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Executives

John A. Manzoni – President & Chief Executive Officer

A. Paul Blakeley – Executive Vice President – International Operations (East)

Ronald J. Eckhardt – Executive Vice President – North American Relations

Analysts

Benjamin Dell – Berstein (Sanford Co.) & Co.

Robert Plexman – CIBC World Markets

Brian Dutton – Credit Suisse Equity Research

Ross Pain – Wachovia Capital Markets

Talisman Energy, Inc. (TLM) 2008 Guidance Call January 15, 2008 1:00 PM ET

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Talisman Energy, Inc. 2008 guidance review conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions)

This call contains forward-looking information. Certain material factors and assumptions were applied in making the forecast and projects to be discussed in this call and actual results could differ materially from those anticipated by Talisman and described in the forward-looking information. Please refer to the cautionary advisory in the January 15, 2008 news release and Talisman’s most recent annual information form which contains additional information about the applicable risks, factors and assumptions.

I would like to remind everyone that this conference call is being recorded today, Tuesday, January 15th at 11:00 am mountain time. I would now like to turn the conference over to Mr. John Manzoni. Mr. Manzoni, please go ahead

John A. Manzoni

Ladies and gentleman good morning and thank you for attending our conference call. Today, our purpose here is to review our 2008 guidance which was released this morning. Now, I’m joined here in Calgary by my management team with the exception of John t’Hart who’s away on vacation today. The team will be very happy, and I of course, will be very happy to answer your questions after I’ve said a few words.

I always begin any communication by outlining my priorities. Partly because it’s good to build a consistent message but, I think it’s especially relevant today because much of what I want to talk about is related directly to at least two of my three priorities. Now, I think I’ve outlined to many of you in individual conversations that I have three very, very clear things that I am working on as I have stepped into this role in Talisman. First, is safety and operations and by that I mean personally visiting the front line and working to continuously improve the safety and operation of our business from the very good place we are today. Second, it’s about improving our short term deliveries since we’ve been missing our targets recently and I believe we need to get underneath that. And third, it’s about creating a clearer picture of the longer term growth potential for Talisman. In other words, lengthening the stride for the company and giving more certainty about that longer term.

Now, as I speak to you today I find myself on the one hand having to handle my second priority, that is improving out track record of delivery rather more forcefully frankly, than I had anticipated. While on the other hand I’m increasingly optimistic and excited about the longer term future for the company. That confidence comes from the progress we’re making on our strategic portfolio review as well as some of the wells we drilled last year. You’ve seen the press release today about Vietnam and of course, we’re still appraising the Caylay discovery in the North Sea. I’ve also stated quite clearly that I believe we need to be more strategic in our communications to you as investors and the market mainly because I believe the portfolio offers lots of opportunity and growth into the future both in the medium and the longer term and I want to help you see that over time. But, I recognize that the long term is founded on secure delivery in the short term and it’s right that we deal with that issue first.

So, I want to start with production because I know that’s something which everybody focuses on. At the third quarter conference call I made two statements about production. First, that the fourth quarter would be 460 to 470,000 barrels a day depending on Tweedsmuir. And second, I noted that I saw no reason to adjust the medium term growth projections which we have said are 5 to 10% per annum to 2010. Quiet a lot has happened since that call but much of it is much more about delays in operations than it is about the underlying reserve base of the company or our projects to 2010. I remain comfortable with our projects for the period to 2010 and I remain comfortable with the rocks and the reservoirs but, I am less comfortable about the operational delays we have experienced.

It is important to outline what changed in the fourth quarter partly because that forms our views and attitudes as we project forward into 2008. Tweedsmuir did not come on trouble free and is still not running as we had expected. Today, it’s in the process of commissioning but it is not yet fully commissioned. We know it can produce around 16,000 barrels a day which represents our low case projection for 2008. We fully expect it to build from here but, I’m not prepared to commit to it until we see it. I’ll come back to Tweedsmuir in a moment.

The other impact on the fourth quarter was that we had two shutdowns on Claymore and Montrose Tartan both in the North Sea which lasted longer than planned. Both these platforms access hubs for other fields and thus have knocked on effects due to their extended period of downtime. Both these platforms came in to our portfolio relatively recently and we found the plant in worse condition frankly, than we had expected. Together these issues with various other small pluses and minuses represent the main changes from my expectation in early November. And, of course, the fourth quarter outturn to be closer to 447,000 barrels a day rather than the range that I had indicated.

There are some important lessons here which are about our expectations of uptime and shutdown length especially on platforms that are relatively new to Talisman. Going forward we’re taking a rather more cautious view in light of that experience. As we project forward for 2008 we need to account for this experience and the fact that in particularly in the North Sea the contracting environment remains very tight and things take longer than we had allowed for. We must also of course, take into account the barrels which we sold during 2007 which sum to about 28,000 barrel a day and those include [inaudible] and our North American properties which we sold during the year. You will see from the press release this morning this resulted in production from continuing operations being around 424,000 barrels a day for 2007. This number’s not completely finalized but, we think its pretty close.

For 2008 we’re projecting between 435,000 and 460,000 barrels a day which is about 3 to 8% above last year’s outcome. In the North Sea this project reflects our experience this last year especially in the last quarter. We’re taking a more measure view on various project start ups as well as things like shutdown timings. It also reflects the delays we’ve experienced. The largest and most materially is of course, Tweedsmuir. We hope that the field will reach between 35,000 and 40,000 barrels a day but, we have to see it before banking it and we’re currently in commissioning mode. The range in this year’s projection is in large part related to the final outcome of Tweedsmuir. If it produces only at 16,000 barrels a day we’ll be close to the bottom of the range. If it gets towards where we hope it will build to our production will be towards the top of the range. We’re still optimistic that we will be towards the top of the range but, as I’ve said I’m not ready yet to commit to that.

There’s been a serious of other much less significant delays in the North Sea based on both our own operated and non-operated fields which have also contributed to the outcome. Standing back, I believe this is telling us that our prior projections probably have been optimistic in terms of timing of when things can be made to happen. We operate complex fields with lots of ground field project activity in the North Sea and the contracting environment there is still very difficult. So, taking account of our project load and the business environment we’ve taken a more sober view of the likely timing of project delivery.

In addition to the North Sea which represents the majority of what’s changed, our 2008 projection has also been impacted by some very conscious choices we’ve made. The decisions we made in the fourth quarter of last year to slow both last year’s drilling and this year’s drilling in our Canadian operations has reduced our projections by about 12,000 barrels a day for this year. This is absolutely the right action to take in light of the uncertainty and natural gas outlook as we enter this year. And, we can certainly maintain flexibility in our absolute level of spending in this business. We’re watching the natural gas prices fairly carefully as we go through this year. If they turn out to be low we believe there may be opportunity in the marketplace.

I think the outcome of this reduction will be all positive while the minority of it is due to the uncertainty introduced into the royalty regime here in Alberta. Our main objectives are to rebuild the quality of our inventory, high grade our billing prospects and evaluate the unconventional opportunities in our land portfolio while maintaining that flexibility throughout the year if opportunity arises.

A final component of what’s changed relates to various other operational issues or delay around the word, one example of which is the Corrallina riser failure in Australia which will reduce our put as we go into 2008 here. As I’ve said before, one of Talisman’s great strengths is that everybody in this company has a fabulous can do attitude. That is something I’m very keen we don’t lose. But, we must set out something that is both realistic and which the teams around the world are confident they can achieve. I have been concerned especially, in the North Sea where they’ve had difficulty meeting targets over a number of years and that’s both demoralizing for the team and I believe it undermines all the good work which actually is being done. So, we’ve reset our projections.

Having said that, there are some important qualifiers to this. Very little of it, as far as I can, is related to reservoir performance. There are the normal ups and downs of various wells but, the huge majority of these changes come from delays and a more sober view of timing on things like operational up times. This is about delays not fundamental changes in the reserves themselves. We’ve taken several steps to improve our delivery internally. We’re changing the project processes and organization in the UK as well as increasing our in house engineering capability. We’ve changed our project approach to have a more modular approach and have a higher proportion of the work completed onshore before being shipped off shore. We’re taking a more measured approach in the schedules and timing of upcoming projects. Again, this applies particularly in the UK.

Finally, we’ve taken a very hard look at the various risk around our overall delivery and built that, I think, properly in to our projections. And, it’s these actions which are already underway which give me continued confidence in the medium term projection of 5 to 10% per annum growth to 2010. Of course, our investment patents this year reflect the projects which we’re working on to deliver that medium term growth.

Our press release describes the detail of our capital investment programs for the year but, I’d like to give you an overview of what we’re trying to achieve. First, I want to draw your attention to the areas where investment is increasing. We’re increasing investment in both Southeast Asia and Norway. The numbers are still smaller than those in the UK side of the North Sea and North America but the direction is important. Both areas are growing in the short term and into the medium term.

In Southeast Asia our plans have investment to bring on the northern fields in the Malaysia Vietnam commercial agreement area and also to bring on the Song Doc field in Vietnam. They also include continued expiration of our 15 two block in Vietnam, to follow on from our HSD discovery there at the end of last year. We’ve not included, for the moment, additional investment to appraise the HSD discovery, but we’ll need to reassess that through the course of this year. That’s a good problem to have, and as I have already said, we’re very encouraged by what we’ve seen in that first well.

The Corridor field in Indonesia is ramping up with gas now being sold into West Java and projected to continue to increase into the medium term. This asset is a tremendous base for our business in this part of the world and one which we’ll continue to grow. We’re also shooting seizemics in our big water blocks in Indonesia which should allow us to begin a drilling program in 2009.

In Norway, we’ve built a substantial and well balanced business in a fairly short period of time. We’ve two active projects Rev, which will come on stream this year, and Yme, which is projected to come on stream next year, and both are in development phase. But, 2008 is also about starting quite an aggressive exploration program in Norway. We’ll participate in six exploration wells this year, and are optimistic about the outcome of this program which in fact will run for several years. So, both Asia and Norway are focus areas for growth both over the 2008 period and into the medium term.

As I’ve described at some length, our UK business has a lot on its plate. We still have a number of projects to come on stream and we will be progressing, the Auk field redevelopment and the Burghley field during this year. Investment in the UK will reduce in 2008, both reflecting the completion of several projects during last year, but also to some degree taking a more measured approach to the timing of the ongoing projects. The main focus for the UK this year will be underpinning delivery of those projects. Of note in the UK, of course, is the Cayley well, which as we said before provided very encouraging results. Our appraisal of this discover continues, we’re drilling, I think, our third side trick right now, and we should be in a position to make some statements about this in a few weeks time.

In North America I’ve outlined in broad terms the rationale for a reduction in our capital program, but our North America program has some important strategic objectives this year. We will be drilling some wells early in the year to test prospects on land we hold in the Western United States. This is the start of a program which has strategic importance to us because we believe we can apply our Canadian foothills expertise into the US as well. We’ll be testing our tight gas plays in the Montney and also in the Appalachian and the Quebec Shales. As you know, we do not have a business model which produces tight gas in the way some others do. We own substantial land resources which hold tight gas and our program this year is designed to allow us to make a decision as to whether to step into that business model. These programs are of course underpinned by our continued drilling here in Canada, in the deep basin, the foothills and the outer foothills where we’ve been enjoying success over many years, and have continued to make good discoveries last year.

In terms of financial shape, as our planning assumptions which are considerably below the price levels we see today. The business delivers a growing free cash flow. In the second half of 2007 we began to pay down debt and we see this continuing into the future. In our projections, free cash is generated from our North Sea business and our North America business and it’s invested into Norway and Asia. These trends continue over the course of the next few years. So, we see a strengthening balance sheet over the period. As I’ve said before, I would prefer to invest in oil and gas development activities than to buy back shares, and I fully expect that we’ll identify a range of investments opportunities over the course of the next few years. In part, this will be informed by our current strategic review which I’ll touch on in just a moment.

Operating costs are expected to increase slightly into 2008, reflecting increases in North America as we bring on more foothills and outer foothills wells through new and higher fee infrastructure. In the North Sea the unit cost will depend on the production rate, largely driven by Tweedsmuir but with ramp up of that field, we’re expecting these costs to be reduced.

Looking further ahead to 2010 we expect operating costs to moderate and reduce as new production is brought on.

Finally, let me touch on our current strategic review. In addition to our 2007 drilling successes this is really what’s giving me great confidence in our longer term future. It relates to my third priority of lengthening the stride of the company. Our objectives is to identify opportunities which do lengthen the strides for Talisman, opportunities which allows us to talk to you about the longer term future than three years hence. We’ve deliberately structured the review to inquire into growth opportunities in the core areas of the North Sea, Asia, and North America. That way we can establish what is possible in these geographic areas. In addition, we’re identifying other areas within our portfolio which have the potential for us to grow into the future, such as South America and possibly North Africa. The range of possibilities in each area combined with the fact that we project increasing free cash flow into the medium term gives me confidence that we can be selective about making choices for longer term growth.

Over time we will be quite prepared to rebalance our portfolio to create an overall shape which has longer legs and which can demonstrate profitable growth. I expect we will be complete with this review during the second quarter this year, and as I’ve said too many of you, I don’t expect the result to be a sudden change of direction since the size and diversity of the portfolio necessarily means things take time. But, we will certainly articulate clearly for you where we will allocate our resources and why. I’m excited about the emerging opportunities in this review and I’m looking forward to sharing them with you over the course of the coming few months. I think I’ve probably said enough now, and now I think myself and the team will be very happy to entertain your questions.

Question-and-Answer Session

Operator

Ladies and gentlemen we will now conduct a question and answer session. (Operator Instructions) Your first question comes from Ben Dell of Sanford and Bernstein. Please proceed.

Benjamin Dell – Berstein (Sanford Co.) & Co.

My question is really around some of your last comments. You mentioned that your wider review and talking about looking at areas in North Africa and South America and it sounded a little bit as if your are looking into using some of your free cash flow to expand out into those areas. One of the complaints about Talisman is currently has been you’ve had to big of an asset in too many countries. Do you think that is an issue? And, if so how do you see it being focused when you look at building out new businesses?

John A. Manzoni

I think that you’re right of course. One of the criticisms of the company is that we have a diverse portfolio and that we’re in many places. I have to say, I think there is nothing wrong with diversity of opportunity in fact, our review at the moment is identifying with as many levers to pull here in this portfolio as the result actually of its diversity. What I want to try and reflect for the objective of our review is that we have to create some coherence to the portfolio for you, and we have to articulate that coherence so that we can demonstrate that we can grow in a material way with good investment opportunities in certain parts of the world founded on a base which is stable, at least, and has certain financial characteristics over a run of years.

I think one of the issues with the portfolios today, there’s no question that large amount of our portfolio create lots of value. One of the difficulties is that they decline quite rapidly and it takes quite a lot of effort to keep them steady. So, one of our objective, as we think about the opportunities in our portfolio, is to think about the legs in that portfolio. Now, I also believe that if I look at the way we present the company, if I look at the material that is currently out in the marketplace, we’re not as clear as frankly, we should be or could be about what we’re really trying to achieve.

If I keep telling you about Trinidad and Qatar which are really frankly, not material in our portfolio then you’re going to keep asking questions about them. And, I believe we need to be clear about the core aspects of the portfolio, clear about where the growth is going to come from, and then we need to take some brave decisions about the rest. In the end I am saying that I think it’s as much about how we choose to articulate the portfolio, the role of each part of our portfolio in an overall value proposition for the marketplace as it is about the absolute nature of diversity for the portfolio today.

Operator

(Operator Instructions) Your next question comes from Robert Plexman of CIBC World Markets. Please proceed.

Robert Plexman – CIBC World Markets

You put a range around the expectations for Tweedsmuir this year, how about the rest of the production portfolio? I didn’t see built into that or is there a risk that we may see shortfalls elsewhere in the production.

John A. Manzoni

I was actually rather careful in my statement which said the range largely reflect Tweedsmuir so it doesn’t largely and completely reflect Tweedsmuir. So, we do have some views on the risks associated with the rest of our portfolio. But I do believe, having taking an overall view of the risks across the portfolio that we have now more or less founded what we believe to be an outcome. Now, never say never, and I learned my lesson in the third quarter, I hope we got have got underneath this. I hope we now understand and are taking a different perspective in our views. But you know all of these things come bottom up, of course, and I believe when we start looking in a way, which I’ve tried to reflect, in some sense this is me looking at the team saying, “Look guys, we need to start giving things that we really are confident that we can achieve and that is well balanced in the nature of its risks.” That slight change in some sense takes some time so I’m not guarantee that we’re there but, I think those of us sitting around the table - I am looking at my team who are all nodding vigorously, those of us that are sitting around the table, believe that we have now bounded our expectations of the 2008 outcome.

Robert Plexman – CIBC World Markets

You talked about with the review underway internally that it’s modifying your behavior as far as project design, project delivery, that kind of thing. How about on the operating cost side? Is there anything that you can manage to reduce the upward pressure on the unit op costs, especially in the North Sea?

John A. Manzoni

The nature of our portfolio in the North Sea in particularly actually, by taking on the assets largely which comes from the majors, actually puts us in a structural sense quite high in a unit operating cost spectrum. My judgment, and indeed as I’ve come into the company, and indeed the team here also believes the same thing. We are a lean company, we do not have fat in our operations, we do not have fat in any aspects of the company so in terms of our general operating overheads and such things, I believe those are well managed and well contained. I don’t think there’s not immediate if I could say performance levers or cost reduction programs to do there. Of course, we should be investing in technologies to improve our efficiency all of those things need to happen and of course part of our strategic review at least a lens that we must consider as we think about our portfolio is whether or not there are some fields and assets which are high in that spectrum which therefore would better in someone else’s hands.

Operator

There are no further questions at this time. Please continue.

John A. Manzoni

I’m not sure what to continue with. Do you want to give it one more go around to see if anybody else has anything to ask? If not we’ll close.

Operator

We do have a question from Brian Dutton of Credit Suisse. Please go ahead.

Brian Dutton – Credit Suisse Equity Research

I was wondering if you could give us a little more insight in terms of the drilling programs you’ve conducted to date in Vietnam? The discovery that you have announced was it in line with your prognosis for that prospect? And, what do you consider to be the ultimate potential there?

John A. Manzoni

I’m going to ask Paul to answer this question, he’s sitting right opposite of me. Paul?

A. Paul Blakeley

Early days yet on the well, Hai Su Den, we are still drilling but very close to total depth. What we did unusually based on the results during the drilling phase through the basement was stop to conduct an intermediate test because we were quite encouraged by the fractures that we’re seeing in the basement. I think that is borne out by the well test data. So far, really encouraging. I can’t say what this will mean in the long term because it really is too early, but certainly meeting our expectations and we look forward to a further well test when reached total depth in the basement and also well test in the upper [inaudible] which during the drilling phase also appeared to be ordinary. So, we’re really excited.

John A. Manzoni

Do you want to talk a bit about the other program wells, Paul this year? We’re going to do some more exploration wells in that same block?

A. Paul Blakeley

In addition to Hai Su Den and John alluded to still we have to determine what type of appraisal program would follow on from this well, yet to be determined. We do also have planned two further exploration wells that will follow right on the heels of Hai Su Den. Both will be testing completely separate structures within the block of 15 2 and both will [inaudible] within the next four to six weeks. That will further enhance, we hope, the development potential of this block and again, we remain pretty excited by those results.

Brian Dutton – Credit Suisse Equity Research

Of the four wells are they in the basement or the upper Miacene.

A. Paul Blakeley

The additional two exploration wells that we’ll follow on from this Hai Su Den discovery both will be in the plastic sand above basement. Both [Ligacene] and Miacene are full culture.

Brian Dutton – Credit Suisse Equity Research

Will there be any more exploration wells in the basement?

A. Paul Blakeley

We still have a lot of prospectivity on the block Brian, hard to say what will follow. We do have more leads both in the basement and in the plastics and indeed the Hai Su Den structure that we’re currently testing contains a number of fault compartments. So, almost certainly we will anticipate additional exploration appraisal beyond the existing fault bound compartments.

Brian Dutton – Credit Suisse Equity Research

Lastly, could you remind us of analogous fields in the basement, what are the sizes of those fields from the fractured basement?

A. Paul Blakeley

There are a number of basement structures in the [Coolong] base both to the north and south and also to the east of us. They tend to be quite large full weighted closed structures and most of them appear to work. They range – the largest one is 2 billion barrels and the smallest, I believe, is around 250 million barrels. That’s the size of the discoveries to date.

Operator

Your next question comes from Ross Pain of Wachovia Capital Markets. Please proceed.

Ross Pain – Wachovia Capital Markets

Can you expand a little bit on share repurchases you mentioned earlier? Obviously, they are a lot more potential asset rationalizations to be done? Where will that cash go? Is it going to go into the ground our can we expect some share repurchases?

John A. Manzoni

I’ve not been ashamed on my point of view of share repurchasing. I think there is nothing wrong with buying shares back as an interim measure, in particular if one’s rationalizing the portfolio and such things. I have to say my aspiration and indeed now my expectations as we’re progressing through our portfolio review is that we’re going to find lots of things around oil and gas development into which to put our cash. I’m actually optimistic and therefore will signal that I think we will spend our money on oil and gas development, which I think is frankly, for the longer term and the longer term future for the company is a better thing to do for us. So, that is my signal and my expectation. And, all the things that I am seeing from our reviews indicate that we will indeed find things to do that with.

Operator

Your next question comes from Robert Plexman of CIBC World Markets. Please proceed.

Robert Plexman – CIBC World Markets

You mentioned a little more focus on the Western US foothills and I think Talisman drilled three or four wells of there last year. Can you give us some indication of what you found so far and if the plans for this year builds on last year’s activity? Or, are you going to a different place this year?

John A. Manzoni

I’m going to ask Ron Eckhardt to answer that.

Ronald J. Eckhardt

Actually we didn’t drill any last year. We had two in our program to drill and we’d hoped to get them spudded last year. They’ve been delay a little bit. However, we are well along our way in our first well and as soon as that’s done we will be following up with the second well. Testing both sandstones and carbonate structures some of them not too dissimilar from what we chase in Western Alberta and BC. So, it’s just continuing with that Robert, and we’ll see what we have and decide whether or not we can expand.

Operator

Mr. Manzoni, there are no further questions at this time. This concludes the conference call for today.

John A. Manzoni

Ladies and gentlemen thank you very much for your attention and your time. We look forward to speaking to you next time. Thanks very much.

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