Mr. John Manzoni reports

TALISMAN ENERGY SECOND QUARTER RESULTS

Talisman Energy Inc. has released its operating and financial results for the second quarter of 2012. All values in this release are in United States dollars unless otherwise stated.

• Cash flow was $803-million, down 10 per cent over the same period last year despite a 50-per-cent reduction in Nymex (New York Mercantile Exchange) natural gas prices.
• Net income for the quarter was $196-million, down from $698-million in the same quarter last year, up 31 per cent to $487-million for the six months ended June 30, 2012.
• Total production was 435,000 barrels of oil equivalent per day (boe/d), an increase of 4 per cent over the same period in 2011, due to increased oil and gas volumes in Southeast Asia and from North American shale.
• Talisman agreed to sell a 49-per-cent equity stake in its United Kingdom North Sea assets to Sinopec for $1.5-billion, $500-million of which the company plans to use for share repurchases. Announced asset sales total $2.5-billion.
• Eagle Ford production averaged 13,800 boe/d, up from 2,700 boe/d a year ago.
• In Colombia, the Piedemonte development was approved and a three-rig drilling program is under way.
• Talisman was formally awarded a new production sharing contract (PSC) at Kinabalu in Malaysia.
• The company has moved from paying common share dividends on a semi-annual to a quarterly basis.

"In addition to repositioning our business in the U.K. North Sea, we delivered a strong operational quarter," said John A. Manzoni, president and chief executive officer. "With our recent U.K. North Sea transaction, we continue to focus and strengthen our portfolio while maintaining a strong balance sheet to weather current low natural gas prices in North America. The new joint venture will spend more on a gross basis to improve operating efficiency and extend the life of these fields. The deal will reduce Talisman's decommissioning liability in the U.K., decrease future capital commitments and brings forward significant cash. We plan to use approximately $500-million of the proceeds to repurchase Talisman shares.

"Production during the quarter was 435,000 boe/d, up 4 per cent year over year, driven by growth in Southeast Asia and North American shale. Shale volumes are up 50 per cent from last year. We continue to deliver strong results in the liquids-rich Eagle Ford, which accounts for the bulk of our North American spending. Marcellus gas volumes continue to be strong despite significantly reduced drilling activity in the current gas price environment.

"Our Southeast Asia business delivered excellent results, with production growth of 12 per cent compared to last year and natural gas prices averaging $9.48 per 1,000 cubic feet for the quarter. We have received approval from Petronas to take over a producing asset, the Kinabalu block, in Malaysia. This is a new type of production contract to encourage further development of mature fields.

"In our exploration portfolio, we have completed drilling the Kurdamir-2 well. We have logged hydrocarbons in the Oligocene and Cretaceous zones and are currently preparing to test. In Colombia, we have sanctioned our Piedemonte development, where we have three rigs drilling. Elsewhere in Colombia, we are drilling in the foothills and progressing to test our heavy oil blocks. Our drilling program in PNG continues to be successful, and we have received government approval for our partnership with Mitsubishi.

"In summary, we have delivered a strong quarter operationally, with production up 4 per cent. We have more than delivered on the divestments we promised earlier this year, ensuring we maintain a strong balance sheet, and we will continue to focus the portfolio. We plan to use some of the U.K. joint venture proceeds to buy back Talisman stock, which we believe to be good value at current prices."

                            FINANCIAL RESULTS
             (In millions of dollars, except per share amounts)

                                              Three months        Six months
                                            ended June 30,    ended June 30,
                                             2012     2011     2012     2011
                                                                            
Cash flow                                    $803     $897   $1,654   $1,708
Cash flow per share                          0.78     0.88     1.61     1.67
Net income                                    196      698      487      372
Net income per share                         0.19     0.68     0.48     0.36
Earnings from operations                       71      168      238      325
Earnings from operations per share           0.07     0.16     0.23     0.32

Cash flow was $803-million compared with $897-million in the same period last year, due mainly to weaker commodity prices and higher operating expenses, partially offset by lower cash taxes and a lower realized loss on held-for-trading financial instruments.

Net income was down as a result of weaker commodity prices, a smaller recovery on share-based payments, higher operating expenses, higher DD&A (depreciation, depletion and amortization), and asset impairments, partially offset by a larger gain on asset disposals, lower exploration costs and lower income taxes. Earnings from operations were also down as a result of weaker commodity prices, higher operating costs and DD&A, partially offset by lower exploration costs, lower deferred taxes and a lower realized loss on held-for-trading financial instruments.

Exploration and development spending in the quarter was $1-billion. Net debt at the end of the second quarter was $4.1-billion, relatively unchanged from $4-billion at the end of the first quarter.

The company's average netback was $26.20 per barrel of oil equivalent (boe), 34 per cent lower than the same period last year due to lower commodity prices and higher unit operating expenses. In Southeast Asia, natural gas prices averaged $9.48 per 1,000 cubic feet, and netbacks remained relatively unchanged from the first quarter at $5.80 per 1,000 cubic feet.

WTI (West Texas Intermediate) oil prices averaged $93.53 and Brent oil prices averaged $108.33, down 9 per cent and 8 per cent, respectively, from the second quarter of last year. Nymex natural gas prices averaged $2.26, a 48-per-cent decrease from a year ago.

Total production and production from continuing operations increased by 4 per cent over the previous year due principally to increased shale volumes in North America and growth in Southeast Asia, partially offset by lower North Sea production.

North America

The company is well positioned in some of the top-tier shale plays in North America. It is shifting its focus to the liquids-rich parts of its portfolio and expects to grow its liquids production from approximately 25,000 barrels per day (bbl/d) in 2012 to over 60,000 bbl/d by 2015.

In North America, production averaged 201,000 boe/d for the second quarter, up 19 per cent from a year ago. Oil and liquids volumes increased by 22 per cent, with natural gas production up 19 per cent. Volumes listed as assets sold include 2,350 bbl/d of liquids.

Capital expenditure totalled $399-million, of which 90 per cent was related to shale activity. The majority of this was spent on progressing development of the liquids-rich Eagle Ford program, where overall production averaged 13,800 boe/d (83 million cubic feet equivalent per day). Liquids production averaged 7,000 bbl/d compared with 1,000 bbl/d in the same quarter in 2011.

As signalled at the beginning of the year, Talisman is actively reducing capital spending in the Marcellus due to low natural gas prices. Gas production averaged 545 million cubic feet per day, an increase of 34 per cent over the same quarter last year. It is expected to decrease over the coming months as a result of the ramp down in activity. Operating costs for the quarter included $11-million for the recently introduced Pennsylvania impact fee, which included $7-million for prior-year costs.

In the Montney and other pilots, production was up slightly over the previous quarter, averaging 76 million cubic feet equivalent per day. During the quarter, Talisman made the decision not to proceed with the next phase of Sasol Canada's GTL (gas-to-liquids) project. This does not impact the company's upstream joint venture agreement with Sasol.

In the liquids-rich Duvernay, the company drilled the third well of its 2012 six-well pilot program. Talisman plans to drill the next three wells in the southern portion of its holdings in the second half of the year.

Southeast Asia

Southeast Asia is expected to grow at an average of approximately 8 per cent per year through the medium term. The majority of Talisman's gas sales contracts here are linked to oil price benchmarks. This region is one of the fastest growing natural gas markets in the world.

Liquids production averaged 41,000 bbl/d in the quarter, an increase of 24 per cent over the same quarter last year. This is primarily due to the ramp-up at Jambi Merang and the addition of Kitan in October, 2011. Natural gas sales for the second quarter averaged 528 million cubic feet per day, with prices averaging $9.48 per 1,000 cubic feet.

In Malaysia, production averaged 37,000 boe/d in the quarter. Talisman has drilled six wells of an eight-well program in PM-3 CAA Northern fields, with five wells now on production. All wells are meeting or exceeding expectations. During the quarter, Petronas formally awarded Talisman a 60-per-cent working interest in a new production sharing contract for continuing production, further development and improved oil recovery from Kinabalu, which lies within the Sabah region offshore Malaysia. Talisman assumes operatorship in December of this year.

In Indonesia, production was 5 per cent higher than the same period last year (12 per cent higher when normalized to account for Suban unitization) due principally to increased volumes at Jambi Merang and Tangguh. The Corridor PSC is maintaining production at record levels of over one billion cubic feet per day gross sales gas.

In Vietnam, production has remained steady at an average of 2,000 bbl/d. The Hai Su Trang and Hai Su Den development is progressing on schedule and on budget, with first production planned for the second half of 2013.

In Papua New Guinea, the Stanley condensate recovery scheme was sanctioned by Talisman in June. This liquids project is expected to start production in late 2014.

North Sea

The North Sea is an important part of the company's portfolio. The company will continue to maximize value from its U.K. assets through the recent joint venture agreement with Sinopec.

In July, Talisman announced a joint venture agreement where Sinopec will acquire a 49-per-cent equity interest in Talisman's U.K. North Sea business for $1.5-billion. The joint venture will invest to improve continuing operating performance, as well as infill drilling and major projects, thereby extending field life and deferring decommissioning. The joint venture will proportionately reduce Talisman's share of capital spending, production and abandonment liabilities for its U.K. business. The transaction is expected to close by year-end.

During the quarter, production in the North Sea decreased by 29 per cent relative to the same period in 2011. In the U.K., the decrease related to planned turnarounds, shut-ins to repair a gas export pipeline and mechanical issues at several sites. The decrease in Norway was due principally to reduced rates at Brage and Gyda and shutdown work at Brage and Rev.

Production is expected to increase toward the end of the year with the contribution from infill wells, completion of planned maintenance and the resolution of mechanical issues. During the quarter, the first of several planned infill wells at Clyde was drilled and an infill well at Rev commenced drilling. Following the Rev well, the rig will move to Varg to drill two infill wells on the field.

Colombia

In Colombia, the development of Equion's Piedemonte complex is proceeding with the recent sanctioning of a major facilities expansion and a three-rig drilling program under way. In the foothills region, the Huron-2 appraisal well continues to drill. An environmental permit has been issued for block CPO-9, and the company is moving to progress testing.

International exploration

Talisman is focusing its exploration spending in areas that have high impact and a greater potential for large discoveries. This next phase of the company's exploration program includes near-term oil growth and large Asian gas opportunities. The company continues to evaluate new plays as part of its unconventional and deepwater strategy.

In the Kurdistan region of northern Iraq, the Kurdamir-2 exploration well has reached its target total depth of 4,000 metres, and drill stem testing in the Cretaceous pay zone identified on logs is being initiated. Depending on results, an extended well test in either the Cretaceous or Oligocene zone will be considered. After completing operations on Kurdamir-2, Talisman intends to enter the next exploration period of the Kurdamir licence and drill a follow-up appraisal well, Kurdamir-3.

In Papua New Guinea, the Weimang-1 exploration well found gas in line with predrill expectations. Talisman will now move onto the Puk Puk-2 appraisal well and is confident that its gas aggregation strategy in the western province remains on track.

Common share and preferred share dividend declaration

The company has declared a quarterly dividend on its common shares of 6.75 cents per share. The dividend will be paid on Sept. 28, 2012, to shareholders of record at the close of business on Aug. 17, 2012.

The company has also declared a quarterly dividend of 26.25 Canadian cents on its cumulative redeemable rate reset first preferred shares, Series 1. The dividend will be paid on Oct. 1, 2012, to shareholders of record at the close of business on Aug. 17, 2012.

We seek Safe Harbor.