North Sea

nature of operations

Talisman's North Sea operations are primarily focused on offshore exploration and development activities in the United Kingdom (UK) and Norway. Talisman is the leading independent operator in the UK and Norway.

Talisman's objective in the North Sea is to establish the UK as a long-term high quality source of cash flow from a sustainable, flat production base. Norway is an area of growth and potential exploration upside.

In the UK, Talisman streamlined its operations into two core areas in the North Sea. The Company holds operated and non-operated interests in more than 40 fields and plans to continue developing and extending the life of these assets.

In Norway, Talisman has both producing fields and exploration acreage encompassing a total of 10 operated and non-operated fields.

our people

In 2008, the Company focused its recruitment and retention efforts on education initiatives to meet forecasted needs in key disciplines.

Launched in 2006, Talisman's $1.5 million 10-year partnership with The Robert Gordon University and University of Aberdeen has offered financial support, mentoring and work-based placements to 56 students in the UK. In 2008, Talisman employed eight graduates, including three scholarship recipients, who now work in the Company's drilling, petroleum engineering and geology departments. These graduates have started a three-year internal graduate program where they will be supported by mentors and specific learning mechanisms to further help them in their roles.

Talisman continued to support the Offshore Petroleum Industry Training Organization (OPITO) and Engineering Construction Industry Training Board (ECITB) to attract and fund school graduates to become technicians. In 2008, Talisman funded 18 apprentices to study instrumentation, mechanical and electrical disciplines.

In the UK, as part of Talisman's global strategy to develop talent and share knowledge throughout the business, potential assignees were identified and given the opportunity to work in Talisman's offices across the globe. Thirty-two employees from the UK worked in other offices, including two new expatriate assignments to Calgary and three to Southeast Asia in 2008.

Talisman's first Leadership Foundations program commenced in the UK in November 2008. Fifteen employees focused on building strong leadership skills as they transitioned from individual contributor to formal leadership positions with practical examples and case studies. In 2008, the nine-day Leadership Foundations program was rolled out in Norway for the first time to 24 leaders.

In Norway, Talisman continued to work on a competency management framework in 2008. The development of a matrix to ensure employees in key technical roles have the right competencies based on their roles, both on and offshore, was a key component. This work will allow the Company to assign development plans to support any gaps that may exist in both mandatory training and sufficient competency levels as defined by Norwegian authorities or the Company. Talisman will continue this work through 2009 as the local office rolls out the framework with select departments.

The Company expanded its scholarship program with the University of Stavanger in 2008. Talisman supports the university in offering scholarships to foreign students completing a master's degree in petroleum technology.

health, safety, environment and operational integrity

health and safety

In October 2008, Talisman pleaded guilty to a charge under the UK Health & Safety at Work Act stemming from the death of a contractor on board the Bleo Holm Floating Production Storage and Offloading vessel in January 2007. Talisman was fined £600,000 as was the contractor's employer. After the investigation into this tragedy, Talisman made important changes to its rigging, lifting and Permit-to-Work procedures. These, along with the other findings and actions, were shared across the Company and with stakeholders and the wider industry through a number of channels.

In 2008, Talisman's lost time injury frequency was 3.78 in the North Sea. The Company's UK and Norway operations have both focused on improving personal and process safety performance. Employees and contractors at all offshore and onshore sites were asked to provide their thoughts on ways to improve safety performance. In the UK, this feedback led Talisman to create a four-point action plan to improve personal safety. Elements included visible site leadership, safety interventions, hazard awareness and effective procedures. In Norway, continuous improvement efforts focused on lifting operations, increasing risk awareness and improving performance.

environment

Talisman has made annual improvements in the UK to its produced water management. As a result of significant investment in water treatment techniques, the Company achieved further reduction in the average concentration of oil in produced water and a corresponding reduction in the total amount of oil in produced water discharged to the sea in 2008.

Increased focus in the area of oil and chemical spills has reduced volume spilled at UK sites by 75% in 2008. Throughout the year, Talisman analyzed two key areas: spills due to systematic failures and sites with the most frequent spills where spill reduction improvement plans have been put in place. Engineering solutions are being advanced in the UK to improve systems while procedural changes, particularly around production start-up, are offering greater control. Talisman's Walk the Line initiative was part of the overall improvement plan designed to address behavioural issues and raise awareness among the offshore workforce of spill hazards.

In 2008, Talisman carried out three key activities to better understand the Company's environmental performance in Norway. First, Talisman's operations were benchmarked against all other installations on the Norwegian Shelf. In some categories, the Company was above average, but in others, such as atmospheric emissions, there was room for improvement. Secondly, Environmental Impact Factor values were calculated using water composition and chemical use data. This showed that naturally occurring substances had the largest influence on the environmental impact of produced water discharges from both Gyda and Varg. Lastly, independent environmental audits were carried out on all sites. Zero non-compliances with legislation were identified.

emissions

On January 1, 2008, Phase II of the European Union Emissions Trading Scheme (EU ETS) came into effect and will remain in effect until 2012.

In the UK, the Company operated close to its emissions allowances in 2008 and expects to continue to do so throughout Phase II. In 2008, Talisman voluntarily completed energy assessments at its eight largest UK installations to identify options to improve energy efficiency and reduce emissions.

In 2008, the Norwegian government expanded its existing national emissions trading system for greenhouse gases, linking it to Phase II of the EU ETS. Talisman's Norwegian installations are now included in Phase II of the EU ETS, making its emissions subject to third party verification. Talisman's Norwegian installations must purchase emissions credits corresponding to total annual emissions and continue to pay a pre-existing carbon emissions tax throughout Phase II. Talisman does not expect Phase II compliance costs to be material to the Company in Norway. The Norwegian government is reducing the carbon emissions tax to ensure total costs of the tax and emissions credit purchases will be similar to pre-2008 costs.

stakeholders

In 2008, the Company strengthened its ties to the University of Aberdeen by pledging $237,000 to its notable library project. Talisman's investment will be used to support educational outreach work related to the social history collections. This outreach work will allow diverse audiences to immerse themselves in the historical roots of their community, city and country and help the university reach its goal of constructing a new building.

Under the Scottish government's Determined to Succeed initiative, Talisman created an award-winning partnership with Ferryhill and Kirkhill Primary Schools, connecting students to businesses. In 2008, Talisman's partnership with Ferryhill Primary School was featured in a book published by the University of Strathclyde in Glasgow for the Scottish government. The book will be given to schools across Scotland as a model of successful partnerships.