (note 13)                                   | **2,088**      |   | 2,236  |   |
|                                                                 |                |   |        |   |
|                                                            | **5,188**      |   | 6,103  |   |
|                                                                 |                |   |        |   |
|                                                            |           |   |   |   |
| Contingencies and commitments      (note 10)                    |           |   |   |   |
|                                                            |           |   |   |   |
| **Shareholders' equity**                                        |           |   |   |   |
| Preferred securities (note 6)                                   | **431**        |   | 431    |   |
| Common shares (note 7)                                          | **2,725**      |   | 2,785  |   |
| Contributed surplus                                             | **73**         |   | 75     |   |
| Cumulative foreign currency      translation (note 8)           | **(114)**      |   | 140    |   |
| Retained earnings                                               | **1,844**      |   | 1,071  |   |
|                                                                 |                |   |        |   |
|                                                            | **4,959**      |   | 4,502  |   |
|                                                                 |                |   |        |   |
| **Total liabilities and      shareholders' equity**             | **11,365**     |   | 11,594 |   |
|                                                                 |                |   |        |   |
|                                                            |           |   |   |   |
| On behalf of the Board:                                         |           |   |   |   |
|                                                            |           |   |   |   |
|                                                            |           |   |   |   |
|                                                            |           |   |   |   |
| Douglas D. Baldwin                                              | Dale G. Parker |   |   |   |
| Chairman of the Board                                           | Director       |   |   |   |
|                                                            |           |   |   |   |
|                                                            |           |   |   |   |
|                                                            |           |   |   |   |
| See accompanying notes.                                         |           |   |   |   |

----

     **TalismanEnergy Inc. Consolidated Statements of Income**

| Years ended December 31                                         |      |   |   |   |   |   |
|-----------------------------------------------------------------|-----------|--------|--------|--------|--------|--------|
| (millions of Canadian dollars)                                  | **2003**  |   | 2002   |   | 2001   |   |
|                                                                 |           |   |        |   |        |   |
| **Revenue**                                                     |      |   |   |   |   |   |
|    Gross sales                                   | **5,295** |   | 5,299  |   | 5,047  |   |
|    Less royalties                                | **894**   |   | 927    |   | 989    |   |
|                                                                 |           |   |        |   |        |   |
|    Net sales                                     | **4,401** |   | 4,372  |   | 4,058  |   |
|    Other (note      11)                          | **76**    |   | 80     |   | 82     |   |
|                                                                 |           |   |        |   |        |   |
| **Total revenue**                                               | **4,477** |   | 4,452  |   | 4,140  |   |
|                                                                 |           |   |        |   |        |   |
|                                                            |      |   |   |   |   |   |
| **Expenses**                                                    |      |   |   |   |   |   |
|    Operating                                     | **1,099** |   | 1,115  |   | 946    |   |
|    General and      administrative               | **152**   |   | 138    |   | 108    |   |
|    Depreciation,      depletion and amortization | **1,443** |   | 1,495  |   | 1,313  |   |
|    Dry hole                                      | **251**   |   | 174    |   | 113    |   |
|    Exploration                                   | **213**   |   | 185    |   | 147    |   |
|    Interest on      long-term debt               | **137**   |   | 164    |   | 139    |   |
|    Stock-based      compensation (note 7)        | **185**   |   | -      |   | -      |   |
|    Other (note      12)                          | **16**    |   | 113    |   | 78     |   |
|                                                                 |           |   |        |   |        |   |
| **Total expenses**                                              | **3,496** |   | 3,384  |   | 2,844  |   |
|                                                                 |           |   |        |   |        |   |
| Gain on sale of Sudan operations      (note 17)                 | **296**   |   | -      |   | -      |   |
|                                                                 |           |   |        |   |        |   |
| Income before taxes                                             | **1,277** |   | 1,068  |   | 1,296  |   |
|                                                                 |           |   |        |   |        |   |
| Taxes (note 13)                                                 |      |   |   |   |   |   |
|    Current income      tax                       | **229**   |   | 258    |   | 342    |   |
|    Future income      tax (recovery)             | **(51)**  |   | 162    |   | 72     |   |
|    Petroleum      revenue tax                    | **92**    |   | 124    |   | 149    |   |
|                                                                 |           |   |        |   |        |   |
|                                                            | **270**   |   | 544    |   | 563    |   |
|                                                                 |           |   |        |   |        |   |
| **Net income**                                                  | **1,007** |   | 524    |   | 733    |   |
| Preferred security charges, net      of tax                     | **22**    |   | 24     |   | 24     |   |
|                                                                 |           |   |        |   |        |   |
| **Net income available to      common shareholders**            | **985**   |   | 500    |   | 709    |   |
|                                                                 |           |   |        |   |        |   |
|                                                            |      |   |   |   |   |   |
| Per common share (Canadian      dollars) (note 15)              |      |   |   |   |   |   |
|    Net income                                    | **7.65**  |   | 3.73   |   | 5.25   |   |
|    Diluted net      income                       | **7.57**  |   | 3.67   |   | 5.16   |   |
|                                                                 |           |   |        |   |        |   |
| Average number of common shares      outstanding (millions)     | **129**   |   | 134    |   | 135    |   |
| Diluted number of common shares      outstanding (millions)     | **130**   |   | 136    |   | 137    |   |
|                                                                 |           |   |        |   |        |   |
|                                                            |      |   |   |   |   |   |
| See accompanying notes.                                         |      |   |   |   |   |   |
|                                                            |      |   |   |   |   |   |
|                                                            |      |   |   |   |   |   |
|  **Consolidated      Statements of Retained Earnings**     |
|                                                            |      |   |   |   |   |   |
|                                                            |      |   |   |   |   |   |
| Years ended December 31      (millions of Canadian dollars)     | **2003**  |   | 2002   |   | 2001   |   |
|                                                                 |           |   |        |   |        |   |
|                                                            |      |   |   |   |   |   |
| Retained earnings, beginning of      year                       | **1,071** |   | 787    |   | 257    |   |
| Net income                                                      | **1,007** |   | 524    |   | 733    |   |
| Common share dividends                                          | **(90)**  |   | (80)   |   | (81)   |   |
| Purchase of common shares                                       | **(122)** |   | (136)  |   | (98)   |   |
| Preferred security charges, net      of tax                     | **(22)**  |   | (24)   |   | (24)   |   |
|                                                                 |           |   |        |   |        |   |
| **Retained earnings, end of      year**                         | **1,844** |   | 1,071  |   | 787    |   |
|                                                                 |           |   |        |   |        |   |
|                                                            |      |   |   |   |   |   |
| See accompanying notes.                                         |      |   |   |   |   |   |

----

**TalismanEnergy Inc.**

**ConsolidatedStatements of Cash Flows**

 

| Years ended December      31                                               |        |      |    |    |    |   |
|----------------------------------------------------------------------------|-------------|-----------|---------|---------|---------|--------|
| (millions of      Canadian dollars)                                        | **2003**    |      | 2002    |    | 2001    |   |
|                                                                            |             |      |         |    |         |   |
| **Operating**                                                              |        |      |    |    |    |   |
| Net income                                                                 | **1,007**   |      | 524     |    | 733     |   |
| Items not involving      current cash flow (note 14)                       | **1,509**   |      | 1,936   |    | 1,614   |   |
| Exploration                                                                | **213**     |      | 185     |    | 147     |   |
|                                                                            |             |      |         |    |         |   |
| Cash flow                                                                  | **2,729**   |      | 2,645   |    | 2,494   |   |
| Deferred gain on      unwound hedges                                       | **(9)**     |      | (43)    |    | 52      |   |
| Changes in non-cash      working capital (note 14)                         | **(104)**   |      | (163)   |    | (177)   |   |
|                                                                            |             |      |         |    |         |   |
| Cash provided by      operating activities                                 | **2,616**   |      | 2,439   |    | 2,369   |   |
|                                                                            |             |      |         |    |         |   |
| **Investing**                                                              |        |      |    |    |    |   |
| Corporate      acquisitions (note 2)                                       | -           |      | -       |    | (1,213) |   |
| Proceeds on sale of      Sudan operations (note 17)                        | **1,012**   |      | -       |    | -       |   |
| Capital expenditures                                                       |        |      |    |    |    |   |
| Exploration,      development and corporate                                | **(2,218)** |      | (1,874) |    | (1,912) |   |
| Acquisitions (note      2)                                                 | **(661)**   |      | (244)   |    | (186)   |   |
| Proceeds of resource      property dispositions                            | **63**      |      | 30      |    | 47      |   |
| Investments                                                                | **(11)**    |      | (36)    |    | -       |   |
| Changes in non-cash      working capital                                   | **82**      |      | 2       |    | 52      |   |
|                                                                            |             |      |         |    |         |   |
| Cash used in      investing activities                                     | **(1,733)** |      | (2,122) |    | (3,212) |   |
|                                                                            |             |      |         |    |         |   |
| **Financing**                                                              |        |      |    |    |    |   |   |
| Long-term debt repaid                                                      |        | **(791)** |    | (1,397) |    | (568)  |   |
| Long-term debt issued                                                      |        | **292**   |    | 1,417   |    | 1,617  |   |
| Common shares      purchased  (net of proceeds on      shares issued) | **(184)**   |      | (184)   |    | (117)   |   |
| Common share dividends                                                     |        | **(90)**  |    | (80)    |    | (81)   |   |
| Preferred security charges                                                 |        | **(38)**  |    | (42)    |    | (42)   |   |
| Deferred credits and other                                                 |        | **27**    |    | (21)    |    | (25)   |   |
|                                                                            |             |           |    |         |    |        |   |
| Cash (used in)      provided by financing activities                       | **(784)**   |      | (307)   |    | 784     |   |
|                                                                            |             |      |         |    |         |   |
| Effect of      translation on foreign currency cash                        | **(28)**    |      | -       |    | -       |   |
|                                                                            |             |      |         |    |         |   |
| Net increase      (decrease) in cash                                       | **71**      |      | 10      |    | (59)    |   |
| Cash and cash      equivalents, beginning of year                          | **27**      |      | 17      |    | 76      |   |
|                                                                            |             |      |         |    |         |   |
| Cash and cash      equivalents, end of year                                | **98**      |      | 27      |    | 17      |   |
|                                                                            |             |      |         |    |         |   |
|                                                                       |        |      |    |    |    |   |   |
| See accompanying notes.                                                    |        |      |    |    |    |   |   |

----