International Exploration

In order to meet growing global demand for oil and gas, energy companies like Talisman are being pushed into challenging areas in search of new exploration opportunities. Talisman’s international experience has helped the Company develop the expertise to successfully manage above-ground risk, a skill that will become even more important as Talisman continues to implement its global exploration strategy.

peru

Talisman has operated interests in four onshore blocks located in the Marañon Basin in northern Peru. In 2008, Talisman conducted aeromagnetic surveys in Block 134 and began evaluating an earlier discovery in Block 64.

In December 2007, Talisman became the new operator of Block 64 and immediately initiated consultation and dialogue with the communities impacted by the Company’s proposed 2008-2009 exploratory drilling program. Seven communities, represented by the indigenous Achuar Federation of Situche and Anas of Morona (FASAM), were identified as being directly or indirectly impacted by the project. This consultation led to a four-month negotiation process whereby land access, compensation and bilateral code of conduct agreements signed with the previous operator were renegotiated. The agreements were ultimately ratified by a two-thirds majority by each community in June 2008. These same communities have permitted access to their lands and received compensation for oil exploration activity since 2003.

Talisman continues to engage with a number of organizations in North and South America regarding its activities in Peru to understand issues and receive feedback on how to improve its operations and practices. Representatives of Amazon Watch met with Talisman’s President and CEO in Calgary in April 2008. As a direct result of this meeting, Talisman committed in writing that the Company will not work in Peru in areas in which it does not have an agreement with the community. The Company is living by this commitment and has the full support of the communities impacted by its operations.

“Talisman will not work in Peru in areas in which it does not have an agreement with the community.”

John A. Manzoni, President and CEO of Talisman, April 29, 2008

In response to feedback from stakeholders that the Company’s consultation efforts were too narrowly focused, Talisman expanded its process by hosting informative workshops and face-to-face meetings in broader indigenous communities and surrounding centres. In August 2008, Talisman invited a wide range of stakeholders including NGOs and representatives from the Roman Catholic Church, the Peruvian Regional Government and the Canadian Embassy to visit Block 64 to see the management of impacts first-hand.

Transportation of equipment and personnel to support Talisman’s exploration activity in northern Peru is a significant challenge. Roads and airstrips are limited, leaving the region’s rivers as the primary transportation corridors for all local and commercial traffic in the area. To improve safety, Talisman developed river navigation rules for the Company’s barge contractors and subcontractors.

Fuel transportation in Peru also presents potential environmental risks. Many rivers are very shallow and pose a risk of puncturing fuel storage tanks aboard barges. To decrease this possibility, Talisman contracted a local company to construct two double hulled barges that employ second level containment to prevent spills. Talisman is the first and only company in Peru to use double hulled barges for fuel transportation.

In Block 64, Talisman uses a sewage treatment plant for domestic waste water which discharges treated water into a mixture of gravel and soil below grade at its base camp. Talisman also uses a downhole disposal method for drilling fluids in the exploration program. These alternate disposal methods are used by Talisman to alleviate concerns of the community.

colombia

In Colombia, Talisman has operated and non-operated interests in 11 blocks in the Greater Llanos region. In 2008, Talisman was awarded operated interests in Blocks CPE 8 and CPO 9. An extensive due diligence process was conducted to identify the risks associated with these blocks, including internal conflict and narcotics-related violence.

To address security issues and corporate responsibility risks associated with working in Blocks CPE 8 and CPO 9, Talisman has taken various precautionary measures and incorporated the guidelines established by the Voluntary Principles into its activities. These include conducting preliminary security and impact assessments in the blocks prior to initiating any on-the-ground operational activity and developing a documented stage gate mitigation process.

The concept of stage gates is being integrated into various points of the proposed exploration program for each operated block. Certain metrics such as security and safety standards and community consultation must be met for the project to proceed further. Prior to proceeding through each gate, considerable analysis is conducted with regard to human rights, community relations, biodiversity protection and security. It is important to note that the relatively short timeline between the stage gates demands diligence and attention to detail to ensure that not only the appropriate decision can be made at the correct time, but also that all logistical demands of the exploration program are met. At year-end, both Blocks CPE 8 and CPO 9 were at the first stage of the preliminary security analysis.

In Colombia, agreements have been entered into by the operator of each of the Tangara, Niscota and El Caucho Blocks in which Talisman participates with the National Petroleum Agency and a Colombian trust company. In addition, the National Petroleum Agency has entered into agreements with the Colombian military for the same blocks. These agreements establish the terms under which funds contributed by the operator are used by the trust company to purchase in-kind support for the security operations provided by the Colombian military. Included in the terms of these agreements are the requirements that only the agreed upon in-kind support is provided by the trust company to the Colombian military, and that the Colombian military complies with international and humanitarian law treaties to which Colombia has subscribed.

Talisman representatives in Colombia have been active in ongoing dialogue related to the implementation of the Voluntary Principles and other human rights issues. These discussions have included the Canadian and Colombian governments, the Colombian Petroleum Association and other local organizations.

Talisman employed quality assurance personnel to provide daily health, safety, corporate responsibility and security oversight for its operations to work with the local communities and the regional government to ensure the safe completion of its exploration program.

kurdistan region of northern iraq

In June 2008, following a lengthy stakeholder consultation process and the completion of extensive due diligence, Talisman acquired interests in two exploration blocks from the Kurdistan Regional Government (KRG) within Iraq. Prior to investing, Talisman studied the opportunity carefully, not only in terms of the opportunity and economic value, but also in assessing the potential legal, political and security risks as well as the alignment with Talisman’s corporate responsibility framework.

Talisman entered into these agreements with the KRG recognizing that Iraq has yet to enact federal oil and gas legislation. Based on feedback received from key stakeholders, Talisman sought to structure these agreements in a manner that would best respond to concerns expressed about the role such investments may play in the relationship between the KRG and the Iraqi Central Government.

As part of the transactions with the KRG and in keeping with Talisman’s corporate responsibility policies and practices, the Company paid US$220 million to the KRG for the sole purpose of providing financial support to infrastructure and capacity building projects for the benefit of the people in the region and, in particular, the local communities in the agreement areas. Talisman and the KRG have confirmed their mutual commitment to revenue transparency in the spirit of the EITI, as well as promoting respect for and compliance with human rights principles, including those set forth in the Voluntary Principles.

While it is acknowledged there are legal, security, reputation and political risks associated with participating in the oil and gas industry in Iraq at this time, Talisman is confident it can continue to operate in accordance with its corporate responsibility policies and practices. Talisman continues to consult with government stakeholders, as well as key NGOs, in an effort to proceed with these projects informed by the best possible understanding of the perspectives of key stakeholders, as well as to communicate effectively and transparently about the Company’s operations in the region.

In addition to its capacity building payment, Talisman established a $150,000 community investment budget in support of its initial seismic activities in Block K39. Block K39 is predominantly rural and sparsely populated. Unemployment is high and the lack of water, medical care, heating fuel and other basic needs is acute. Talisman’s initial community investments focused on the provision of immediate assistance to the local communities. This approach has enabled the Company to better understand the needs of the communities in Block K39. To date, the Company has undertaken several projects in the Qadir Karim area, including hosting community events, purchasing computers for the secondary school, establishing Internet access, providing medical supplies to the local clinic and making substantial improvements to the community park. Talisman will develop a longer term community investment program in consultation with local and government stakeholders in 2009.