Southeast Asia

nature of operations

Talisman's Southeast Asia interests are located in Indonesia, Malaysia, Vietnam, Papua New Guinea and Australia with onshore and offshore acreage.

Talisman's Malaysia properties deliver a significant portion of the Company's Southeast Asia production. The Company holds operated interests in two offshore blocks in Malaysia waters as well as the PM-3 Commercial Arrangement Area (CAA) between Malaysia and Vietnam. First gas from the Northern Fields project was achieved in July 2008, with first oil expected in 2009.

In Vietnam, Talisman's interests are located offshore southeast of Ho Chi Minh City and near the Malaysia border. In 2008, Talisman achieved first oil in the Song Doc field. Planning is underway for the development of the Hai Su Trang and Hai Su Den discoveries in Block 15-2/01 while further exploration and appraisal of the block continues.

In Indonesia, Talisman has onshore assets located on the island of Sumatra and offshore assets located around the Java Sea, the island of Sulawesi and Papua. In 2008, Talisman began its seismic program exploring opportunities offshore Sulawesi, a large new potential exploration growth area for the Company.

our people

To address shortages of skilled labour in the oil and gas industry, Talisman committed approximately $600,000 over five years to establish scholarships at the Universiti Teknologi Malaysia, Universiti Sains Malaysia and University of Malaya beginning in 2008. The scholarships cover accommodation, book, computer and other expenses for the students for the full duration of the program. Programs of study include geology, geophysics and petroleum and chemical engineering. In 2008, six internship students completed their practical training program at Talisman and one new graduate was hired.

Talisman is also piloting a scholarship program in Vietnam that will support up to two early or mid-career professionals to undertake postgraduate degree courses at the University of Calgary in 2009 and 2010. Eligible fields of study include geosciences, engineering and business administration. Primarily designed to improve the qualification of the local workforce in Vietnam's oil and gas industry, the program also seeks to promote the presence of the Company in Vietnam with the universities, governments and general public. The program assists the Vietnamese government's human capital development programs and covers airfare, visa, tuition, books and living expenses for scholarship recipients.

Talisman launched a two-phase plan to hire Malaysian professionals in 2007. Talisman struggled to achieve national targets to hire locals for technical and management positions during the First phase in 2007 and 2008 due to the increasingly tight national labour market. Looking ahead, the second phase will target expatriate Malaysians and offer improved medical coverage, commuter allowances as well as succession planning, coaching and mentoring programs to maximize the speed of progress of the Company's qualified but inexperienced national staff members.

In Indonesia, a new workforce plan for 2008 to 2010 was established to align with the Company's business strategy. Analysis of job accountabilities and responsibilities was conducted to ensure organizational alignment. In addition, the recruitment policy and procedures were reviewed to support hiring national employees. The salary structure was also redesigned during 2008 and broad job bands were introduced to align with Talisman's global compensation philosophy.

health, safety, environment and operational integrity

health and safety

Tragically, in September 2008, a contractor in Indonesia fell sustaining fatal injuries while working on a roof of a building under construction. A thorough investigation and root cause analysis identified three primary areas for corrective actions including procedures for undertaking hazard assessment, supervising work and material control. All of the identified actions are in progress and will be completed in early 2009.

In October 2008, a contractor succumbed to head injuries while removing a flowline clamp in Malaysia. A thorough investigation of this incident resulted in a number of recommendations and action plans, including evaluating alternative engineering solutions, ensuring all training and work instructions are conducted in languages appropriate to the workforce, risk awareness recognition and near-miss reporting training, and more rigorous monitoring and audit of asset integrity and process safety management. Five key actions have been completed, while the remaining items are currently being implemented or will be implemented in early 2009.

Talisman's lost time injury frequency in Southeast Asia was 0.74 in 2008. Hand and finger injuries remain one of Talisman's most common health and safety issues. The Company's HANDSAFE campaign began in December 2006, led by offshore coordinators and safety personnel from the fabrication yards. The various activities of the program are tailored to the current activities at each worksite. Talisman saw a 50% reduction in the number of reported hand and finger injuries in Malaysia from 2007 to 2008.

environment

First gas from the Northern Fields in Malaysia began in July 2008. During this early production phase, several zones produced elevated levels of mercury, which occurs naturally in some of the gas and oil produced from the Malay Basin. To address this, Talisman developed and implemented an improved mercury management plan, which includes stringent operating procedures, monitoring programs and training. Aquatic and sea life monitoring programs around production platforms will continue as part of the overall environmental management plan. Talisman is currently completing the detailed design for mercury removal facilities for the Bunga Raya and Bunga Orkid production platforms. Equipment will be ordered this year and installation is planned for 2010. Talisman continues to monitor the research into removal of mercury from oil and gas with a view to continuously improve its own mercury removal processes.

Prior to conducting seismic operations offshore the island of Sulawesi, a third party consultant performed a study of the prevailing environmental conditions as part of the operating permit. The study was performed by mapping current environmental conditions and assessing the potential environmental impact of the seismic program. Using this assessment, an environmental management and monitoring program related to the seismic operation was developed and approved by the government regulator. A detailed environmental baseline study will be conducted during 2009 prior to exploration drilling planned for 2010.

emissions

Talisman's PM-3 CAA project offshore Malaysia and Vietnam remains a significant source of the Company's global greenhouse gas emissions, accounting for 59% of the Company's total in 2008.

Petroleum reservoirs found throughout Thailand, Malaysia, Indonesia, Vietnam and China can be particularly CO2-rich and standard industry practice in the region is to vent CO2.

The Company recognizes that this growing volume is a significant issue. Talisman has evaluated the feasibility of reinjecting CO2 into older depleted gas reservoirs near the existing facilities. Reinjection is technically complicated and uneconomic without significant offsetting revenue from carbon credits.

Although existing fiscal and regulatory regimes throughout the region make no provision for CO2 reinjection, Talisman believes Southeast Asia CO2 reinjection projects may qualify as Clean Development Mechanism (CDM) projects under the still-developing international climate change framework. CDM projects generate a material volume of Certified Emission Reduction (CER) credits, which could be sold into the market or used to retire regulatory obligations elsewhere. There are several evolving factors associated with a potential CDM project. There is also uncertainty regarding the long-term market value and permanence of CER credits post Kyoto Phase II. To date, no geologic sequestration protocol exists within the Kyoto CDM framework. Any Talisman CDM project at PM-3 CAA would require agreement from the governments of Malaysia and Vietnam.

Talisman continues to assess carbon sequestration options to manage PM-3 CAA emissions as well as an expected emission increase resulting from the startup of the remainder of the Northern Fields development. The Company will also continue to monitor the developments within the CDM framework.

stakeholders

In Indonesia, Talisman's 2008 community consultation and development activities supported its offshore seismic exploration program near the island of Sulawesi. While the seismic program was conducted distant from shore, the program was carried out in traditional fishing areas where fish traps called rumpons were removed to prevent damage to both the rumpons and seismic arrays. Extensive baseline assessment and community consultation work was carried out prior to agreement on compensation with the affected fishermen.

Prior to seismic operations, Talisman hired a third party to conduct a pre-scouting survey to identify rumpon locations and traffic routes and assess sea current conditions. Talisman conducted door-to-door visits with rumpon owners and fishermen to gain an understanding of their concerns and to explain the Company's exploration and compensation plans. The successful engagement resulted in minimal disruptions to the communities, fair compensation to affected stakeholders and the temporary removal of only 53 rumpon devices in the sea.

In Vietnam, Talisman continues to provide basic medical equipment to local clinics. In the remote mountainous community of Dak So Mei in the Central Highlands, Talisman provided equipment to improve the capacity for emergency and medical care of the local clinic. Doctors and nurses of the Enfant Hospital No. 2 of Ho Chi Minh City joined Talisman in this initiative, providing volunteer health checks for children to screen and identify dangerous diseases and to recommend further treatment.