ex99_1.htm

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

April 29, 2009

Talisman Energy Inc.
Consolidated Balance Sheets
(unaudited)

	March 31			December 31
(millions of C$)	2009			2008
				(restated -
Assets				note 2)
Current
Cash and cash equivalents		181			93
Accounts receivable		2,075			2,434
Inventories		148			181
Prepaid expenses		32			16
Assets of discontinued operations (note 2)		30			204
		2,466			2,928

Other assets (note 4)		259			235
Goodwill (note 3)		1,308			1,264
Property, plant and equipment		19,386			19,005
Assets of discontinued operations (note 2)		888			843
		21,841			21,347
Total assets		24,307			24,275

Liabilities
Current
Bank indebtedness		22			81
Accounts payable and accrued liabilities		1,797			1,916
Income and other taxes payable		278			468
Future income taxes		201			300
Liabilities of discontinued operations (note 2)		14			53
		2,312			2,818

Deferred credits		56			51
Asset retirement obligations (note 5)		2,055			1,998
Other long-term obligations (note 6)		313			173
Long-term debt (note 7)		3,717			3,961
Future income taxes		3,982			4,032
Liabilities of discontinued operations (note 2)		81			92
		10,204			10,307
Contingencies (note 13)
Shareholders' equity
Common shares, no par value (note 8)
Authorized: unlimited
Issued and outstanding:
2009 - 1,015 million (December 2008 - 1,015 million)		2,373			2,372
Contributed surplus		96			84
Retained earnings		9,421			8,966
Accumulated other comprehensive loss		(99	)		(272	)
		11,791			11,150
Total liabilities and shareholders' equity		24,307			24,275

See accompanying notes

Talisman Energy Inc.
Consolidated Statements of Income
(unaudited)

	Three months ended
	March 31
(millions of C$)	2009			2008
				(restated -
				note 2)
Revenue
Gross sales		1,840			2,345
Hedging loss		-			(10	)
Gross sales, net of hedging		1,840			2,335
Less royalties		298			360
Net sales		1,542			1,975
Other		34			25
Total revenue		1,576			2,000

Expenses
Operating		521			429
Transportation		57			43
General and administrative		81			64
Depreciation, depletion and amortization		733			507
Dry hole		246			65
Exploration		68			56
Interest on long-term debt		45			44
Stock-based compensation (recovery) (note 9)		33			(10	)
(Gain) loss on held-for-trading financial instruments (note 10)		(73	)		68
Other, net		11			(16	)
Total expenses		1,722			1,250
Income (loss) from continuing operations before taxes		(146	)		750
Taxes
Current income tax		128			235
Future income tax (recovery)		(204	)		56
Petroleum revenue tax		14			47
		(62	)		338
Net income (loss) from continuing operations		(84	)		412
Net income from discontinued operations (note 2)		539			54
Net income		455			466


Per common share (C$):
Net income (loss) from continuing operations		(0.08	)		0.40
Diluted net income (loss) from continuing operations		(0.08	)		0.40
Net income from discontinued operations		0.53			0.05
Diluted net income from discontinued operations		0.53			0.05
Net income		0.45			0.46
Diluted net income		0.45			0.45
Average number of common shares outstanding (millions)		1,015			1,019
Diluted number of common shares outstanding (millions)		1,015			1,036

See accompanying notes

Talisman Energy Inc.
Consolidated Statements of Comprehensive Income
(unaudited)


Three months ended March 31
(millions of C$)	2009			2008

Net income		455			466
Foreign currency - translation of self-sustaining foreign operations (1)		(179	)		(151	)
Foreign currency - translation into reporting currency		354			368
Gains and losses on derivatives designated as cash flow hedges
Unrealized losses arising during the period (2)		(2	)		-
Realized losses recognized in net income (3)		-			4
		(2	)		4
Other comprehensive income		173			221
Comprehensive income		628			687
(1) Includes net investment hedging gain of $20 million (2008 - $27 million)
(2) Net of tax of $(0.5) million (2008 - nil)
(3) Net of tax of nil (2008 - $(4) million)

See accompanying notes

Talisman Energy Inc.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)


Three months ended March 31
(millions of C$)	2009			2008

Common shares
Balance at beginning of period		2,372			2,437
Issued on exercise of stock options (note 8)		1			-
Balance at end of period		2,373			2,437

Contributed surplus
Balance at beginning of period		84			64
Stock based compensation (note 9)		12			-
Balance at end of period		96			64

Retained earnings
Balance at beginning of period		8,966			5,651
Net income		455			466
Balance at end of period		9,421			6,117

Accumulated other comprehensive income (loss)
Balance at beginning of period		(272	)		(189	)
Other comprehensive income		173			221
Balance at end of period		(99	)		32

See accompanying notes

Talisman Energy Inc.
Consolidated Statements of Cash Flows
(unaudited)

	Three months ended
	March 31
(millions of C$)	2009			2008
				(restated -
				see note 2)
Operating
Net income (loss) from continuing operations		(84	)		412
Items not involving cash (note 12)		1,311			668
Exploration		68			56
		1,295			1,136
Changes in non-cash working capital		(223	)		80
Cash provided by continuing operations		1,072			1,216
Cash provided by discontinued operations		14			96
Cash provided by operating activities		1,086			1,312

Investing
Capital expenditures
Exploration, development and other		(941	)		(967	)
Property acquisitions		(28	)		(97	)
Proceeds of resource property dispositions		33			-
Changes in non-cash working capital		(257	)		99
Discontinued operations, net of capital expenditures		584			(56	)
Cash used in investing activities		(609	)		(1,021	)

Financing
Long-term debt repaid		(690	)		(1,167	)
Long-term debt issued		370			538
Deferred credits and other		4			9
Common shares issued		1			-
Changes in non-cash working capital		1			1
Cash used in financing activities		(314	)		(619	)
Effect of translation on foreign currency cash and cash equivalents		(16	)		9
Net increase (decrease) in cash and cash equivalents		147			(319	)
Cash and cash equivalents net of bank indebtedness, beginning of period		12			521
Cash and cash equivalents net of bank indebtedness, end of period		159			202

Cash and cash equivalents		181			217
Bank indebtedness		22			15
Cash and cash equivalents net of bank indebtedness, end of period		159			202

See accompanying notes

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

The Interim Consolidated Financial Statements of Talisman Energy Inc. (“Talisman” or “the Company”) have been prepared by management in accordance with Canadian generally accepted accounting principles. Certain information and disclosures normally required to be included in notes to Annual Consolidated Financial Statements have been condensed or omitted. The Interim Consolidated Financial Statements should be read in conjunction with the audited Annual Consolidated Financial Statements and the notes thereto in Talisman’s Annual Financial Report as at and for the year ended December 31, 2008.

1. Significant Accounting Policies

The Interim Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the 2008 Annual Consolidated Financial Statements, except for the following:

Goodwill and intangible assets

In February 2008, the CICA issued recommendations relating to the recognition, measurement and disclosure of goodwill and intangible assets (section 3064). These recommendations are effective for Talisman’s 2009 reporting and have had no impact on the Company’s Consolidated Financial Statements.

International Financial Reporting Standards (IFRS)

In 2008, the CICA confirmed that publicly accountable enterprises will be required to adopt IFRS in place of Canadian GAAP for interim and annual reporting effective January 1, 2011. At the present time, the impact of the adoption of IFRS on the Company’s Consolidated Financial Statements is not determinable.

2. Discontinued Operations

The assets and liabilities related to discontinued operations have been reclassified as assets or liabilities of discontinued operations on the Consolidated Balance Sheets. Operating results related to these assets and liabilities have been included in net income from discontinued operations on the Consolidated Statements of Income. Comparative period balances have been restated.

Three months ended March 31

	North America				UK			Scandinavia				Other			Total
	2009		2008		2009	2008		2009	2008			2009	2008		2009	2008
Revenue
Gross sales		45		87	-		22	-		13		17		43	62		165
Royalties		5		17	-		-	-		1		(1	)	4	4		22
Revenues, net of royalties		40		70	-		22	-		12		18		39	58		143
Expenses
Operating, marketing and general		12		10	-		5	-		-		2		4	14		19
Dry hole		1		4	-		-	-		-		-		1	1		5
Depreciation, depletion and amortization		10		15	-		2	-		14		3		8	13		39
Income (loss) from discontinued operations before income taxes		17		41	-		15	-		(2	)	13		26	30		80
Taxes		4		11	-		3	-		(3	)	6		12	10		23
Gain (loss) on disposition, net of tax		57		-	471		25	(9	)	(28	)	-		-	519		(3	)
Net income (loss) from discontinued operations		70		30	471		37	(9	)	(27	)	7		14	539		54

	As at March 31, 2009
	North America		UK		Scandinavia		Other		Total
Assets
Current assets		15		-		1		14		30
Property, plant and equipment, net		516		-		81		250		847
Goodwill		19		-		22		-		41
Total assets		550		-		104		264		918
Liabilities
Current liabilities		4		-		5		5		14
Asset retirement obligations		28		-		1		27		56
Future income taxes		-		-		25		-		25
Total liabilities		32		-		31		32		95
Net assets of discontinued operations		518		-		73		232		823

	As at December 31, 2008
	North America		UK		Scandinavia		Other		Total
Assets
Current assets		18		29		1		17		65
Property, plant and equipment, net		496		89		63		237		885
Future income taxes		-		-		-		1		1
Goodwill		20		47		29		-		96
Total assets		534		165		93		255		1,047
Liabilities
Current liabilities		2		33		11		1		47
Asset retirement obligations		32		5		1		25		63
Future income taxes		-		10		25		-		35
Total liabilities		34		48		37		26		145
Net assets of discontinued operations		500		117		56		229		902

North America

In 2009, Talisman entered into an agreement to sell oil and gas producing assets in Western Canada for proceeds of approximately $720 million. The sale is expected to be completed in the second quarter of 2009.

In 2009, Talisman began negotiations to sell certain of its midstream assets in Western Canada. The operating results of these assets are included in the results of discontinued operations.

In 2009, Talisman completed the sale of oil and gas producing assets in Western Canada for proceeds of $90 million, comprising cash and non-cash consideration, resulting in a gain of $57 million, net of tax of $19 million.

In 2009, Talisman completed the sale of its assets in the Netherlands for proceeds of $596 million, resulting in a gain of $471 million, net of tax of $nil.

In the first quarter of 2008, the Company recorded an after-tax closing adjustment of $25 million related to the sale of oil and gas properties in 2007.

Scandinavia

Talisman has entered into an agreement to sell a 10% share in the Yme field offshore development and three exploration licenses. The Company recorded an after-tax write-down of $8 million in the fourth quarter of 2008 and an additional $9 million in the first quarter of 2009. The sale is expected to be completed in the second quarter of 2009.

In the first quarter of 2008, Talisman recorded an after-tax writedown of $28 million upon entering into an agreement to sell assets in Denmark. The sale closed in the second quarter of 2008 for proceeds of $95 million, resulting in an after-tax writedown of these assets of $46 million.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

Other

In the first quarter of 2009, Talisman entered into an agreement to sell assets in Trinidad and Tobago for proceeds of approximately $380 million before closing adjustments. The sale is expected to be completed in the second quarter of 2009.

3. Goodwill

Changes in the carrying amount of the Company’s goodwill are as follows:

	Three months ended		Year ended
	March 31, 2009		December 31, 2008
Opening balance		1,264		1,305
Foreign currency translation effect		44		(41	)
Closing balance 1		1,308		1,264

1.	At March 31, 2009 $41 million (December 31, 2008 - $96 million; January 1, 2008 - $113 million) has been reclassified to assets of discontinued operations.

Goodwill has no tax basis.

4. Other Assets

	March 31, 2009		December 31, 2008
Accrued pension asset		30		32
Fair value of derivative contracts (note 10)		62		43
Investments		43		41
Future income tax assets		61		57
Note receivable		33		31
Other		30		31
		259		235

5. Asset Retirement Obligations (ARO)

Changes in carrying amounts of the Company’s ARO associated with its property, plant and equipment are as follows:

	Three months ended			Year ended
	March 31, 2009			December 31, 2008
ARO liability, beginning of period		2,028			1,908
Liabilities incurred during period		-			92
Liabilities settled during period		(8	)		(57	)
Accretion expense		31			111
Revisions in estimated future cash flows		-			67
Foreign currency translation		34			(93	)
ARO liability, end of period1, 2		2,085			2,028

1.	Included in March 31, 2009 and December 31, 2008 liabilities are $30 million and $30 million respectively of short-term reclamation costs recorded in accounts payable on the balance sheet for a net long-term ARO liability of $2,055 million and $1,998 million respectively.

2.	At March 31, 2009, $56 million (December 31, 2008 - $63 million; January 1, 2008 - $117 million) has been reclassified to liabilities of discontinued operations.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

6. Other Long-Term Obligations

	March 31, 2009		December 31, 2008
Accrued pension and other post-employment benefits liability		50		60
Fair value of derivative contracts (note 10)		133		69
Discounted obligations on capital leases1		122		31
Other		8		13
		313		173

1.	Of the total discounted liability of $146 million (December 31, 2008 - $37 million), $24 million (December 31, 2008 - $6 million) is included in accounts payable and accrued liabilities.

7. Long-Term Debt

	March 31, 2009			December 31, 2008
Bank credit facilities		-			576
Tangguh project financing		111			102
Debentures and notes (unsecured):
US$ denominated (US$2,120 million, 2008 - US$1,920 million)		2,672			2,350
C$ denominated		524			524
UK£ denominated (UK£250 million)		451			448
Gross debt		3,758			4,000
Prepaid financing costs		(41	)		(39	)
		3,717			3,961

In March 2009, Talisman completed a private placement of US$50 million 8.25% Series A Senior Notes due March 11, 2014 and US$150 million 8.50% Series B Senior Notes due March 11, 2016. Interest on both notes is payable on a quarterly basis.

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.

	Three months ended				Year ended
Continuity of common shares	March 31, 2009				December 31, 2008
	Shares		Amount		Shares			Amount
Balance, beginning of period		1,014,708,249		2,372		1,018,590,255			2,437
Issued on exercise of options		95,400		1		179,994			3
Purchased for PSU plan (note 9)		-		-		(4,062,000	)		(68	)
Purchased during the period		-		-		-			-
Balance, end of period		1,014,803,649		2,373		1,014,708,249			2,372

Subsequent to March 31, 2009, there were no stock options exercised for shares.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

In October 2008, the Company renewed its normal course issuer bid (NCIB) with the Toronto Stock Exchange (TSX). Pursuant to the NCIB, the Company may repurchase up to 50,938,512 of its common shares (representing 5% of the common shares outstanding at October 14, 2008) during the 12 month period commencing October 23, 2008 and ending October 22, 2009.

9. Stock-Based Compensation

Stock Option Plans

Talisman has stock option plans in place that allow for the granting of options to employees and directors. All options issued by the Company permit the holder to purchase one common share of the Company at the stated exercise price or to receive a cash payment equal to the appreciated value of the stock option.

	Three months ended					Year ended
Continuity of stock options	March 31, 2009					December 31, 2008
	Number of			Weighted-average		Number of			Weighted-average
	Options			exercise price ($)		Options			exercise price ($)
Outstanding, beginning of period		64,877,521			15.14		63,578,912			13.21
Granted during the period		1,142,630			11.67		17,071,170			17.71
Exercised for common shares		(95,400	)		2.86		(179,994	)		9.00
Exercised for cash payment		(534,120	)		5.83		(13,880,528	)		9.08
Forfeited/Expired		(324,218	)		17.86		(1,712,039	)		19.11
Outstanding, end of period		65,066,413			15.16		64,877,521			15.14
Exercisable, end of period		36,759,766			12.65		30,135,489			10.80

Cash Unit Plans

In addition to the Company’s stock option plans, various subsidiaries of the Company issue stock appreciation rights under the cash unit plans. Cash units are similar to stock options except that the holder does not have a right to purchase the underlying share of the Company.

	Three months ended					Year ended
Continuity of cash units	March 31, 2009					December 31, 2008
	Number of			Weighted-average		Number of			Weighted-average
	units			exercise price ($)		units			exercise price ($)
Outstanding, beginning of period		9,723,082			16.52		9,970,493			15.14
Granted during the period		22,610			11.98		2,184,940			18.06
Exercised		-			-		(1,984,466	)		10.85
Cancelled/Forfeited		(50,002	)		19.80		(447,885	)		19.43
Outstanding, end of period		9,695,690			16.50		9,723,082			16.52
Exercisable, end of period		5,269,510			14.19		3,495,861			11.40

Performance Share Unit (PSU) Plans

During 2008, Talisman implemented a PSU plan pursuant to which 4,158,860 PSUs were granted. Half of the PSUs vest on January 31, 2010. The remaining half will vest on the same date, subject to pre-determined performance measures being achieved.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

To satisfy the Company’s obligation to deliver stock to settle various PSUs, the Company established a trust that purchased 4,062,000 shares of common stock on the open market for $68 million. These shares will be held in trust until the PSUs vest. The Company is not exposed to fluctuations in the stock price in respect of the shares held in trust.

For accounting purposes, the cost of the purchase of common stock held in trust has been accounted for as a reduction in outstanding shares of common stock and the trust has been consolidated in accordance with Accounting Guideline 15 since it meets the definition of a variable interest entity, and the Company is the primary beneficiary of the trust.

For the three months ended March 31, 2009 the Company recorded stock-based compensation expense of $12 million (2008 - $nil) relating to its 2008 PSU plan, with a corresponding increase in contributed surplus.

In April 2009, the Company implemented a permanent PSU plan that allows for the granting of PSUs to employees, pursuant to which 4,988,024 PSUs were granted. PSUs vest three years after the grant date to varying degrees (0-150%), subject to pre-determined performance measures being achieved, and represent the right, subject to performance, to receive one share of the Company.

Deferred Share Unit (DSU) Plan

Talisman also issues DSUs to directors in lieu of cash compensation. Each DSU represents the right to receive a cash payment on retirement equal to the market value of the Company’s shares at the time of surrender. Dividends are credited as additional DSUs when paid. At March 31, 2009, there were 316,390 (December 31, 2008 – 316,390) units outstanding and the mark-to-market liability was $4 million (December 31, 2008 – $4 million). Expense related to the DSUs is recognized in general and administrative expense on the Consolidated Statements of Income.

Restricted Share Unit (RSU) Plan

Talisman has a RSU plan that grants RSUs to eligible employees. All RSUs issued by the Company permit the holder to receive a cash payment equal to the market value of the stock. Typically, RSUs granted under the plan are paid three years after the grant date. At March 31, 2009, there were 340,434 (December 31, 2008 – 250,181) units outstanding (including dividend equivalent RSUs) and the mark-to-market liability was $1 million (December 31, 2008 – $0.5 million).

Stock-Based Compensation

For the three months ended March 31, 2009, the Company recorded stock-based compensation expense of $33 million (2008 - $10 million recovery) relating to its stock option and cash unit plans including a cash payment of $5 million (2008 - $9 million) to employees in settlement of fully accrued stock-based compensation liabilities for options and cash units exercised in the period.

The combined mark-to-market liability for the stock option, cash unit, DSU and RSU plans of $110 million (December 31, 2008 - $93 million) is included in accounts payable and accrued liabilities.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

10. Financial Instruments and Risk Management

Talisman’s financial assets and liabilities at March 31, 2009 comprised cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, long-term debt, discounted obligations under capital leases and risk management assets and liabilities arising from the use of derivative financial instruments.

Fair Value of Financial Assets and Liabilities

Asset (liability)	March 31, 2009								December 31, 2008
	Carrying value			Fair value			Unrecognized gain (loss)		Carrying value			Fair value			Unrecognized gain (loss)
Gross long-term debt		(3,758	)		(3,088	)		670		(4,000	)		(3,340	)		660
Notes receivable		33			33			-		31			31			-
Cross currency and interest rate swaps		16			16			-		30			29			1
Natural gas derivatives		86			86			-		(33	)		(33	)		-
Crude oil derivatives		535			535			-		1,145			1,145			-

Refer to the 2008 Annual Consolidated Financial Statements for details of fair value methodology.

Risk Management Position

Derivative instrument	Balance sheet caption	March 31, 2009			December 31, 2008
Assets
Interest rate swaps	Accounts receivable		12			12
Interest rate swaps	Other assets		41			43
Commodity contracts	Accounts receivable		793			1,186
Commodity contracts	Other assets		21			-
Risk management assets			867			1,241
Liabilities
Cross currency swaps	Accounts payable and accrued liabilities		(4	)		(3	)
Cross currency swaps	Other long-term obligations		(33	)		(22	)
Commodity contracts	Accounts payable and accrued liabilities		(93	)		(27	)
Commodity contracts	Other long-term obligations		(100	)		(47	)
Risk management liabilities			(230	)		(99	)

For the three months ended March 31, 2009, the Company recorded a gain on held-for-trading financial instruments of $73 million (2008 - loss of $68 million) including cash received of $580 million related to commodity derivative gains that were accrued at December 31, 2008.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

Commodity Price Risk

The Company had the following commodity price derivative contracts outstanding at March 31, 2009:

Fixed price swaps	Term	Mcf/d		C$/mcf		Fair value
ICE index	Apr–Sep 2009		23,452		6.11		(1	)
ICE index	Oct-Dec 2009		20,638		7.75		(3	)
ICE index	Jan–Mar 2010		20,638		7.75		(6	)
ICE index	Apr-Sep 2010		20,638		6.37		(11	)
ICE index	Oct–Dec 2010		17,824		7.49		(7	)
ICE index	Jan-Mar 2011		17,824		7.49		(9	)
ICE index	Apr–Jun 2011		16,886		6.83		(6	)
							(43	)

Floor/ceiling

Two-way collars

Term

bbls/d

US$/bbl

Fair value

Dated Brent oil index

Apr-Dec 2009

35,000

97.71/139.00

549

WTI

Apr–Dec 2009

41,000

54.51/68.86

Dated Brent oil index

Jan–Dec 2010

28,000

52.57/80.14

WTI

Jan–Dec 2010

22,000

50.20/60.87

(73

)

535

Floor/ceiling

Two-way collars

Term

Mcf/d

C$/mcf

Fair value

AECO index

Apr-Oct 2009

9,482

6.33/6.76

AECO index

Jan-Dec 2010

47,410

5.78/7.39

)

Put options

Term

Mcf/d

C$/mcf

Fair value

AECO index

Apr-Dec 2009

222,827

6.33

125

In respect of outstanding financial instruments and assuming forward commodity prices in existence at March 31, 2009, an increase of US$1/bbl in the price of oil and $0.10/mcf in the price of natural gas would have reduced the net fair value of commodity derivatives thereby resulting in a decrease in net income of approximately $20 million for the three month period ended March 31, 2009. A similar decrease in commodity prices would result in an increase in net income of approximately $23 million for the three month period ended March 31, 2009.

Currency Risk

In respect of financial instruments existing at March 31, 2009, a 1% strengthening of the US$ against the other currencies to which the Company is exposed (Canadian dollar, British pound and Norwegian kroner), with all other variables assumed constant, would have resulted in an increase of $5 million in net income and an increase of $3 million in other comprehensive income for the three month period ended March 31, 2009. A similar weakening of the US$ would have had the opposite impact.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

Interest Rate Risk

In respect of financial instruments existing at March 31, 2009, a 1% increase in interest rates would have resulted in a $17 million decrease in net income, principally related to the fair value of the interest rate swap, for the three month period ended March 31, 2009. A similar decrease in interest rates would have had the opposite effect.

Credit Risk

A significant proportion of Talisman’s accounts receivable balance is with customers in the oil and gas industry and is subject to normal industry credit risks. Substantially all of the Company's trade accounts receivable at March 31, 2009 were current and the largest single counterparty exposure, accounting for 17% of the total, was with a very highly rated counterparty. Concentration of credit risk is mitigated by having a broad domestic and international customer base. The maximum credit exposure associated with accounts receivable is the carrying value.

Derivative counterparty exposure decreased significantly during the first quarter of 2009 due principally to the settlement of contracts. The Company diversifies its derivative counterparty exposure but the majority of the exposure at March 31, 2009 was with one counterparty that had received investment from the US Government through its Troubled Assets Relief Program.

Liquidity Risk

The majority of the Company's debt matures subsequent to 2010, with approximately $186 million maturing in 2009 and $12 million in 2010. The Company has the ability and intention to replace this debt with long-term borrowings under its bank credit facilities.

At March 31, 2009, the Company had not drawn against its available $2.8 billion of bank lines of credit, which are all fully committed through 2012. These maturity dates may be extended from time to time by agreement between the Company and the respective lenders. During the quarter, the Company diversified its maturities through the private placement described in note 7.

The Company may hedge a portion of its future production to protect cash flows to allow the Company to meet its strategic objectives.

11. Employee Benefits

The Company’s net pension benefit plan expense is as follows:

	Three months ended			Three months ended
	March 31, 2009			March 31, 2008
Current service cost - defined benefit		4			4
Current service cost - defined contribution		3			3
Interest cost		5			3
Expected return on plan assets		(2	)		(4	)
Actuarial loss		-			1
Other		-			1
		10			8

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(tabular amounts in millions of Canadian dollars (“$”) except as noted)

12. Selected Cash Flow Information

	Three months ended			Three months ended
	March 31, 2009			March 31, 2008
Items not involving cash:
Depreciation, depletion and amortization		733			507
Dry hole		246			65
Net loss on asset disposals		8			3
Stock-based compensation expense (recovery)		28			(19	)
Future taxes and deferred petroleum revenue tax (recovery)		(207	)		50
Mark-to-market change of held-for-trading financial instruments		511			68
Other		(8	)		(6	)
		1,311			668
Interest paid		51			54
Income taxes paid		370			156

13. Contingencies

From time to time, Talisman is the subject of litigation arising out of the Company’s operations. Damages claimed under such litigation, including the litigation discussed below may be material or may be indeterminate and the outcome of such litigation may materially impact the Company’s financial condition or results of operations. While Talisman assesses the merits of each lawsuit and defends itself accordingly, the Company may be required to incur significant expenses or devote significant resources to defending itself against such litigation. These claims are not currently expected to have a material impact on the Company’s financial position.

On September 12, 2006, the United States District Court for the Southern District of New York (the Court) granted Talisman's Motion for Summary Judgment, dismissing the lawsuit brought against Talisman by the Presbyterian Church of Sudan and others under the Alien Tort Claims Act. The lawsuit alleged that the Company conspired with, or aided and abetted, the Government of Sudan to commit violations of international law in connection with the Company's now disposed of interest in oil operations in Sudan. The plaintiffs have twice attempted to certify the lawsuit as a class action. In March 2005 and in September 2005, the Court rejected the plaintiffs' effort to certify two different classes (or groups) of plaintiffs. The plaintiffs have appealed to the Second Circuit Court of Appeals, the Court's decision granting Talisman's Motion for Summary Judgment, its denial of class certification, and its refusal to consider the plaintiffs' proposed third amended complaint. A decision of the Second Circuit Court of Appeals is expected in 2009. Talisman believes the lawsuit is entirely without merit.

14. Segmented Information
Three months ended March 31


	North America (1)						UK						Scandinavia				Southeast Asia (2)						Other (3)						Total
(millions of Canadian $)	2009			2008			2009			2008			2009		2008		2009			2008			2009			2008			2009			2008
Revenue
Gross sales		540			845			529			798			242		203		390			511			139			(12	)		1,840			2,345
Hedging		-			-			-			(10	)		-		-		-			-			-			-			-			(10	)
Royalties		84			153			1			4			-		-		145			203			68			-			298			360
Net sales		456			692			528			784			242		203		245			308			71			(12	)		1,542			1,975
Other		26			18			7			5			1		2		-			-			-			-			34			25
Total revenue		482			710			535			789			243		205		245			308			71			(12	)		1,576			2,000
Segmented expenses
Operating		150			124			211			216			74		56		68			33			18			-			521			429
Transportation		12			16			13			8			12		9		17			8			3			2			57			43
DD&A		271			252			235			144			103		63		109			48			15			-			733			507
Dry hole		128			20			31			21			28		24		51			(1	)		8			1			246			65
Exploration		24			26			2			2			6		7		15			7			22			14			68			56
Other		4			(3	)		4			7			1		-		(2	)		2			7			(5	)		14			1
Total segmented expenses		588			435			496			398			224		159		258			97			73			12			1,639			1,101
Segmented income (loss) before taxes		(106	)		275			39			391			19		46		(13	)		211			(2	)		(24	)		(63	)		899
Non-segmented expenses
General and administrative																														81			64
Interest																														45			44
Stock-based compensation																														33			(10	)
Currency translation																														(3	)		(17	)
(Gain)/Loss on held-for-trading financial instruments																														(73	)		68
Total non-segmented expenses																														83			149
Income (loss) from continuing
operations before taxes																														(146	)		750
Capital expenditures
Exploration		205			175			46			50			59		37		81			85			61			18			452			365
Development		105			225			131			124			115		140		196			86			3			11			550			586
Midstream		35			6			-			-			-		-		-			-			-			-			35			6
Exploration and development		345			406			177			174			174		177		277			171			64			29			1,037			957
Property acquisitions																														66			111
Proceeds on dispositions																														(33	)		-
Other non-segmented																														10			9
Net capital expenditures (4)																														1,080			1,077
Property, plant and equipment		8,697			8,703			4,693			4,738			1,919		1,745		3,189			2,984			888			835			19,386			19,005
Goodwill		223			223			308			306			640		602		133			129			4			4			1,308			1,264
Other		816			840			316			253			133		154		370			304			165			138			1,800			1,689
Discontinued operations		550			534			-			165			104		93		-			-			264			255			918			1,047
Segmented assets		10,286			10,300			5,317			5,462			2,796		2,594		3,692			3,417			1,321			1,232			23,412			23,005
Non-segmented assets																														895			1,270
Total assets (5)																														24,307			24,275

(1) North America								2009			2008							(2) Southeast Asia												2009			2008
Canada								447			663							Indonesia												138			202
US								35	47									Malaysia												60			96
Total revenue								482			710							Vietnam												36			11
Canada								7,880			7,902							Australia												11			(1	)
US								817			801							Total revenue												245			308
Property, plant and equipment (5)								8,697			8,703							Indonesia												1,060			990
																		Malaysia												1,374			1,277
4 Excluding corporate acquisitions.																		Vietnam												491			470
5 Current year represents balances as at March 31, prior year represents balances as at December 31.																		Australia												264			247
																		Property, plant and equipment (5)												3,189			2,984

																		(3) Other												2009			2008
																		Algeria												68			-
																		Tunisia												3			(12	)
																		Total revenue												71			(12	)
																		Algeria												215			221
																		Tunisia												24			21
																		Other												649			593
																		Property, plant and equipment (5)												888			835