NEWS RELEASE TRANSMITTED BY Marketwire

FOR: TALISMAN ENERGY INC.

Talisman Energy 2014 Fourth Quarter and Full-Year Results

Feb 10, 2015 - 05:00 ET

Full-Year Production, Cash Flow, Capital Spending In-Line With Guidance


CALGARY, ALBERTA--(Marketwired - Feb. 10, 2015) - Talisman Energy Inc. (TSX:TLM) (NYSE:TLM) reported its operating and unaudited financial results for 2014. All values are in US$ unless otherwise stated.

"Our 2014 results reflect the significant progress we made throughout the year to improve the reliability and predictability of our company," said Hal Kvisle, President and CEO. "Production from ongoing operations for the year averaged 357,000 boe/d, up 6% over 2013, with liquids accounting for approximately 40% of production. Capital spending(1) was approximately $3 billion in 2014, down approximately 5% from 2013, reflecting our disciplined commitment to focus our capital program. Cash flow1 was $2.2 billion in 2014, in line with 2013, despite the significant decline of the global commodity price environment in the second half of last year. Including proceeds from dispositions received earlier in the year, we balanced our cash flows. Production, cash flow and capital spending were in-line with guidance."

"During the quarter, we announced a transaction with Repsol S.A., which will deliver significant and immediate value return to shareholders and create a bigger, more diversified global energy company. Talisman's assets and people will have an important place in the combined enterprise, as we will roughly double Repsol's upstream business. Repsol is dedicated to maintaining a strong commitment to Canada and the local and regional economies in which Talisman operates globally. The transaction remains on track to close during the second quarter of this year."

Full Year 2014 Summary:

  • Production averaged 369,000 boe/d in 2014. Production from ongoing operations averaged 357,000 boe/d, up 6% from 2013. Liquids production averaged 141,000 bbl/d, up 7% over 2013.
  • Cash flow for 2014 was approximately $2.2 billion, in-line with guidance, including $150 million of hedging protection received in the fourth quarter.
  • Capital spending for 2014 was approximately $3 billion, down $156 million from 2013 and below the company's original full year guidance of $3.2 billion.
  • Net G&A for 2014 was $405 million, down 7% from 2013.
  • Gross debt at year-end 2014 was $5.1 billion, down $175 million year-over-year.

1 The terms "capital spending" and "cash flow" are non-GAAP measures. Please see advisories and reconciliations elsewhere in this release.

Repsol S.A. Offer for Talisman

On December 15, 2014, Talisman announced that it had entered into an arrangement agreement with Repsol S.A. under which Repsol will acquire all of the outstanding common shares of Talisman for US $8.00 per share in cash. In addition, under the transaction, Talisman will be allowed to pay aggregate cash dividends of US$0.18 per common share prior to closing, including the dividend declared and paid on December 31, 2014. Talisman's and Repsol's boards of directors unanimously approved the arrangement agreement.

Completion of the transaction is subject to approval by two-thirds of the votes cast by holders of common shares at the special meeting, court approval of the arrangement, and satisfaction or waiver of customary closing conditions, including applicable government and regulatory approvals. It is anticipated that the completion of the transaction will occur in the second quarter of 2015 and all regulatory approvals are on track.

A copy of the arrangement agreement, the information circular and related documents have been filed with Canadian securities regulators and the U.S. Securities and Exchange Commission and are available at www.sedar.com and www.sec.gov/edgar.

Financial Results

The table includes the company's proportionate share of results from Talisman Sinopec Energy UK Limited (TSEUK) and Equion Energía Limited (Equion).

December 31, 2014 Q4 14 Q3 14 Q4 13 2014 2013
Cash flow ($ million) 508 507 580 2,198 2,196
Cash flow per share2 0.49 0.49 0.56 2.13 2.13
Earnings (loss) from operations ($ million) 2 (143 ) 48 (116 ) (25 ) (248 )
Net income (loss) ($ million) (1,590 ) 425 (1,005 ) (911 ) (1,175 )
Net income (loss) per share (1.54 ) 0.41 (0.98 ) (0.89 ) (1.15 )
Average shares outstanding - basic (million) 1,032 1,033 1,031 1,033 1,030

Cash flow in the fourth quarter was $508 million, in-line with the third quarter, benefiting from approximately $150 million of hedging settlements. Cash flow for 2014 was approximately $2.2 billion, in-line with 2013.

In the fourth quarter, the company recorded a loss from operations of $143 million, compared to earnings of $48 million in the third quarter, primarily due to declining commodity prices, dry hole and DD&A arising from price-related reserves write downs in the fourth quarter. For the year, Talisman recorded a loss from operations of $25 million compared to a loss from operations of $248 million in 2013.

2 The terms "cash flow per share" and "earnings (loss) from operations" are non-GAAP measures. Please see advisories and reconciliations elsewhere in this release.

The company recorded a net loss of $911 million for the year, compared with a $1,175 million net loss in 2013.

The company recorded after-tax impairments during the fourth quarter of approximately $1.37 billion, primarily as a result of a deterioration in forward commodity prices. The company partially impaired its investment in the Eagle Ford by $614 million due entirely to price declines, and fully impaired its investment in Block K44 in the Kurdistan region of Iraq by $234 million after determining that future investment in a capital constrained environment was unlikely. In addition, the company fully wrote off its North Sea goodwill balance of $287 million, and partially wrote down its investment in Equion by $133 million. Price related impairments were partially offset by the booking of a mark-to-market gain on the company's hedge positions of $1.2 billion in the quarter.

During the fourth quarter, the TSEUK joint venture recorded a net loss, which included after-tax impairments of $633 million net to Talisman, as a result of lower commodity pricing and higher decommissioning and development cost estimates. The loss in the fourth quarter has resulted in Talisman reflecting a $186 million liability in its December 31, 2014 balance sheet, representing its obligation to fund TSEUK.

Production

Table includes Talisman's share of production from subsidiaries and equity-accounted entities.

December 31, 2014 Q4 14 Q3 14 Q4 13 2014 2013
Oil and liquids (mbbls/d)
North America 45 41 40 43 35
Southeast Asia 40 43 47 43 44
North Sea 31 26 28 30 32
Other (including Colombia and Algeria) 24 25 22 25 21
Total oil and liquids (mbbls/d) 140 135 137 141 132
Natural gas (mmcf/d)
North America 770 745 928 794 883
Southeast Asia 509 494 524 510 516
North Sea 19 22 8 19 9
Other (including Colombia and Algeria) 49 49 45 48 43
Total natural gas (mmcf/d) 1,347 1,310 1,505 1,371 1,451
Total mboe/d 365 353 387 369 373
Assets sold or held for sale (mboe/d)
North America3 - 2 30 9 31
Southeast Asia4 1 3 3 3 4
Total Assets sold or held for sale (mboe/d) 1 5 33 12 35
Production from ongoing operations (mboe/d) 364 348 354 357 338
3 Includes Montney (closed March 12, 2014), Monkman (closed April 16, 2014) and Ojay and Northern Alberta Foothills (closed July 31, 2014).
4 Includes Southeast Sumatra (closed October 23, 2014) and Northwest Java (sales agreement reached May 2013).

Total production was 369,000 boe/d in 2014, down 1% from 2013. Production from ongoing operations averaged 357,000 boe/d in 2014, up 6% over 2013. Liquids production averaged 141,000 bbl/d in 2014, up 7% over 2013.

The Americas

December 31, 2014 Q4 14 Q3 14 Q4 13
Gas
Edson-Duvernay-Groundbirch 200 178 181
Marcellus 472 462 475
Eagle Ford 78 76 68
Other 20 20 21
Gas from ongoing operations (mmcf/d) 770 736 745
Liquids
Edson-Duvernay-Groundbirch 11 10 9
Eagle Ford 24 21 20
Chauvin 10 10 11
Liquids from ongoing operations (mbbls/d) 45 41 40
Total production from ongoing operations (mboe/d) 173 163 165
Assets sold or held for sale (mmcfe/d) 5 - 9 183
Total North America production (mboe/d) 173 165 195
5 Includes Montney (closed March 12, 2014), Monkman (closed April 16, 2014) and Ojay and Northern Alberta Foothills (closed July 31, 2014).

In North America, total production and production from ongoing operations averaged 173,000 boe/d for the fourth quarter, up 5% year-over-year due to increased volumes from Canada and Eagle Ford. Quarter-over-quarter total production increased 5% due to reduced facility downtime and new wells brought onstream in the quarter. Total liquids production increased 13% year-over-year on higher volumes in Eagle Ford, Greater Edson and Duvernay.

In the Eagle Ford, production averaged 37,000 boe/d in the fourth quarter, up 9% over the previous quarter. Fourth quarter production included a 3,500 boe/d prior period NGL adjustment. Liquids volumes averaged 24,000 bbls/d, up 14% versus the previous quarter. In the fourth quarter, 32 gross wells were brought onstream, offset by natural declines, leading to a December exit rate of 35,000 boe/d.

In the Marcellus, production for the quarter averaged 472 mmcf/d, up 2% from the previous quarter. In the Friendsville area, nine wells were brought onstream in the fourth quarter resulting in a December exit rate of 489 mmcf/d. The company drilled three pacesetter wells in the quarter and the Friendsville well results are exceeding internal expectations.

In Canada, production from ongoing operations for the quarter in the Greater Edson area (which includes Wild River), was 41,000 boe/d, up 13% year-over-year, reflecting Talisman's efforts to direct its capital towards high value production. Quarter-over-quarter production was up 8% due to the completion of scheduled facility maintenance in the prior quarter and new wells being brought on-stream in the quarter. In the Duvernay, completions operations commenced on two Waskahigan area wells in December.

Colombia

In Colombia, production in the fourth quarter averaged 21,000 boe/d, up 20% year-over-year, and similar to the previous quarter. In the foothills region, net Equion production averaged 17,000 boe/d. Three wells are currently drilling in the Piedemonte block and the first phase of the processing and handling plant expansion came on-stream at the end of 2014.

In Block CPO-9, nine of 10 Akacias wells were on long-term test during the quarter, producing an average of 3,800 boe/d net to Talisman.

In the fourth quarter, an 8-day flow test of the Nueva Esperanza-1 structure, stabilized at a daily flow rate of 910 barrels of 8 degree API crude oil with less than 2% water cut during the last day of flow. The Nueva Esperanza-1 structure is adjacent to, and along the same structural trend as the Akacías field. Nueva Esperanza-2, which is a downdip appraisal well, was also drilled in the fourth quarter and is currently on short-term test with the clean-up period completed and the well now producing oil with a very low water cut. A second appraisal well spudded at the end of January.

Southeast Asia

December 31, 2014 Q4 14 Q3 14 Q4 13
Malaysia liquids (mbbls/d) 21 21 19
Malaysia gas (mmcf/d) 112 83 112
Malaysia (mboe/d) 40 35 37
Indonesia liquids (mbbls/d) 6 7 6
Indonesia gas (mmcf/d) 391 402 400
Indonesia (mboe/d) 72 73 73
Vietnam liquids (mbbls/d) 9 10 15
Vietnam gas (mmcf/d) 5 5 8
Vietnam (mboe/d) 10 11 17
Australia (mboe/d) 3 3 4
Total production from ongoing operations (mboe/d) 125 122 131
Assets sold or held for sale (mboe/d) 6 1 3 3
Southeast Asia total (mboe/d) 126 125 134
6 Includes Southeast Sumatra (closed October 23, 2014).

Production from ongoing operations averaged 125,000 boe/d in the fourth quarter, up slightly from the previous quarter with higher volumes at PM-3 following completion of its annual turnaround in the third quarter, and strong performance at Kinabalu. Production from ongoing operations was down approximately 5% year-over-year due to the early payout of the carry recovery volumes at HST/HSD in Vietnam in the third quarter, and fluctuating gas demand at Corridor in Indonesia. This was partially offset by a significant production increase at Kinabalu over the same period last year following the successful completion of the infill well program and strong facility performance.

In Indonesia, production from ongoing operations averaged 72,000 boe/d during the fourth quarter, compared to 73,000 boe/d in both the previous quarter and the same period last year. Corridor production was 58,000 boe/d during the quarter, down slightly from the previous quarter due to fluctuating gas demand in the region. Drilling is progressing on the first well of a three well development program at Corridor and is expected to be completed in the first quarter.

In Malaysia, production averaged 40,000 boe/d in the fourth quarter, up 14% from the previous quarter due to the completion of a turnaround in the third quarter. At Kinabalu, production averaged 10,000 boe/d, up 25% from the previous quarter following the successful completion of a multi-well infill program and improved uptime. At PM-3, fourth-quarter production was 27,000 boe/d, up 13% over the previous quarter following the completion of an annual turnaround, but down year-over-year due to fluctuating demand. Two exploration wells were drilled at Sabah during the quarter. While hydrocarbons were encountered, the wells were not commercial.

In Vietnam, production averaged 10,000 boe/d in the fourth quarter, down 9% from the previous quarter, due to the early payout of the carry recovery volumes earlier in the third quarter. Two exploration wells demonstrating hydrocarbons were successfully drilled during the quarter. The first well and follow-on sidetrack tested the Red Emperor Extension in Block 136, adjacent to Talisman's fully appraised Red Emperor discovery in Block 07/03.

Algeria

In Algeria, production averaged 11,000 boe/d during the fourth quarter, in line with the previous period and the same period last year.

Other Operating Areas

North Sea

Talisman's share of UK production averaged 17,000 boe/d, up 42% from the previous quarter and 21% year-over-year. The increase was largely due to the return of production following planned turnarounds in the third quarter.

In Norway, fourth quarter average daily production was 17,000 boe/d, down 6% from the third quarter but up 13% year-over-year. The Brynhild field (TLM 10% WI) started production late in the quarter at a rate of approximately 800 bbls/d net to Talisman.

Dividends

Under the Arrangement Agreement with Repsol, Talisman is allowed to pay aggregate cash dividends of US$0.18 per common share prior to closing, including the dividend declared and paid on December 31, 2014 of $0.0675 per common share. The Company anticipates that a dividend aggregating the remaining allowable amount of $0.1125 per share will be declared prior to the completion of the Arrangement. However, no determination has been made by the Board with regard to such dividend and there is no assurance that such a dividend will be declared.

The company has declared a quarterly dividend of C$0.2625 on its Cumulative Redeemable Rate Reset First Preferred Shares, Series 1. The dividend will be paid on March 31, 2015 to shareholders of record at the close of business on March 13, 2015.

About Talisman Energy Inc.

Talisman Energy Inc. is a global upstream oil and gas company, headquartered in Canada. Talisman has two core operating areas: the Americas (North America and Colombia) and Asia-Pacific. Talisman is committed to conducting business safely, in a socially and environmentally responsible manner, and is included in the Dow Jones Sustainability (North America) Index. Talisman is listed on the Toronto and New York stock exchanges under the symbol TLM. Please visit our website at www.talisman-energy.com.

Advisories

This news release contains information that constitutes "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding: business strategy, priorities and plans; planned drilling and other exploration and development activities; timing of closing of the corporate transaction with Repsol S. A., the expected size, characteristics and commitments of the resulting enterprise; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance. The company priorities and goals disclosed in this news release are objectives only and the achievement of these objectives cannot be guaranteed.

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 2014 assumes escalating commodity prices. Closing of the Repsol corporate transaction will be subject to receipt of all necessary shareholder, court and regulatory approvals and contractual conditions.

Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this news release. The material risk factors include, but are not limited to: the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits; risks associated with project management, project delays and/or cost overruns; uncertainty related to securing sufficient egress and access to markets; the uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk; the uncertainty of estimates and projections relating to production, costs and expenses, including decommissioning liabilities; risks related to strategic and capital allocation decisions, including potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations in oil and gas prices, foreign currency exchange rates, interest rates and tax or royalty rates; the outcome and effects of any future acquisitions and dispositions; health, safety, security and environmental risks, including risks related to the possibility of major accidents; environmental regulatory and compliance risks, including with respect to greenhouse gases and hydraulic fracturing; uncertainties as to access to capital, including the availability and cost of credit and other financing, and changes in capital markets; risks in conducting foreign operations (for example, civil, political and fiscal instability and corruption); risks related to the attraction, retention and development of personnel; changes in general economic and business conditions; the possibility that government policies, regulations or laws may change or governmental approvals may be delayed or withheld; and results of the Company's risk mitigation strategies, including insurance and any hedging activities. 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. Downward trends in commodity prices could result in downward adjustments to the Company's estimated reserves and asset values which could result in further impairment of assets.

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 or strategy are included in Talisman's most recent Annual Information Form. In addition, information is available in the Company's other reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission. Forward-looking information is based on the estimates and opinions of the Company's management at the time the information is presented. The Company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law.

Oil and Gas Information

Throughout this news release, Talisman makes reference to production volumes. Unless otherwise stated, such production volumes are stated on a gross basis, which means they are stated on a Company interest basis prior to the deduction of royalties and similar payments.

Barrel of oil equivalent (boe) throughout this news release is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil (bbl). This news release also includes reference to mcf equivalents (mcfes) which are calculated at a conversion rate of one barrel of oil to 6,000 cubic feet of gas. Boes and mcfes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl and an mcfe conversion ratio of 1 bbl: 6 mcf are based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Talisman uses the term "pacesetter" well in its description of its drilling results in the Friendsville area. Pacesetter wells in this context refers to the fastest wells drilled by Talisman in the area, measured from spud to rig release. As used in the context of the Company's Colombian assets, long-term testing indicates continuous well production going to market at the most recent weekly average. A permit for long term testing is required for a well to produce oil until the permit for full field development has been granted.

In this news release, Talisman discloses well test results for the Nueva Esperanza-1 well drilled in the T2 formation, with no significant production or pressure decline observed during such test. The flow test utilized an electro submersible pumping system and 309 feet of perforations in such formation. The data pertaining to Nueva Esperanza-1 and Nueva Esperanza-2 should be considered preliminary until a pressure transient analysis and/or well flow test interpretation has been done. The test results are not necessarily indicative of long-term performance or of ultimate recovery.

Non-GAAP Financial Measures

Included in this news release are references to financial measures commonly used in the oil and gas industry such as cash flow, earnings (loss) from operations and capital spending. These terms are not defined by International Financial Reporting Standards (IFRS). Consequently, these are referred to as non-GAAP measures. Talisman's reported results of such measures may not be comparable to similarly titled measures reported by other companies.

Cash Flow

Three Months Ended
December 31, 2014 September 30, 2014 December 31, 2013 YTD 2014 YTD 2013
Cash provided by operating activities 605 458 442 1,899 1,767
Changes in non-cash working capital (112) 89 80 248 (4)
Add: Exploration expenditure 70 53 52 232 260
Add: Restructuring costs - 1 10 18 44
Add: Transaction cost1 13 - - 13 -
Add: Income tax adjustments2 - - - - 15
Add: Current tax on disposal3 6 - 51 6 51
Less: Dividends and distributions received from equity-accounted entities - - (21) - (58)
Less: Finance costs (cash) (75) (74) (77) (301) (295)
Cash flow from subsidiaries 507 527 537 2,115 1,780
Add: Cash provided by operating activities from equity-accounted entities (45) 19 58 30 416
Change in non-cash working capital from equity-accounted entities (70) (36) (9) (47) 3
Add: Exploration expenditure from equity-accounted entities - 2 - 5 18
Less: Finance costs (cash) from equity-accounted entities (4) (5) (6) (25) (21)
Add: Onerous contracts from equity-accounted entities4 120 - - 120 -
Cash flow from equity- accounted entities 1 (20) 43 83 416
Cash Flow5 508 507 580 2,198 2,196
Cash flow per share 0.49 0.49 0.56 2.13 2.13
Diluted cash flow per share 0.49 0.49 0.56 2.13 2.13
1. Transaction costs relate to costs incurred in relation to the arrangement agreement entered into with Repsol S.A. in Q4 2014.
2. A court ruling in Southeast Asia indicated an additional current income tax of $31 million be charged during Q2 2013. In addition, the company recorded a $16 million benefit from the resolution of a tax position in North America in Q2 2013.
3. Current tax of $6 million on the loss on disposal of SE Sumatra in Q4 2014, and $51 million on disposal of Talisman's equity investment in Ocensa pipeline in Colombia in Q4 2013.
4. In Q4 2014, the TSEUK joint venture recognized a provision for onerous contracts related to drilling and vessel leases of $120 million net to Talisman.
5. Includes cash flow from subsidiaries and Talisman's share of equity-accounted entities' cash flow.

Cash flow, as commonly used in the oil and gas industry, represents net income before exploration costs, DD&A, deferred taxes and other non-cash expenses, including Talisman's share of cash flow from equity- accounted entities. Cash flow is used by the company to assess operating results between years and between peer companies using different accounting policies. Cash flow should not be considered an alternative to, or more meaningful than, cash provided by operating, investing and financing activities or net income as determined in accordance with IFRS as an indicator of the company's performance or liquidity. Cash flow per share is cash flow divided by the average number of common shares outstanding during the period. Diluted cash flow per share is cash flow divided by the diluted number of common shares outstanding during the period, as reported in the annual Consolidated Financial Statements which will be filed on March 4, 2015. A reconciliation of cash provided by operating activities to cash flow is provided above.

Capital Spending

Three Months Ended
December 31, 2014 September 30, 2014 December 31, 2013 YTD 2014 YTD 2013
Subsidiaries
Exploration, development and other 575 549 537 2,118 2,363
Exploration expensed 70 53 52 232 260
Exploration and development spending - subsidiaries 645 602 589 2,350 2,623
Talisman's share of equity- accounted entities
Exploration, development and other 190 151 154 708 577
Exploration expensed - 2 1 5 19
Exploration and development spending - joint ventures 190 153 155 713 596
Capital spending for subsidiaries and joint ventures 835 755 744 3,063 3,219

Capital spending (or run rate or exploration and development spending) is calculated by adjusting the capital expenditure per the financial statements for exploration costs that were expensed as incurred and adding Talisman's share of joint ventures.

Earnings (loss) from Operations

Three Months Ended
December 31, 2014 September 30, 2014 December 31, 2013 YTD 2014 YTD 2013
Net income (loss) (1,590) 425 (1,005) (911) (1,175)
Loss (gain) on disposals (tax adjusted) 8 (5) (163) (484) (207)
Unrealized (gain) loss on financial instruments (tax adjusted)1 (1,034) (405) 149 (1,318) 90
Share-based payments (tax adjusted)2 41 (15) 16 9 37
Foreign exchange on debt (tax adjusted) (14) (19) 8 (20) 10
Impairment (tax adjusted) 2,004 - 822 2,150 874
Restructuring costs (tax adjusted) - 1 12 17 38
Transaction costs3 13 - - 13 -
Onerous contracts from equity-accounted entities4 44 - - 44 -
Income tax adjustments5 - - - - 41
(Recognition)/derecognition of deferred tax asset6 202 - 34 208 (58)
Deferred tax adjustments7 183 66 11 267 102
Earnings (loss) from operations8 (143) 48 (116) (25) (248)
1. Unrealized (gain) loss on financial instruments relates to the change in the period of the mark-to-market value of the company's held-for-trading financial instruments.
2. Share-based payments relates to the mark-to-market value of the company's outstanding stock options and cash units at December 31 and expenses associated with performance share units. The Company's share-based payments expense is based on the difference between the company's share price and its stock options or cash units exercise price. The company uses the Black-Scholes option pricing model to estimate the fair value of its share-based payment plans.
3. Transaction costs relate to costs incurred in relation to the arrangement agreement entered into with Repsol S.A. in Q4 2014.
4. In Q4 2014, the TSEUK joint venture recognized a provision for onerous contracts related to drilling and vessel leases of $120 million pre-tax ($44 million after-tax) net to Talisman.
5. A court ruling in Southeast Asia indicated an additional income tax of $57 million be charged during Q2 2013. In addition, the Company recorded a $16 million benefit from the resolution of a tax position in North America in Q2 2013.
6. During Q4 2014, the company derecognized deferred tax assets in Malaysia, Australia, and the TSEUK joint venture. During Q2 2014, the company derecognized deferred tax assets in Australia. During Q4 2013, the company derecognized deferred tax assets in Vietnam as a result of Block 46/02 relinquishment. During Q3 2013, the company recognized deferred tax assets in Vietnam based on the successful startup of HST/HSD.
7. Deferred tax adjustments largely comprise tax on foreign exchange on tax pools.
8. Earnings (loss) from operations include results and adjustments from subsidiaries and Talisman's share of equity accounted entities.

Earnings (loss) from operations are calculated by adjusting the company's net income (loss) per the financial statements for certain items of a non-operational nature, on an after-tax basis. The adjustments include items from subsidiaries and Talisman's share of equity accounted entities. The company uses this information to evaluate performance of core operational activities on a comparable basis between periods. A reconciliation of net income (loss) to earnings (loss) from operations is provided above.

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 2015 (excluding the effect of derivative contracts) is summarized in the following table, based on a Dated Brent oil price of approximately $70/bbl, a NYMEX natural gas price of approximately $3.50/mmbtu and exchange rates of US$0.90=C$1 and UK£1=US$1.65.

(millions of $) Net Income1 Cash Provided by Operating Activities (GAAP)2 Cash Flow
(Non-GAAP)3
Volume changes
Oil - 10,000 bbls/d 40 120 130
Natural gas - 60 mmcf/d 5 50 50
Price changes4
Oil - $1.00/bbl 25 25 35
Natural gas (North America)5 - $0.10/mcf 20 25 25
Exchange rate changes
US$/C$ decreased by US$0.01 (5) (5) (5)
US$/UK£ increased by US$0.02 - - 5
1. Net income includes Talisman's share of net income (loss) from TSEUK and Equion, after tax.
2. Changes in cash flow provided by operating activities (GAAP) excludes TSEUK and Equion due to the application of equity accounting.
3. Changes in cash flow (Non-GAAP) includes TSEUK and Equion and is included for comparative purposes only.
4. The impact of price changes excludes the effect of commodity derivatives. See specific commodity derivative terms in the 'Risk Management' section of the MD&A, and note 23 to the Consolidated Financial Statements which will be filed on March 4, 2015.
5. Price sensitivity on natural gas relates to North American natural gas only. The Company's exposure to changes in the natural gas prices in Norway, Vietnam and Colombia is not material. Most of the natural gas prices in Indonesia and Malaysia are based on the price of either crude oil or high-sulphur fuel oil and, accordingly, have been included in the price sensitivity for oil. Most of the remaining part of Indonesia natural gas production is sold at a fixed price.
Talisman Energy Inc.
Highlights
(unaudited)
Three months ended
December 31
Year ended
December 31
2014 2013 2014 2013
Financial
(millions of US$ unless otherwise stated)
Cash flow (1)508 580 2,198 2,196
Net loss(1,590)(1,005)(911)(1,175)
Capital Spending (1)835 744 3,063 3,219
Per common share (US$)
Cash flow (1)0.49 0.56 2.13 2.13
Net loss(1.54)(0.98)(0.89)(1.15)
Production (3)
(Daily Average - Gross)
Oil and liquids (bbls/d)
North America44,818 39,812 43,174 34,616
Southeast Asia40,489 46,582 43,014 43,658
North Sea30,530 28,240 29,870 31,939
Other24,392 21,793 24,524 21,116
Total oil and liquids140,229 136,427 140,582 131,329
Natural gas (mmcf/d)
North America770 928 794 883
Southeast Asia509 524 510 516
North Sea19 8 19 9
Other49 45 48 43
Total natural gas1,347 1,505 1,371 1,451
Total mboe/d (2)365 387 369 373
Prices (3)
Oil and liquids (US$/bbl)
North America45.03 62.73 61.49 66.70
Southeast Asia67.45 111.74 98.31 108.56
North Sea73.18 111.12 96.47 109.55
Other58.06 106.67 89.74 106.86
Total oil and liquids59.90 96.50 85.12 97.49
Natural gas (US$/mcf)
North America3.46 3.45 4.12 3.49
Southeast Asia7.17 8.64 8.58 9.44
North Sea8.75 12.67 8.05 13.24
Other4.01 4.13 4.13 4.26
Total natural gas4.96 5.33 5.84 5.69
Total (US$/boe) (2)41.34 54.71 54.09 56.44
(1)Cash flow, capital spending and cash flow per share are non-GAAP measures.
(2)Barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil.
(3)Production and realized prices include Talisman's proportionate results from Talisman Sinopec Energy UK Limited (TSEUK) and Equion Energia Limited (Equion).
Talisman Energy Inc.
Consolidated Balance Sheets
(Unaudited)
December 31 (millions of US$)20142013
Assets
Current
Cash and cash equivalents262364
Accounts receivable8931,117
Risk management85017
Income and other taxes receivable8052
Restricted cash149121
Inventories133137
Prepaid expenses3414
Assets held for sale-776
2,4012,598
Other assets180160
Restricted cash-94
Investments6041,204
Risk management42120
Goodwill279575
Property, plant and equipment9,0649,752
Exploration and evaluation assets2,5443,165
Deferred tax assets1,8371,593
14,92916,563
Total assets17,33019,161
Liabilities
Current
Bank indebtedness913
Accounts payable and accrued liabilities1,5771,835
Current portion of Yme removal obligation186121
Obligation to fund equity investee186-
Risk management2101
Income and other taxes payable93155
Loans from joint ventures15288
Current portion of long-term debt1,109882
Liabilities associated with assets held for sale-160
3,1773,555
Decommissioning liabilities1,8851,727
Yme removal obligation-131
Other long-term obligations273246
Risk management-37
Long-term debt3,9554,357
Deferred tax liabilities635553
6,7487,051
Shareholders' equity
Common shares1,7381,723
Preferred shares191191
Contributed surplus176135
Retained earnings4,4895,695
Accumulated other comprehensive income811811
7,4058,555
Total liabilities and shareholders' equity17,33019,161
Talisman Energy Inc.
Consolidated Statements of Loss
(Unaudited)
Three months ended Year ended
December 31, December 31,
(millions of US$)2014 2013 2014 2013
Revenue
Sales1,004 1,243 4,653 4,652
Other income36 26 150 109
Loss from joint ventures and associates, after tax(996)(340)(1,040)(275)
Total revenue and other income44 929 3,763 4,486
Expenses
Operating354 384 1,405 1,432
Transportation56 44 206 192
General and administrative100 114 405 434
Depreciation, depletion and amortization529 555 1,936 1,922
Impairment1,610 946 1,768 946
Dry hole76 7 140 89
Exploration70 52 232 260
Finance costs86 87 352 331
Share-based payments expense51 19 27 49
(Gain) loss on held-for-trading financial instruments(1,230)161 (1,427)140
(Gain) loss on disposals10 (42)(550)(100)
Other, net7 42 49 113
Total expenses1,719 2,369 4,543 5,808
Loss before taxes(1,675)(1,440)(780)(1,322)
Income taxes
Current income tax100 166 418 623
Deferred income tax recovery(185)(601)(287)(770)
(85)(435)131 (147)
Net loss(1,590)(1,005)(911)(1,175)
Per common share (US$):
Net loss(1.54)(0.98)(0.89)(1.15)
Diluted net loss(1.54)(0.98)(0.96)(1.21)
Weighted average number of common shares outstanding (millions)
Basic1,032 1,031 1,033 1,030
Diluted1,032 1,032 1,033 1,032
Talisman Energy Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended Year ended
December 31, December 31,
(millions of US$)2014 2013 2014 2013
Operating activities
Net loss(1,590)(1,005)(911)(1,175)
Add: Finance costs (cash and non-cash)86 87 352 331
Dividends from associates- 21 - 58
Items not involving cash1,997 1,419 2,706 2,549
493 522 2,147 1,763
Changes in non-cash working capital112 (80)(248)4
Cash provided by operating activities605 442 1,899 1,767
Investing activities
Capital expenditures
Exploration, development and other(575)(537)(2,118)(2,363)
Property acquisitions- (6)(23)(100)
Proceeds of resource property dispositions23 43 1,517 146
Yme removal obligation(28)(9)(66)252
Restricted cash, net of settlement28 9 66 (215)
Investments(133)(4)(319)(13)
Proceeds on disposition of associate- 590 - 590
Loan to joint venture, net of repayments6 (183)(337)(398)
Changes in non-cash working capital(48)(42)51 (231)
Cash used in investing activities(727)(139)(1,229)(2,332)
Financing activities
Long-term debt repaid(367)(304)(1,264)(308)
Long-term debt issued751 28 1,110 1,094
Loans from joint ventures, net of repayments(24)91 6 141
Common shares issued- 7 4 28
Common shares purchased(4)(1)(21)(1)
Finance costs (cash)(75)(77)(301)(295)
Common share dividends(70)(69)(279)(277)
Preferred share dividends(2)(2)(8)(8)
Deferred credits and other(29)4 (16)(8)
Changes in non-cash working capital(34)(33)(3)(2)
Cash provided by (used in) financing activities146 (356)(772)364
Effect of translation on foreign currency cash and cash equivalents(1)(1)4 (1)
Net increase (decrease) in cash and cash equivalents23 (54)(98)(202)
Cash and cash equivalents net of bank indebtedness, beginning of period230 405 351 553
Cash and cash equivalents net of bank indebtedness, end of period253 351 253 351
Cash and cash equivalents262 364 262 364
Bank indebtedness(9)(13)(9)(13)
Cash and cash equivalents net of bank indebtedness, end of period253 351 253 351
Talisman Energy Inc.
Segmented Information
(unaudited)
North America (1) Southeast Asia (2)
Three months endedYear ended Three months endedYear ended
December 31 December 31 December 31December 31
(millions of US$)20142013201420132014201320142013
Revenue
Sales3594301,8041,6434596092,0502,202
Other income15260452-31
Income (loss) from joint ventures and associates, after tax--------
Total revenue and other income3744321,8641,6884616092,0532,203
Segmented expenses
Operating121142517568128148494532
Transportation24248910316125656
DD&A2653161,1091,211132160473486
Impairment62532959333260546055
Dry hole11-11-58(6)9260
Exploration1010213942910859
Other1323546916-198
Total segmented expenses1,0698442,3942,3224523771,3021,256
Segmented income (loss) before taxes(695)(412)(530)(634)9232751947
Non-segmented expenses
General and administrative
Finance costs
Share-based payments expense
Currency translation
(Gain) loss on held-for-trading
financial instruments
(Gain) loss on disposals
Total non-segmented expenses
Loss before taxes
Capital expenditure
Exploration3819116763637139129
Development3352491,2061,2079593300353
Exploration and development3732681,3221,283131130439482
Acquisitions
Proceeds on dispositions
Other non-segmented
Net capital expenditures
Property, plant and equipment 6,3216,636 2,2232,318
Exploration and evaluation assets 1,3451,579 667717
Goodwill 110118 169170
Investments in joint ventures and associates -- --
Other 555677 740740
Assets held for sale -776 --
Segmented assets 8,3319,786 3,7993,945
Non-segmented assets
Total assets
Decommissioning liabilities 381450 334280
1. North America2014201320142013
Canada131202766810
US2432301,098878
Total revenue and other income3744321,8641,688
Canada 2,5072,544
US 3,8144,092
Property, plant and equipment 6,3216,636
Canada 871905
US 474674
Exploration and evaluation assets 1,3451,579
2. Southeast Asia2014201320142013
Indonesia2212751,0151,175
Malaysia154153576534
Vietnam54141358322
Australia3240104172
Total revenue and other income4616092,0532,203
Indonesia 9411,023
Malaysia 698707
Vietnam 308460
Papua New Guinea 14340
Australia 13388
Property, plant and equipment 2,2232,318
Indonesia 3719
Malaysia 4183
Vietnam 191145
Papua New Guinea 398470
Exploration and evaluation assets 667717
Talisman Energy Inc.
Segmented Information
(unaudited)
North Sea (3)Other (4)Total
Three months endedYear endedThree months endedYear endedThree months endedYear ended
December 31December 31December 31December 31December 31December 31
(millions of US$)201420132014201320142013201420132014201320142013
Revenue
Sales11515152757771532722301,0041,2434,6534,652
Other income553123141956403626150109
Income (loss) from joint ventures and associates, after tax(948)(377)(1,055)(450)(48)3715175(996)(340)(1,040)(275)
Total revenue and other income(828)(221)(497)15037109343445449293,7634,486
Segmented expenses
Operating878833230218662303543841,4051,432
Transportation752925933285644206192
DD&A1157230219517752305295551,9361,922
Impairment5515577415433746374161,6109461,768946
Dry hole(1)-(1)18813381176714089
Exploration2637391627661237052232260
Other174164-14234309195
Total segmented expenses7627351,4441,138446626382202,7292,0185,7784,936
Segmented income (loss) before taxes(1,590)(956)(1,941)(988)(409)47(295)225(2,685)(1,089)(2,015)(450)
Non-segmented expenses
General and administrative 100114405434
Finance costs 8687352331
Share-based payments expense 51192749
Currency translation (27)12(42)18
(Gain) loss on held-for-trading (1,230)161(1,427)140
financial instruments
(Gain) loss on disposals 10(42)(550)(100)
Total non-segmented expenses (1,010)351(1,235)872
Loss before taxes (1,675)(1,440)(780)(1,322)
Capital expenditure
Exploration21122493147149144107114426398
Development27631303324212174614071,6481,909
Exploration and development297415238135491611615685212,0742,307
Acquisitions (1)635111
Proceeds on dispositions (23)(43)(1,517)(146)
Other non-segmented 17124741
Net capital expenditures 5614966392,313
Property, plant and equipment 256537 264261 9,0649,752
Exploration and evaluation assets 125289 407580 2,5443,165
Goodwill -287 -- 279575
Investments in joint ventures and associates -206 523920 5231,126
Other 2,0511,911 301402 3,6473,730
Assets held for sale -- -- -776
Segmented assets 2,4323,230 1,4952,163 16,05719,124
Non-segmented assets 1,27337
Total assets 17,33019,161
Decommissioning liabilities 1,1761,009 3730 1,9281,769
3. North Sea2014 2013 2014 2013
UK5 5 28 23
Norway115 151 530 577
Loss from TSEUK(948)(377)(1,055)(450)
Total revenue and other income(828)(221)(497)150
UK - -
Norway 256 537
Property, plant and equipment 256 537
UK - -
Norway 125 289
Exploration and evaluation assets 125 289
4. Other2014 2013 2014 2013
Algeria48 43 182 207
Colombia (5)(11)66 161 238
Total revenue and other income37 109 343 445
Algeria 224 260
Colombia 40 1
Property, plant and equipment 264 261
Colombia 208 203
Kurdistan 199 377
Other - -
Exploration and evaluation assets 407 580

5. Balances include after-tax equity income from Equion.



FOR FURTHER INFORMATION PLEASE CONTACT:

Talisman Energy Inc. - Media and General Inquiries
Brent Anderson
Manager, Corporate Communications
Phone: 403-237-1912
Email: tlm@talisman-energy.com

Talisman Energy Inc. - Shareholder and Investor Inquiries
Lyle McLeod
Vice-President, Investor Relations
Phone: 403-767-5732
Email: tlm@talisman-energy.com