EXHIBIT 99.6

FOR THE YEAR ENDED
DECEMBER 31, 2011

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|MANAGEMENT'S DISCUSSION AND ANALYSIS |  | GRAPHIC
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LOGO

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Management's Discussion and Analysis (MD&A)

(March 5, 2012)

General

This Management's Discussion and Analysis (MD&A) should be read in conjunction with the Consolidated Financial Statements of Talisman
Energy Inc. (Talisman or the Company) for the year ended December 31, 2011. The Company's Consolidated Financial Statements and the financial data included in this MD&A have been
prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise noted.

Unless
otherwise stated, references to production and reserves represent Talisman's working interest share (including Talisman's share of volumes of royalty interest) before deduction of royalties.
Throughout this MD&A, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil. The boe
measure may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner
tip and does not necessarily represent a value equivalence at the wellhead.

All
comparisons are between the years ended December 31, 2011 and 2010, unless stated otherwise. All amounts presented are in US$, except where otherwise indicated. Abbreviations used in this
MD&A are listed in the section 'Abbreviations and Definitions'.

Additional
information relating to the Company, including the Company's Annual Information Form (AIF), can be found on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at
www.sedar.com. The Company's Annual Report on Form 40-F may be found in the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database at www.sec.gov.

Adoption of International Financial Reporting Standards
(IFRS)

Talisman's Consolidated Financial Statements and the financial data included in the MD&A have been prepared in accordance with IFRS
as issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) effective at December 31, 2011,
the date of the Company's first annual reporting under IFRS. The adoption of IFRS does not impact the underlying economics of Talisman's operations or its cash flows.

Note 4
to the Consolidated Financial Statements contains a detailed description of the Company's adoption of IFRS, including a reconciliation of the Consolidated Financial Statements
previously prepared under Canadian generally accepted accounting principles (GAAP) to those under IFRS for the following:

The
most significant impacts of the adoption of IFRS, together with details of the IFRS 1 exemptions taken, are described in the 'IFRS First-Time Adoption' section of
this MD&A.

Comparative
information has been restated to comply with IFRS requirements, unless otherwise indicated.

Change in Reporting Conventions

Effective January 1, 2011, the Company changed its reporting currency from C$ to US$. This change to US$ reporting follows the
strategic changes of recent years and recognizes the fact that a significant portion of the Company's activities and transactions are conducted in US$. Accordingly, all financial amounts in this MD&A
are presented in US$ unless otherwise indicated.

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. This change reflects the
fact that, since 2011, the UK and Norway businesses each operate a mature set of cash-generating assets sharing similar economic characteristics. Comparative period balances have been
restated accordingly.

1TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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COMPANY OVERVIEW

Talisman Energy Inc. is a global, diversified, upstream oil and gas company, headquartered in Canada. Talisman's three main operating areas are North
America, the North Sea and Southeast Asia. The Company also has a portfolio of international exploration opportunities. Talisman is committed to conducting business safely, in a socially and
environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman's common shares are listed on the Toronto and New York stock exchanges
under the symbol TLM.

Unless
the context indicates otherwise, references in this MD&A to 'Talisman' or 'the Company' include, for reporting purposes only, the direct or indirect subsidiaries of Talisman Energy Inc.
and partnership interests held by Talisman Energy Inc. and its subsidiaries. Such use of 'Talisman' or 'the Company' to refer to these other legal entities and partnership interests does not
constitute a waiver by Talisman Energy Inc. or such entities or partnerships of their separate legal status, for any purpose.

Talisman's
financial statements are prepared on a consolidated basis and include the accounts of Talisman and its subsidiaries. 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.

Note 31
to the Consolidated Financial Statements provides segmented financial information that forms the basis for much of the following discussion and analysis. In 2011, Talisman's
activities were conducted in four geographic segments for the purposes of financial reporting: North America, North Sea, Southeast Asia and Other. The North America segment includes operations in
Canada and the US. The North Sea segment includes operations and exploration activities in the UK and Norway. The Southeast Asia segment includes operations and exploration activities in Indonesia,
Malaysia, Vietnam and Papua New Guinea
and operations in Australia/Timor-Leste. The Company also conducts operations in Algeria, operations and exploration activities in Colombia, and exploration activities in Peru, Poland, Sierra Leone
and the Kurdistan region of northern Iraq. For ease of reference, the activities in Algeria, Colombia, Peru, Poland, Sierra Leone and the Kurdistan region of northern Iraq are referred to collectively
as the Other geographic segment.

STRATEGY

Safe, profitable growth is at the heart of Talisman's business strategy, which is designed to deliver 5-10% production growth through the medium
term and to lead to the long-term renewal of the Company.

The
portfolio includes three categories of assets:

2TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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2011 PERFORMANCE HIGHLIGHTS

FINANCIAL AND OPERATING HIGHLIGHTS

|(millions of $, unless otherwise stated)                                                                                      |                                          |  | 2011   |      |  | 2010   |      |  | 20091  |       |  
|----------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- |  | ------ | ---- |  | ------ | ---- |  | ------ | ----- | -
|                                                                                                                             
|                                                                                                                              |                                          |  | US$    |      |  | US$    |      |  | C$     |       |  
|                                                                                                                             
|Cash provided by operating activities                                                                                         |                                          |  | 2,812  |      |  | 3,144  |      |  | 3,599  |       |  
|                                                                                                                              |                                          | 
|Cash provided by continuing operations                                                                                        |                                          |  | 2,812  |      |  | 3,144  |      |  | 3,214  |       |  
|                                                                                                                              |                                          | 
|Net income                                                                                                                    |                                          |  | 776    |      |  | 945    |      |  | 437    |       |  
|                                                                                                                              |                                          | 
|                                                                                                                              | Income (loss) from continuing operations |  |        | 776  |  |        | 945  |  |        | (658  | )
|                                                                                                                              |                                          | 
|                                                                                                                              | Income from discontinued operations      |  |        |     |  |        |     |  |        | 1,095 |  
|                                                                                                                              |                                          | 
|Common share dividends                                                                                                        |                                          |  | 277    |      |  | 249    |      |  | 229    |       |  
|                                                                                                                              |                                          | 
|Per share ($)                                                                                                                 |                                          |  |        |      |  |        |      |  |        |       |  
|                                                                                                                              |                                          | 
|                                                                                                                              | Net income                               |  |        | 0.76 |  |        | 0.93 |  |        | 0.43  |  
|                                                                                                                              |                                          | 
|                                                                                                                              | Diluted net income2                      |  |        | 0.38 |  |        | 0.93 |  |        | 0.43  |  
|                                                                                                                              |                                          | 
|                                                                                                                              | Income (loss) from continuing operations |  |        | 0.76 |  |        | 0.93 |  |        | (0.65 | )
|                                                                                                                              |                                          | 
|                                                                                                                              | Income from discontinued operations      |  |        |     |  |        |     |  |        | 1.08  |  
|                                                                                                                              |                                          | 
|                                                                                                                              | Common share dividends                   |  | US$    | 0.27 |  | C$     | 0.25 |  | C$     | 0.23  |  
|                                                                                                                              |                                          | 
|Production (mboe/d)                                                                                                           |                                          |  | 426    |      |  | 417    |      |  | 425    |       |  
|                                                                                                                              |                                          | 
|Production from ongoing operations (mboe/d)                                                                                   |                                          |  | 426    |      |  | 390    |      |  | 365    |       |  
|                                                                                                                              |                                          | 
|Average sales price ($/boe)                                                                                                   |                                          |  | 65.35  |      |  | 53.80  |      |  | 49.40  |       |  
|                                                                                                                              |                                          | 
|Total revenue and other income                                                                                                |                                          |  | 8,272  |      |  | 6,982  |      |  | 6,061  |       |  
|                                                                                                                              |                                          | 
|Operating costs ($/boe)                                                                                                       |                                          |  | 14.17  |      |  | 12.44  |      |  | 12.91  |       |  
|                                                                                                                              |                                          | 
|Depreciation, depletion and amortization (DD&A) expense, exploration and dry hole expense                                     |                                          |  | 2,617  |      |  | 2,275  |      |  | 3,200  |       |  
|                                                                                                                              |                                          | 
|Total exploration and development spending                                                                                    |                                          |  | 4,142  |      |  | 3,473  |      |  | 3,784  |       |  
|                                                                                                                              |                                          | 
|Total assets                                                                                                                  |                                          |  | 24,226 |      |  | 22,094 |      |  | 23,618 |       |  
|                                                                                                                              |                                          | 
|Total long-term debt (including current portion)                                                                              |                                          |  | 4,895  |      |  | 4,204  |      |  | 3,780  |       |  
|                                                                                                                              |                                          | 
|Cash and cash equivalents, net of bank indebtedness                                                                           |                                          |  | 414    |      |  | 1,653  |      |  | 1,654  |       |  
|                                                                                                                              |                                          | 
|Total long-term liabilities                                                                                                   |                                          |  | 10,745 |      |  | 9,186  |      |  | 9,906  |       |  
|                                                                                                                              |                                          | 
|Gross proved reserves additions, net of revisions (before acquisitions and dispositions)  including price revisions (mmboe)3 |                                          |  | 251    |      |  | 271    |      |  | 251    |       |  
|                                                                                                                              |                                          | 
|Reserves replacement ratio (before acquisitions and dispositions)  including price revisions3                                |                                          |  | 162%   |      |  | 178%   |      |  | 162%   |       |  
|                                                                                                                              |                                          | 
|Gross proved reserves (mmboe)3                                                                                                |                                          |  | 1,488  |      |  | 1,383  |      |  | 1,411  |       |  
|                                                                                                                              |                                          | 
|Gross proved reserves additions, net of revisions (before acquisitions and dispositions)  excluding price revisions (mmboe)3 |                                          |  | 243    |      |  | 249    |      |  | 174    |       |  
|                                                                                                                              |                                          | 
|Reserves replacement ratio (before acquisitions and dispositions)  excluding price revisions3                                |                                          |  | 157%   |      |  | 164%   |      |  | 112%   |       |  
|                                                                                                                             

3TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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2011 NET INCOME VARIANCES

|(millions of $)                                       |  |       |   | 
|----------------------------------------------------- |  | ----- | - | 
|                                                     
|2010 net income                                       |  | 945   |   | 
|                                                     
|Favourable (unfavourable) variances1:                 |  |       |   | 
|                                                      |  |      
|Commodity prices2                                     |  | 2,121 |   | 
|                                                      |  |      
|Production volumes2                                   |  | (157  | ) | 
|                                                      |  |      
|Royalties2                                            |  | (645  | ) | 
|                                                      |  |      
|Operating expenses                                    |  | (300  | ) | 
|                                                      |  |      
|General and administrative (G&A) expense              |  | (60   | ) | 
|                                                      |  |      
|DD&A expense                                          |  | (161  | ) | 
|                                                      |  |      
|Impairment                                            |  | 75    |   | 
|                                                      |  |      
|Dry hole expense                                      |  | (128  | ) | 
|                                                      |  |      
|Exploration expense                                   |  | (53   | ) | 
|                                                      |  |      
|Interest on long-term debt                            |  | (2    | ) | 
|                                                      |  |      
|Share-based payments expense/recovery                 |  | 522   |   | 
|                                                      |  |      
|Gain on disposal of assets                            |  | (328  | ) | 
|                                                      |  |      
|Gain/loss on held-for-trading financial instruments   |  | (297  | ) | 
|                                                      |  |      
|Current taxes (including Petroleum Revenue Tax (PRT)) |  | (305  | ) | 
|                                                      |  |      
|Deferred taxes (including PRT)                        |  | (338  | ) | 
|                                                      |  |      
|Other                                                 |  | (113  | ) | 
|                                                     
|Total variances                                       |  | (169  | ) | 
|                                                     
|2011 net income                                       |  | 776   |   | 
|                                                     

The significant variances from 2010 as summarized in the net income variances table are:

4TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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OPERATIONS REVIEW

Results Summary

Sales of oil, liquids and natural gas in 2011 were $8.2 billion, an increase of 19% from 2010. Oil and liquids revenue
increased by $1.1 billion due to higher prices. Natural gas revenue increased by $222 million as increased production was partially offset by lower prices.

In
North America, production growth of 13% was offset by lower gas prices resulting in relatively flat sales. While sales were relatively constant, DD&A was higher due to production increases and
operating costs declined year-over-year as a result of the transition to shale production.

In
the North Sea, sales increased by 16%, the benefit of higher oil and liquids prices being partially offset by lower production. Operating expenses increased as a result of higher maintenance costs.

In
Southeast Asia, sales of $1.9 billion were 28% higher than 2010 due principally to higher pricing for both liquids and natural gas. Operating expenses, DD&A and exploration expense increased
year-over-year.

Activity
in the rest of the world increased following the completion of the acquisition of a 49% interest in Equión in January 2011.

Daily Average Production

|                                 |                |                        |     |                  |     |       |     |       |    
|-------------------------------- | -------------- | ---------------------- | --- | ---------------- | --- | ----- | --- | ----- | ---
|                                 |                | Gross before royalties |     | Net of royalties |    
|                                 |                | 2011                   |     | 2010             |     | 2011  |     | 2010  |    
|                                
|Oil and liquids (mbbls/d)        |                |                        |     |                  |     |       |     |       |    
|                                 |                |                       
|                                 | North America  |                        | 23  |                  | 23  |       | 19  |       | 18 
|                                 |                |                       
|                                 | North Sea      |                        | 98  |                  | 113 |       | 97  |       | 113
|                                 |                |                       
|                                 | Southeast Asia |                        | 34  |                  | 39  |       | 17  |       | 22 
|                                 |                |                       
|                                 | Other          |                        | 23  |                  | 14  |       | 13  |       | 7  
|                                
|                                 |                | 178                    |     | 189              |     | 146   |     | 160   |    
|                                
|Natural gas (mmcf/d)             |                |                        |     |                  |     |       |     |       |    
|                                 |                |                       
|                                 | North America  |                        | 899 |                  | 778 |       | 803 |       | 718
|                                 |                |                       
|                                 | North Sea      |                        | 52  |                  | 104 |       | 52  |       | 104
|                                 |                |                       
|                                 | Southeast Asia |                        | 506 |                  | 485 |       | 351 |       | 339
|                                 |                |                       
|                                 | Other          |                        | 34  |                  |    |       | 27  |       |   
|                                
|                                 |                | 1,491                  |     | 1,367            |     | 1,233 |     | 1,161 |    
|                                
|Total Daily Production (mboe/d)  |                |                        |     |                  |     |       |     |       |    
|                                 |                |                       
|                                 | North America  |                        | 173 |                  | 153 |       | 153 |       | 137
|                                 |                |                       
|                                 | North Sea      |                        | 106 |                  | 131 |       | 106 |       | 131
|                                 |                |                       
|                                 | Southeast Asia |                        | 119 |                  | 119 |       | 75  |       | 78 
|                                 |                |                       
|                                 | Other          |                        | 28  |                  | 14  |       | 17  |       | 7  
|                                
|Total (mboe/d)                   |                | 426                    |     | 417              |     | 351   |     | 353   |    
|                                
|Assets sold                      |                |                        |     |                  |     |       |     |       |    
|                                 |                |                       
|                                 | North America  |                        |    |                  | 27  |       |    |       | 24 
|                                
|From ongoing operations (mboe/d) |                | 426                    |     | 390              |     | 351   |     | 329   |    
|                                

Production represents gross production before royalties, unless noted otherwise. Production identified as net is production after deducting royalties.

5TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Production from ongoing operations increased by 9% over the previous year due principally to increased gas volumes in North America and Southeast Asia, and additional liquids volumes from Colombia as
a result of the Equión acquisition in January 2011, partially offset by lower North Sea production. Total production increased by 2% in 2011.

In
North America, production from ongoing operations increased by 37%. Natural gas production increased by 41% due principally to successful shale development in the Pennsylvania Marcellus and
Montney, where production during the year averaged 413 mmcf/d and 55 mmcf/d, respectively. In the Eagle Ford, production averaged 31 mmcfe/d, of which 2 mboe/d was
from liquids.

Production
in the North Sea decreased 19% versus a year ago. Reduced natural gas and liquids production in Norway accounts for the majority of the decrease. Although Rev completed its annual
turnaround successfully, mechanical issues associated with the maintenance of the gas export line from the host platform delayed the restart of production until the end of the third quarter. In the
UK, a full year of production from Auk North and increased operational efficiency at Auk South were offset by natural decline and extended shutdowns for safety-related upgrades. Production from the
Tartan platform, which was shut down during the fourth quarter of 2011, is expected to restart in the first quarter of 2012.

In
Southeast Asia, natural gas production increased by 4% due principally to better production efficiency at PM-3 CAA and the startup of Jambi Merang in April 2011. Oil and
liquids production decreased due principally to natural declines, partially offset by the startup of Kitan in October 2011.

In
December 2011, the Suban field within the Corridor Production Sharing Contract (PSC) was unitized with the adjacent Suban Barat PSC in which the Company has no interest, reducing Talisman's
interest from 36% to 32.4%. The impact of this unitization is that production is expected to be reduced by approximately 4,500 boe/d until the end of the PSC in 2023.

In
the rest of the world, production from Colombia accounted for most of the increase over 2010.

Volumes Produced Into (Sold Out of)
Inventory1

|                                       |  | 2011 |   | 2010 |   | 
|-------------------------------------- |  | ---- | - | ---- | - | 
|                                      
|North Sea  bbls/d                     |  | (687 | ) | (174 | ) | 
|                                       |  |     
|Southeast Asia  bbls/d                |  | 960  |   | 108  |   | 
|                                       |  |     
|Other  bbls/d                         |  | 400  |   | 237  |   | 
|                                      
|Total produced into inventory  bbls/d |  | 673  |   | 171  |   | 
|                                      
|Total produced into inventory  mmbbls |  | 0.2  |   | 0.1  |   | 
|                                      
|Inventory at December 31  mmbbls      |  | 1.9  |   | 1.6  |   | 
|                                      

In the Company's international operations, produced oil is frequently stored in tanks until there is sufficient volume to be lifted. The Company recognizes
revenue and the related expenses on crude oil production when liftings have occurred. Volumes presented in the 'Daily Average Production' table represent production volumes in the period, which
include oil volumes produced into inventory and exclude volumes sold out of inventory.

6TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Company Netbacks1

|                        |                 | Gross before royalties |        | Net of royalties |      
|----------------------- | --------------- | ---------------------- | ------ | ---------------- | -----
|                        |                 | 2011                   |        | 2010             |      
|                       
|Oil and liquids ($/bbl) |                 |                        |        |                  |      
|                        |                 |                       
|                        | Sales price     |                        | 107.04 |                  | 78.19
|                        |                 |                       
|                        | Royalties       |                        | 19.69  |                  | 12.00
|                        |                 |                       
|                        | Transportation  |                        | 1.29   |                  | 1.15 
|                        |                 |                       
|                        | Operating costs |                        | 25.72  |                  | 20.10
|                       
|                        |                 | 60.34                  |        | 44.94            |      
|                       
|Natural gas ($/mcf)     |                 |                        |        |                  |      
|                        |                 |                       
|                        | Sales price     |                        | 5.92   |                  | 5.59 
|                        |                 |                       
|                        | Royalties       |                        | 1.24   |                  | 0.93 
|                        |                 |                       
|                        | Transportation  |                        | 0.24   |                  | 0.28 
|                        |                 |                       
|                        | Operating costs |                        | 0.98   |                  | 1.02 
|                       
|                        |                 | 3.46                   |        | 3.36             |      
|                       
|Total $/boe (6mcf=1boe) |                 |                        |        |                  |      
|                        |                 |                       
|                        | Sales price     |                        | 65.35  |                  | 53.80
|                        |                 |                       
|                        | Royalties       |                        | 12.54  |                  | 8.49 
|                        |                 |                       
|                        | Transportation  |                        | 1.39   |                  | 1.45 
|                        |                 |                       
|                        | Operating costs |                        | 14.17  |                  | 12.44
|                       
|                        |                 | 37.25                  |        | 31.42            |      
|                       

During 2011, the Company's average gross netback was $37.25/boe, 19% higher than in 2010. Talisman's realized net price of $65.35/boe was 21% higher than 2010,
due principally to higher global oil and liquids prices and Southeast Asia gas prices, the majority of which is linked to liquids prices.

The
Company's realized net sale price includes the impact of physical commodity contracts, but does not include the impact of the financial commodity price derivatives discussed in the 'Risk
Management' section of this MD&A.

7TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Commodity Prices and Exchange Rates

|                                            |                     | 2011   |        | 2010  |      
|------------------------------------------- | ------------------- | ------ | ------ | ----- | -----
|                                           
|Oil and liquids ($/bbl)                     |                     |        |        |       |      
|                                            |                     |       
|                                            | North America       |        | 75.19  |       | 62.59
|                                            |                     |       
|                                            | North Sea           |        | 110.75 |       | 80.13
|                                            |                     |       
|                                            | Southeast Asia      |        | 115.82 |       | 80.54
|                                            |                     |       
|                                            | Other               |        | 110.32 |       | 82.69
|                                           
|                                            |                     | 107.04 |        | 78.19 |      
|                                           
|Natural gas ($/mcf)                         |                     |        |        |       |      
|                                            |                     |       
|                                            | North America       |        | 3.93   |       | 4.79 
|                                            |                     |       
|                                            | North Sea           |        | 8.62   |       | 6.35 
|                                            |                     |       
|                                            | Southeast Asia      |        | 9.30   |       | 6.72 
|                                            |                     |       
|                                            | Other               |        | 4.22   |       |     
|                                           
|                                            |                     | 5.92   |        | 5.59  |      
|                                           
|Company $/boe (6mcf=1boe)                   |                     | 65.35  |        | 53.80 |      
|                                           
|Benchmark prices and foreign exchange rates |                     |        |        |       |      
|                                            |                     |       
|                                            | WTI ($/bbl)         |        | 95.13  |       | 79.53
|                                            |                     |       
|                                            | Dated Brent ($/bbl) |        | 111.27 |       | 79.47
|                                            |                     |       
|                                            | Tapis ($/bbl)       |        | 117.11 |       | 80.81
|                                            |                     |       
|                                            | NYMEX ($/mmbtu)     |        | 4.07   |       | 4.39 
|                                            |                     |       
|                                            | AECO (C$/gj)        |        | 3.48   |       | 3.82 
|                                           
|C$/US$ exchange rate                        |                     | 0.99   |        | 1.03  |      
|                                           
|UK£/US$ exchange rate                       |                     | 0.62   |        | 0.65  |      
|                                           

Talisman's realized oil and liquids prices increased by 37%, consistent with the movement in the benchmark price in the Company's primary oil and
gas-producing regions. North America natural gas prices decreased by 18%, due to lower benchmark prices and the expiry of the physical commodity contracts which increased the North
American reported price by $0.68/mcf in 2010. Most of the contracts expired at the end of 2010. Corridor gas prices averaged $10.06/mcf, where 60% of sales are referenced to Duri crude oil and High
Sulphur Fuel Oil on an energy equivalent basis.

Royalties1

|               |  | 2011     |  | 2010      | 
|-------------- |  | -------- |  | --------- | 
|               |  | Rate (%) |  | $ million | 
|              
|North America  |  | 13       |  | 255       | 
|               |  |         
|North Sea      |  | 1        |  | 25        | 
|               |  |         
|Southeast Asia |  | 40       |  | 1,236     | 
|               |  |         
|Other          |  | 43       |  | 402       | 
|              
|               |  | 19       |  | 1,918     | 
|              

The corporate royalty rate was 19%, up from 16% in 2010 due to higher commodity prices. In the rest of the world, the acquisition of Equión
reduced the royalty rate to 43% in 2011, while the North America rate reflects higher Eagle Ford production.

8TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Unit Operating Expenses1

|               |  | Gross before royalties |  | Net of royalties | 
|-------------- |  | ---------------------- |  | ---------------- | 
|($/boe)        |  | 2011                   |  | 2010             | 
|              
|North America  |  | 7.11                   |  | 8.65             | 
|               |  |                       
|North Sea      |  | 33.60                  |  | 22.91            | 
|               |  |                       
|Southeast Asia |  | 8.78                   |  | 6.67             | 
|               |  |                       
|Other          |  | 7.07                   |  | 5.37             | 
|              
|               |  | 14.17                  |  | 12.44            | 
|              

Total Operating Expenses

|(millions of $) |  | 2011  |  | 2010  | 
|--------------- |  | ----- |  | ----- | 
|               
|North America   |  | 454   |  | 487   | 
|                |  |      
|North Sea       |  | 1,292 |  | 1,096 | 
|                |  |      
|Southeast Asia  |  | 372   |  | 280   | 
|                |  |      
|Other           |  | 72    |  | 27    | 
|               
|                |  | 2,190 |  | 1,890 | 
|               

Total operating expenses increased by $300 million due to higher maintenance costs, the startup of new fields and the acquisition
of Equión.

In
North America, operating expenses decreased due to the sale of high cost conventional assets in 2010. In the North Sea, operating expenses were higher due to increased maintenance and the weakening
of the US$. In Southeast Asia, operating expenses increased due to the startup of the Jambi Merang and Kitan fields and higher well intervention and maintenance costs at PM-3 CAA.
The increase in the rest of the world was due to the acquisition of Equión in Colombia.

Unit
operating expenses for the Company increased to $14.17/boe due to the reasons noted above.

Unit Depreciation, Depletion and Amortization (DD&A)
Expense

|               |  | Gross before royalties |  | Net of royalties | 
|-------------- |  | ---------------------- |  | ---------------- | 
|($/boe)        |  | 2011                   |  | 2010             | 
|              
|North America  |  | 13.50                  |  | 12.85            | 
|               |  |                       
|North Sea      |  | 17.21                  |  | 16.08            | 
|               |  |                       
|Southeast Asia |  | 7.10                   |  | 6.37             | 
|               |  |                       
|Other          |  | 11.82                  |  | 5.53             | 
|              
|               |  | 12.55                  |  | 11.76            | 
|              

Total DD&A Expense

|(millions of $) |  | 2011  |  | 2010  | 
|--------------- |  | ----- |  | ----- | 
|               
|North America   |  | 852   |  | 717   | 
|                |  |      
|North Sea       |  | 671   |  | 766   | 
|                |  |      
|Southeast Asia  |  | 305   |  | 277   | 
|                |  |      
|Other           |  | 121   |  | 28    | 
|               
|                |  | 1,949 |  | 1,788 | 
|               

9TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



Total DD&A expense was $2 billion, up 9% from 2010 as a result of higher production volumes in North America, the acquisition of Equión
and the startup of a number of fields, partially offset by lower North Sea production.

The
DD&A expense in North America increased due to higher shale gas volumes. The DD&A expense in the North Sea decreased due principally to lower production volumes, partially offset by the startup of
the Auk North field in November 2010 and higher rates at various fields due to reserve revisions at the end of 2010. In Southeast Asia, the increase was due principally to the startup of Jambi
Merang and Kitan. The DD&A expense in the rest of the world increased due to the additional production from Equión.

Unit
DD&A expense was impacted by the same factors as noted above with the overall unit DD&A increasing 7% to $12.55/boe.

For
additional information relating to DD&A, refer to the 'Application of Critical Accounting Policies and Use of Estimates' section of this MD&A.

Impairment

|(millions of $)      |                | 2011 |     | 2010 |    
|-------------------- | -------------- | ---- | --- | ---- | ---
|                    
|Impairment losses    |                |      |     |      |    
|                     |                |     
|                     | North America  |      | 129 |      | 116
|                     |                |     
|                     | North Sea      |      | 231 |      | 164
|                     |                |     
|                     | Southeast Asia |      |    |      | 21 
|                     |                |     
|                     | Other          |      |    |      |   
|                    
|                     |                | 360  |     | 301  |    
|                    
|Impairment reversals |                |      |     |      |    
|                     |                |     
|                     | North America  |      |    |      |   
|                     |                |     
|                     | North Sea      |      | 118 |      |   
|                     |                |     
|                     | Southeast Asia |      | 16  |      |   
|                     |                |     
|                     | Other          |      |    |      |   
|                    
|                     |                | 134  |     |     |    
|                    
|Net impairment       |                | 226  |     | 301  |    
|                    

During 2011, the Company recorded an impairment expense 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.

Of
the $231 million of impairments recorded in the North Sea, $102 million was a result of the change in legislation announced by the UK government in March 2011 described in the
'Income Taxes' section of this MD&A, and $129 million arose due to a reduction in year-end reserves in a field in Norway. An impairment reversal of $118 million was recorded
as a result of an increase in year-end reserves in a field in the UK.

An
impairment reversal of $16 million in Southeast Asia resulted from an increase in year-end reserves and higher oil prices.

The
Yme project in Norway has experienced significant delays and cost overruns. The project is subject to arbitration with the contractor. Management has assessed the project's recoverability based on
a range of possible startup dates, arbitration outcomes and completion costs. No impairment writedown of the Yme project was recorded during the year ended December 31, 2011. Management will
continue to assess the project's recoverability as new information becomes available. The net carrying value of Yme is approximately $800 million. The net after tax exposure is significantly
less than the net carrying value of the project.

10TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



Dry Hole Expense

|(millions of $) |  | 2011 |  | 2010 |   | 
|--------------- |  | ---- |  | ---- | - | 
|               
|North America   |  | 6    |  | (11  | ) | 
|                |  |     
|North Sea       |  | 106  |  | 70   |   | 
|                |  |     
|Southeast Asia  |  | 127  |  | 31   |   | 
|                |  |     
|Other           |  | 2    |  | 23   |   | 
|               
|                |  | 241  |  | 113  |   | 
|               

Dry hole expense includes the write off of unsuccessful exploration wells in the UK, Norway, Indonesia and Papua New Guinea.

Exploration Expense

|(millions of $) |  | 2011 |  | 2010 | 
|--------------- |  | ---- |  | ---- | 
|               
|North America   |  | 70   |  | 52   | 
|                |  |     
|North Sea       |  | 40   |  | 47   | 
|                |  |     
|Southeast Asia  |  | 208  |  | 116  | 
|                |  |     
|Other           |  | 109  |  | 159  | 
|               
|                |  | 427  |  | 374  | 
|               

Exploration expense consists of geological and geophysical costs, seismic, non-producing land lease rentals and indirect exploration expense. These
costs are expensed as incurred consistent with the successful efforts method of accounting. Exploration expense increased by $53 million relative to 2010 due principally to seismic activity in
Papua New Guinea.

Corporate and Other

|(millions of $)                                       |  | 2011 |   | 2010 |   | 
|----------------------------------------------------- |  | ---- | - | ---- | - | 
|                                                     
|G&A expense                                           |  | 431  |   | 371  |   | 
|                                                      |  |     
|Finance costs                                         |  | 278  |   | 276  |   | 
|                                                      |  |     
|Share-based payments expense (recovery)               |  | (310 | ) | 212  |   | 
|                                                      |  |     
|(Gain) loss on held-for-trading financial instruments |  | 210  |   | (87  | ) | 
|                                                      |  |     
|Gain on asset disposals                               |  | (192 | ) | (520 | ) | 
|                                                      |  |     
|Other income                                          |  | 78   |   | 107  |   | 
|                                                      |  |     
|Other expenses, net                                   |  | 161  |   | 72   |   | 
|                                                     

G&A expense was higher due in part to the running and transition costs associated with new offices in the US and Southeast Asia and the initial costs associated
with the outsourcing of certain information system functions.

Finance
costs include interest on debt, other finance charges and accretion expense relating to decommissioning liabilities. The total interest expense did not increase significantly from 2010 as the
increase in interest relating to the issuance of $600 million 3.75% notes in November 2010 and additional borrowings in the second half of 2011 was offset by the repayment of
C$350 million 4.44% medium-term notes in January 2011.

The
share-based payments recovery for the year ended December 31, 2011 was $310 million, compared to an expense of $212 million in 2010 due principally to changes in Talisman's
share price.

Talisman
recorded a loss on held-for-trading financial instruments of $210 million principally related to an increase in the Dated Brent price. See the 'Risk Management'
section of this MD&A for further details concerning the Company's financial instruments.

11TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



The 2011 gain on asset disposals arose largely from the sale of a 50% working interest in the Farrell Creek and Cypress A assets to Sasol Limited (Sasol). Refer to the 'Asset Disposals' section of
this MD&A. The gain in 2010 arose largely from the disposition of non-core North American conventional gas assets.

Other
income includes $53 million of pipeline and processing revenue.

Other
expenses includes PP&E derecognition expense, foreign exchange gains and losses, other miscellaneous expenses and a $65 million allowance for a doubtful account, which contributed to the
increase in other expenses over 2010.

Income Taxes

|                                   |                     |       |       |       |       |  
|---------------------------------- | ------------------- | ----- | ----- | ----- | ----- | -
|(millions of $)                    |                     | 2011  |       | 2010  |       |  
|                                  
|Income before taxes                |                     | 2,445 |       | 1,971 |       |  
|                                  
|Less: PRT                          |                     |       |       |       |       |  
|                                   |                     |      
|                                   | Current             |       | 121   |       | 124   |  
|                                   |                     |      
|                                   | Deferred            |       | 52    |       | (20   | )
|                                  
|Total PRT                          |                     | 173   |       | 104   |       |  
|                                  
|                                   |                     | 2,272 |       | 1,867 |       |  
|                                  
|Income tax expense                 |                     |       |       |       |       |  
|                                   |                     |      
|                                   | Current income tax  |       | 1,320 |       | 1,012 |  
|                                   |                     |      
|                                   | Deferred income tax |       | 176   |       | (90   | )
|                                  
|Income tax expense (excluding PRT) |                     | 1,496 |       | 922   |       |  
|                                  
|Effective income tax rate (%)      |                     | 66%   |       | 49%   |       |  
|                                  

The $574 million increase in income tax expense (excluding PRT) arises mainly from higher commodity prices, a legislative change in the UK and the
revaluation of Norwegian tax pools as a result of the weakening of the NOK relative to the US$.

The
effective tax rate is expressed as a percentage of income before taxes adjusted for PRT, which is deductible in determining taxable income. The Company's effective tax rate is impacted by the mix
of income before taxes between high and low rate tax jurisdictions, the revaluation of tax pools denominated in foreign currencies and other non-taxable gains and losses.

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 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. As a result of this change, the Company recorded additional current income tax expense of
$101 million and a one-time deferred income tax expense of $225 million during 2011.

Additionally,
the UK government intends to restrict tax relief for decommissioning expenditures to the 20% supplementary charge rate effective from March 21, 2012. This measure could become
substantively enacted in the second or third quarter of 2012, at which time deferred income tax expense would be recorded, estimated by management to be approximately $140 million.

12TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



Capital Expenditures

|                                 |  |       |   |        |   | 
|-------------------------------- |  | ----- | - | ------ | - | 
|(millions of $)                  |  | 2011  |   | 2010   |   | 
|                                
|North America                    |  | 2,155 |   | 1,700  |   | 
|                                 |  |      
|North Sea                        |  | 1,205 |   | 1,117  |   | 
|                                 |  |      
|Southeast Asia                   |  | 487   |   | 442    |   | 
|                                 |  |      
|Other                            |  | 295   |   | 214    |   | 
|                                
|Exploration and development      |  | 4,142 |   | 3,473  |   | 
|                                 |  |      
|Corporate, IS and Administrative |  | 159   |   | 78     |   | 
|                                 |  |      
|Acquisitions                     |  | 1,319 |   | 1,530  |   | 
|                                 |  |      
|Proceeds of dispositions         |  | (569  | ) | (2,273 | ) | 
|                                
|                                 |  | 5,051 |   | 2,808  |   | 
|                                

North America capital expenditures for the year were $2.2 billion, of which $1.8 billion related to shale activity with the majority spent on
progressing development of the Pennsylvania Marcellus, Montney and Eagle Ford programs. The remaining capital was invested in conventional oil and gas properties.

In
the North Sea, capital expenditures of $1.2 billion included $1 billion spent on development projects including Auk South and Auk North in the UK, Yme in Norway and the Claymore
replacement compression project in the UK. In addition, $128 million was spent on exploration activity, the majority of which occurred in Norway. A total of seven development wells, three
exploration wells and three appraisal wells were drilled during 2011.

In
Southeast Asia, capital expenditures of $487 million included $257 million for exploration, with the majority spent on the drilling of exploration wells in Papua New Guinea and
Indonesia, and $230 million on development, with the majority spent on development drilling in Corridor and the Jambi Merang and Kitan fields. In 2011, Talisman participated in
33 successful development wells, 14 exploration wells and two appraisal wells.

Capital
expenditures in other areas were $295 million, including $138 million on exploration activity in Colombia, Peru, Poland and the Kurdistan region of northern Iraq. Talisman also
spent $157 million on development in Colombia and Algeria. During the year, the Company participated in one exploration well, one appraisal well and nine stratigraphic wells in Colombia, one
exploration well in Peru, two exploration wells in the Kurdistan region of northern Iraq, two exploration wells in Poland and six development wells in Algeria.

Information
related to details and funding of the planned 2012 capital expenditures program is included in the 'Outlook for 2012' section of this MD&A.

ASSET DISPOSALS

Sale of Farrell Creek Interests to Sasol

In March 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 asset
disposals' on the Consolidated Statement of Income.

Sale of Cypress A Interests to Sasol

In June 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

13TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



transaction
resulted in a pre-tax gain of $113 million, which is included in 'Gain on asset disposals' on the Consolidated Statement of Income.

Asset sales completed in 2010

During 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 asset
disposals' on the Consolidated Statement of Income. Tax of $38 million was recorded in respect of these transactions.

ACQUISITIONS

During 2011, Talisman completed the acquisition of a 49% interest in Equión for cash consideration of $785 million, of which
$613 million was paid as a deposit in 2010. Since Equión is a jointly controlled entity, the Company is proportionately consolidating its interest, which is reported in the Other
segment.

Also
in 2011, the Company acquired undeveloped land in the Alberta Duvernay shale play for approximately $510 million and acquired undeveloped land in the Eagle Ford shale play for
approximately $145 million. This is in addition to the Eagle Ford acreage acquired in 2010 for cash consideration of $910 million.

During
2010, Talisman acquired a 25% interest in the Jambi Merang PSC for cash consideration of $183 million. The Company also acquired a 35% working interest in the PL378 Grosbeak
discovery and a 20% interest in the PL375 Beta discovery in Norway for $192 million in cash, with a further cash payment of $15 million occurring in 2011.

RESERVES REPLACEMENT

Disclosure Requirements

As a Canadian public company, Talisman is subject to the oil and gas disclosure requirements of National
Instrument 51-101 (NI 51-101) of the Canadian Securities Administrators. In order to provide disclosure comparable to US and international peers, Talisman also
provides disclosure in accordance with the disclosure standards of the US Securities and Exchange Commission (SEC).

SEC Reserves

Talisman's gross proved reserves, compiled in accordance with the SEC disclosure requirements using average annual prices, are
estimated as follows:

|Gross proved reserves                 |  | Oil and liquids
(mmbbls) |   | Natural gas
(bcf) |   | Total
(mmboe) |   | 
|------------------------------------- |  | ------------------------ | - | ----------------- | - | ------------- | - | 
|                                     
|At December 31, 2010                  |  | 509.7                    |   | 5,236.9           |   | 1,382.5       |   | 
|                                      |  |                         
|Discoveries, extensions and additions |  | 34.8                     |   | 1,235.5           |   | 240.7         |   | 
|                                      |  |                         
|Acquisitions and dispositions         |  | 19.2                     |   | (58.6             | ) | 9.5           |   | 
|                                      |  |                         
|Price revisions                       |  | 12.0                     |   | (26.3             | ) | 7.6           |   | 
|                                      |  |                         
|Other revisions                       |  | 7.1                      |   | (26.2             | ) | 2.7           |   | 
|                                      |  |                         
|Production                            |  | (64.8                    | ) | (543.6            | ) | (155.4        | ) | 
|                                     
|At December 31, 2011                  |  | 518.0                    |   | 5,817.7           |   | 1,487.6       |   | 
|                                     

Talisman added 243.4 mmboe of gross proved reserves compared to production of 155.4 mmboe for a replacement of 157% of 2011 production
(see calculation below). North America accounts for the largest increase in reserves as a result of the successful drilling programs in the Pennsylvania Marcellus, Montney and Eagle Ford shale
plays. Price-related revisions

14TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



increased
gross proved reserves by 7.6 mmboe, principally related to the Company's North Sea operations. At December 31, 2011, North America, Southeast Asia and the North Sea accounted
for 48%, 26% and 21%, respectively, of the Company's total gross proved reserves. Proved undeveloped reserves accounted for 37% of the Company total and 43% in North America at the end of 2011.

The
Company uses reserves replacement ratios as an indicator of its ability to replenish annual production volumes and grow its reserves. It should be noted that a reserves replacement ratio is a
statistical indicator that has limitations. As an annual measure, the ratio is limited because it typically varies widely based on the extent and timing of new discoveries, project sanctioning,
property acquisitions and average prices. Its predictive and comparative value is also limited for the same reasons. In addition, since the ratio does not take into account the cost, value or timing
of future production of new reserves, it cannot be used as a measure of value creation.

The
proved reserves replacement ratios noted above and in the 'Financial and Operating Highlights' section of this MD&A were calculated as follows:

NI 51-101 Reserves

Talisman's gross proved and probable reserves at December 31, 2011, compiled in accordance with the
NI 51-101 disclosure requirements using forecast prices, are estimated as follows:

|Total gross                    |  | Light Oil
(mmbbls) |  | Heavy Oil
(mmbbls) |  | Shale Oil
(mmbbls) |  | Shale Gas
(bcf) |  | Non-Shale
Natural
Gas (bcf) |  | NGL
(mmbbls) |  | Total
(mmboe) | 
|------------------------------ |  | ------------------ |  | ------------------ |  | ------------------ |  | --------------- |  | --------------------------- |  | ------------ |  | ------------- | 
|                              
|Proved Developed Producing     |  | 260.6              |  | 45.5               |  | 0.9                |  | 946.3           |  | 2,154.8                     |  | 42.5         |  | 866.4         | 
|                               |  |                   
|Proved Developed Non-Producing |  | 10.0               |  | 0.1                |  |                   |  | 90.8            |  | 195.1                       |  | 3.4          |  | 61.2          | 
|                               |  |                   
|Proved Undeveloped             |  | 106.9              |  | 0.1                |  | 5.5                |  | 1,639.8         |  | 901.3                       |  | 23.7         |  | 559.7         | 
|                              
|Proved                         |  | 377.5              |  | 45.7               |  | 6.4                |  | 2,676.9         |  | 3,251.2                     |  | 69.6         |  | 1,487.3       | 
|                               |  |                   
|Probable                       |  | 323.6              |  | 7.4                |  | 1.0                |  | 874.8           |  | 1,385.4                     |  | 26.3         |  | 735.0         | 
|                              
|Total Proved Plus Probable     |  | 701.1              |  | 53.1               |  | 7.4                |  | 3,551.7         |  | 4,636.6                     |  | 95.9         |  | 2,222.3       | 
|                              

Information regarding the pricing assumptions used in the preparation of the estimates of NI 51-101 reserves is set forth in
Schedule A of Talisman's AIF dated March 5, 2012.

LIQUIDITY AND CAPITAL RESOURCES

Talisman's debt at December 31, 2011 was $4.9 billion ($4.5 billion, net of cash and cash equivalents and bank indebtedness), up from
$4.2 billion ($2.6 billion, net of cash and cash equivalents and bank indebtedness) at December 31, 2010.

During
2011, the Company generated $2.8 billion of cash provided by operating activities, incurred capital expenditures of $4.3 billion and acquisition expenditures of
$893 million, and received proceeds of $527 million from the disposition of assets.

On
an ongoing basis, Talisman plans to fund its capital program and acquisitions with cash on hand, cash provided by operating activities, cash proceeds from the disposition of non-core
assets (estimated to be $1 billion to $2 billion in 2012), by drawing on the Company's credit facilities and issuing commercial paper.

15TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



On
December 5, 2011, Talisman issued 8,000,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series 1 ("Series 1 preferred shares") 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 cumulative quarterly fixed dividends of 4.2% per annum 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 first dividend to preferred shareholders of C$0.3136
per share was declared in February 2012 to be paid in April 2012.

The
Company has an active hedging program that will partially protect 2012 cash flow from the effect of declining oil prices. See the 'Risk Management' section of this MD&A for further information.

With
the exception of the $402 million of debt presented as a current liability relating to the Company's US commercial paper program discussed below, Talisman has no significant debt
maturities until 2014.

Talisman
manages 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
in accordance with the Company's debt covenant as cash provided by operating activities before adjusting for changes in non-cash working capital, exploration expenditure and amounts
attributable to assets subject to non-recourse debt), cash provided by and used in investing activities and available bank credit facilities. The debt-to-cash flow ratio is
calculated using debt (calculated by adding the gross debt and bank indebtedness, production payments and finance lease less non-recourse debt) divided by cash flow for the year.

The
Company 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. Talisman's debt-to-cash flow was 1.39:1 at
December 31, 2011 compared to 1.35:1 at December 31, 2010.

Talisman
has unsecured bank credit facilities of $4 billion that are fully committed through November 2014. The maturity date of these facilities may be extended from time to time upon
agreement between the Company and the respective lenders.

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. At December 31, 2011, the amount of commercial paper outstanding was $402 million and the average
interest rate on outstanding commercial paper was 0.6%. In addition, $648 million in the form of bankers' acceptances (C$410 million and US$245 million) was drawn on the bank
credit facilities at December 31, 2011.

Available
borrowing capacity was $3 billion at December 31, 2011.

The
Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted. Letters of credit are issued by banks under these uncommitted facilities and most are
renewed annually. At January 1, 2012, letters of credit totaling $1.6 billion had been issued under these facilities, of which $1.1 billion were provided as security for the costs
of decommissioning obligations in the UK. 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 routinely assesses the financial strength of its joint venture participants and customers, in accordance with the Company's credit risk guidelines. At this time, Talisman expects that such
counterparties will be able to meet their obligations when they become due.

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, 2011,
approximately 96% of the Company's trade accounts receivable were current and the largest single counterparty exposure, accounting for 17% 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. The maximum credit exposure associated with accounts receivable is the carrying value. A
$65 million allowance for a doubtful account ($22 million, net of tax) has been made in respect of a 2011 oil sale, which is included in 'Other expense' on the Consolidated Statement
of Income.

16TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



Talisman's
normal course issuer bid expired on December 14, 2011. During the years ended December 31, 2011 and 2010, Talisman did not repurchase any common shares under its normal course
issuer bid.

At
December 31, 2011, there were 1,031,273,751 common shares outstanding, of which 9,851,281 were held in trust by the Company (see below) resulting in
1,021,422,470 common shares outstanding for accounting purposes. Subsequent to December 31, 2011, 296,153 shares were issued pursuant to the exercise of stock options, with
1,031,569,904 common shares being outstanding at February 28, 2012, of which 9,931,281 were held in trust by the Company resulting in 1,021,638,623 common shares outstanding for
accounting purposes.

At
December 31, 2011, there were 59,092,044 stock options, 9,461,164 cash units and 11,219,027 long-term performance share units (PSUs) outstanding. Subsequent
to December 31, 2011, 61,520 stock options were granted, 296,153 were exercised for shares, 3,033 were surrendered for cash and 943,909 were forfeited, with
57,910,469 outstanding at February 28, 2012. Subsequent to December 31, 2011, 92,240 cash units were granted, 6,531 were exercised and 70,913 were forfeited with
9,475,960 outstanding at February 28, 2012. Subsequent to December 31, 2011, 64,453 long-term PSUs were granted and 137,326 were forfeited, with
11,146,154 outstanding at February 28, 2012.

The
Company may purchase shares on the open market to satisfy its obligation to deliver common shares to settle long-term PSUs, which are held in trust. During the year ended
December 31, 2011, 5,368,600 common shares were purchased on the open market for $94 million (2010  4,482,681 common shares purchased
for $81 million). Between January 1 and February 28, 2012, a further 80,000 common shares were purchased on the open market for $1 million.

Talisman
continually monitors its portfolio of assets and investigates business opportunities in the oil and gas sector. The Company may make acquisitions, investments or dispositions, some of which
may be material. In connection with any acquisition or investment, Talisman may incur debt or issue equity.

For
additional information regarding the Company's liquidity and capital resources, refer to notes 17 and 20 to the 2011 audited Consolidated Financial Statements.

SENSITIVITIES

Talisman's financial performance is affected by factors such as changes in production volumes, commodity prices and exchange rates. The estimated annualized
impact of these factors for 2012 (excluding the effect of derivative contracts) is summarized in the following table, based on a WTI oil price of approximately $80/bbl, a NYMEX natural gas price of
approximately $4.50/mmbtu and exchange rates of US$1=C$1 and UK£1=US$1.63.

|(millions of $)       |                                          | Net Income |    | Cash Provided
by Operating
Activities |     |  
|--------------------- | ---------------------------------------- | ---------- | -- | ------------------------------------- | --- | -
|                     
|Volume changes        |                                          |            |    |                                       |     |  
|                      |                                          |           
|                      | Oil  10,000 bbls/d                      |            | 60 |                                       | 130 |  
|                      |                                          |           
|                      | Natural gas  60 mmcf/d                  |            | 15 |                                       | 60  |  
|                     
|Price changes1        |                                          |            |    |                                       |     |  
|                      |                                          |           
|                      | Oil  $1.00/bbl                          |            | 20 |                                       | 35  |  
|                      |                                          |           
|                      | Natural gas (North America)2  $0.10/mcf |            | 20 |                                       | 25  |  
|                     
|Exchange rate changes |                                          |            |    |                                       |     |  
|                      |                                          |           
|                      | US$/C$ decreased by US$0.01              |            | (5 | )                                     | (5  | )
|                      |                                          |           
|                      | US$/UK£ increased by US$0.02             |            | 5  |                                       |    |  
|                     

17TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

As part of its normal business, the Company has entered into arrangements and incurred obligations that will impact the Company's future operations and
liquidity, some of which are reflected as liabilities in the Consolidated Financial Statements at year-end. The principal commitments of the Company are in the form of debt repayments,
decommissioning obligations, lease commitments relating to corporate offices and ocean-going vessels, firm commitments for gathering, processing and transmission services, minimum work commitments
under various international agreements, other service contracts and fixed price commodity sales contracts.

Additional
disclosure of the Company's decommissioning liabilities, debt repayment obligations and significant commitments can be found in notes 15, 17, 18 and 23 to the 2011 audited
Consolidated Financial Statements. A discussion of the Company's derivative financial instruments and commodity sales contracts can be found in the 'Risk Management' section of this MD&A.

The
following table includes the Company's gross long-term debt, decommissioning obligations, share-based payments, operating and finance leases, property, plant and equipment (PP&E) and
exploration and evaluation (E&E) assets commitments and other expected future payment commitments as at December 31, 2011 and estimated timing of such payments:

|                                           |  |                             |  |        |  | Payments due by period1,2 (millions of $) | 
|------------------------------------------ |  | --------------------------- |  | ------ |  | ----------------------------------------- | 
|                                           |  |                            
|Commitments                                |  | Recognized
in balance sheet |  | Total  |  | Less than
1 year                          | 
|                                          
|Gross long-term debt                       |  | Yes  Liability             |  | 4,895  |  | 410                                       | 
|                                           |  |                            
|Decommissioning liabilities3               |  | Yes  Partially accrued     |  | 5,035  |  | 53                                        | 
|                                           |  |                            
|Office leases                              |  | No                          |  | 257    |  | 52                                        | 
|                                           |  |                            
|Vessel leases                              |  | No                          |  | 667    |  | 243                                       | 
|                                           |  |                            
|Finance lease obligations                  |  | Yes  Partially accrued     |  | 114    |  | 18                                        | 
|                                           |  |                            
|Transportation and processing commitments4 |  | No                          |  | 1,564  |  | 260                                       | 
|                                           |  |                            
|PP&E and E&E assets5                       |  | No                          |  | 1,475  |  | 991                                       | 
|                                           |  |                            
|Other service contracts                    |  | No                          |  | 520    |  | 204                                       | 
|                                           |  |                            
|Share-based payments6                      |  | Yes  Liability             |  | 244    |  | 230                                       | 
|                                          
|Total                                      |  |                             |  | 14,771 |  | 2,461                                     | 
|                                          

There have been no significant changes in the Company's expected future payment commitments, and the timing of those payments, since December 31, 2011. A
finance lease relating to the Yme project will be recorded upon first oil production.

18TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



TRANSACTIONS WITH RELATED PARTIES

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

|                                           |  |      |  |      | 
|------------------------------------------ |  | ---- |  | ---- | 
|(millions of $)                            |  | 2011 |  | 2010 | 
|                                          
|Short-term benefits                        |  | 15   |  | 14   | 
|                                           |  |     
|Pension and other post-employment benefits |  | 5    |  | 4    | 
|                                           |  |     
|Termination benefits                       |  | 4    |  |     | 
|                                           |  |     
|Share-based payments1                      |  | 11   |  | 15   | 
|                                          
|                                           |  | 35   |  | 33   | 
|                                          

There were no other transactions with related parties.

RISK MANAGEMENT

Talisman monitors the Company's exposure to variations in commodity prices, interest rates and foreign exchange rates. In response, Talisman periodically enters
into physical delivery transactions for commodities of fixed or collared prices and into derivative financial instruments to reduce exposure to unfavourable movements in commodity prices, interest
rates and foreign exchange rates. The terms of these contracts or instruments may limit the benefit of favourable changes in commodity prices, interest rates and currency values and may result in
financial or opportunity loss due to delivery commitments, royalty rates and counterparty risks associated with contracts.

The
Company has established a system of internal controls to minimize risks associated with its derivatives program and credit risk associated with derivatives counterparties.

The
accounting policy with respect to derivative financial instruments and commodity sales contracts is set out in note 3(p) to the Consolidated Financial Statements. Derivative
financial instruments and commodity sales contracts outstanding at December 31, 2011, including their respective fair values, are detailed in note 22 to the Consolidated Financial
Statements.

The
Company has elected not to designate as hedges for accounting purposes any commodity price derivative contracts entered into. These derivatives are classified as
held-for-trading financial instruments and are measured at fair value with changes in fair value recognized in net income quarterly. This can potentially increase the
volatility of net income.

Commodity Price Derivative Financial Instruments

The Company had the following commodity price derivative contracts outstanding at December 31, 2011, none of which are
designated as a hedge:

|Two-way collars       |  | Term         |  | bbls/d |  | Floor/ceiling $/bbl | 
|--------------------- |  | ------------ |  | ------ |  | ------------------- | 
|                     
|Dated Brent oil index |  | Jan-Dec 2012 |  | 20,000 |  | 90.00/148.36        | 
|                      |  |             
|Dated Brent oil index |  | Jan-Jun 2012 |  | 9,000  |  | 90.00/126.93        | 
|                      |  |             
|Dated Brent oil index |  | Jan-Jun 2012 |  | 11,000 |  | 90.00/155.16        | 
|                      |  |             
|Dated Brent oil index |  | Jan-Jun 2012 |  | 10,000 |  | 90.00/123.08        | 
|                      |  |             
|Dated Brent oil index |  | Jul-Dec 2012 |  | 7,000  |  | 90.00/119.26        | 
|                     

Subsequent to December 31, 2011, the Company entered into a Dated Brent two-way collar of 3,000 bbls/d for the second half of 2012
with a floor of $90/bbl and a ceiling of $121.35/bbl.

Further
details of contracts outstanding are presented in note 22 to the Consolidated Financial Statements.

19TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



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.

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), Singapore
Power and PGN (West Java). Under two sales agreements with Chevron, natural gas sales are at a price equal to 76% of the equivalent value of the Indonesia Crude Price for Duri crude oil. The minimum
volume commitment under this contract is approximately 346 bcf over the remaining 10-year life of the contract. Under the agreement with Singapore Power, sales to Singapore from
Corridor are referenced to the spot price of high sulphur fuel oil in Singapore. The minimum volume commitment is approximately 190 bcf over the remaining 12-year life of the
contract. Sales from Corridor to PGN for their market in West Java are under
long-term contract at a price of approximately $1.91/mcf, with no associated transportation costs. The minimum volume commitment is approximately 650 bcf over the remaining
12-year life of the contract.

The
Company is subject to volume delivery requirements for approximately 100 mmcf/d at prices 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.

Interest Rate Swap

In order to swap a portion of the $375 million 5.125% notes due 2015 to floating interest rates, the Company entered into
fixed to floating interest rate swap contracts with a total notional amount of $300 million that expire on May 15, 2015. These swap contracts require Talisman to pay interest at a rate
of three-month US$ LIBOR plus 0.433% while receiving payments of 5.125% semi-annually.

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 5.05% 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.

20TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



SUMMARY OF QUARTERLY RESULTS

The following is a summary of quarterly results of the Company for the eight most recently completed quarters.

|                                         |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|---------------------------------------- | -------------------------------------------------- | ------ | ----- | ------------------ | ----- | ------- | ----- | ------- | ----- | ------- | ----- | -
|                                         |                                                    |        |       | Three months ended |       |        
|                                         |                                                    |       
|(millions of $, unless otherwise stated) |                                                    | Annual |       | Dec. 31            |       | Sep. 30 |       | Jun. 30 |       | Mar. 31 |       |  
|                                        
|2011                                     |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|                                         |                                                    |       
|Total revenue and other income           |                                                    | 8,272  |       | 2,082              |       | 1,956   |       | 2,234   |       | 2,000   |       |  
|                                        
|Net income (loss)                        |                                                    | 776    |       | (117               | )     | 521     |       | 698     |       | (326    | )     |  
|                                        
|Per common share ($)                     |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|                                         |                                                    |       
|                                         | Net income (loss)                                  |        | 0.76  |                    | (0.11 | )       | 0.51  |         | 0.68  |         | (0.32 | )
|                                         |                                                    |       
|                                         | Diluted net income (loss)1                         |        | 0.38  |                    | (0.11 | )       | 0.24  |         | 0.50  |         | (0.32 | )
|                                        
|Daily average production                 |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|                                         |                                                    |       
|                                         | Oil and liquids from ongoing operations (mbbls/d)2 |        | 178   |                    | 180   |         | 161   |         | 175   |         | 197   |  
|                                         |                                                    |       
|                                         | Natural gas from ongoing operations (mmcf/d)       |        | 1,491 |                    | 1,572 |         | 1,435 |         | 1,470 |         | 1,484 |  
|                                         |                                                    |       
|                                         | From ongoing operations (mboe/d)                   |        | 426   |                    | 442   |         | 400   |         | 420   |         | 444   |  
|                                        
|                                         | Total (mboe/d)                                     |        | 426   |                    | 442   |         | 400   |         | 420   |         | 444   |  
|                                        
|2010                                     |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|                                         |                                                    |       
|Total revenue and other income           |                                                    | 6,982  |       | 1,863              |       | 1,683   |       | 1,600   |       | 1,836   |       |  
|                                        
|Net income (loss)                        |                                                    | 945    |       | (350               | )     | 352     |       | 572     |       | 371     |       |  
|                                        
|Per common share ($)                     |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|                                         |                                                    |       
|                                         | Net income (loss)                                  |        | 0.93  |                    | (0.34 | )       | 0.35  |         | 0.56  |         | 0.36  |  
|                                         |                                                    |       
|                                         | Diluted net income (loss)1                         |        | 0.93  |                    | (0.34 | )       | 0.35  |         | 0.50  |         | 0.30  |  
|                                        
|Daily average production                 |                                                    |        |       |                    |       |         |       |         |       |         |       |  
|                                         |                                                    |       
|                                         | Oil and liquids from ongoing operations (mbbls/d)2 |        | 186   |                    | 190   |         | 175   |         | 177   |         | 201   |  
|                                         |                                                    |       
|                                         | Natural gas from ongoing operations (mmcf/d)       |        | 1,225 |                    | 1,313 |         | 1,282 |         | 1,172 |         | 1,130 |  
|                                         |                                                    |       
|                                         | From ongoing operations (mboe/d)                   |        | 390   |                    | 409   |         | 389   |         | 372   |         | 389   |  
|                                         |                                                    |       
|                                         | Assets sold (mboe/d)                               |        | 27    |                    | 8     |         | 15    |         | 39    |         | 46    |  
|                                        
|                                         | Total (mboe/d)                                     |        | 417   |                    | 417   |         | 404   |         | 411   |         | 435   |  
|                                        

During the three-month period ended December 31, 2011, total revenue and other income increased by $219 million over the same period in 2010 due
principally to increased commodity prices. The net loss decreased by $233 million due principally to
the revenue variance, as well as a decrease in taxes and a decrease in share-based payments expense partially offset by an increase in operating expenses and DD&A.

Also,
during the three-month period ended December 31, 2011, the Company:

21TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---





OUTLOOK FOR 2012

Talisman expects exploration and development capital spending to be approximately $4 billion in 2012, a decrease of approximately $500 million
from 2011. This reflects a reduction in dry gas expenditure of between $500 million and $600 million and increased spending of $350 million on identified liquids projects.
Talisman also expects a reduction in exploration spending in 2012, with greater emphasis on oil and oil-linked opportunities, with shorter term monetization options. In 2012, Talisman will
be looking to sell between $1 billion to $2 billion of non-core assets.

The
Company expects production growth of up to 5% in 2012 relative to 426,000 boe/d produced in 2011.

North America

Talisman is shifting focus to the liquids-rich opportunities within its portfolio. Talisman expects to grow the Company's
liquids production in North America from approximately 25,000 bbls/d in 2012 to over 60,000 bbls/d by 2015.

Capital
spending in North America is expected to be approximately $1.8 billion in 2012, which is approximately $400 million lower than 2011, primarily as a result of reducing
expenditures on dry gas plays. Over 40% of the program will focus on liquids-rich opportunities. Production from the shale portfolio is expected to range between 630-660
mmcfe/d (105,000-110,000 boe/d).

Spending
in the liquids-rich Eagle Ford play in Texas is expected to increase from $350 million in 2011 to approximately $500 million in 2012. The Company plans to ramp up
the development of the liquids-rich areas and expects to exit 2012 with 14 rigs, up from 10 at the end of 2011.

In
the Pennsylvania Marcellus play, in light of current gas prices, Talisman may reduce activity from 10 operating rigs at year-end to as few as three rigs over the course of 2012.
Production is expected to remain relatively flat going forward as Talisman expects to reduce activity in light of natural gas prices. Spending in the Pennsylvania Marcellus is expected to be upwards
of $600 million, with significant investment in infrastructure in new parts of the play.

With
a four-rig program planned this year, Talisman plans to reduce activity in the Montney play in British Columbia in order to allocate more capital to liquids-rich
opportunities. Talisman plans to drill at least six wells as it continues to pilot the liquids-rich Duvernay shale play in Alberta.

Spending
in the conventional portfolio is expected to range between $300 million and $350 million, with production relatively flat at 80,000 boe/d, of which 25% is expected to be
liquids. Approximately one-third of spending is planned for the liquids-rich Wild River play in Alberta.

Talisman
will continue to actively focus its North American conventional portfolio, which could result in the disposition of certain non-core assets. In other areas, Talisman may seek to
use third party expertise or resources to accelerate activity and optimize value.

North Sea

Talisman will focus on making improvements in overall operating efficiency in the North Sea. Most of Talisman's production in the
North Sea is liquids and the region provided over $600 million of cash to the business in 2011.

Cash
capital spending in the North Sea is expected to be $1.2 billion in 2012, roughly the same as 2011. Talisman expects to spend $800 million in the UK, where the major projects are
the Monarb and Auk South field redevelopments. Talisman will also continue upgrades to the Claymore platform to increase operating efficiency and drill development wells at Tweedsmuir and Clyde. In
Norway, there are a number of infill wells planned at Brage, Veslefrikk, Gyda and Rev.

22TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



Talisman
expects to continue to invest in its North Sea portfolio to ensure the integrity of installations and to secure the cash flow it generates, but will also seek to reduce exposure somewhat to
this mature and relatively volatile business over time, through possible asset sales or farm-out arrangements.

Southeast Asia

Southeast Asia is a self-funding growth area with the majority of Talisman's gas contracts linked to oil price
benchmarks.

Spending
in Southeast Asia is expected to range between $600 million and $700 million in 2012, including exploration, with over two-thirds of this directed towards
development activities. Production averaged approximately 119,000 boe/d in 2011 and is expected to increase slightly in 2012, with a full year of contribution from the Kitan and Jambi Merang
fields. The region is expected to deliver, on average, 8% compound annual production growth over the next few years through currently identified projects.

In
Vietnam, Talisman sanctioned the offshore HST/HSD development late in 2011, with first oil expected in the second half of 2013.

Elsewhere
in the region, there are a number of projects planned at the Corridor field in Indonesia, and Talisman plans to continue its infill drilling program at PM-3 CAA, offshore
Malaysia/Vietnam.

International Exploration

A principal focus of the exploration program in 2012 is expected to be Colombia, where production is expected to be
15,000  16,000 boe/d, and where Talisman is in the process of moving two fields from the evaluation phase into commerciality.

The
exploration budget for 2012 is $600 million, of which one-quarter is planned to be spent in Latin America. The plan is to drill over 10 exploration, appraisal and
stratigraphic wells in Colombia this year for $150 million. Talisman has a well in the Akacias field on long-term test producing at 1,500-1,600 bbls/d and one
additional well that is encouraging, but which has not yet been tested. An additional $150 million is to be spent on development, for a total capital expenditure of $300 million
in Colombia.

In
Block CPE-6, Talisman completed a six-well stratigraphic program in 2011 and has commenced a second six-well stratigraphic/appraisal well program in 2012.
Talisman has two active rigs in the Piedemonte Block and expects to sanction the Piedemonte expansion by mid-year. In the Foothills region, Talisman expects to complete the drilling of the
Huron-2 appraisal well and spud the Huron-3 appraisal well.

There
are 10 wells planned for Southeast Asia in 2012, which includes one well drilling over year-end 2011. These wells support ongoing gas aggregation in Papua New Guinea
and new opportunities in Vietnam and Malaysia. In February 2012, the Company secured Mitsubishi Corporation as a partner in its strategy to aggregate
2  4 tcf of gas in Papua New Guinea, with a view to potential LNG exports of up to three million tonnes per year.

Exploration
and appraisal wells are also planned in the North Sea, Peru, Poland and the Kurdistan region of northern Iraq.

INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES

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 (the Exchange Act).

Management,
including the Company's Chief Executive Officer and Chief Financial Officer, 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.

Based on management's assessment as at December 31, 2011, management has concluded that the Company's internal control over financial reporting is effective.

23TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



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, 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.

Because
of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company's financial statements would be
prevented or detected. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is
subject to the risks that controls may become inadequate.

The
adoption of IFRS impacts Talisman's presentation of financial results and accompanying disclosures. The Company has evaluated the impact of the adoption of IFRS on its processes, controls and
financial reporting systems and has made modifications to its control environment accordingly. There have been no significant changes in Talisman's internal control over financial reporting during the
year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Effective
January 1, 2012, Talisman implemented a new integrated finance and supply chain application in its North American business and corporate function. The implementation of this new
application was not in response to any deficiency in the Company's internal controls, but is the first phase of a project to standardize applications globally.

Disclosure Controls and Procedures

At the end of the period covered by this MD&A, an evaluation was carried out under the supervision of, and with the participation of,
the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures
(as defined in rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the design and operation of these disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files with or
submits to the Canadian Securities Administrators and the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods required.

Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions,
as appropriate, to allow timely decisions regarding required disclosure.

It
should be noted that while the Company's Chief Executive Officer and Chief Financial Officer believe, with reasonable assurance, that the Company's disclosure controls and procedures are effective,
they do not expect that the Company's disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.

LITIGATION

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 expected to have a material
impact on the Company's financial position.

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

24TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



General
in the investigation. No enforcement action has been taken against Talisman, nor has the Company been advised that any enforcement action is imminent.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect reported assets and liabilities, disclosures of
contingencies and revenues and expenses. Management is also required to adopt accounting policies that require the use of significant estimates and judgment. Actual results could differ materially
from those estimates. A summary of significant accounting policies adopted by Talisman can be found in note 3 to the Consolidated Financial Statements. In assisting the Company's Audit
Committee to fulfil its financial statement oversight role, management regularly meets with the Committee to review the Company's significant accounting policies, estimates and any significant changes
thereto, including those discussed below.

Management
believes the most critical accounting policies, including judgments in their application, which may have an impact on the Company's financial results, relate to the accounting for PP&E, E&E
assets, decommissioning liabilities, the recognition of assets acquired and liabilities assumed upon a business combination and goodwill. The rate at which the Company's assets are depleted,
depreciated or otherwise written off and the decommissioning liabilities provided for, with the associated accretion expensed to the income statement, are subject to a number of estimates about future
events, many of which are beyond management's control. Reserves recognition is central to much of an oil and gas company's accounting, as described below.

Reserves Recognition

Underpinning Talisman's estimates and judgments regarding oil and gas assets and goodwill are its oil and gas reserves. Detailed
rules and industry practice, to which Talisman adheres, have been developed to provide uniform reserves recognition criteria. However, the process of estimating oil and gas reserves is inherently
judgmental. There are two principal sources of uncertainty: technical and commercial. Technical reserves estimates are made using available geological and reservoir data as well as production
performance data. As new data becomes available, including actual reservoir performance, reserves estimates may change. Reserves can also be classified as proved or probable with decreasing levels of
certainty as to the likelihood that the reserves will be ultimately produced.

Reserves
recognition is also impacted by economic considerations. In order for reserves to be recognized, they must be reasonably certain of being produced under existing economic and operating
conditions, which is viewed as being annual average commodity prices determined by the prices in effect on the first day of each month with a cost profile based on current operations
(SEC requirements) or forecast prices and cost assumptions (NI 51-101 requirements). Any anticipated changes in conditions must have reasonable certainty of
occurrence. In particular, in international operations, consideration includes the status of field development planning and gas sales contracts. As economic conditions change, primarily as a result of
changes in commodity prices and, to a lesser extent, operating and capital costs, marginally profitable production, typically experienced in the later years of a field's life cycle, may be added to
reserves or, conversely, may no longer qualify for reserves recognition.

The
Company's reserves and revisions to those reserves, although not separately reported on the Company's balance sheet or income statement, impact the Company's reported assets, liabilities and net
income through the DD&A of the Company's PP&E, impairments and the provision for decommissioning liabilities.

The
Reserves Committee of Talisman's Board of Directors reviews the Company's reserves booking process and related public disclosures and the report of the internal qualified reserves evaluator
(IQRE). The primary responsibilities of the Reserves Committee include, among other things, reviewing the Company's reserves booking process and recommending to the Board of Directors the Company's
annual disclosure of reserves data and other oil and gas information contained in the Company's AIF. The IQRE reports the Company's annual reserves data to the Reserves Committee and delivers a
regulatory certificate regarding proved and probable reserves and their related future net revenue, disclosed pursuant to NI 51-101 requirements.

25TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Depreciation, Depletion and Amortization Expense (DD&A)

A significant portion of the Company's PP&E is amortized based on the unit of production method with other assets being depreciated
on a straight-line basis over their expected useful lives. The unit of production method attempts to amortize the asset's cost over its proved oil and gas reserves base. Accordingly, revisions to
reserves or changes to management's view as to the operational lifespan of an asset will impact the Company's future DD&A expense. Depletion and depreciation rates are updated in each reporting period
that a significant change in circumstances, including reserves revisions, occurs.

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.

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

E&E
assets are not subject to DD&A.

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
value 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. 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
depreciation, had no impairment loss been recognized for the CGU in prior periods. Such a reversal is recognized in net income, following which the depreciation charge is adjusted in future periods to
allocate the CGU's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

In
estimating the possible impairment to PP&E, management estimates fair value based on market information, which consists of offers to purchase the asset or comparable assets, independent market
surveys and values derived from exchange-quoted prices. Where reliable market information is not available, the recoverable amount was determined using cash flow projections that were based on a
long-term view of commodity prices and a post-tax discount rate of 10%.

During
the year, the Company recorded a net impairment of oil and gas assets of $226 million (2010  $301 million).

Goodwill Impairments

Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and
liabilities assumed in a business combination. Goodwill is tested for impairment annually and when circumstances indicate that the carrying value 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, except for locations within the 'Other' segment, which are allocated to the

26TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



relevant
countries. Impairment is determined for goodwill by assessing the recoverable amount (based on fair value less costs to sell) of each segment to which the goodwill relates. Where the
recoverable amount of the segment is less than the carrying amount, an impairment loss is recognized. Goodwill impairment losses cannot be reversed. No impairment of goodwill was recorded during
the year.

Business Combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred at acquisition date fair value. When the Company acquires a business, it assesses the 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. The Company allocates the purchase price to identifiable assets and liabilities based
on their fair value. In many cases, the determination of fair value requires management to make certain assumptions and estimates regarding future events. Typically in determining fair value,
management develops a number of possible future cash flow scenarios to which probabilities are judgmentally assigned. The acquired assets and liabilities may span multiple geographical segments and
may be amortized at different rates, or not at all as in the case of goodwill or, initially, for acquired probable reserves.

Transaction
costs include stamp duty, consulting fees (e.g. legal, accounting and valuation fees) and other integration costs and are expensed as incurred.

Decommissioning Liabilities

Decommissioning liabilities are measured based on the estimated cost of abandonment discounted to its net present value using a
weighted average credit-adjusted risk free rate. At December 31, 2011, the net
present value of the Company's decommissioning liability was $3.0 billion (2010  $2.6 billion) and is recorded as a liability on the Company's
balance sheet. In determining the net present value of the Company's decommissioning liability, management developed a number of possible remediation scenarios to which probabilities were assigned
based on management's reasonable judgment. The undiscounted decommissioning obligations were estimated at $5.0 billion at December 31, 2011
(2010  $4.5 billion), which is based on management's probability weighted estimate of costs and is in accordance with existing legislation and industry
practice. 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 current weighted average credit-adjusted risk free rate of 5.1%
(2010  5.3%).

The
completion of the Equión acquisition resulted in the assumption of decommissioning liabilities having a net present value of $25 million.

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 incurring
these costs. As an indication of possible future changes in estimated decommissioning liabilities, if all of the Company's decommissioning obligations could be deferred by one year, the
net present value of the liabilities would decrease by approximately $85 million.

Income Taxes

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 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. 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

27TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



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.

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. Based on expectations for the future and available tax-planning strategies, management expects remaining deferred tax assets will be realized as offsets to reversing
deferred tax liabilities and as offsets to the tax consequences of future taxable income.

The
determination of the income tax provision is an inherently complex process, requiring management to interpret continually changing regulations and to make certain judgments. Issues in dispute for
audited years and audits for subsequent years are ongoing and in various stages of completion in the jurisdictions in which the Company operates around the world. As a consequence, the balance in
unrecognized tax benefits can be expected to fluctuate from period to period. It is reasonably possible that such changes could be significant when compared with the Company's total unrecognized tax
benefits. However, the amount of change cannot be quantified.

Foreign Exchange Accounting

Talisman's worldwide operations expose the Company to transactions denominated in a number of different currencies, which are
required to be translated into one currency for financial statement reporting purposes. Talisman's foreign currency translation policy, as detailed in note 3(n) to the Consolidated
Financial Statements, is designed to reflect the economic exposure of the Company's operations to the various currencies. The Company's functional currency is US$, a reflection of Talisman's overall
exposure to US$ denominated transactions, assets and liabilities; oil prices are largely denominated in US$ as is much of the Company's corporate debt and international capital spending and operating
costs.

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 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 remain in accumulated other comprehensive income until Talisman reduces its net investment in its UK subsidiary. 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 Statement 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. The reduction of the net investment in the Canadian subsidiary that occurred during 2010 is described in
note 4.9 to the Consolidated Financial Statements.

The
remaining 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.

Effective
from the first quarter of 2011, the Company is reporting its financial position and results of operations in US$. The impact of changing the reporting currency from C$ to US$ is presented in
note 4 to the Consolidated Financial Statements.

28TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Production Sharing Contract (PSC) Arrangements

A significant portion of the Company's operations outside North America and the North Sea are governed by PSCs. Under PSCs, Talisman,
along with other working interest holders, typically bears all risk and costs for exploration, development and production. In return, if exploration is successful, Talisman recovers the sum of its
investment and operating costs (cost oil) from a percentage of the production and sale of the associated hydrocarbons. Talisman is also entitled to receive a share of the production in excess of cost
oil (profit oil). The sharing of profit oil varies between the working interest holders and the government from contract to contract. The cost oil, together with the Company's share of profit oil,
represents Talisman's hydrocarbon entitlement (working interest less royalties). Talisman records gross production, sales and reserves based on its working interest ownership with sales disclosed net
of royalties. In addition, certain of the Company's contractual arrangements in foreign jurisdictions stipulate that income tax payments are to be withheld from the Company and paid to the government
out of the respective national oil company's entitlement share of production. The Company includes such amounts in income tax expense at the statutory tax rate in effect at the time
of production.

The
amount of cost oil required to recover Talisman's investment and costs in a PSC is dependent on commodity prices and, consequently, Talisman's share of profit oil is also impacted. Accordingly,
the amount of royalty paid by Talisman over the term of a PSC and the corresponding net after royalty reserves booked by the Company are dependent on the amount of initial investment and past costs
yet to be recovered and anticipated future costs, commodity prices and production. As a result, when year-end prices increase, the amount of net reserves after royalty the Company books
may decrease and vice versa.

Risk Management

The Company enters into derivative financial instruments in order to manage risks associated with fluctuations in commodity prices,
interest rates and foreign currency exchange rates. As detailed in Talisman's
financial instruments accounting policy described in note 3(p) to the Consolidated Financial Statements, derivative instruments are recorded at fair value on the Consolidated Balance
Sheets. Gains or losses on financial instruments are recognized as hedging gains or losses or held-for-trading gains or losses in net income. Fair values are determined based
on third party market information and are subject to a degree of uncertainty. Estimates of fair value are subject to change with fluctuations in commodity prices, interest rates, foreign currency
exchange rates and estimates of non-performance risk. Cash settlement of derivative financial instruments may vary from fair value estimates, depending on the underlying market prices at
the date of settlement.

IFRS FIRST-TIME ADOPTION

Talisman's Consolidated Financial Statements as at and for the years ended December 31, 2011 and 2010 represent the first annual financial statements of
Talisman prepared in accordance with IFRS, as issued by the IASB and interpretations of the IFRIC effective at December 31, 2011. Previously, Talisman prepared its annual Consolidated Financial
Statements in accordance with Canadian GAAP then applicable to publicly accountable enterprises (CGAAP).

Since
this is Talisman's initial year presenting its results and financial position under IFRS, the Consolidated Financial Statements have been prepared in accordance with IFRS 1 First-Time Adoption of IFRS.

The
adoption of IFRS does not impact the underlying economics of Talisman's operations or its cash flows. The most significant impacts of adoption are from the application of new accounting policies
that reset the Company's balance sheet, in particular, the election to use the IFRS 1 fair value as deemed cost exemption, and changes in the accounting for impairments, income taxes,
decommissioning liabilities and share-based payments.

The
Company's significant accounting policies under IFRS are described in note 3 to the Consolidated Financial Statements.

IFRS 1 Exemptions

The general principle to be applied on first-time adoption of IFRS is that standards in force at the first reporting date
(December 31, 2011) should be applied as at the date of transition to IFRS (January 1, 2010) and throughout all periods

29TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

---



presented
in the first IFRS financial statements. However, IFRS 1 contains a number of exemptions that companies are permitted to apply. Talisman elected to apply the following exemptions:

Reconciliation from Canadian GAAP to IFRS

In preparing the Consolidated Financial Statements, the Company adjusted amounts reported previously in its Consolidated Financial
Statements prepared under Canadian GAAP. An explanation of how the transition from Canadian GAAP to IFRS affected the Company's financial position, results of operations and cash flows, including the
reconciliations required by IFRS 1, is presented in note 4 to the Consolidated Financial Statements. Summaries of the impacts of IFRS adoption on the Company's financial position
at January 1, 2010 and its financial results for the year ended December 31, 2010 follow.

Impact on Financial Position at January 1, 2010

The following table summarizes the adjustments made to report the Company's financial position in US$ and to reset the opening balance sheet at
January 1, 2010 on adoption of IFRS:

|                                         |  | CGAAP  |  | IFRS adjustments &
reclassifications |  | IFRS   |  
|---------------------------------------- |  | ------ |  | ------------------------------------ |  | ------ | -
|(millions of $)                          |  | C$     |  | US$                                  |  | US$    |  
|                                        
|Current assets                           |  | 3,154  |  | 3,013                                |  | 31     |  
|                                         |  |       
|Long-term assets                         |  | 20,464 |  | 19,552                               |  | (2,608 | )
|                                        
|Total assets                             |  | 23,618 |  | 22,565                               |  | (2,577 | )
|                                        
|Current liabilities                      |  | 2,601  |  | 2,485                                |  | 214    |  
|                                         |  |       
|Long-term liabilities                    |  | 9,906  |  | 9,463                                |  | (1,021 | )
|                                         |  |       
|Shareholders' equity                     |  | 11,111 |  | 10,617                               |  | (1,770 | )
|                                        
|Total liabilities & shareholders' equity |  | 23,618 |  | 22,565                               |  | (2,577 | )
|                                        

Shareholders' equity at the time of adoption of IFRS decreased by approximately $1.8 billion as a result of the after tax impact of adjustments to the
opening balance sheet being recorded in retained earnings. These adjustments comprise approximately $1.2 billion for the fair value as deemed cost election, a significant portion of which
related to assets sold during 2010, and

30TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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impairment
of E&E assets, and approximately $0.6 billion relating to derecognition of capitalized borrowing costs, decommissioning, share-based payments, employee benefits and
deferred taxes.

Total
assets decreased by $2.6 billion as a result of electing to measure certain of the Company's properties at fair value and, where permitted, deeming these fair values as cost
($1.7 billion), impairments of E&E assets ($0.2 billion), changes to the cost component of PP&E relating to the Company's decommissioning liabilities ($0.2 billion), derecognizing
capitalized borrowing costs recorded under Canadian GAAP ($0.2 billion), as well as removing the tax adjustment from PP&E previously recorded for historical asset acquisitions under Canadian
GAAP, which is not permitted under IFRS ($0.3 billion).

Current
liabilities increased by approximately $0.2 billion due to the IFRS requirement to measure cash-settled share-based payments at fair values rather than the intrinsic method
permitted under Canadian GAAP.

Long-term
liabilities decreased by approximately $1 billion, largely as a result of the deferred tax effect of other IFRS adjustments, deferred income tax adjustments required for
historical asset acquisitions and other changes in the accounting methodology for deferred tax and PRT.

Impact on Financial Results for the Year Ended December 31,
2010

The following table summarizes the adjustments made to Consolidated Statement of Income for the year ended
December 31, 2010:

|                                    |  | CGAAP |  | IFRS adjustments &
reclassifications |  | IFRS |  
|----------------------------------- |  | ----- |  | ------------------------------------ |  | ---- | -
|(millions of $)                     |  | C$    |  | US$                                  |  | US$  |  
|                                   
|Total revenue                       |  | 6,912 |  | 6,715                                |  | 267  |  
|                                    |  |      
|Total expenses                      |  | 5,613 |  | 5,465                                |  | (454 | )
|                                   
|Income before taxes                 |  | 1,299 |  | 1,250                                |  | 721  |  
|                                    |  |      
|Taxes                               |  | 891   |  | 868                                  |  | 158  |  
|                                   
|Income from continuing operations   |  | 408   |  | 382                                  |  | 563  |  
|                                    |  |      
|Income from discontinued operations |  | 240   |  | 231                                  |  | (231 | )
|                                   
|Net income                          |  | 648   |  | 613                                  |  | 332  |  
|                                   

The resetting of the Company's balance sheet under IFRS, which primarily impacted PP&E and the liabilities for decommissioning, share-based payments and
deferred income tax, in conjunction with other changes in accounting policies under IFRS increased the Company's previously reported net income for the year ended December 31, 2010 by
$332 million.
The changes in accounting policies under IFRS decreased DD&A and accretion expense ($266 million) and increased gain on asset disposals ($395 million), offset by increased impairments
($186 million) and increased tax expenses ($158 million). The remaining balance relates to other adjustments increasing net income by $15 million.

IMPACT OF IFRS ADOPTION ON ACCOUNTING POLICIES AND ESTIMATES

The following critical accounting policies and significant estimates have been impacted by the adoption of IFRS:

Asset Impairments

Under IFRS, impairment assessments are based primarily on the recoverable amount of the asset, which is determined based on
discounted cash flows. Previously under Canadian GAAP, only if an asset's estimated undiscounted future cash flows were below its carrying value was a determination required of the amount of any
impairment based on discounted cash flows.

As
a result of these accounting changes, the Company recorded impairments of $209 million under IFRS at January 1, 2010 relating to E&E assets. The Company recorded additional
impairments of $186 million under IFRS for the year ended December 31, 2010. In North America, $66 million was recorded in respect of natural gas assets primarily as a result of
the

31TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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decline
in natural gas price assumptions. In the North Sea, $99 million was recorded as a result of a change in reserves estimates relating to PP&E, a change in the estimated timing of cash
flows relating to oil and gas E&E assets and changes in investment decisions. In Southeast Asia, $21 million was recorded relating to oil assets due to an increase in estimated future costs.
The carrying values of these assets were previously supported under Canadian GAAP on an undiscounted cash flow basis. The impairments are subject to future reversal if certain criteria are met.

In
estimating the adjustments to PP&E and E&E assets at the time of adoption of IFRS, management estimated fair value based on market information, which consisted of offers to purchase the asset or
comparable assets, independent market surveys and values derived from exchange-quoted prices. Where reliable market information was not available, the recoverable amount was determined using cash flow
projections that were based on a long-term view of commodity prices and a post-tax discount rate of 10% at January 1, 2010 and December 31, 2010.

Business Combinations and Asset Acquisitions

The principal impacts of the adoption of IFRS on Talisman's accounting for business combinations and asset acquisitions arise from
the accounting for contingent liabilities, contingent consideration and transaction costs.

a) Contingent Liabilities

Contingent liabilities are liabilities that may have to be recognized in the future, contingent upon the occurrence of certain events (e.g. a potential
liability resulting from legal proceedings). Under IFRS, Talisman must recognize a contingent liability based on fair value at acquisition date if a present obligation arises from a past event,
regardless of how likely it is. Previously under Canadian GAAP, contingencies were not recognized on acquisition unless they could be reasonably estimated and were likely to be realized. The adoption
of IFRS did not result in contingent liabilities being recorded in connection with the Jambi Merang acquisition that closed in January 2010.

b) Contingent Purchase Consideration

In some business combinations, part of the purchase consideration is contingent upon the occurrence of certain events or satisfaction of performance hurdles.
Under IFRS, contingent purchase consideration made as part of a business combination must be fair valued and recognized at the acquisition date, regardless of whether uncertainties over the timing and
amount of the contingencies are resolved. Previously under Canadian GAAP, contingent consideration was not recognized until the contingency was resolved and the consideration became payable. There was
no contingent purchase consideration in connection with the Jambi Merang acquisition.

c) Transaction Costs

Transaction costs include stamp duty, consulting fees (e.g. legal, accounting and valuation fees) and other integration costs. Under IFRS, all such costs
must be expensed as incurred. Previously under Canadian GAAP, transaction costs were capitalized. The transaction costs incurred in connection with the Equión and Jambi Merang
acquisitions were expensed when incurred under IFRS.

Decommissioning Liabilities

Decommissioning liabilities (formerly asset retirement obligations under Canadian GAAP) are measured based on the estimated cost of
abandonment discounted to its net present value. Under Canadian GAAP, the current discount rate was applied only to new obligations and upward revisions, whereas the entire liability is recalculated
using the current discount rate under IFRS. As a result, the Company recorded a decrease of $83 million at January 1, 2010 (December 31,
2010  $301 million increase) to decommissioning liabilities under IFRS. Under IFRS, the provision has been discounted using a weighted average
credit-adjusted risk free rate of 6.7% at January 1, 2010 (Canadian GAAP  6.6%) and 5.3% at December 31, 2010 (Canadian
GAAP  6.6%).

32TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Income Taxes

Under Canadian GAAP, when the cost of an acquired asset that was recorded as PP&E differed from its tax base, deferred tax was
recorded on the difference. Under IFRS, deferred taxes are not recognized on asset acquisitions.

Under
Canadian GAAP, deferred PRT was calculated using the life-of-field method. Under IFRS, a temporary differences basis is used. While PRT was presented separately on the
Consolidated Statement of Income under Canadian GAAP, the Company has chosen to present the current and deferred portions of PRT as components of current and deferred income tax expense, respectively,
under IFRS.

Under
Canadian GAAP, deferred tax was not recognized for temporary differences between the functional currency of accounting for a foreign operation and the currency in which the taxes were filed.
Under IFRS, such temporary tax differences in currencies are recognized.

As
a result of all measurement differences impacting deferred taxes, including the three discussed above, the Company recorded a decrease of deferred tax liabilities of $1.1 billion at
January 1, 2010 (December 31, 2010  $1.6 billion) under IFRS. Additional income tax expense of $232 million for the year ended
December 31, 2010 was recorded arising from the reversal of temporary differences under IFRS.

OTHER ACCOUNTING CHANGES

Foreign Exchange

Management has determined that the functional currency of the Company's UK operation is more closely linked to the US$ due to the
composition of revenue, costs and intercompany arrangements, and this operation has been accounted for as a US$ functional currency entity, effective January 1, 2011. Information of this change
is further described in the 'Application of Critical Accounting Policies and Use of Estimates' section of this MD&A.

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:

33TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Except
as noted above, all of the above pronouncements are effective for annual periods beginning on or after January 1, 2013 with earlier adoption permitted, except for IFRS 9, which is
effective January 1, 2015. The Company is currently assessing the impact of adopting these pronouncements.

REGULATORY DEVELOPMENTS

Dodd-Frank Act

In 2010, the US Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or the Act) was
signed into law. The Dodd-Frank Act provides for numerous new substantive requirements in areas such as the disclosure of payments made to foreign governments, rules regarding the use of
credit ratings, and corporate governance and executive compensation reforms, among others, some of which apply to Talisman as a foreign private issuer. Talisman will continue to assess the effect on
the Company of the Dodd-Frank Act and related rules. The SEC estimates that the rules relating to pay-for-performance, pay parity, hedging and executive
compensation clawbacks will be adopted by the second half of 2012.

With
respect to the disclosure of payments to governments, the Act requires resource extraction issuers to disclose payments made to the US federal government or a foreign government (including a
department, agent or instrumentality of a foreign government or a company owned by a foreign government) in their annual reports. A payment would be an amount that is not de minimus and that is paid
to further the commercial development of oil, natural gas or minerals, including taxes, royalties, fees (including licence fees), bonuses, production entitlements or any other material benefits the
SEC determines is part of commonly recognized revenue streams for resource extraction. The Dodd-Frank Act requires disclosure of the type and total amount of such payments made for each
project and to each government. The SEC's final rule is expected to be adopted in the second half of 2012.

RISK FACTORS

Talisman is exposed to a number of risks inherent in exploring for, developing and producing crude oil and natural gas. This section describes the important
risks and other matters that could cause actual results of Talisman to differ materially from those presented and that could affect the trading price of the Company's outstanding shares. The risks
described below may not be the only risks Talisman faces, as Talisman's business and operations may also be subject to risks that Talisman does not yet know of, or that Talisman currently believes are
immaterial. If any of the events or circumstances described below actually occurs, Talisman's business, financial condition, results of operations or cash flow could be materially and adversely
affected and the trading price of Talisman's securities could decline. The following risk factors should be read in conjunction with the other information contained herein and in the Consolidated
Financial Statements and the related notes.

Volatility of Oil and Natural Gas Prices

Talisman's financial performance is highly sensitive to the prevailing prices of crude oil and natural gas. Fluctuations in crude oil
or natural gas prices could have a material adverse effect on the Company's operations and financial condition, the value of its oil and natural gas reserves and its level of expenditure for oil and
gas exploration and development. Prices for crude oil and natural gas fluctuate in response to changes in the supply of and demand for crude oil and natural gas, market uncertainty and a variety of
additional factors that are largely beyond the Company's control. Oil prices are determined by

34TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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international
supply and demand. Factors which affect crude oil prices include the actions of the Organization of Petroleum Exporting Countries (OPEC), world economic conditions, government
regulation, political stability throughout the world, the availability of alternative fuel sources, technological advances affecting energy production and consumption, and weather conditions. About
60% of the natural gas prices realized by Talisman are affected primarily by North American supply and demand, weather conditions and prices of alternative sources of energy. The remaining 40% of
natural gas prices realized by Talisman are from markets outside of North America, primarily in Southeast Asia. These other prices are typically determined by long-term contracts that are
linked to international oil and/or oil prevalent prices. The development of oil and natural gas discoveries in offshore areas and the development of shale gas plays are particularly dependent on the
outlook for oil and natural gas prices because of the large amount of capital expenditure required for development prior to commencing production.

A
substantial and extended decline in the prices of crude oil or natural gas could result in delay or cancellation of drilling, development or construction programs, curtailment in production or
unutilized long-term transportation commitments, all of which could have a material adverse impact on the Company. The amount of cost oil required to recover Talisman's investment and
costs in various PSCs is dependent on commodity prices, with higher commodity prices resulting in the booking of lower oil and gas reserves net of royalties.

Moreover,
changes in commodity prices may result in the Company making downward adjustments to the Company's estimated reserves. If this occurs, or if the Company's estimates of production or economic
factors change, accounting rules may require the Company to impair, as a non-cash charge to earnings, the carrying value of the Company's oil and gas properties. The Company is required to
perform impairment tests on oil and gas properties whenever events or changes in circumstances indicate that the carrying value of properties may not be recoverable. To the extent such tests indicate
a reduction of the estimated useful life or estimated future cash flows of the Company's oil and gas properties, the carrying value may not be recoverable and, therefore, an impairment charge will be
required to reduce the carrying value of the proved properties to their estimated fair value. The Company may incur impairment charges in the future, which could materially affect the Company's
results of operations in the period incurred.

Exchange Rate Fluctuations

Results of operations are affected primarily by the exchange rates between the US$, C$, UK£ and NOK. These exchange rates
may vary substantially. Most of the Company's revenue is received in or is referenced to US$ denominated prices (including the Company's Consolidated Financial Statements, which are presented in US$),
while Talisman's expenditures are denominated in US$, C$, UK£ and NOK. A change in the relative value of the US$ against the UK£ would also result in an increase or decrease in
Talisman's UK£ denominated debt, as expressed in US$, and the related interest expense. Talisman is also exposed to fluctuations in other foreign currencies.

Capital Allocation and Project Decisions

Talisman's long-term financial performance is sensitive to the capital allocation decisions taken and the underlying
performance of the projects undertaken. In 2012, Talisman plans to spend approximately $4 billion in exploration and development cash capital expenditures, the majority of which is to be
allocated among Talisman's North America, Southeast Asia, North Sea and exploration portfolios. Capital allocation and project decisions are undertaken after assessing reserves and production
projections, capital and operating cost estimates and applicable fiscal regimes that govern the respective government take from any project. All of these factors are evaluated against common commodity
pricing assumptions and the relative risks of projects. These factors are used to establish a relative ranking of projects and capital allocation, which is then calibrated to ensure the debt and
liquidity of the Company is not compromised.

Material
changes to project outcomes, in any of production volumes and rates, realized commodity price, cost or tax and/or royalties could have a material impact on the Company's cash flow and
financial performance.

The
Company cannot be certain that funding, if needed, will be available to the extent required or on acceptable terms. To the extent that asset sales are necessary to fund capital requirements,
Talisman's ability to sell assets is subject to market availability. If Talisman is unable to access funding when needed on acceptable terms, the Company may not be able to fully

35TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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implement
its business plans, take advantage of business opportunities or respond to competitive pressures any of which could have a material adverse effect on Talisman's business, financial
condition, cash flows, and results of operations. See also 'Risk Factors  Credit and Liquidity' and 'Risk
Factors  Interest Rates'.

Operational Risks

Major Incident, Major Spill / Loss of Well Control

Oil and gas drilling and producing operations are subject to many risks, including the risk of fire, explosions, mechanical failure, pipe or well cement failure, well casing
collapse, pressure or irregularities in formations, chemical and other spills, unauthorized access to hydrocarbons, accidental flows of oil, natural gas or well fluids, sour gas releases,
contamination of oil and gas, vessel collision, structural failure, loss of buoyancy, storms or other adverse weather conditions and other occurrences. If any of these should occur, Talisman could
incur legal defence costs and remedial costs and could suffer substantial losses due to injury or loss of life, human health risks, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, unplanned production outage, cleanup responsibilities, regulatory investigation and penalties, increased public interest in Talisman's operational
performance and suspension of operations. The Company's horizontal and deep drilling activities involve greater risk of mechanical problems than vertical and shallow drilling operations.

Talisman
maintains insurance that contemplates both first and third party exposures for Talisman's onshore and offshore operations globally. There is no assurance that this insurance will be adequate
to cover all losses or exposures to liability. The Company believes that its coverage is aligned with customary industry practices and in amounts and at costs that Talisman believes to be prudent and
commercially practicable. While Talisman believes these policies are customary in the industry, they do not provide complete coverage against all operating risks. In addition, the Company's insurance
does not cover penalties or fines that may be assessed by a governmental authority. A loss not fully covered by insurance could have a material adverse effect on the Company's financial position,
results of operations and cash flows. The insurance coverage that the Company maintains may not be sufficient to cover every claim made against Talisman in the future. In addition, a major incident
could impact Talisman's reputation in such a way that it could have a material adverse effect on the Company's business.

Talisman
operates and drills wells in both mature producing areas such as the UK, Norway and North America and in several remote areas in multiple countries. In 2011, Talisman initiated drilling
operations in the Kurdistan region of northern Iraq, Papua New Guinea, Poland and offshore deepwater Indonesia. The Company plans to continue to seek new leases and drill in similar
environments.

Health Hazards and Personal Safety Incidents

The employee and contractor personnel involved in activities and operations of the Company, including but not limited to well fracturing, are subject to many health and safety
risks and hazards, which could result in occupational illness or health issues, personal injury and loss of life, facility quarantine and/or facility and personnel evacuation. In particular, employees
working in
well fracturing operations are subject to the possibility of loss of containment. This could lead to the release of high pressure materials as well as collateral shrapnel from piping and vessels,
which could result in personal injury and loss of life.

36TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Security Incident

Talisman's operations may be adversely affected by security-related incidents which are not within the control of the Company, such as war (external and internal conflicts) and
remnants of war, sectarian violence, civil unrest or criminal acts in locations where Talisman operates. In particular, the Company faces increased security risks in the Kurdistan region of northern
Iraq and Colombia within Talisman's current portfolio. A significant security incident could result in the deferral of or termination of Company activity within the impacted areas of operations, thus
adversely impacting execution of the Company's business strategy (e.g. delaying exploration, causing a halt to production or forcing exit strategy processes), which could adversely affect
Talisman's financial position, results of operations and cash flows.

Regulatory Approvals and Changes to Laws and Regulations

Talisman's exploration and production operations are subject to extensive regulation at many levels of government, including
municipal, state, provincial and federal governments, in the countries where Talisman operates and are subject to interruption or termination by governmental and regulatory authorities based on
environmental or other considerations. Moreover, Talisman has incurred and will continue to incur costs in the Company's efforts to comply with the requirements of environmental, safety and other
regulations. Further, the regulatory environment in the oil and gas industry could change in ways that Talisman cannot predict and that might substantially increase the Company's costs of compliance
and, in turn, materially and adversely affect the Company's business, results of operations and financial condition.

Failure
to comply with the applicable laws or regulations may result in significant increases in costs, fines or penalties and even shutdowns or losses of operating licences or criminal sanctions. If
regulatory approvals or permits required for operations are delayed or not obtained, Talisman could experience delays or abandonment of projects, decreases in production and increases in costs. This
could result in an inability of the Company to fully execute its strategy and adverse impacts on its financial condition. See also 'Risk Factors  Fiscal
Stability' and 'Risk Factors  Socio-Political Risks'.

Changes
to existing laws and regulations or new laws and regulations such as those described below could, if adopted, have an adverse effect on Talisman's business by increasing costs, reducing
revenue and cash flow from natural gas and oil sales, reducing liquidity or otherwise altering the way Talisman conducts business. The Company cannot predict what additional laws or regulations
(or amendments to existing laws or regulations) may be proposed or when such proposals, if enacted, might become effective. For example, the state of New York's updating of its Generic
Environmental Impact Statement on the Oil, Gas and Solution Mining Regulatory Program will likely cause delays in shale gas development in that state. In Pennsylvania, delays could also be experienced
as Pennsylvania continues to update the Pennsylvania Oil & Gas Act and other state laws. In Quebec, delays in shale gas development are expected to continue as the province implements the
various recommendations made by the BAPE, including the main recommendation that a strategic environmental assessment on shale gas development be performed. See also 'Risk
Factors  Operational Risks  Hydraulic Fracturing'.

There
have also been various proposals to enact new, or amend existing, laws and regulations relating to greenhouse gas (GHG) emissions, hydraulic fracturing (including associated additives, water use
and disposal) and shale gas development generally. Such additional laws or regulations could also impact the Company's development schedule or costs of development and significantly affect the
Company's operations and financial condition. See also 'Risk Factors  Environmental Risks'.

Talisman
may also face regulatory delays in other areas. In particular, in Colombia, the high level of oil and gas activity in the country has resulted in significant delays in the granting of the
required environmental permits to the oil and gas industry. While these delays are likely to be reduced as the respective governing bodies increase staff levels to match the increased demand, there is
a risk of delays beyond current plans. These delays may result in reduced near-term production.

Talisman
continues to monitor and assess any new policies, legislation, regulations and treaties in the areas where the Company operates to determine the impact on Talisman's operations. Governmental
organizations unilaterally control the timing, scope and effect of any currently proposed or future laws, regulations or treaties and such enactments are subject to a myriad of factors, including
political, monetary and social pressures. Talisman acknowledges that the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect the
Company's business, results of operations and financial condition.

37TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Environmental Risks

General

All phases of Talisman's oil and natural gas business are subject to environmental regulation pursuant to a variety of laws and regulations in the countries where Talisman does
business. These regulatory regimes consist of laws of general application that apply to the Company's business in the same manner as they apply to other companies or enterprises in the energy
industry. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of substances that can be released into the
environment in connection with the Company's drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and
impose substantial liabilities for pollution that may result from the Company's operations. Talisman's business is subject to the trend toward increased rigour in regulatory compliance and civil or
criminal liability for environmental matters in certain regions (e.g. Canada, US and the European Union). Compliance with environmental legislation can require significant expenditures, and
failure to comply with environmental legislation may result in the assessment of administrative, civil and criminal penalties, the cancellation or suspension of regulatory permits, the imposition of
investigatory or remedial obligations or the issuance of injunctions restricting or prohibiting certain activities. Under existing environmental laws and regulations, Talisman could be held strictly
liable for the removal or remediation of previously released materials or property contamination resulting from its operations, regardless of whether those operations were in compliance with all
applicable laws at the time they were performed. Regulatory delays, legal proceedings and reputational impacts from an environmental incident could result in a material adverse effect on the Company's
business. Increased stakeholder concerns and regulatory actions regarding shale gas development could lead to third-party or governmental claims, and could adversely affect the Company's business and
financial condition. Although Talisman currently believes that the costs of complying with environmental legislation and dealing with environmental civil liabilities will not have a material adverse
effect on the Company's financial condition or results of operations, there can be no assurance that such costs will not have such an effect in the future.

Hydraulic Fracturing

Concern has been expressed over the potential environmental impact of hydraulic fracturing operations, including water aquifer contamination and other qualitative and
quantitative effects on water resources as large quantities of water are used and injected fluids either remain underground or flow back to the surface to be collected, treated and disposed. As
discussed below, regulatory authorities in certain jurisdictions have announced initiatives in response to such concerns. Federal, provincial, state, and local legislative and regulatory initiatives
relating to hydraulic fracturing, as well as governmental reviews of such activities, could result in increased costs, additional operating restrictions or delays,and adversely affect Talisman's
production. Public perception of environmental risks associated with hydraulic fracturing can further increase pressure to adopt new laws, regulation or permitting requirements or lead to regulatory
delays, legal proceedings and/or reputational impacts. Any new laws, regulations or permitting requirements regarding hydraulic fracturing could lead to operational delay, increased operating costs,
and third-party or governmental claims. They could also increase the Company's costs of compliance and doing business as well as delay the development of hydrocarbon (natural gas and oil) resources
from shale formations, which may not be commercial without the use of hydraulic fracturing. Restrictions on hydraulic fracturing could also reduce the amount of oil and natural gas that the Company is
ultimately able to produce from its reserves.

In
the event state, local, or municipal legal restrictions are adopted in areas where Talisman is currently conducting, or in the future plans to conduct operations, Talisman may incur additional
costs to comply with such requirements that may be significant in nature, experience delays or curtailment in the pursuit of exploration, development, or production activities, and perhaps even be
precluded from the drilling of wells. In addition, if hydraulic fracturing becomes more regulated, the Company's fracturing activities could become subject to additional permitting requirements and
result in permitting delays as well as potential increases in costs. Restrictions on hydraulic fracturing could also reduce the amount of oil and natural gas that the Company is ultimately able to
produce from its reserves.

38TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Greenhouse Gas Emissions (GHG)

Talisman is subject to various GHG emissions-related legislation. Current GHG emissions legislation does not result in material compliance costs, but compliance costs may
increase in the future and may impact the Company's operations and financial results. Talisman operates in jurisdictions with existing GHG legislation (e.g. UK, Norway, US and Canada, notably
Alberta and British Columbia) as well as in regions which currently do not have GHG emissions legislation and jurisdictions where GHG emissions legislation is emerging or is subject to change.
Talisman monitors GHG legislative developments in all areas that the Company operates. If the Company becomes subject to additional GHG legislation, there can be no assurances that the compliance
costs will not have a material impact on the Company.

In
the UK, Phase II of the European Union Emissions Trading Scheme (EU ETS) began in 2008 and will run until the end of 2012. The EU ETS requires that member states set emissions limits
for installations in their country covered by the scheme and assigns such installations an emissions cap. Installations may meet their cap by reducing emissions or by buying allowances from other
participants. Phase II impacts to the Company are minimal. Phase III of the EU ETS will potentially have a material impact on Talisman's business in the UK. The proposed Phase III
legislation, which is to begin in 2013 and run until 2020, will significantly reduce emissions caps. In addition, free allowances for electrical power generation will no longer be issued.
Approximately 50% of total Talisman UK emissions are associated with electrical power generation. Compliance costs associated with Phase III of the EU ETS may have a material impact on
Talisman's business in the UK.

The
Norwegian national GHG emissions trading system is linked to the EU ETS. Talisman is required to purchase emissions credits corresponding to its total annual CO2 emissions, and to pay
the CO2 emissions tax. Starting January 2011, the Company was required to purchase emissions credits for mobile rigs in addition to payment for the mobile rig CO2
emissions tax that began in 2010. Phase II ends in 2012 and compliance costs are not expected to be material to Talisman because the Norwegian government will adjust the CO2
emissions tax so that total costs of the CO2 emissions tax and emissions credit purchases are similar to the pre-2008 costs that were not material to Talisman. The proposed
Phase III legislation, which is to begin in 2013 and run until 2020, will further reduce emissions caps for the Company's Norwegian operations, but the Company does not anticipate that the
costs of compliance will be material considering its current compliance requirements.

Environmental and Decommissioning Liabilities

Talisman is involved in the operation and maintenance of facilities and infrastructure in difficult and challenging areas, including
offshore, deepwater, jungle and desert environments. Despite Talisman's implementation of health, safety and environmental standards, there is a risk that accidents or regulatory misalignments can
occur, the outcomes of which, including remedial work or regulatory intervention, cannot be foreseen or planned for. Talisman expects to incur site restoration costs over a prolonged period as
existing fields are depleted. The Company provides for decommissioning liabilities in its annual Consolidated Financial Statements in accordance with IFRS. Additional information regarding
decommissioning liabilities is set forth in the notes to the annual Consolidated Financial Statements. The process of estimating decommissioning liabilities is complex and involves significant
uncertainties concerning the timing of the decommissioning activity; legislative changes; technological advancement; regulatory, environmental and political changes; and the appropriate discount rate
used in estimating the liability. Any change to these assumptions could result in a change to the decommissioning liabilities to which Talisman is subject. In Talisman's North Sea operations, changes
in these assumptions would potentially have a significant impact on the Company's decommissioning liabilities because of the size of these liabilities. There can be no assurances that the cost
estimates and decommissioning liabilities are materially correct and that the liabilities will occur when predicted. In addition, Talisman is often jointly and severally liable for the decommissioning
costs associated with Talisman's various operations, and could therefore be required to pay more than its net share.

Fiscal Stability

Governments may amend or create new legislation that could impact the Company's operations, which could result in increased capital,
operating and compliance costs. For example, the British Columbia government could revoke its royalty holiday due to increasing shale gas development. Further examples include the potential increase
in ring fence taxes due to

39TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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the
change in the supplementary charge in the UK as well as the potential for an aggregate change to environmental regulations in the US.

Moreover,
Talisman's operations are subject to various levels of taxation in the countries where the Company operates. Income tax rates or incentive programs relating to the oil and gas industry and,
in particular the UK, the US and Canadian foreign affiliate rules, may in the future be changed or interpreted in a manner that could materially affect the economic value of the respective assets, as
was the case in 2011 when the UK unexpectedly significantly increased its supplementary charge on oil and gas production. Specifically, the US Congress has been considering a revision of the immediate
deduction currently available for drilling costs.

Socio-Political Risks

The Company's operations may be adversely affected by political or economic developments or social instability in the jurisdictions
in which it operates, which are not within the control of Talisman, including, among other things, a change in crude oil or natural gas pricing policy and/or related regulatory delays, the risks of
war, terrorism, abduction, expropriation, nationalization, renegotiation or nullification of existing concessions and contracts, a change in taxation policies, economic sanctions, the imposition of
specific drilling obligations, the imposition of rules relating to development and abandonment of fields and currency controls. As a result of continuing evolution of an international framework for
corporate responsibility and accountability for international crimes, the Company could also be exposed to potential claims for alleged breaches of international law and other human rights-based
litigation risk. Various countries in which the Company is active, including, but not limited to, the Kurdistan region of northern Iraq, Colombia, Vietnam, Papua New Guinea and Peru, have been
subject to recent economic or political instability, disputes and social unrest, and military or rebel hostilities. The potential deterioration of socio-political security situations
(i.e. political instability and/or disputes) poses increased risk which may result in the cessation of operations as well as the delay in payment or exports: for example in the Kurdistan region
of northern Iraq (with the negotiation of Iraq Federal Oil and Gas Law), Peru (where the new government could change economic/fiscal policy direction and contractual terms), Vietnam (with respect to
the escalation of China's claim over disputed waters in the South China Sea) as well as in Papua New Guinea (where national elections and the overall socio-political situation may cause slow or
uncertain government approval and extension process, or result in a failure to obtain a strategic partner or partner misalignment or cause lack of licence commitment flexibility in drilling programs).

Stakeholder Opposition

Talisman's planned activities may be adversely affected if there is strong community opposition to its operations. For example, there
are concerns regarding gas migration, impact on water resources, and general anti-hydraulic fracturing sentiments in North America and Europe. In some circumstances, this risk may be
increased in areas occupied by indigenous communities that are not accustomed to developments of this nature and have concerns regarding land access and/or damage and claim compensation. In addition,
Talisman regularly evaluates opportunities worldwide, and may in the future engage in projects or acquire properties in other nations that are experiencing economic or political instability, social
unrest, military hostilities or United Nations, US or other international sanctions. Some of the foregoing government actions may lead to political or reputational pressures on the Company from
non-governmental organizations, home governments and investors.

Ability to Find, Develop or Acquire Additional Reserves

The Company's future success depends largely on its ability to find and develop, or acquire, additional oil and gas reserves that are
economically recoverable. Hydrocarbons are a limited resource, and Talisman is subject to increasing competition from other companies, including national oil companies. Exploration and development
drilling may not result in commercially productive reserves and, if production begins, reservoir performance may be less than projected. Successful acquisitions require an assessment of a number of
factors, many of which are uncertain. These factors include recoverable reserves, exploration potential, future oil and gas prices, operating costs and potential environmental and other liabilities.
Such assessments are inexact and their accuracy is inherently uncertain. If a high impact prospect identified by the Company fails to materialize in a given year, the Company's multi-year
exploration and/or development portfolio may be compromised. See also 'Risk Factors  Volatility of Oil and Natural Gas Prices'.

40TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Uncertainty of Reserves Estimates

The process of estimating oil and gas reserves is complex and involves a significant number of assumptions in evaluating available
geological, geophysical, engineering and economic data. In addition, the process requires future projections of reservoir performance and economic conditions; therefore, reserves estimates are
inherently uncertain. Since all reserves estimates are, to some degree, uncertain, reserves classification attempts to qualify the degree of uncertainty involved.

Since
the evaluation of reserves involves the evaluator's interpretation of available data and projections of price and other economic factors, estimates of the economically recoverable oil and
natural gas reserves attributable to any particular group of properties, the classification of such reserves based on estimated uncertainty, and the estimates of future net revenue or future net cash
flows prepared by different evaluators or by the same evaluators at different times may vary substantially.

Each
year, Talisman prepares evaluations of all of its reserves internally. Initial estimates of reserves are often based upon volumetric calculations and analogy to similar types of reservoirs,
rather than actual well data and performance history. Estimates based on these methods generally are less certain than those based on actual performance. The Company may adjust its estimates and
classification of reserves and future net revenues or cash flows based on results of exploration and development drilling and testing, additional performance history, prevailing oil and gas prices,
and other factors, many of which are beyond the Company's control. As new information becomes available, subsequent evaluations of the same reserves may continue to have variations in the estimated
reserves, some of which may be material. In addition, Talisman's actual production, taxes and development and operating expenditures with respect to its reserves will likely vary from such estimates
and such variances could be material.

Project Timing

Talisman manages a variety of projects, including exploration and development projects and the construction or expansion of
facilities and pipelines. Project delays may impact expected revenues and project cost overruns could make projects uneconomic. Talisman's ability to complete projects depends upon numerous factors,
many of which are beyond the Company's control. These factors include the level of direct control by Talisman since many of the projects in which Talisman is involved are not operated by Talisman and
timing and project management control are the responsibility of the operator. See also 'Risk Factors  Non-Operatorship'. In particular, the majority
of the Company's operations in Colombia are non-operated. Additionally, for Talisman operated projects, the global demand for project resources can impact the access to appropriately
competent contractors and construction yards as well as to raw products, such as steel. Typical execution risks include the availability of processing capacity, the availability and proximity of
pipeline capacity, the availability of drilling and other equipment, the ability to access lands, weather, unexpected cost increases, accidents, the availability of skilled labour, including
engineering and project planning personnel, the need for government approvals and permits, and regulatory matters. Subsurface challenges can also result in additional risk of cost and schedule overrun
if conditions are not typical of historical experiences, such as in up-scaling shale operations from pilot to full field developments. Talisman utilizes materials and services which are
subject to general industry-wide conditions. Cost escalation for materials and services may be unrelated to commodity price changes and may continue to have a significant impact on project
planning and economics. Talisman operates in challenging, environmentally hostile climates, such as Papua New Guinea, where logistical costs can be materially impacted by seasonal and
occasionally unanticipated weather patterns. Contracts where work has been placed under a lump sum arrangement, for example with the Company's Yme project, are subject to additional scheduling
challenges as the contractor is wholly responsible for delivery of the facility.

Egress and Gas Buyers

As rapidly increasing volumes of natural gas and liquids are brought onstream by Talisman and others, transportation infrastructure
capacity may at times be exceeded before capacity additions become available. In such event, there is a risk that some production may be affected waiting on pipeline connection or infrastructure
additions. In particular, Colombia's oil export infrastructure is currently producing at or near capacity, pending capacity additions which are at various stages of approval and construction. While
Equión has access to the key Ocensa and Oleoducto de Colombia (ODC) pipelines, pipeline egress from the Llanos Basin to the main export terminal at Covenas presents a risk. Although
additional pipeline projects are underway

41TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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and
oil can be trucked to Covenas, capacity restrictions may result in a portion of Talisman's production being reduced or delayed as pipeline connection and infrastructure additions are implemented
and/or netbacks reduced on a portion of Talisman's production due to the materially higher costs of trucking. There are similar egress risks in the liquids-rich Eagle Ford. Currently,
there is limited existing transportation and associated midstream infrastructure. Talisman has and is in the process of obtaining access to infrastructure for both liquids and gas within the Eagle
Ford. However, additional capacity and infrastructure will be required. As a result, there are multiple pipeline and processing projects underway aimed at meeting the growing production needs in the
area. Another associated risk will be the availability and diversity of buyers depending upon the pipeline and infrastructure project with which Talisman obtains capacity. Should Talisman be unable to
secure access to infrastructure and buyers, a result could be reduced production and/or materially lower prices on some portion of production, which in turn could adversely affect the Company's
operating results.

Non-operatorship

Some of Talisman's projects are conducted in joint venture environments where Talisman has a limited ability to influence or control
operations or future development, safety and environmental standards and amount of capital expenditures. Companies which operate these properties may not necessarily share Talisman's health, safety
and environmental standards or strategic or operational goals, which may result in accidents, regulatory misalignments, project delays or unexpected future costs, all of which may affect the viability
of these projects.

Talisman
is also dependent on other working interest co-participants of these projects to fund their contractual share of the capital expenditures. If these co-participants are
unable to fund their contractual share of, or do not approve, the capital expenditures, the co-participants may seek to defer programs, resulting in strategic misalignments and a delay of
a portion of development of Talisman's programs, or the co-participants may default such that projects may be delayed and/or Talisman may be partially or totally liable for
their share.

Industry Cost Inflation

The industry costs to find and develop reserves have generally risen over time. An upward rise in industry activity could increase
key input demand and prices, at least in the short run, and possibly delay sourcing of key labour, materials or facilities construction. Rising industry costs broadly correspond with higher oil and
gas prices but, in a competitive market among competing fuels, it is possible that not all costs may be recovered through higher prices. Although the Company strives for continuous improvement in its
planning, operations and procurement, material or unexpected changes can affect the Company's financial performance.

Attraction, Retention, and Development of Personnel

Successful execution of the Company's plans is dependent on Talisman's ability to attract and retain talented personnel who have the
skills necessary to deliver on the Company's strategy and maintain safe operations. This includes not only key talent at a senior level, but also individuals with the professional and technical skill
sets critical for Talisman's business, particularly drilling and completions and geosciences. As labour demand remains high and a greater percentage of the population reaches retirement age, retention
concerns are also heightened. In particular, growth in Talisman's Eagle Ford shale business requires additional people resources to match the Company's desired activity level; if unmet, this could
adversely impact Talisman's ability to deliver. Additionally, in the North Sea, high project activity has compounded competition for labour, posing an increased retention risk. Various national
regimes, partnerships and joint venture activities may also impose requirements to develop their talent, increase secondee assignments, and employ local nationals.

Competitive Risk

The global oil and gas industry is highly competitive. Talisman faces significant competition and many of the Company's competitors
have resources in excess of Talisman's available resources. The Company actively competes for the acquisition of properties, the exploration for and development of new sources of supply, the
contractual services for oil and gas drilling and production equipment and services, the transportation and marketing of current production, and industry personnel, including, but not limited to,
geologists, geophysicists, engineers and other specialists that enable the business. Many of Talisman's

42TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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competitors
have the ability to pay more for seismic and lease rights in crude oil and natural gas properties and exploratory prospects. They can define, evaluate, bid for and purchase a greater
number of properties and prospects than Talisman's financial or human resources permit. If the Company is not successful in the competition for oil and gas reserves or in the marketing of production,
Talisman's financial condition and results of operations may be adversely affected. Many of the Company's competitors have resources substantially greater than Talisman's and have established
positions in countries in which Talisman may seek new entry and, as a consequence, the Company may be at a competitive disadvantage. Typically during times of high commodity prices or increased
industry activity, drilling and operating costs will also increase. These competitive forces may also lead to an overall increase in costs, which could have a negative impact on the Company's
financial results.

Litigation

From time to time, Talisman is the subject of litigation arising out of the Company's operations. Specific disclosure of current
legal proceedings, and the risks associated with current proceedings and litigation generally, are disclosed under the heading 'Litigation' in this MD&A.

Credit and Liquidity

From time to time, the Company may finance capital expenditures in whole or in part with debt. While the Company may have access to
various financing options, including draws on existing facilities and the issuance of debt or equity, the terms of such financing options may not be acceptable to the Company. A reduction in any of
the Company's current investment-grade credit ratings to below investment grade would likely adversely affect the cost of borrowing and/or access to sources of liquidity and capital, and reduce the
financing options available to the Company. Additionally, the Company relies on access to letters of credit in the normal course of business in order to support some of its operations. There can be no
assurance that the Company will be able to obtain the necessary letters of credit. See also 'Risk Factors  Capital Allocation and Project Decisions'.

During
the last few years, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, and the health of the US and European economies have contributed to
increased economic uncertainty and diminished expectations for the global economy. If an economic recovery in the US or European Union is slow or prolonged, demand for petroleum products could
diminish or stagnate, which could impact the price at which Talisman can sell oil, natural gas and NGLs, affect the ability of vendors, suppliers and customers to continue operations, and ultimately
adversely impact the Company's results of operations, liquidity and financial condition. Additionally, a portion of the Company's long-term debt is syndicated among European, including
French, banks, and Talisman has exposure to these financial institutions via derivative transactions. In light of recent instability and weakness in the European markets, if any lender under
Talisman's credit facility is unable to fund its commitment, the Company's liquidity will be reduced by an amount up to the aggregate amount of such lender's commitment. See also 'Risk
Factors  Counterparty Credit Risk'.

Interest Rates

The Company is exposed to interest rate risk principally by virtue of its borrowings. Borrowing in floating rates exposes Talisman to
short-term movements in interest rates. Borrowing in fixed rates exposes Talisman to reset risk associated with debt maturity. Most of the Company's debt is issued at fixed interest rates;
therefore, the Company's main exposure to changes in interest rates would occur in respect of short-term investments or borrowings in the event that substantial cash balances are invested
by or owed to the Company.

43TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Hedging Activities

Talisman uses derivative instruments (primarily financial collars and puts) to hedge a portion of the Company's expected production
so as to manage the impact of fluctuations in crude oil and natural gas prices on the Company's results of operations and cash flow. Fluctuations in crude prices could have a material effect on the
volatility of the Company's earnings. To the extent that Talisman engages in hedging activities to protect itself against commodity price declines, Talisman may be prevented from fully realizing the
benefits of increases in crude oil and natural gas prices above the prices established by the Company's hedging contracts. The Company also uses currency swaps to manage fluctuations in exchange rates
and interest rate swaps to manage Talisman's exposure to interest rate changes through the Company's borrowings. See also 'Risk Factors  Exchange Rate
Fluctuations' and 'Risk Factors  Interest Rates'.

Additionally,
Talisman's hedging portfolio may expose it to financial losses in certain circumstances, such as the recognition of certain mark-to-market gains and losses on
derivative instruments. The fair value of the Company's natural gas and oil, exchange rate or interest rate derivative instruments can fluctuate significantly between periods.

Counterparty Credit Risk

In the normal course of business, Talisman enters into contractual relationships with counterparties in the energy industry and other
industries, including suppliers and coventurers, counterparties to interest rate hedging, foreign exchange hedging and commodity derivative arrangements. If such counterparties do not fulfil their
contractual obligations or settle their liabilities to the Company, the Company may suffer losses, may have to proceed on a sole risk basis, may have to forgo opportunities or may have to relinquish
leases or blocks. The Company also has credit risk arising from cash and cash equivalents held with banks and financial institutions. While the Company maintains a risk management system that limits
exposures to any one counterparty, losses due to the failure by counterparties to fulfil their contractual obligations may adversely affect Talisman's financial condition.

Corruption

Talisman's operations are governed by the laws of many jurisdictions, which generally prohibit bribery and other forms of corruption.
It is possible that Talisman, or some of its employees or contractors, could be charged with bribery or corruption. Talisman requires all employees to participate in ethics awareness training, which
includes Talisman's policies against giving or accepting money or gifts in certain circumstances. However, if Talisman is found guilty of such a violation, which could include a failure to take
effective steps to prevent or address corruption by its employees or contractors, Talisman could be subject to onerous penalties. A mere investigation itself could lead to significant corporate
disruption, high legal costs and forced settlements (such as the imposition of an internal monitor). In addition, bribery allegations or bribery or corruption convictions could impair Talisman's
ability to work with governments or non-governmental organizations. Such convictions or allegations could result in the formal exclusion of Talisman from a country or area, national or
international lawsuits, government sanctions or fines, project suspension or delays, reduced market capitalization and increased investor concern.

Information Systems

Many of Talisman's business processes depend on the availability, capacity, reliability and security of the Company's information
technology infrastructure (IT) and Talisman's ability to expand and continually update this infrastructure in response to the Company's changing needs. The Company's IT systems are increasingly
concentrated in terms of geography, number of systems, and key contractors supporting the delivery of IT systems. The performance of Talisman's key suppliers is critical to ensure appropriate delivery
of key services. Any failure to manage, expand and update the Company's information technology infrastructure, any failure in the extension or operation of this infrastructure, or any failure by the
Company's key contractors in the performance of their services could materially and adversely harm Talisman's business. Additionally, the increasing risk of information security breaches, including
more sophisticated attempts often referred to as advanced persistent threats, requires Talisman to increase its ability to detect and prevent such occurrences. Disruption of critical IT services, or
breaches of information security, could have a negative effect on Talisman's operational performance and earnings, as well as on the Company's reputation.

44TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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ADVISORIES

Forward-Looking Statements

This MD&A contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively
"forward-looking information") within the meaning of applicable securities legislation. Forward-looking information is included throughout this MD&A, including, among other places, under the headings
'Outlook for 2012' and 'Risk Factors'. This forward-looking information includes, but is not limited to, statements regarding:

Statements
concerning oil and gas reserves contained in this MD&A may be deemed to be forward-looking information as they involve the implied assessment that the resources described can be profitably
produced in the future.

The
factors or assumptions on which the forward-looking information is based include: assumptions inherent in current guidance; projected capital investment levels; the flexibility of capital spending
plans and the associated sources of funding; the successful and timely implementation of capital projects; the continuation of tax, royalty and regulatory regimes; ability to obtain regulatory and
partner approval; commodity price and cost assumptions; and other risks and uncertainties described in the filings made by the Company with securities regulatory authorities. The Company believes the
material factors, expectations and assumptions reflected in the forward-looking information are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to
be correct. Forward-looking information for periods past 2012 assumes escalating commodity prices.

Closing
of any transactions will be subject to receipt of all necessary regulatory approvals and completion of definitive agreements. The disposition metrics disclosed assume closing of all
dispositions announced. The completion of any contemplated disposition is contingent on various factors, including favourable market conditions, the ability of the Company to negotiate acceptable
terms of sale and receipt of any required approval for such disposition.

Undue
reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks which could
cause actual results to vary and in some

45TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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instances
to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this MD&A. The material risk factors include, but are not
limited to:

The
foregoing list of risk factors is not exhaustive. Additional information on these and other factors which could affect the Company's operations or financial results are included in the Company's
most recent AIF and Annual Report. In addition, information is available in the Company's other reports on file with Canadian securities regulatory authorities and the SEC.

Forward-looking
information is based on the estimates and opinions of the Company's management at the time the information is presented. The Company assumes no obligation to update forward-looking
information should circumstances or management's estimates or opinions change, except as required by law.

Reserves Data and Other Oil and Gas Information

Talisman's disclosure of reserves data and other oil and gas information in accordance with US disclosure standards is made in
reliance on an exemption granted to Talisman by Canadian securities regulatory authorities, which permits Talisman to provide such disclosure in order to allow comparison of oil and gas disclosure
with that provided by US and other peers. The primary differences between the US disclosure standards and the Canadian disclosure mandated under NI 51-101 are that:

46TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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Further
information on the differences between the US standards and NI 51-101 requirements is set forth under the heading 'Note Regarding Reserves Data and Other Oil and Gas
Information' in Talisman's most recent AIF.

The
information provided by Talisman in this MD&A may differ from the corresponding information prepared in accordance with NI 51-101 standards. Talisman's proved and
probable reserves, using SEC annual average pricing methodology, have been estimated using the standards contained in Regulation S-X of the SEC, which requires that proved and
probable reserves be estimated using existing economic and operating conditions.

An
exemption granted to Talisman also permits it to disclose internally evaluated reserves data. Any reserves data contained in this MD&A reflects Talisman's internally-generated estimates of
its reserves.

Gross Production

Throughout this MD&A, Talisman makes reference to production volumes. Such production volumes are stated on a gross basis, which
means they are stated prior to the deduction of royalties and similar payments. In the US, net production volumes are reported after the deduction of these amounts. US readers may refer to the table
headed 'Net Production After Royalties' in Talisman's most recent AIF for a statement of Talisman's net production volumes by reporting segment that are comparable to those made by US companies
subject to SEC reporting and disclosure requirements.

Netbacks

Talisman discloses its Company netbacks in this MD&A. Netbacks per boe are calculated by deducting from sales price associated
royalties, operating and transportation costs.

Financial Outlook

Included in this MD&A is the Company's financial outlook. Its purpose is to enrich management's discussion and analysis. This
information may not be appropriate for other purposes.

ABBREVIATIONS AND DEFINITIONS

The following abbreviations and definitions are used in this document:

|AIF    |  | Annual Information Form          
|------ |  | ---------------------------------
|bbl    |  | barrel                           
|bbls   |  | barrels                          
|bbls/d |  | barrels per day                  
|bcf    |  | billion cubic feet               
|boe    |  | barrels of oil equivalent        
|boe/d  |  | barrels of oil equivalent per day
|C$     |  | Canadian dollar                  
|CO2    |  | Carbon dioxide                   
|E&E    |  | Exploration and evaluation       
|EU     |  | European Union                   
|G&A    |  | General and administrative       

47TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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|GAAP     |  | Generally Accepted Accounting Principles     
|-------- |  | ---------------------------------------------
|gj       |  | Gigajoule                                    
|IFRS     |  | International Financial Reporting Standards  
|LIBOR    |  | London Interbank Offered Rate                
|LNG      |  | Liquefied Natural Gas                        
|mbbls/d  |  | thousand barrels per day                     
|mboe/d   |  | thousand barrels of oil equivalent per day   
|mcf      |  | thousand cubic feet                          
|mmbbls   |  | million barrels                              
|mmboe    |  | million barrels of oil equivalent            
|mmbtu    |  | million British thermal units                
|mmcf/d   |  | million cubic feet per day                   
|mmcfe/d  |  | million cubic feet equivalent per day        
|NGL      |  | Natural Gas Liquids                          
|NI       |  | National Instrument                          
|NOK      |  | Norwegian Kroner                             
|NYMEX    |  | New York Mercantile Exchange                 
|OPEC     |  | Organization of Petroleum Exporting Countries
|PGN      |  | PT Perusahaan Gas Negara (Persero) Tbk       
|PP&E     |  | Property, plant and equipment                
|PRT      |  | Petroleum Revenue Tax                        
|PSC      |  | Production Sharing Contract                  
|PSU      |  | Performance share unit                       
|SEC      |  | US Securities and Exchange Commission        
|tcf      |  | trillion cubic feet                          
|UK       |  | United Kingdom                               
|UK£      |  | Pound sterling                               
|US       |  | United States of America                     
|US$ or $ |  | United States dollar                         
|WTI      |  | West Texas Intermediate                      

Gross acres means the total number of acres in which Talisman has a working interest. Net acres means the sum of the fractional working interests owned in gross
acres expressed as whole numbers and fractions thereof.

Gross
production means Talisman's interest in production volumes (through working interests and royalty interests) before the deduction of royalties. Net production means Talisman's interest in
production volumes after deduction of royalties payable by Talisman.

Gross
wells means the total number of wells in which the Company has a working interest. Net wells means the sum of the fractional working interests owned in gross wells expressed as whole numbers and
fractions thereof.

Conversion
and equivalency factors

|Imperial     |  | Metric                 
|------------ |  | -----------------------
|1 ton        |  | =   0.907 tonnes       
|1 acre       |  | =   0.40 hectares      
|1 barrel     |  | =   0.159 cubic metres 
|1 cubic foot |  | =   0.0282 cubic metres

48TALISMAN ENERGYMANAGEMENT'S DISCUSSION AND ANALYSIS 2011

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