Exhibit 6  Auditors Report   TO THE SHAREHOLDERS OF TALISMAN
ENERGY INC.  We have audited the
Consolidated Balance Sheets of Talisman Energy Inc. as at December 31, 2002 and
2001 and the Consolidated Statements of Income, Retained Earnings and Cash
Flows for each of the years in the three year period ended December 31, 2002.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.  We conducted our audits in
accordance with Canadian and US generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  In our opinion, these
Consolidated Financial Statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2002 and 2001 and the
results of its operations and its cash flows for each of the years in the three
year period ended December 31, 2002 in accordance with Canadian generally
accepted accounting principles. We also report that, in our opinion, these
principles have been applied, except for the change in the method of accounting
for goodwill as explained in note 2 to the Consolidated Financial Statements,
on a basis consistent with that of the preceding year.  Calgary, Canada
  
  Ernst & Young LLPFebruary 14, 2003
  
  Chartered Accountants   36 
   Consolidated Balance Sheets (December 31)   (millions
  of Canadian dollars)
  
  2002
  
  2001restated, see note 2AssetsCurrentCash (note 14)
  
  27
  
  17Accounts receivable
  
  719
  
  654Inventories (note 4)
  
  147
  
  99Prepaid expenses
  
  24
  
  29917
  
  799Accrued employee pension benefit asset (note 15)
  
  67
  
  67Other assets
  
  99
  
  25Goodwill (note 2)
  
  469
  
  467Property, plant and equipment (note 5)
  
  10,042
  
  9,46110,677
  
  10,020Total assets
  
  11,594
  
  10,819LiabilitiesCurrentAccounts payable and accrued liabilities
  
  803
  
  869Income and other taxes payable
  
  186
  
  146Current portion of long-term debt (note 6)
  
  
  
  189989
  
  1,204Deferred credits
  
  57
  
  87Provision for future site restoration (note 10)
  
  813
  
  619Long-term debt (note 6)
  
  2,997
  
  2,794Future income taxes (notes 2 and 13)
  
  2,236
  
  1,9896,103
  
  5,489Contingencies and commitments (notes 9 and 10)ShareholdersequityPreferred securities (note 7)
  
  431
  
  431Common shares (note 8)
  
  2,785
  
  2,831Contributed surplus
  
  75
  
  77Cumulative foreign currency translation (note 2)
  
  140
  
  Retained earnings
  
  1,071
  
  7874,502
  
  4,126Total liabilities and shareholdersequity
  
  11,594
  
  10,819  On behalf of the board:   David E. Powell
  
  Dale G. ParkerChairman of the Board
  
  DirectorSee accompanying notes.   37 
   Consolidated Statements of Income (Years ended December 31)   (millions
  of Canadian dollars)
  
  2002
  
  2001
  
  2000restated, see note 2
  
  restated, see note 2RevenueGross sales
  
  5,299
  
  5,047
  
  4,836Less royalties
  
  927
  
  989
  
  946Net sales
  
  4,372
  
  4,058
  
  3,890Other (note 11)
  
  80
  
  82
  
  99Total revenue
  
  4,452
  
  4,140
  
  3,989ExpensesOperating
  
  1,115
  
  946
  
  827General and administrative
  
  138
  
  108
  
  95Depreciation, depletion and amortization
  
  1,495
  
  1,313
  
  1,153Dry hole
  
  174
  
  113
  
  77Exploration
  
  185
  
  147
  
  100Interest on long-term debt (note 5)
  
  164
  
  139
  
  136Other (note 12)
  
  113
  
  78
  
  64Total expenses
  
  3,384
  
  2,844
  
  2,452Income before taxes
  
  1,068
  
  1,296
  
  1,537Taxes (note 13)Current income tax
  
  258
  
  342
  
  334Future income tax
  
  162
  
  72
  
  196Petroleum revenue tax
  
  124
  
  149
  
  150544
  
  563
  
  680Net income
  
  524
  
  733
  
  857Preferred security charges, net of tax
  
  24
  
  24
  
  22Net income available to common shareholders
  
  500
  
  709
  
  835Per common share (Canadian dollars)Net income
  
  3.73
  
  5.25
  
  6.05Diluted net income
  
  3.67
  
  5.16
  
  5.96Average number of common shares outstanding (millions)
  
  134
  
  135
  
  138Diluted number of common shares outstanding (millions)
  
  136
  
  137
  
  140  See accompanying notes.  Consolidated Statements of Retained Earnings (Years ended December 31)   (millions
  of Canadian dollars)
  
  2002
  
  2001
  
  2000restated,
  see note 2
  
  restated,
  see note 2Retained earnings, beginning of year
  
  787
  
  257
  
  212Net income
  
  524
  
  733
  
  857Adoption of new accounting policies (note 2)
  
  
  
  
  
  (672
  )Common share dividend
  
  (80
  )
  (81
  )
  Purchase of common shares
  
  (136
  )
  (98
  )
  (118
  )Preferred security charges, net of tax
  
  (24
  )
  (24
  )
  (22
  )Retained earnings, end of year
  
  1,071
  
  787
  
  257  See accompanying notes.   38 
   Consolidated Statements of Cash Flows (Years ended December 31)   (millions
  of Canadian dollars)
  
  2002
  
  2001
  
  2000restated,
  see note 2
  
  restated,
  see note 2OperatingNet income
  
  524
  
  733
  
  857Items not involving current cash flow (note 14)
  
  1,936
  
  1,614
  
  1,456Exploration
  
  185
  
  147
  
  100Cash flow
  
  2,645
  
  2,494
  
  2,413Deferred gain on unwound hedges
  
  (43
  )
  52
  
  Changes in non-cash working capital (note 14)
  
  (163
  )
  (177
  )
  322Cash provided by operating activities
  
  2,439
  
  2,369
  
  2,735InvestingCorporate acquisitions (note 3)
  
  
  
  (1,213
  )
  Capital expendituresExploration, development and corporate
  
  (1,874
  )
  (1,912
  )
  (1,194
  )Acquisitions
  
  (244
  )
  (186
  )
  (431
  )Proceeds of resource property dispositions
  
  30
  
  47
  
  81Investments
  
  (36
  )
  
  
  Changes in non-cash working capital
  
  2
  
  52
  
  (407
  )Cash used in investing activities
  
  (2,122
  )
  (3,212
  )
  (1,951
  )FinancingLong-term debt repaid
  
  (1,397
  )
  (568
  )
  (1,294
  )Long-term debt issued
  
  1,417
  
  1,617
  
  781Common shares purchased
  
  (184
  )
  (117
  )
  (173
  )Common share dividends
  
  (80
  )
  (81
  )
  Preferred security charges
  
  (42
  )
  (42
  )
  (40
  )Deferred credits and other
  
  (21
  )
  (25
  )
  (36
  )Cash (used in) provided by financing activities
  
  (307
  )
  784
  
  (762
  )Net increase (decrease) in cash
  
  10
  
  (59
  )
  22Cash, beginning of year
  
  17
  
  76
  
  54Cash, end of year
  
  27
  
  17
  
  76  See accompanying notes.   39 
   Notes to the Consolidated Financial Statements (tabular amounts in millions of Canadian dollars ($or C$) except as
noted)   1.SIGNIFICANT ACCOUNTING POLICIES  The Consolidated Financial
Statements of Talisman Energy Inc. (Talismanor the Company) have been
prepared by management in accordance with accounting principles generally
accepted in Canada. A summary of the differences between accounting principles
generally accepted in Canada and those generally accepted in the United States
(US) is contained in note 18 to these statements.  The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.  a)
CONSOLIDATION  The Consolidated Financial
Statements include the accounts of Talisman and its subsidiaries. A substantial
portion of Talismans activities are conducted jointly with others and the
Consolidated Financial Statements reflect only the Companys proportionate
interest in such activities.  b)
INVENTORIES  Product inventories are
valued at the lower of average cost and market value. Materials and supplies
are valued at the lower of average cost and net realizable value.  c) PROPERTY,
PLANT AND EQUIPMENT  The Successful Efforts method
is used to account for oil and gas exploration and development costs. Under this
method, acquisition costs of oil and gas properties and costs of drilling and
equipping development wells are capitalized. Costs of drilling exploratory
wells are initially capitalized and, if subsequently determined to be
unsuccessful, are charged to dry hole expense. All other exploration costs,
including geological and geophysical costs and annual lease rentals, are
charged to exploration expense when incurred. Producing properties and
significant unproved properties are assessed annually, or as economic events
dictate, for potential impairment. Any impairment loss is the difference
between the carrying value of the asset and its net recoverable amount
(undiscounted).  d)
DEPRECIATION, DEPLETION AND AMORTIZATION  Capitalized costs of proved
oil and gas properties are depleted using the unit of production method. For
purposes of these calculations, production and reserves of natural gas are
converted to barrels on an energy equivalent basis.  Successful exploratory wells
and development costs are depleted over proved developed reserves while
acquired resource properties with proved reserves, including offshore platform
costs, are depleted over proved reserves. Acquisition costs of probable
reserves are not depleted or amortized while under active evaluation for
commercial reserves. Costs are transferred to depletable costs as proved
reserves are recognized. At the date of acquisition, an evaluation period is
determined after which any remaining probable reserve costs associated with
producing fields are transferred to depletable costs; costs not associated with
producing fields are amortized over a period not exceeding the remaining lease
term.  Costs associated with
significant development projects are not depleted until commercial production
commences. Unproved land acquisition costs that are individually immaterial are
amortized on a straight-line basis over the average lease term until properties
are determined to be productive or impaired. Gas plants, net of estimated
salvage values, are depreciated on a straight-line basis over their estimated
remaining useful lives, not to exceed the estimated remaining productive lives
of related fields. Pipelines and corporate assets are depreciated using the
straight-line method at annual rates of 7% and 5% to 33%, respectively.  e) FUTURE
SITE RESTORATION  Estimated costs of future
dismantlement, site restoration and abandonment of oil and gas properties,
including offshore production platforms, are provided for using the unit of
production method while those of gas plants and facilities are provided for
using the straight-line method at rates approximating their useful lives but
not exceeding the estimated remaining productive lives of related fields. The
annual provision is included within depletion, depreciation and amortization
expense and is based on engineering estimates using current costs and
technology and in accordance with existing legislation and industry practice.
Expenditures are charged against the accumulated provision as incurred. When a
property is disposed of, the associated accumulated provision is eliminated and
included in determination of the gain or loss on disposal.   40 
   f)
CAPITALIZED INTEREST  Interest costs associated
with major development projects are capitalized until commercial production
commences.  g) ROYALTIES  Certain of the Companys
foreign operations are conducted jointly with the respective national oil
companies. These operations are reflected in the Consolidated Financial Statements
based on Talismans working interest in such activities. All other government
stakes, other than income taxes, are considered to be royalty interests.
Royalties on production from these joint foreign operations represent the
entitlement of the respective governments to a portion of Talismans share of
crude oil, liquids and natural gas production and are recorded using rates in
effect under the terms of contracts at the time of production.  h) PETROLEUM
REVENUE TAX  United Kingdom Petroleum
Revenue Tax (PRT) is accounted for using the life of the field method whereby
total future PRT is estimated using current reserves and anticipated costs and
prices and charged to income based on net operating income as a proportion of
estimated future net operating income. Changes in the estimated total future
PRT are accounted for prospectively.  i) FOREIGN
CURRENCY TRANSLATION  Effective January 1, 2002,
the Company adopted the US dollar as its functional currency. Prior to January
1, 2002, the functional currency of the Company was the Canadian dollar. The
Companys financial results have been reported in Canadian dollars as explained
below. See note 2 for additional disclosure regarding the change in functional
currency and the treatment of foreign exchange gains and losses on long-term
debt.  The Companys self-sustaining
operations, which include the Canadian and UK operations, are translated into
US dollars using the current rate method, whereby assets and liabilities are
translated at period-end exchange rates, while revenues and expenses are
converted using average rates for the period. Gains and losses on translation
to US dollars relating to self-sustaining operations are deferred and included
in a separate component of shareholdersequity described as cumulative foreign
currency translation.  The remaining foreign
operations are not considered self-sustaining and are translated using the
temporal method. Under this method, monetary assets and liabilities denominated
in foreign currencies are translated at exchange rates in effect at the balance
sheet date. Non-monetary assets and liabilities denominated in foreign
currencies are translated at rates in effect on the dates the assets were
acquired or liabilities were assumed. Revenues and expenses are translated at
rates of exchange prevailing on the transaction dates. Gains and losses on
translation are reflected in income when incurred.  The Companys financial
results have been reported in Canadian dollars with amounts translated to
Canadian dollars as follows: assets and liabilities at the rate of exchange in
effect at the applicable balance sheet date and revenues and expenses at the
average exchange rates for the periods. The Companys share capital accounts
including its preferred securities, common shares and contributed surplus are
translated at rates in effect at the time of issuance. Unrealized gains and
losses resulting from the translation to Canadian dollars are accumulated in
the cumulative foreign currency translation account.  j) EMPLOYEE
BENEFIT PLANS  The cost of pensions and
other retirement benefits earned by employees is determined using the projected
benefit method prorated on service and managements best estimate of expected
plan investment performance, salary escalation and retirement ages of
employees. The discount rate used to determine the accrued benefit obligation
is determined by reference to market interest rates at the measurement date on
high-quality debt instruments with cash flows that match the timing and amount
of expected benefit payments. For purposes of calculating the expected return
on plan assets, those assets are valued at fair value. The excess of the net
actuarial gain or loss over 10% of the greater of the benefit obligation and
the fair value of plan assets is amortized over the average remaining service
life of active employees. The transitional asset and obligations are being
amortized over the average remaining service period of active employees
expected to receive benefits under the benefit plans.  k)
DERIVATIVE FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS  The Company may enter into
derivative financial instruments to hedge against adverse fluctuations in
foreign exchange rates, electricity rates, interest rates and commodity prices.
Payments or receipts on derivative financial instruments that are designated
and effective as hedges are recognized in income concurrently with the hedged
transaction and are recorded in the statements of income and cash flows in the
line item associated with the hedged transaction. For example, gains and losses
on commodity hedges are included in revenues.   41 
   If the derivative financial
instrument that has been designated as a hedge is terminated, is no longer
designated as part of the hedging relationship, or if it is no longer probable
that the anticipated transaction will occur substantially as and when
identified at the inception of the hedging relationship, the gain or loss at
that date is deferred and recognized concurrently with the anticipated
transaction. Subsequent changes in the value of the financial instrument are
reflected in income. Any derivative financial instrument that does not
constitute a hedge is recorded at fair value with any resulting gain or loss
reflected in income.  All of the Companys
outstanding derivative financial instruments as disclosed in note 9 meet the
hedging requirements under Canadian GAAP, including the documentation
requirement. The hedging requirements consist of the designation of the
instrument as a hedge, the identification of the nature of the risk exposure
being hedged and that there is reasonable assurance that the instrument is
expected to be an effective hedge throughout its term. In addition, in the case
of anticipated transactions, it is also probable that the transaction
designated as being hedged will occur. The Company assesses, both at the
hedges inception and on an ongoing basis, whether the derivative financial
instruments that have been designated as hedges are highly effective in
offsetting changes in fair value or cash flows of the hedged items.  The Company enters into
commodity contracts as a normal course of business including ones with fixed or
optional pricing terms. The contracts outstanding at December 31, 2002 are
disclosed in note 10. The Companys production is expected to be sufficient to
deliver all required volumes under these contracts. No amounts are recognized
in the financial statements related to these contracts until such time as the
associated volumes are delivered.  l) INCOME
TAXES  Talisman uses the liability
method to account for income taxes. Under the liability method, future income
taxes are based on the differences between assets and liabilities reported for
financial accounting purposes from those reported for income tax. Future income
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.  m) REVENUE
RECOGNITION  Revenues associated with the
sale of crude oil, natural gas and liquids represents the sales value of the
Companys share of petroleum production during the year (the entitlement
method). Differences between production and amounts sold are not significant.
Amounts received under take-or-pay gas sales contracts in respect of
undelivered volumes is accounted for as deferred income. In accordance with
contract provisions, Talisman received upstream capital cost recovery priority
in Sudan, which resulted in an accumulation of deferred oil revenue. In 2001,
all deferred oil revenues have been realized and commencing in the second
quarter of 2001, upstream capital cost recovery reverted to being
proportionately shared based on working interest.  n) STOCK OPTION
PLANS  Talisman has stock option
plans for employees and directors, which are described in note 8. No amount of
compensation expense has been recognized in the financial statements. Any
consideration paid by employees on exercise of options is credited to share
capital.  o) GOODWILL  Goodwill represents the
excess purchase price over the fair value of identifiable assets and
liabilities acquired in business combinations. Goodwill is no longer amortized
and is subject to ongoing annual impairment reviews, or as economic events
dictate, based on the fair value of reporting units. The fair value of each
reporting unit is determined and compared to the book value of the reporting
unit. If the fair value of the reporting unit is less than the book value, then
a second test is performed to determine the amount of the impairment. The
amount of the impairment is determined by deducting the fair value of the
reporting units individual assets and liabilities from the fair value of the
reporting unit to determine the implied fair value of goodwill and comparing
that amount to the book value of the reporting units goodwill. Any excess of
the book value of goodwill over the implied fair value of goodwill is the
impairment amount. See note 2 for additional information on the change in
accounting for goodwill.  p) DILUTED
EARNINGS PER SHARE  The Company uses the treasury
method for calculating diluted earnings per share. This method assumes that any
proceeds from the exercise of a convertible instrument would be used to
purchase common shares at the average market price during the period.
Outstanding stock options are the only instruments that are dilutive to
earnings per share. For 2002, 1,080,035 stock options that were antidilutive
have been excluded from the computation of diluted earnings per share (2001 
2,249, 145; 2000  nil).  q)
COMPARATIVE FIGURES  Certain comparative figures
have been reclassified to conform to the presentation adopted in 2002.   42 
   2.CHANGES IN ACCOUNTING  FUNCTIONAL
CURRENCY  As disclosed in note 1(i)
above, effective January 1, 2002, the Company adopted the US dollar as its
functional currency. Prior to January 1, 2002, the functional currency of the
Company was the Canadian dollar. The Canadian and UK operations are considered
self-sustaining with the Canadian dollar and Pound Sterling as their respective
functional currencies. The remaining foreign operations are considered
integrated and have the US dollar as their functional currency.  The change in functional
currency of the Company is due to the increased exposure to the US dollar as a
result of the growth in international operations. The adoption of the Pound
Sterling as the functional currency of the UK operations is the result of the
increased financial self-sustainability of this operation and its overall
exposure to Pound Sterling transactions.  The change in functional
currency decreased net income for the year by $15 million, primarily relating
to foreign exchange gains on US dollar denominated debt. Had the UK operations
continued to be accounted for as being integrated with the parent Companys
operations, the Company would have recorded a $130 million reduction to net
income, primarily related to foreign exchange losses on its Pound Sterling
denominated liabilities.  FOREIGN
EXCHANGE GAINS AND LOSSES ON LONG-TERM DEBT  In accordance with a new
accounting standard adopted for 2002 by the Canadian Institute of Chartered
Accountants (CICA), the Company no longer defers and amortizes the gains or
losses on foreign currency denominated long-term debt. Such gains or losses are
reflected in the Income Statement in the period incurred. The new standard is
being applied retroactively with the financial statements of comparative
periodsrestated. The impact of the new standard on the current
years results was to decrease net income by $3 million.  The effect of the restatement
on the prior released financial statements reduced net income, other assets,
retained earnings (at time of adoption) and net income per share by the
following amounts:  (millions
  of dollars  except per share amounts)
  
  2001
  
  2000Net income
  
  53
  
  49Other assets at December 31
  
  103
  
  51Retained earnings  adoption of new accounting policies
  
  
  
  2Net income per share
  
  0.40
  
  0.36  GOODWILL  In accordance with a new
accounting standard of the CICA, the amortization of goodwill ceased January 1,
2002. This change did not have a significant impact on the Companys financial
results.  CHANGE ININCOMETAX ACCOUNTING POLICY IN PRIOR YEAR  Effective January 1, 2000,
the Company retroactively adopted without restatement the liability method to
account for income taxes. The liability method is explained in note 1(l).
Previously, the deferral method was followed, which determined deferred income
taxes based on the differences in the timing of income and expenses reported
for financial accounting purposes from those reported for income tax purposes.
The effect of the accounting change was to increase net income for 2000 by $80
million, increase the January 1, 2000 future tax liability by $670 million and
decrease retained earnings on adoption of new accounting policy by $670
million. The adjustment to retained earnings resulted primarily from the
recognition of the future tax cost of past corporate acquisitions where the tax
basis acquired was less than the purchase price.   43 
   3.CORPORATE ACQUISITIONS  PETROMET
RESOURCES LIMITED  In May 2001, Talisman
acquired Petromet Resources Limited (Petromet), an oil and gas exploration
and development company, for $765 million and long-term debt assumed of $57
million. The acquisition has been accounted for using the purchase method and
the results have been included in these financial statements from the date of
acquisition.  Net Assets
  AcquiredProperty, plant and equipment
  
  795Goodwill
  
  301Net non-cash working capital
  
  (6
  )Future income tax
  
  (264
  )826Less acquisition costs
  
  (4
  )822   LUNDIN OIL
AB  In August 2001, Talisman
acquired Lundin Oil AB (Lundin), an oil and gas exploration and development
company, for $431 million (net of cash on hand) and long-term debt assumed of
$70 million. The acquisition has been accounted for using the purchase method
and the results have been included in these financial statements from the date
of acquisition.   Net Assets
  AcquiredProperty, plant and equipment
  
  515Goodwill
  
  176Net non-cash working capital
  
  (19
  )Future income tax
  
  (158
  )514Less acquisition costs
  
  (13
  )501   4.INVENTORIES  December 31
  
  2002
  
  2001Materials and supplies
  
  143
  
  96Product
  
  4
  
  3147
  
  99  5.PROPERTY, PLANT AND EQUIPMENT Accumulated
  
  Net bookDecember 31, 2002
  
  Cost
  
  DD&A
  
  valueOil and gas properties
  
  10,198
  
  4,264
  
  5,934Gas plants, pipelines and production equipment
  
  5,576
  
  1,547
  
  4,029Corporate assets
  
  213
  
  134
  
  7915,987
  
  5,945
  
  10,042December 31, 2001Oil and gas properties
  
  9,033
  
  3,193
  
  5,840Gas plants, pipelines and production equipment
  
  4,863
  
  1,298
  
  3,538Corporate assets
  
  194
  
  111
  
  8314,063
  
  4,602
  
  9,461  44 
    In the year ended December 31, 2002, interest costs of $25 million (2001
 $19 million, 2000  $16 million) were capitalized. In 2002, capitalized
interest relates to the Block PM-3 CAA development in Southeast Asia. Included in property, plant and equipment are the following costs that
were not currently subject to depreciation, depletion or amortization
(DD&A):   Non-depleted
  capital at December 31
  
  2002
  
  2001Acquired probable reserve costs(1)Canada  associated with producing fields
  
  102
  
  229North Sea  associated with producing fields
  
  
  
  120North Sea  not associated with producing fields
  
  13
  
  22Southeast Asia  not associated with producing fields
  
  39
  
  39Exploration costs(2)
  
  309
  
  399Development projects(3)Southeast Asia
  
  437
  
  267North Sea
  
  88
  
  142Algeria
  
  175
  
  21Trinidad
  
  30
  
  1,193
  
  1,239 
 (1)
  
  Acquisition costs of probable reserves are not depleted or amortized
  while under active evaluation for commercial reserves.(2)
  
  Exploration costs consist of drilling in progress, wells awaiting
  determination of proved reserves or commencement of production.(3)
  
  Development projects are not depleted pending initial production.  The carrying values of property, plant and equipment, including acquired
probable reserve costs, are subject to uncertainty associated with the quantity
of oil and gas reserves, future production rates, commodity prices and other
factors. Future events could result in material changes to the carrying values
recognized in the financial statements.  6.LONG-TERM DEBT December 31
  
  2002
  
  2001Bank Credit Facilities(1)&(2)Acquisition Credit Facility (2001  2.94%)
  
  
  
  625Bank Credit Facilities (2002  3.32%, 2001  2.80%)
  
  265
  
  639Debentures and Notes (Unsecured)(3)6.625% notes (£250 million), due 2017
  
  576
  
  7.25% debentures (US$300 million), due 2027
  
  474
  
  4785.80% medium term notes, due 2007
  
  385
  
  606.96% notes (US$200 million), due 2005
  
  316
  
  3187.125% debentures (US$175 million), due 2007
  
  276
  
  2795.70% medium term notes, due 2003(2)
  
  180
  
  1808.06% medium term notes, due 2009
  
  174
  
  1756.68% notes (US$100 million), due 2008
  
  158
  
  6.89% notes (US$50 million), Series B, due 2006(4)
  
  79
  
  799.80% debentures, Series B, due 2004
  
  75
  
  756.71% notes (US$25 million), Series A, due 2004
  
  39
  
  409.66% medium term notes, due 2002
  
  
  
  352,997
  
  2,983Less current portion
  
  
  
  (189
  )2,997
  
  2,794 
  (1)
  
  Rates reflect the weighted-average interest rate of instruments outstanding
  at December 31. Rates are floating rate-based and vary with changes in
  short-term market interest rates.(2)
  
  The amount outstanding at
  December 31, 2002 has been classified as long-term debt since the Company has
  both the ability to replace the current portion with long-term borrowings
  under the revolving bank credit facilities and the intention to extend the
  terms of the respective credit facilities in 2003.(3)
  
  Interest on debentures and notes is payable semi-annually except for
  the 6.625% notes (£250 million), which is payable annually.(4)
  
  Repayable in five equal annual installments commencing 2006.   45 
    During 2002, the Company completed a $571 million (£250 million)
Eurobond offering of 6.625% notes due December 5, 2017. The Company entered
into US dollar cross currency swap contracts and interest rate swap contracts
for an equivalent amount of the notes which have in effect converted this
indebtedness to US$364 million with a floating interest rate based on US LIBOR.
The swap contracts expire December 5, 2009. BANK CREDIT FACILITIES Talisman has unsecured credit facilities totaling $1,049 million,
consisting of facilities of $437 million (Facility No. 1), $512 million
(Facility No. 2) and $100 million (Facility No. 3). The maturity date of
Facility No. 1 is March 23, 2005, although this date may be extended from time
to time upon agreement between the Company and the respective lenders. Prior to
the maturity date, the Company may borrow, repay and reborrow at its
discretion. The term dates of Facility Nos. 2 and 3 are March 19, 2003 and
August 26, 2003, respectively. Until each term date, the Company may borrow,
repay and reborrow at its discretion. Annually, upon agreement between the
Company and the respective lenders, each term date may be extended for an
additional 364 days. Facility No. 2 expires four years after the then current
term date and, if the term is not extended, must be repaid in equal semi-annual
payments beginning six months after the term date. Facility No. 3 expires one
year after the then current term date and, if the term is not extended, must be
repaid on the maturity date. Borrowings under Facility Nos. 1 and 2 are available in the form of
prime loans, Canadian or US dollar bankersacceptances, US dollar base rate
loans or LIBOR-based loans. In addition, drawings to a total of $475 million
may be made by letters of credit. Borrowings under Facility No. 3 are available
in the form of prime loans, Canadian bankersacceptances, US dollar base rate
loans, LIBOR-based loans and letters of credit. REPAYMENT SCHEDULE The Companys contractual minimum repayments of long-term debt in the
next five years are as follows:  Year2003(1)
  
  1802004
  
  1242005
  
  5712006
  
  162007
  
  677Subsequent to 2007
  
  1,429Total
  
  2,997 
 (1)
  
  The portion of long-term debt payable in 2003 has been classified as
  long-term debt since the Company has both the ability to replace the current
  portion with long-term borrowings under the revolving bank credit facilities
  and the intention to extend the terms of the facilities in 2003.  7.PREFERRED
SECURITIES During 1999, Talisman issued 12 million preferred securities
(securities) as unsecured junior subordinated debentures, at US$25 per
security, of which six million 9% securities are due February 15, 2048 and six
million 8.9% securities are due June 15, 2048. The securities are redeemable,
in whole or in part, at par by Talisman through the payment of cash or issuance
of common shares at any time on or after February 15, 2004 and June 15, 2004,
respectively. The Company has the option to defer the payment of the security
charges for up to 20 consecutive three month periods and satisfy such deferred
security charges with either cash or the issuance of common shares. Security
charges are due quarterly. 8.SHARE
CAPITAL Talismans authorized share capital consists of an unlimited number of
common shares without nominal or par value and first and second preferred
shares. No preferred shares have been issued.   Continuity of common shares
  
  2002
  
  2001
  
  2000Shares
  
  Amount
  
  Shares
  
  Amount
  
  Shares
  
  AmountBalance, beginning of year
  
  133,733,182
  
  2,831
  
  135,344,045
  
  2,849
  
  138,346,297
  
  2,901Issued on exercise of
  options
  
  1,154,067
  
  36
  
  1,512,898
  
  49
  
  1,276,048
  
  38Purchased during year
  
  (3,847,500
  )
  (82
  )
  (3,036,400
  )
  (65
  )
  (4,278,300
  )
  (90
  )Cancelled pursuant to termsof plans of arrangements
  
  (314
  )
  
  
  (87,361
  )
  (2
  )
  
  
  Balance, end of year
  
  131,039,435
  
  2,785
  
  133,733,182
  
  2,831
  
  135,344,045
  
  2,849   46 
   During the year ended December 31, 2002, Talisman repurchased 3,847,500
common shares of the Company pursuant to a normal course issuer bid for a total
of $220 million (2001  $166 million; 2000  $210 million). Subsequent to year
end, the Company repurchased an additional 1,986,200 common shares for $113
million pursuant to the normal course issuer bid. In 2001, Talisman cancelled 87,361 common shares of the Company pursuant
to the terms of the offering agreements of certain past corporate acquisitions.
As a result of the cancellation of these shares, $2 million was credited to
contributed surplus. An additional 314 common shares were cancelled in 2002. STOCK OPTION PLANS Talisman has stock option plans that allow employees and directors to
receive options to purchase common shares of the Company. Options granted under
the plans are generally exercisable after three years and expire 10 years after
the grant date. Option exercise prices approximate the market price for the
common shares on the date the options are issued. No amount of compensation expense has been recognized in the
Consolidated Financial Statements for stock options granted to employees and directors.
The following table provides pro forma measures of net income and net income
per common share had stock options been recognized as compensation expense
based on the estimated fair value of the options on the grant date.   2002
  
  2001
  
  2000As
  
  Pro
  
  As
  
  Pro
  
  As
  
  ProReported
  
  Forma
  
  Reported
  
  Forma
  
  Reported
  
  FormaNet income
  
  524
  
  493
  
  733
  
  709
  
  857
  
  841Per common shareBasic
  
  3.73
  
  3.50
  
  5.25
  
  5.08
  
  6.05
  
  5.93Diluted
  
  3.67
  
  3.44
  
  5.16
  
  4.99
  
  5.96
  
  5.85   Stock options granted in 2002 had an estimated weighted-average fair
value of $26.19 per option (2001  $22.80 per option; 2000  $16.83 per
option). All options issued by the Company permit the holder to purchase one
common share of the Company at the stated exercise price. The estimated fair value of stock options issued was determined using
the Black-Scholes model using the following weighted- average assumptions:   2002
  
  2001
  
  2000Risk-free interest rate (%)
  
  5.1
  
  4.9
  
  6.2Estimated hold period prior to exercise (years)
  
  5.4
  
  5.3
  
  5.4Volatility in the price of the Companys common shares (%)
  
  41
  
  39
  
  35Dividends ($/share)
  
  0.60
  
  0.60
  
     Continuity
  of stock options
  
  2002
  
  2001
  
  2000Number
  
  Average
  
  Number
  
  Average
  
  Number
  
  Averageof
  
  Exercise
  
  of
  
  Exercise
  
  of
  
  ExerciseOptions
  
  Price
  
  Options
  
  Price
  
  Options
  
  PriceOutstanding at January 1
  
  7,497,611
  
  41.49
  
  6,854,806
  
  33.84
  
  7,211,864
  
  32.30Granted
  
  1,100,710
  
  64.73
  
  2,301,828
  
  58.39
  
  1,097,427
  
  39.31Exercised
  
  1,154,067
  
  30.54
  
  1,512,898
  
  32.19
  
  1,276,048
  
  29.39Forfeited
  
  59,150
  
  57.53
  
  146,125
  
  45.24
  
  176,637
  
  36.93Expired
  
  1,050
  
  57.88
  
  
  
  
  
  1,800
  
  42.55Outstanding at December 31
  
  7,384,054
  
  46.53
  
  7,497,611
  
  41.49
  
  6,854,806
  
  33.84Exercisable at December 31
  
  3,142,629
  
  34.34
  
  3,246,985
  
  34.87
  
  3,529,921
  
  32.67Options available for future grants pursuant to the Companys StockOption Plans
  
  3,155,889
  
  
  
  4,196,399
  
  
  
  2,852,102   47 
   The range of exercise prices of the Companys outstanding stock options
is as follows:   December
  31, 2002
  
  Outstanding
  Options
  
  Exercisable
  OptionsWeighted
  
  Weighted
  
  
  
  WeightedNumber
  
  Average
  
  Average
  
  Number
  
  Averageof
  
  Exercise
  
  Years to
  
  of
  
  ExerciseRange of Exercise Prices
  
  Options
  
  Price
  
  Expiry
  
  Options
  
  Price$24.25 to $29.99
  
  1,167,871
  
  25.79
  
  5
  
  1,167,871
  
  25.79$30.00 to $39.99
  
  1,509,492
  
  36.10
  
  6
  
  612,892
  
  33.00$40.00 to $49.99
  
  1,409,068
  
  42.28
  
  5
  
  1,336,276
  
  41.91$50.00 to $59.99
  
  2,197,663
  
  58.35
  
  8
  
  15,140
  
  58.55$60.00 to $68.36
  
  1,099,960
  
  64.73
  
  9
  
  10,450
  
  64.73$24.25 to $68.36
  
  7,384,054
  
  46.53
  
  7
  
  3,142,629
  
  34.34   At December 31, 2002, 10,539,943 common shares were reserved for
issuance related to the stock option plans. 9.FINANCIAL
INSTRUMENTS FINANCIAL CONTRACTS The following financial contracts were outstanding at December 31: a) Interest rates In December 1994, in anticipation of issuing the US$175 million 7.125%
debentures, Talisman entered into interest rate swap contracts to hedge against
possible adverse interest rate fluctuations. These contracts result in Talisman
paying interest at a rate of 8.295% in exchange for receiving the three-month
LIBOR rate on notional principal of US$100 million until May 16, 2005. Based on
the LIBOR rate at December 31, 2002, these contracts result in an effective
rate of interest on the debentures of 10.8%. b) Cross currency and interest rate swaps As disclosed in note 6, in conjunction with the Eurobond offering, the
Company entered into US dollar cross currency swap contracts and interest rate
swap contracts for an equivalent amount of the notes, which have in effect
converted the original Pounds Sterling fixed interest rate on this indebtedness
into US dollars with a floating interest rate based on three month US LIBOR.
The swap contracts expire December 5, 2009. Subsequently in 2002, the Company
entered into a forward rate swap agreement to effectively fix the rate of the
next three month US LIBOR payment due in March 2003 under the interest rate
swap contracts. c) Foreign exchange forward contracts During 2002, the Company entered into foreign exchange forward contracts
to purchase £178 million for US$275 million during the first six months of
2003. These forward contracts fix the exchange rate used to convert a portion
of the Companys US dollar denominated revenues received in the UK into Pounds
Sterling for purposes of paying operating costs and capital expenditures. d) Commodity prices The Company entered into the following commodity price derivative
contracts to reduce the volatility of anticipated natural gas and crude oil
revenues. The amounts shown below are the weighted-average of the contracts
outstanding. NATURAL GAS DERIVATIVE CONTRACTS   Fixed
  price swaps
  
  2003
  
  Two-way
  collars
  
  2003
  
  Three-way
  collars
  
  2003Volumes (mcf/d)
  
  35,600
  
  Volumes (mcf/d)
  
  13,400
  
  Volume (mcf/d)
  
  11,500Price ($/mcf)
  
  6.54
  
  Ceiling ($/mcf)
  
  6.94
  
  Ceiling ($/mcf)
  
  3.54Floor ($/mcf)
  
  6.23
  
  Floor ($/mcf)
  
  3.25Sold put ($/mcf)
  
  2.68   The natural gas price reference for the above contracts is AECO. The
three-way collars are similar to two-way collars except that should the index
price fall below the sold put price, Talisman will receive the index price plus
the difference between the floor and sold put prices.  48 
   CRUDE OIL DERIVATIVE CONTRACTS Fixed price
  swaps (WTI oil index)
  
  2003
  
  Fixed
  price swaps (Brent oil index)
  
  2003Volumes (bbls/d)
  
  30,000
  
  Volumes (bbls/d)
  
  10,000Price (US$/bbl)
  
  25.34
  
  Price (US$/bbl)
  
  21.75Two-way collars (WTI oil index)
  
  2003
  
  Two-way collars (Brent oil
  index)
  
  2003Volumes (bbls/d)
  
  23,000
  
  Volumes (bbls/d)
  
  12,000Ceiling price (US$/bbl)
  
  28.48
  
  Ceiling price (US$/bbl)
  
  25.71Floor price (US$/bbl)
  
  23.05
  
  Floor price (US$/bbl)
  
  22.23   CARRYING AMOUNTS AND ESTIMATED FAIR VALUES OF FINANCIAL
INSTRUMENTS Asset (liability) at December 31
  
  2002
  
  2001Carrying
  
  Fair
  
  
  
  Carrying
  
  FairValue
  
  Value
  
  Unrecognized
  
  Value
  
  Value
  
  UnrecognizedDebentures and notes
  
  (2,732
  )
  (3,006
  )
  (274
  )
  (1,719
  )
  (1,767
  )
  (48
  )Foreign currency swaps
  
  
  
  14
  
  14
  
  
  
  
  
  Cross currency and interest rate swaps
  
  
  
  72
  
  72
  
  
  
  (19
  )
  (19
  )Natural gas derivatives
  
  
  
  (10
  )
  (10
  )
  
  
  69
  
  69Crude oil derivatives
  
  
  
  (52
  )
  (52
  )
  
  
  91
  
  91   Borrowings under bank credit facilities are for short terms and are
market rate based, thus, carrying values approximate fair value. The fair value
of debentures and notes is based on market quotations, which reflect the
discounted present value of the principal and interest payments using the
effective yield at December 31 for instruments having the same term and risk
characteristics. Fair values for derivative instruments are determined based on
the estimated cash payment or receipt necessary to settle the contract at
December 31. Cash payments or receipts are based on discounted cash flow
analysis using current market rates and prices. The fair values of other financial instruments, including cash, accounts
receivable, accounts payable, and income and other taxes payable, approximate
their carrying values. CREDIT RISK A significant portion of the Companys accounts receivable is due from
entities in the oil and gas industry. Concentration of credit risk is mitigated
by having a broad domestic and international customer base, which includes a significant
number of companies engaged in joint operations with Talisman. The Company
routinely assesses the financial strength of its partners and customers,
including parties involved in marketing or other commodity arrangements. The Company is exposed to credit risk associated with possible
non-performance by derivative instrument counter parties. The Company actively
limits the total exposure to individual counter parties. 10.CONTINGENCIES
AND COMMITMENTS Talisman is party to various legal claims associated with the ordinary
conduct of business. These claims are not currently expected to have a material
impact on the Companys financial position. A suit which seeks class action status was filed against Talisman in the
United States District Court (Southern District of New York), under the Alien
Tort Claims Act relating to the civil conflict in Sudan. Damages sought under
the suit are indeterminate. Talismans estimated total future dismantlement, site restoration and
abandonment liability at December 31, 2002 was $1.7 billion (2001  $1.5
billion), approximately 80% of which is denominated in UK Pounds Sterling. At
December 31, 2002, Talisman had accrued $813 million (2001  $619 million) of
this liability and will continue to accrue the remaining balance in accordance
with the Companys policy as set out in note 1(e). The Company has provided
letters of credit in 2003 in the amount of £161 million ($411 million) as
security for the costs of future dismantlement, site restoration and
abandonment costs for certain North Sea fields included in the above total.
Estimated future dismantlement, site restoration and abandonment costs and the
related provision in the financial statements are subject to uncertainty
associated with the method, timing and extent of future dismantlement, site
restoration and abandonment. For example, changes in legislation or technology
may result in actual future costs that differ materially from those estimated.  49 
    Talisman has firm commitments for gathering, processing and
transportation services that require the Company to pay tariffs to third
parties for processing or shipment of certain minimum quantities of crude oil
and liquids and natural gas. The Company has sufficient production to meet
these commitments. Talisman leases certain of its vessels and corporate offices, all of
which are accounted for as operating leases. Talisman is under contract to
lease two vessels from third parties. The term of the Ross Floating Production,
Storage and Offloading vessel (FPSO) lease depends on the expected life of
the Ross and Blake fields. A lease for an FPSO contracted in Malaysia expires
in 2004. In addition, Talisman has ongoing operating commitments associated
with the vessels. Estimated future minimum commitments(1)   Subsequent2003
  
  2004
  
  2005
  
  2006
  
  2007
  
  to 2007
  
  TotalOffice leases
  
  18
  
  15
  
  15
  
  15
  
  15
  
  113
  
  191Vessel leases
  
  52
  
  63
  
  
  
  
  
  
  
  
  
  115Transportation and processing commitments(2)
  
  145
  
  97
  
  76
  
  70
  
  63
  
  491
  
  942Minimum work commitments
  
  262
  
  104
  
  48
  
  22
  
  25
  
  
  
  461Abandonment obligations
  
  24
  
  24
  
  25
  
  90
  
  19
  
  1,549
  
  1,731Other service contracts
  
  16
  
  16
  
  16
  
  16
  
  6
  
  90
  
  160Total
  
  517
  
  319
  
  180
  
  213
  
  128
  
  2,243
  
  3,600 
  (1)
  
  Future minimum payments denominated in foreign currencies have been
  translated into Canadian dollars based on the December 31, 2002 exchange
  rate.(2)
  
  Certain of the Companys transportation commitments are tied to firm
  gas sales contracts.  The Company has entered into
sales contracts for a portion of its future North American natural gas
production. The following are the average volumes under contract and the
weighted-average contract price in each of the years shown.   Fixed
  price sales
  
  2003
  
  2004
  
  Three-way collars
  
  2003
  
  2004Volumes (mcf/d)
  
  71,250
  
  33,200
  
  Volumes (mcf/d)
  
  14,500
  
  15,250Average price ($/mcf)
  
  3.91
  
  3.42
  
  Ceiling ($/mcf)
  
  3.59
  
  3.49Floor ($/mcf)
  
  3.39
  
  3.32Sold put strike ($/mcf)
  
  2.78
  
  2.67   The three-way collars are
similar to two-way commodity collars, except that should the NIT (Nova
Inventory Transfer) index fall below the sold put strike price, Talisman will
receive NIT plus the difference between the floor and sold put strike prices.  The Company has also sold
forward 15,000 mcf/d of North Sea natural gas production for the period April
to September 2003 at $4.40/mcf.  11.OTHER
REVENUE   Years
  ended December 31
  
  2002
  
  2001
  
  2000Pipeline and custom treating tariffs
  
  69
  
  63
  
  82Investment income
  
  8
  
  15
  
  13Marketing income
  
  3
  
  4
  
  480
  
  82
  
  99   12.OTHER
EXPENSES (INCOME)   Years
  ended December 31
  
  2002
  
  2001
  
  2000Net loss (gain) on asset disposals
  
  10
  
  (11
  )
  (12
  )Foreign exchange losses(1)
  
  28
  
  51
  
  57Project loan facility deferred costs write-off
  
  
  
  17
  
  Property impairments
  
  74
  
  
  
  Other expense (income)
  
  1
  
  21
  
  19113
  
  78
  
  64 
 (1)
  
  Foreign exchange gains and losses for 2001 and 2000 have been restated
  for a new accounting standard. See note 2.   50 
    13.TAXES  Income Taxes The current and future income
taxes for each of the three years ended December 31 are as follows:   2002
  
  2001
  
  2000Current income taxes (recovery)Canada(1)
  
  (20
  )
  45
  
  10United Kingdom
  
  131
  
  153
  
  233Netherlands
  
  
  
  9
  
  4Southeast Asia(2)
  
  76
  
  83
  
  31Sudan
  
  68
  
  50
  
  54Other
  
  3
  
  2
  
  2258
  
  342
  
  334Future income taxes (recovery)Canada
  
  67
  
  134
  
  147United Kingdom
  
  109
  
  (68
  )
  (33
  )Netherlands
  
  7
  
  (1
  )
  2Southeast Asia(2)
  
  (3
  )
  15
  
  89Sudan
  
  16
  
  3
  
  5Other
  
  (34
  )
  (11
  )
  (14
  )162
  
  72
  
  196Income taxes
  
  420
  
  414
  
  530 
 (1)
  
  Current Canadian income taxes include the federal tax on large
  corporations, net of Alberta royalty tax credits.(2)
  
  Includes operations in Indonesia and Malaysia/Vietnam.  The components of the net
future tax liability at December 31, are as follows:   2002
  
  2001Future tax liabilitiesProperty, plant and equipment
  
  2,392
  
  2,137Pension assets
  
  21
  
  22Other
  
  184
  
  902,597
  
  2,249Future tax assetsProvision for future site restoration
  
  297
  
  195Other
  
  64
  
  65361
  
  260Net future tax liability
  
  2,236
  
  1,989   Future distribution taxes
associated with operations in the UK have not been recorded because, based on
current plans, repatriation of funds in excess of foreign reinvestment will not
result in material amounts of tax expense. Unremitted earnings in other foreign
jurisdictions are not material.  Income taxes vary from the
amount that would be computed by applying the Canadian statutory income tax
rate of 42.08% for the year ended December 31, 2002 (2001  42.45%; 2000 
44.04%) as follows:  51 
    Years
  ended December 31
  
  2002
  
  2001
  
  2000Income taxes calculated at the Canadian statutory rate
  
  442
  
  572
  
  698Increase (decrease) in income taxes resulting from:Non-deductible royalties, mineral taxes and expenses
  
  138
  
  207
  
  203Resource allowances
  
  (128
  )
  (168
  )
  (162
  )Non-deductible depreciation, depletion and amortization
  
  
  
  4
  
  Deductible PRT expense
  
  (51
  )
  (62
  )
  (64
  )Lower foreign tax rates (net)
  
  (108
  )
  (90
  )
  (172
  )Provincial rebates and credits
  
  (10
  )
  (40
  )
  (1
  )Federal tax on large corporations
  
  9
  
  9
  
  7Change in statutory tax rates
  
  116
  
  (34
  )
  Other
  
  12
  
  16
  
  21Income taxes
  
  420
  
  414
  
  530   PETROLEUM
REVENUE TAX Petroleum Revenue Tax (PRT)
expense primarily relates to the UK and is comprised of current tax expense of
$91 million (2001  $102 million; 2000  $165 million) and deferred tax expense
of $33 million (2001  $47 million expense; 2000  $15 million recovery). The
measurement of PRT expense and the related provision in the Consolidated
Financial Statements is subject to uncertainty associated with future recovery
of oil and gas reserves, commodity prices and the timing of future events, which
could result in material changes to deferred amounts.  14.CONSOLIDATED
STATEMENTS OF CASH FLOWS Selected cash flow
information:  Years
  ended December 31
  
  2002
  
  2001
  
  2000Net income
  
  524
  
  733
  
  857Items not involving current cash flowDepreciation, depletion and amortization
  
  1,495
  
  1,313
  
  1,153Property impairments
  
  74
  
  
  
  Dry hole
  
  174
  
  113
  
  77Net loss (gain) on asset disposals
  
  10
  
  (11
  )
  (12
  )Future taxes and deferred PRT
  
  195
  
  119
  
  181Other
  
  (12
  )
  80
  
  571,936
  
  1,614
  
  1,456Exploration
  
  185
  
  147
  
  100Cash flow
  
  2,645
  
  2,494
  
  2,413Cash interest paid (net of capitalized interest)
  
  156
  
  137
  
  147Cash income taxes paid
  
  274
  
  365
  
  182  Cash and cash equivalents
include short-term investments with maturities of three months or less.  Changes in operating non-cash
working capital consisted of the following:  Years
  ended December 31
  
  2002
  
  2001
  
  2000Accounts receivable
  
  (155
  )
  266
  
  (247
  )Inventories
  
  (42
  )
  10
  
  (19
  )Prepaid expenses
  
  5
  
  (9
  )
  2Accounts payable and accrued liabilities
  
  (16
  )
  (323
  )
  385Income and other taxes payable
  
  45
  
  (121
  )
  201Net source (use) of cash
  
  (163
  )
  (177
  )
  322   52 
   15.EMPLOYEE
BENEFITS The Company sponsors both
defined benefit and defined contribution pension arrangements covering
substantially all employees. The Company uses actuarial reports prepared by
independent actuaries for funding and accounting purposes. The following
significant actuarial assumptions were employed to determine the periodic
pension expense and the accrued benefit obligations:   2002
  
  2001
  
  2000Expected long-term rate of return on plan assets (%)
  
  7.5
  
  7.5
  
  7.5Discount rate (%)
  
  6.5
  
  6.5
  
  6.6Rate of compensation increase (%)
  
  4.5
  
  4.5
  
  4.5   The Companys net benefit
plan expense (credit) is as follows:   2002
  
  2001
  
  2000Current service cost  defined benefit
  
  5
  
  2
  
  1Current service cost  defined contribution
  
  6
  
  5
  
  4Interest cost
  
  7
  
  5
  
  5Expected return on plan assets
  
  (11
  )
  (10
  )
  (10
  )Amortization of net transitional asset
  
  (1
  )
  (1
  )
  (1
  )Net benefit plan expense (credit)
  
  6
  
  1
  
  (1
  )   Information about the
Companys defined benefit pension plans is as follows:   2002
  
  2001Pension plans grouped
  
  Pension plans groupedby funded status
  
  by funded statusSurplus
  
  Deficit
  
  Surplus
  
  DeficitACCRUED
  BENEFIT OBLIGATIONAccrued benefit obligation, beginning of year
  
  53
  
  42
  
  48
  
  33Current service cost
  
  1
  
  4
  
  1
  
  1Interest cost
  
  3
  
  3
  
  4
  
  1Actuarial losses
  
  1
  
  14
  
  5
  
  8Plan participantscontributions
  
  
  
  1
  
  
  
  Benefits paid
  
  (4
  )
  (1
  )
  (5
  )
  (1
  )Accrued benefit obligation, end of year
  
  54
  
  63
  
  53
  
  42PLAN ASSETSFair value of plan assets, beginning of year
  
  128
  
  21
  
  136
  
  23Actual loss on plan assets
  
  (4
  )
  (5
  )
  (3
  )
  (2
  )Employer contributions
  
  
  
  5
  
  
  
  2Plan participantscontributions
  
  
  
  1
  
  4
  
  Surplus applied to defined contribution plan
  
  (6
  )
  
  
  (4
  )
  Benefits paid
  
  (4
  )
  (1
  )
  (5
  )
  (1
  )Fair value of plan assets, end of year
  
  114
  
  21
  
  128
  
  22FUNDED STATUS  SURPLUS (DEFICIT)
  
  60
  
  (42
  )
  75
  
  (20
  )Unamortized net actuarial loss
  
  18
  
  21
  
  4
  
  3Unamortized net transitional (asset) obligation
  
  (11
  )
  2
  
  (12
  )
  2Other
  
  
  
  
  
  
  
  (1
  )Net accrued benefit asset (liability)
  
  67
  
  (19
  )
  67
  
  (16
  )   At December 31, 2002, the
actuarial net present value of the accrued benefit obligation for other
post-retirement benefit plans was $7 million (2001  $7 million).   53 
   16.SEGMENTED
INFORMATION Talismans activities are
conducted in five geographic segments: North America, the North Sea, Southeast
Asia, Sudan and other international locations. North America includes
operations in Canada and the US. The North Sea includes operations in the UK
and the Netherlands. The Southeast Asia segment includes operations in
Indonesia, Malaysia and Vietnam. All activities relate to the exploration,
development and production of oil, liquids and natural gas.  North
  America(2)
  
  North Sea(3)
  
  Southeast
  Asia(4)2002
  
  2001
  
  2000
  
  2002
  
  2001
  
  2000
  
  2002
  
  2001
  
  2000RevenueGross salesOil and liquids
  
  706
  
  714
  
  799
  
  1,798
  
  1,466
  
  1,513
  
  323
  
  276
  
  289Natural gas
  
  1,270
  
  1,583
  
  1,216
  
  173
  
  172
  
  159
  
  163
  
  163
  
  227Synthetic oil
  
  42
  
  40
  
  41
  
  
  
  
  
  
  
  
  
  
  
  Sulphur
  
  (4
  )
  (5
  )
  3
  
  
  
  
  
  
  
  
  
  
  
  Total gross sales
  
  2,014
  
  2,332
  
  2,059
  
  1,971
  
  1,638
  
  1,672
  
  486
  
  439
  
  516Royalties
  
  373
  
  558
  
  511
  
  96
  
  93
  
  70
  
  130
  
  90
  
  113Net sales
  
  1,641
  
  1,774
  
  1,548
  
  1,875
  
  1,545
  
  1,602
  
  356
  
  349
  
  403Other
  
  38
  
  34
  
  19
  
  40
  
  46
  
  78
  
  1
  
  1
  
  3Total
  revenue
  
  1,679
  
  1,808
  
  1,567
  
  1,915
  
  1,591
  
  1,680
  
  357
  
  350
  
  406Segmented
  expensesOperatingOil and liquids
  
  121
  
  121
  
  97
  
  517
  
  407
  
  374
  
  65
  
  54
  
  40Natural gas
  
  212
  
  198
  
  155
  
  27
  
  18
  
  26
  
  21
  
  16
  
  15Synthetic oil
  
  19
  
  20
  
  17
  
  
  
  
  
  
  
  
  
  
  
  Pipeline
  
  5
  
  4
  
  4
  
  44
  
  42
  
  35
  
  
  
  
  
  Total operating expenses
  
  357
  
  343
  
  273
  
  588
  
  467
  
  435
  
  86
  
  70
  
  55DD&A
  
  614
  
  585
  
  478
  
  701
  
  558
  
  512
  
  87
  
  93
  
  83Dry hole
  
  128
  
  54
  
  29
  
  9
  
  21
  
  15
  
  4
  
  8
  
  17Exploration
  
  66
  
  69
  
  54
  
  20
  
  30
  
  13
  
  19
  
  8
  
  7Other
  
  77
  
  11
  
  51
  
  55
  
  (23
  )
  (4
  )
  11
  
  (2
  )
  14Total
  segmented expenses
  
  1,242
  
  1,062
  
  885
  
  1,373
  
  1,053
  
  971
  
  207
  
  177
  
  176Segmented
  income (loss) before taxes
  
  437
  
  746
  
  682
  
  542
  
  538
  
  709
  
  150
  
  173
  
  230Corporate
  expensesGeneral and administrativeInterest on long-term debtCurrency translationTotal corporate expensesIncome
  before taxesProperty, plant and equipment
  
  4,955
  
  4,773
  
  3,658
  
  2,921
  
  2,831
  
  2,484
  
  1,093
  
  924
  
  517Goodwill
  
  291
  
  291
  
  
  
  46
  
  41
  
  
  
  132
  
  135
  
  Other
  
  350
  
  265
  
  410
  
  387
  
  371
  
  389
  
  205
  
  137
  
  189Segmented
  assets
  
  5,596
  
  5,329
  
  4,068
  
  3,354
  
  3,243
  
  2,873
  
  1,430
  
  1,196
  
  706Non-segmented assetsTotal
  assetsCapital
  expendituresExploration
  
  321
  
  314
  
  252
  
  134
  
  106
  
  46
  
  36
  
  31
  
  30Development
  
  501
  
  562
  
  434
  
  297
  
  527
  
  257
  
  233
  
  110
  
  39Exploration
  and development
  
  822
  
  876
  
  686
  
  431
  
  633
  
  303
  
  269
  
  141
  
  69Acquisitions(1)Proceeds on dispositionsOther non-segmentedNet capital
  expenditures  54 
   Sudan
  
  Other
  
  Total2002
  
  2001
  
  2000
  
  2002
  
  2001
  
  2000
  
  2002
  
  2001
  
  2000RevenueGross salesOil and liquids
  
  828
  
  638
  
  589
  
  
  
  
  
  
  
  3,655
  
  3,094
  
  3,190Natural gas
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,606
  
  1,918
  
  1,602Synthetic oil
  
  
  
  
  
  
  
  
  
  
  
  
  
  42
  
  40
  
  41Sulphur
  
  
  
  
  
  
  
  
  
  
  
  
  
  (4
  )
  (5
  )
  3Total gross sales
  
  828
  
  638
  
  589
  
  
  
  
  
  
  
  5,299
  
  5,047
  
  4,836Royalties
  
  328
  
  248
  
  252
  
  
  
  
  
  
  
  927
  
  989
  
  946Net sales
  
  500
  
  390
  
  337
  
  
  
  
  
  
  
  4,372
  
  4,058
  
  3,890Other
  
  1
  
  1
  
  1
  
  
  
  
  
  (2
  )
  80
  
  82
  
  99Total
  revenue
  
  501
  
  391
  
  338
  
  
  
  
  
  (2
  )
  4,452
  
  4,140
  
  3,989Segmented
  expensesOperatingOil and liquids
  
  84
  
  66
  
  64
  
  
  
  
  
  
  
  787
  
  648
  
  575Natural gas
  
  
  
  
  
  
  
  
  
  
  
  
  
  260
  
  232
  
  196Synthetic oil
  
  
  
  
  
  
  
  
  
  
  
  
  
  19
  
  20
  
  17Pipeline
  
  
  
  
  
  
  
  
  
  
  
  
  
  49
  
  46
  
  39Total operating expenses
  
  84
  
  66
  
  64
  
  
  
  
  
  
  
  1,115
  
  946
  
  827DD&A
  
  93
  
  77
  
  80
  
  
  
  
  
  
  
  1,495
  
  1,313
  
  1,153Dry hole
  
  13
  
  16
  
  3
  
  20
  
  14
  
  13
  
  174
  
  113
  
  77Exploration
  
  6
  
  11
  
  8
  
  74
  
  29
  
  18
  
  185
  
  147
  
  100Other
  
  (5
  )
  11
  
  (1
  )
  (7
  )
  8
  
  4
  
  131
  
  5
  
  64Total
  segmented expenses
  
  191
  
  181
  
  154
  
  87
  
  51
  
  35
  
  3,100
  
  2,524
  
  2,221Segmented
  income (loss) before taxes
  
  310
  
  210
  
  184
  
  (87
  )
  (51
  )
  (37
  )
  1,352
  
  1,616
  
  1,768Corporate
  expensesGeneral and administrative
  
  
  
  
  
  
  
  
  
  
  
  
  
  138
  
  108
  
  95Interest on long-term debt
  
  
  
  
  
  
  
  
  
  
  
  
  
  164
  
  139
  
  136Currency translation
  
  
  
  
  
  
  
  
  
  
  
  
  
  (18
  )
  73
  
  Total corporate expenses
  
  
  
  
  
  
  
  
  
  
  
  
  
  284
  
  320
  
  231Income
  before taxes
  
  
  
  
  
  
  
  
  
  
  
  
  
  1,068
  
  1,296
  
  1,537Property, plant and equipment
  
  772
  
  767
  
  748
  
  301
  
  166
  
  94
  
  10,042
  
  9,461
  
  7,501Goodwill
  
  
  
  
  
  
  
  
  
  
  
  
  
  469
  
  467
  
  Other
  
  56
  
  44
  
  77
  
  18
  
  7
  
  7
  
  1,016
  
  824
  
  1,072Segmented
  assets
  
  828
  
  811
  
  825
  
  319
  
  173
  
  101
  
  11,527
  
  10,752
  
  8,573Non-segmented assets
  
  
  
  
  
  
  
  
  
  
  
  
  
  67
  
  67
  
  52Total
  assets
  
  
  
  
  
  
  
  
  
  
  
  
  
  11,594
  
  10,819
  
  8,625Capital
  expendituresExploration
  
  27
  
  42
  
  33
  
  110
  
  74
  
  46
  
  628
  
  567
  
  407Development
  
  71
  
  75
  
  37
  
  118
  
  41
  
  5
  
  1,220
  
  1,315
  
  772Exploration
  and development
  
  98
  
  117
  
  70
  
  228
  
  115
  
  51
  
  1,848
  
  1,882
  
  1,179Acquisitions(1)
  
  
  
  
  
  
  
  
  
  
  
  
  
  244
  
  186
  
  431Proceeds on dispositions
  
  
  
  
  
  
  
  
  
  
  
  
  
  (40
  )
  (47
  )
  (81
  )Other non-segmented
  
  
  
  
  
  
  
  
  
  
  
  
  
  26
  
  30
  
  15Net
  capital expenditures
  
  
  
  
  
  
  
  
  
  
  
  
  
  2,078
  
  2,051
  
  1,544 
 (1)
  
  Excluding
  corporate acquisitions(2)
  
  North America
  
  
  
  2002
  
  2001
  
  2000Revenues
  
  Canada
  
  1,674
  
  1,808
  
  1,567US
  
  5
  
  
  
  1,679
  
  1,808
  
  1,567Property, plant
  
  Canada
  
  4,848
  
  4,769
  
  3,656and equipment
  
  US
  
  107
  
  4
  
  24,955
  
  4,773
  
  3,658(3)
  
  North Sea
  
  
  
  2002
  
  2001
  
  2000Revenues
  
  UK
  
  1,888
  
  1,561
  
  1,657Netherlands
  
  27
  
  30
  
  231,915
  
  1,591
  
  1,680Property, plant
  
  UK
  
  2,875
  
  2,791
  
  2,436and equipment
  
  Netherlands
  
  46
  
  40
  
  482,921
  
  2,831
  
  2,484(4)
  
  Southeast Asia
  
  
  
  2002
  
  2001
  
  2000Revenues
  
  Indonesia
  
  302
  
  332
  
  406Malaysia
  
  50
  
  18
  
  Vietnam
  
  5
  
  
  
  357
  
  350
  
  406Property, plant
  
  Indonesia
  
  515
  
  508
  
  517and equipment
  
  Malaysia
  
  565
  
  407
  
  Vietnam
  
  13
  
  9
  
  1,093
  
  924
  
  517  55 
   17.SALE OF
SUDAN OPERATIONS On October 30, 2002, the Company signed an agreement for the sale of its
operations in Sudan subject to government and consortium member approvals and
other closing conditions. The impact of the sale of the Sudan operations is not
included in the Consolidated Financial Statements of the Company as at December
31, 2002. The Companys Consolidated Financial Statements will continue to
include the Sudan operations until closing. Readers are referred to the segmented
information in note 16 in which the Sudan operations are reported as a separate
operating segment. The estimated gross proceeds are $1.2 billion (US$758 million),
including interest. The gain that will be recorded at the time of closing will
be reduced by net cash receipts by Talisman from these operations from
September 1, 2002 until closing. The gain on sale will be impacted by the
timing of closing, foreign exchange rate movements, closing costs, interest on
the sale proceeds and the Sudan operating results during the period to closing. The gain that would have been recorded had the deal closed on December
31, 2002 is as follows:   Gross proceeds on sale of Sudan operations (US$758 million)
  
  1,197Less interim adjustments
  
  (91
  )1,106Property, plant and equipment
  
  772Other assets
  
  56Accounts payable and accrued liabilities
  
  (29
  )Future income tax liability
  
  (54
  )Net carrying value at December 31, 2002
  
  745Estimated closing costs
  
  (10
  )Gain on disposal
  
  351   Assuming the ultimate completion of the Sudan sale, the final
adjustments will be increased by the amount of net income recorded by Talisman
during 2003 related to the Sudan operations. Accordingly, the amount of gain on
disposal that will ultimately be realized by Talisman will be reduced by the
amount of net income recorded by Talisman related to the Sudan operations. The
amount of net income recorded by Talisman related to the Sudan operations is
dependent on the timing of closing and results of the Sudan operations during
the period to closing. A longer period to closing will likely result in more
income being recorded by Talisman and a lower gain on disposal. Higher prices
which generally increase reported income would also reduce the gain on disposal
as would lower operating costs.  56 
    18.INFORMATION
FOR US READERS ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE US The Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP)
which, in most respects, conform to accounting principles generally accepted in
the US (US GAAP). Significant differences between Canadian and US GAAP are as
follows: NET INCOME IN ACCORDANCE WITH US GAAP: Years
  ended December 31(millions
  of Canadian dollars)
  
  Notes
  
  2002
  
  2001
  
  2000restated,
  see note 2
  
  restated,
  see note 2Net income  Canadian GAAP
  
  
  
  524
  
  733
  
  857Foreign exchange loss
  
  4,6
  
  (56
  )
  (44
  )
  (3
  )Depreciation, depletion and amortization
  
  1,2,3,6,8
  
  (26
  )
  (66
  )
  (66
  )(Loss) gain on derivative instruments
  
  4
  
  (129
  )
  237
  
  (13
  )Preferred security charges
  
  6
  
  (42
  )
  (42
  )
  (40
  )Deferred income taxes
  
  2,3,4,8
  
  51
  
  (95
  )
  7Loss on adoption of accounting standard
  
  4
  
  
  
  (48
  )
  Results of operations held for sale, net of tax
  
  8
  
  (237
  )
  (157
  )
  (125
  )(439
  )
  (215
  )
  (240
  )Net income before operations held for sale
  
  
  
  85
  
  518
  
  617Results of operations held for sale, net of tax
  
  8
  
  237
  
  157
  
  125Net income  US GAAP
  
  
  
  322
  
  675
  
  742Net income per common share before operations held for sale (Canadian
  dollars)Basic
  
  
  
  0.64
  
  3.84
  
  4.48Diluted
  
  
  
  0.63
  
  3.77
  
  4.41Net income per common share (Canadian dollars)Basic
  
  
  
  2.40
  
  5.00
  
  5.39Diluted
  
  
  
  2.37
  
  4.91
  
  5.31  COMPREHENSIVE INCOME IN ACCORDANCE WITH US GAAP: Years
  ended December 31(millions
  of Canadian dollars)
  
  Notes
  
  2002
  
  2001
  
  2000restated,
  see note 2
  
  restated,
  see note 2Net income  US GAAP
  
  
  
  322
  
  675
  
  742Other comprehensive income, net of tax:Foreign exchange gain on translation of self-sustaining operations
  
  7
  
  170
  
  
  
  Comprehensive income  US GAAP
  
  
  
  492
  
  675
  
  742   57 
   BALANCE SHEET ITEMS IN ACCORDANCE WITH US GAAP ARE AS
FOLLOWS:   December
  31(millions
  of Canadian dollars)
  
  Notes
  
  2002
  
  2001restated,
  see note 2
  
  restated,
  see note 2Canadian
  
  US
  
  Canadian
  
  USGAAP
  
  GAAP
  
  GAAP
  
  GAAPCurrent assets
  
  8
  
  917
  
  861
  
  799
  
  799Sudan assets held for sale
  
  8
  
  
  
  842
  
  
  
  Property, plant and equipment
  
  1,2,3,8
  
  10,042
  
  9,653
  
  9,461
  
  9,881Other non-current assets
  
  4,6
  
  635
  
  651
  
  559
  
  70711,594
  
  12,007
  
  10,819
  
  11,387Current liabilities
  
  8
  
  989
  
  960
  
  1,204
  
  1,204Sudan liabilities held for sale
  
  8
  
  
  
  87
  
  
  
  Long-term debt
  
  4,6
  
  2,997
  
  3,530
  
  2,794
  
  3,272Future income taxes
  
  2,3,4,8
  
  2,236
  
  2,127
  
  1,989
  
  1,971Other non-current liabilities
  
  
  
  870
  
  870
  
  706
  
  7067,092
  
  7,574
  
  6,693
  
  7,153Shareholders equityPreferred securities
  
  6
  
  431
  
  
  
  431
  
  Common shares
  
  
  
  2,785
  
  2,785
  
  2,831
  
  2,831Contributed surplus
  
  5
  
  75
  
  92
  
  77
  
  94Cumulative foreign currency translation
  
  7
  
  140
  
  (30
  )
  
  
  Accumulative other comprehensive income
  
  7
  
  
  
  170
  
  
  
  Retained earnings
  
  1-8
  
  1,071
  
  1,416
  
  787
  
  1,309Total liabilities and shareholdersequity
  
  
  
  11,594
  
  12,007
  
  10,819
  
  11,387 
 (1)
  
  Gains on property exchanges Under both
  US and Canadian GAAP, property exchanges are recorded at the carrying value
  of the assets given up unless the exchange transaction includes significant
  cash consideration, in which case it is recorded at fair value. Under US
  GAAP, asset exchange transactions are recorded at fair value if cash
  consideration is greater than 25% (10% under Canadian GAAP) of the fair value
  of total consideration given or received. The resulting differences in the
  recorded carrying values of these properties result in differences in
  depreciation, depletion and amortization expense in subsequent years.(2)
  
  Income taxes and depreciation, depletion and
  amortization expense In 2000, the Company adopted the liability
  method to account for income taxes. The change to the liability method has
  eliminated a difference between Canadian and US GAAP, however, in accordance
  with the recommendations of the Canadian Institute of Chartered Accountants
  (the CICA), the effect of the adoption under Canadian GAAP resulted in a
  charge to retained earnings, whereas, under US GAAP, the future tax costs
  that gave rise to the Canadian GAAP adjustment have already been reflected in
  property, plant and equipment. As a result of the implementation method,
  further differences in depreciation, depletion and amortization expense
  result in subsequent years.In connection with the Companys retroactive change in accounting
  under Canadian GAAP for foreign exchange gains and losses arising from
  long-term monetary items and the related tax effects as described in note 2,
  the Company has adjusted its income tax valuation allowance under US GAAP.
  These valuation allowances of $44 million and $22 million at December 31,
  2001 and 2000, respectively, are consistent with the amounts that have now
  been established for Canadian GAAP. This change increases the US GAAP
  provision for deferred income taxes and reduces US GAAP net income in 2001 by
  $22 million (2000  $21 million).(3)
  
  Impairments Under both US and
  Canadian GAAP, property, plant and equipment must be assessed for potential
  impairments. Under US GAAP, if the sum of the expected future cash flows
  (undiscounted and without interest charges) is less than the carrying amount
  of the asset, then an impairment loss (the amount by which the carrying
  amount of the asset exceeds the fair value of the asset) should be
  recognized. Fair value is calculated as the present value of estimated
  expected future cash flows. As disclosed in note 1(c), under Canadian GAAP,
  the impairment loss is the difference between the carrying value of the asset
  and its net recoverable amount (undiscounted). The resulting differences in
  recorded carrying values of impaired assets result in further differences in
  depreciation, depletion and amortization expense in subsequent years. The
  CICA has adopted a new standard effective for 2003 that will eliminate this
  US/Canadian GAAP difference.  58 
   (4)
  
  Forward foreign exchange contracts and other
  financial instruments The Company has designated, for Canadian
  GAAP purposes, its derivative financial instruments as hedges of anticipated
  revenue and expenses. In accordance with Canadian GAAP, payments or receipts
  on these contracts are recognized in income concurrently with the hedged
  transaction. The fair values of the contracts deemed to be hedges are not
  reflected in the Consolidated Financial Statements.Effective January 1, 2001, for US GAAP purposes, the Company adopted
  Statement of Financial Accounting Standards (SFAS) No. 133, as amended,
  Accounting for Derivative Instruments and Hedging Activities. Effective with
  the adoption of this standard, every derivative instrument, including certain
  derivative instruments embedded in other contracts, is recognized on the
  balance sheet at fair value. The statement requires that changes in the
  derivative instruments fair value be recognized currently in earnings unless
  specific hedge accounting criteria are met.Management has not designated any of the currently held derivative
  instruments as hedges for US GAAP purposes and accordingly these derivatives
  have been recognized on the balance sheet at fair value with the change in
  their fair value recognized in earnings. In accordance with the transition
  provisions of SFAS No. 133, on January 1, 2001, the Company recorded a $48
  million after tax non-cash loss in current earnings as a cumulative effect of
  accounting change.(5)
  
  Appropriation of contributed surplus In 1992,
  concurrent with a change in control of the Company, $17 million of
  contributed surplus was appropriated to retained earnings to eliminate the
  deficit at June 30, 1992. This restatement of retained earnings is not
  permitted under US GAAP as the events that precipitated it did not constitute
  a quasi-reorganization.(6)
  
  Preferred securities Under US GAAP, the
  Companys preferred securities are treated as debt rather than equity and
  accordingly are translated at the rates of exchange in effect at the balance
  sheet date. Under Canadian GAAP, the preferred securities are translated at
  the historical rate of exchange. In addition, the annual preferred security
  charges under US GAAP are classified as an expense rather than a direct
  charge to retained earnings. Under US GAAP, the cost associated with the
  issuance of the preferred securities is recorded as an asset and is amortized
  over the term of the preferred securities. Under Canadian GAAP, this cost,
  net of tax, is charged directly to shareholdersequity. The fair market value
  of the preferred securities at December 31, 2002 was $494 million (2001 
  $485 million).(7)
  
  Foreign exchange gains and losses on translation of
  self sustaining operations Under US GAAP, foreign
  exchange gains and losses on translation of self-sustaining foreign
  operations are added, net of tax, to net income in determining comprehensive
  income. Under Canadian GAAP, such gains and losses are included as a separate
  component of shareholdersequity referred to as cumulative translation
  adjustment.(8)
  
  Discontinued operations Under US
  GAAP, effective November 1, 2002, the Sudan assets are classified as Assets
  Held For Sale with the Sudan operating results, net of tax, classified on the
  income statement as results of operations held for sale until such date as
  the assets are sold. No depreciation, depletion or amortization would have
  been recorded commencing November 1, 2002 related to these assets.  NEWLY ISSUED
US ACCOUNTING STANDARDS SFAS NO. 143  ACCOUNTING FOR
ASSET RETIREMENT OBLIGATIONS: Effective for 2003, this
statement significantly changes the method of accruing for costs associated
with the retirement of fixed assets for which an entity is legally obligated to
incur. This standard requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
Subsequently, the asset retirement costs are to be allocated to expense using a
systematic and rational method. The Company is evaluating the impact of this
new standard.  SUMMARY US
DOLLAR INFORMATION Unless otherwise noted, all
amounts in the Consolidated Financial Statements, including Accounting
Principles Generally Accepted in the US above, are reported in millions of
Canadian dollars. The following information reflects summary financial
information prepared in accordance with US GAAP translated from Canadian
dollars to US dollars at the average exchange rate prevailing in the respective
year.   US$
  million (except as noted)
  
  2002
  
  2001
  
  2000Total revenue
  
  2,835
  
  2,673
  
  2,685Net income
  
  205
  
  436
  
  500Net income per common share (US$/share)
  
  1.53
  
  3.23
  
  3.63Average exchange rate (US$/C$)
  
  0.6368
  
  0.6457
  
  0.6732   59