Repsol Oil & Gas Canada 6K Interim Condensed Consolidated Financial Statements | TLM 30 Oct 12

Exhibit 99.1

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED SEPTEMBER 30, 2012

(Unaudited)

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30,		December 31,
(millions of US$)	2012		2011

Assets
Current
Cash and cash equivalents (note 20)		496		474
Accounts receivable		1,528		1,550
Risk management (note 15)		15		42
Inventories		174		164
Prepaid expenses		34		24
		2,247		2,254

Other assets (note 7)		111		101
Investments		375		395
Risk management (note 15)		26		24
Goodwill (note 6)		1,310		1,317
Property, plant and equipment (note 8)		15,050		15,909
Exploration and evaluation assets (note 8)		3,493		3,954
Deferred tax assets		1,415		272
		21,780		21,972
Total assets		24,027		24,226

Liabilities
Current
Bank indebtedness		-		60
Accounts payable and accrued liabilities		2,672		2,622
Risk management (note 15)		80		-
Income and other taxes payable		287		371
Current portion of long-term debt (note 12)		579		410
		3,618		3,463

Decommissioning liabilities (note 10)		3,173		2,982
Other long-term obligations (note 13)		386		346
Risk management (note 15)		15		-
Long-term debt (note 12)		4,433		4,485
Deferred tax liabilities		2,836		2,932
		10,843		10,745

Contingencies and commitments (note 16)

Shareholders' equity

Common shares (note 14)		1,638		1,561
Preferred shares (note 14)		191		191
Contributed surplus		123		186
Retained earnings		6,826		7,292
Accumulated other comprehensive income		788		788
		9,566		10,018
Total liabilities and shareholders' equity		24,027		24,226

See accompanying notes.

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

	Three months ended						Nine months ended
	September 30						September 30
(millions of US$)	2012			2011			2012			2011

Revenue
Sales		1,708			1,944			5,647			6,132
Other income		14			12			59			58
Total revenue and other income		1,722			1,956			5,706			6,190

Expenses
Operating		604			553			1,823			1,560
Transportation		61			51			178			159
General and administrative		130			97			382			303
Depreciation, depletion and amortization		570			455			1,745			1,403
Impairment (note 9)		1,037			-			2,163			102
Dry hole		66			33			191			173
Exploration		81			87			228			335
Finance costs (note 11)		74			73			213			209
Share-based payments expense (recovery) (note 14)		61			(285	)		(11	)		(345	)
(Gain) loss on held-for-trading financial instruments (note 15)		116			(120	)		128			131
(Gain) loss on asset disposals (note 4)		-			8			(759	)		(206	)
Other, net (note 17)		62			(38	)		96			43
Total expenses		2,862			914			6,377			3,867
Income (loss) before taxes		(1,140	)		1,042			(671	)		2,323
Taxes (note 18)
Current income tax		152			272			803			1,151
Deferred income tax (recovery)		(561	)		249			(1,230	)		279
		(409	)		521			(427	)		1,430
Net income (loss)		(731	)		521			(244	)		893


Per common share (US$):
Net income (loss)		(0.71	)		0.51			(0.24	)		0.87
Diluted net income (loss)		(0.71	)		0.24			(0.30	)		0.49
Weighted average number of common shares outstanding (millions)
Basic		1,026			1,024			1,025			1,024
Diluted		1,026			1,033			1,034			1,040

See accompanying notes.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three months ended September 30						Nine months ended September 30
(millions of US$)	2012			2011			2012			2011

Net income (loss)		(731	)		521			(244	)		893

Actuarial losses relating to pension and other post-retirement benefits1		(3	)		(13	)		(8	)		(10	)

Other comprehensive loss		(3	)		(13	)		(8	)		(10	)
Comprehensive income (loss)		(734	)		508			(252	)		883

1. Three and nine months ended September 30, 2012 net of tax of $1 million and $7 million respectively (2011 - $14 million and $22 million respectively).

See accompanying notes.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

	Three months ended						Nine months ended
	September 30						September 30
(millions of US$)	2012			2011			2012			2011

Common shares
Balance at beginning of period		1,642			1,610			1,561			1,480
Issued on exercise of stock options		7			(1	)		13			171
Shares purchased and held in trust for PSU plans (note 14)		(11	)		(48	)		(24	)		(90	)
Shares released from trust for long-term PSU plan (note 14)		-			-			88			-
Balance at end of period		1,638			1,561			1,638			1,561

Preferred Shares
Balance at beginning and end of period		191			-			191			-

Contributed surplus
Balance at beginning of period		102			154			186			108
Settlement of 2009 long-term PSU plan grant		-			-			(88	)		-
Share-based payments		21			11			25			57
Balance at end of period		123			165			123			165

Retained earnings
Balance at beginning of period		7,631			7,056			7,292			6,819
Net income (loss)		(731	)		521			(244	)		893
Preferred share dividends		(2	)		-			(7	)		-
Common share dividends		(69	)		-			(207	)		(138	)
Actuarial losses transferred to retained earnings		(3	)		(13	)		(8	)		(10	)
Balance at end of period		6,826			7,564			6,826			7,564

Accumulated other comprehensive income
Balance at beginning of period		788			788			788			788
Other comprehensive loss		(3	)		(13	)		(8	)		(10	)
Actuarial losses transferred to retained earnings		3			13			8			10
Balance at end of period		788			788			788			788

See accompanying notes.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended						Nine months ended
	September 30						September 30
(millions of US$)	2012			2011			2012			2011

Operating activities
Net income (loss)		(731	)		521			(244	)		893
Add: Finance costs (cash and non-cash) (note 11)		74			73			213			209
Dividends from equity investments		-			9			-			9
Items not involving cash (note 19)		1,320			265			2,271			1,315
		663			868			2,240			2,426
Changes in non-cash working capital		(282	)		(346	)		(70	)		(125	)
Cash provided by operating activities		381			522			2,170			2,301

Investing activities
Capital expenditures
Exploration, development and other		(812	)		(1,109	)		(2,759	)		(3,016	)
Corporate acquisitions, net of cash acquired		-			-			-			(156	)
Property acquisitions		(57	)		(158	)		(59	)		(731	)
Proceeds of resource property dispositions (note 4)		1			(5	)		940			534
Repayment of note receivable		-			40			-			40
Acquisition deposit		-			-			-			18
Investments		(7	)		-			(11	)		54
Changes in non-cash working capital		160			80			18			(7	)
Cash used in investing activities		(715	)		(1,152	)		(1,871	)		(3,264	)

Financing activities
Long-term debt repaid (note 12)		-			-			(991	)		(310	)
Long-term debt issued (note 12)		255			232			1,096			232
Common shares issued		6			(5	)		9			109
Common shares purchased		(11	)		(48	)		(24	)		(90	)
Finance costs (cash)		(51	)		(53	)		(146	)		(151	)
Deferred credits and other		6			12			15			(8	)
Common share dividends		(69	)		-			(207	)		(138	)
Preferred share dividends		(2	)		-			(7	)		-
Changes in non-cash working capital		19			33			28			32
Cash provided by (used in) financing activities		153			171			(227	)		(324	)
Effect of translation on foreign currency cash and cash equivalents		8			(7	)		10			26
Net increase (decrease) in cash and cash equivalents		(173	)		(466	)		82			(1,261	)
Cash and cash equivalents net of bank indebtedness, beginning of period		669			858			414			1,653
Cash and cash equivalents net of bank indebtedness, end of period		496			392			496			392

Cash and cash equivalents (note 20)		496			421			496			421
Bank indebtedness		-			(29	)		-			(29	)
Cash and cash equivalents net of bank indebtedness, end of period		496			392			496			392

See accompanying notes.

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited)

(tabular amounts in millions of US dollars, except as noted)

1. CORPORATE INFORMATION

Talisman Energy Inc. (‘Talisman’ or ‘the Company’) is a public company incorporated pursuant to the laws of Canada and domiciled in Alberta, Canada, with common shares listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol ‘TLM’. The registered office is located at Suite 2000, 888 – 3rd Street SW, Calgary, Alberta, T2P 5C5.

The Company is in the business of exploration, development, production and marketing of crude oil, natural gas and natural gas liquids (NGLs).

The interim condensed Consolidated Financial Statements as at and for the three and nine month periods ended September 30, 2012 were approved by the Audit Committee on October 29, 2012.

2. BASIS OF PREPARATION

These interim condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB). Certain information and disclosures required to be included in notes to Annual Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as issued by the IASB, have been condensed or omitted.

The interim condensed Consolidated Financial Statements should be read in conjunction with the audited annual Consolidated Financial Statements as at and for the year ended December 31, 2011 and the notes thereto included in Talisman’s 2011 Annual Report.

These interim condensed Consolidated Financial Statements were prepared on a going concern basis, under the historical cost convention, except for certain financial assets and liabilities measured at fair value through the Consolidated Statement of Income (Loss).

3. SIGNIFICANT ACCOUNTING POLICIES

a) Accounting Policies Used

The interim condensed Consolidated Financial Statements have been prepared following the same accounting policies and methods of computation as the 2011 Annual Consolidated Financial Statements.

b) Accounting Pronouncements Not Yet Adopted

The Company continues to assess the impact of adopting the pronouncements from the IASB as described in the 2011 Annual Consolidated Financial Statements.

4. ASSET DISPOSALS

Sale of UK North Sea Oil and Gas Interests to Sinopec

On July 23, 2012, Talisman entered into a share purchase agreement to sell 49% of its interest in Talisman Energy (UK) Limited (TEUK), which owns substantially all of Talisman’s UK assets, to Sinopec International Petroleum Exploration and Production Corporation (Sinopec) for cash consideration of $1.5 billion. The consideration will be adjusted by the net cash flows earned by TEUK from the effective date of January 1, 2012 through closing of this transaction. In conjunction with the signing of the share purchase agreements, Talisman and Sinopec have agreed to enter into a shareholders’ agreement to operate TEUK as an incorporated joint venture. Completion of this transaction is subject to specified conditions precedent, including regulatory approvals and government approvals from the United Kingdom, the European Union, and the People’s Republic of China.

Sale of Assets in Western Canada

In June 2012, Talisman completed sales of oil and gas producing assets in western Canada for proceeds of $437 million, resulting in a gain of $187 million, net of tax of $67 million.

Sale of Non-Core Coal Assets

In March 2012, Talisman sold non-core coal assets in northern British Columbia for cash consideration of $496 million after transaction costs. The carrying value of these assets was $nil and a gain of $372 million was recorded, net of tax of $124 million.

Sale of Farrell Creek interests to Sasol Limited (Sasol)

In March 2011, Talisman created a strategic partnership with Sasol to develop the Farrell Creek assets in Talisman’s Montney shale play in British Columbia. Talisman sold 50% of its working interests in the Farrell Creek assets for total consideration of approximately $1 billion, comprising $238 million in cash and approximately $800 million of certain future development costs. The transaction resulted in a pre-tax gain of $89 million, which is included in ‘Gain on asset disposals’ on the Consolidated Statement of Income (Loss).

Sale of Cypress A Interests to Sasol

In June 2011, Talisman completed an additional transaction with Sasol to develop the Cypress A assets in Talisman's Montney shale play in British Columbia. Talisman sold 50% of its working interests in the Cypress A assets for approximately $1.1 billion, comprising $257 million in cash and approximately $800 million of certain future development costs. The transaction resulted in a pre-tax gain of $113 million, which is included in 'Gain on asset disposals' on the Consolidated Statement of Income (Loss).

5. JOINTLY CONTROLLED ENTITIES

Talisman accounts for jointly controlled entities using proportionate consolidation. Summarized financial information for the Company’s share in jointly controlled entities, comprising Equión Energía Limited and Talisman Sasol Montney Partnership, is as follows:

	September 30, 2012		December 31, 2011
Current assets		293		367
Non-current assets		1,786		1,740
Total assets		2,079		2,107
Current liabilities		264		287
Non-current liabilities		167		260
Total liabilities		431		547

	Three months ended September 30						Nine months ended September 30
	2012			2011			2012			2011
Total revenue and other income		100			89			348			220
Total expenses (including income taxes)		(107	)		(52	)		(277	)		(133	)
Net income (loss)		(7	)		37			71			87

6. GOODWILL

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

	Nine months ended September 30, 2012			Year ended December 31, 2011
Balance, beginning of period		1,317			1,164
Acquisitions		-			162
Disposals		(7	)		(9	)
Balance, end of period		1,310			1,317

Goodwill has no tax basis.

7. OTHER ASSETS

	September 30, 2012		December 31, 2011
Accrued pension asset		2		1
Decommissioning sinking fund		46		38
Indemnification asset		52		52
Other		11		10
Total		111		101

8. OIL AND GAS ASSETS

The cost and accumulated depreciation, depletion and amortization (DD&A) of the Company’s property, plant and equipment (PP&E), including corporate assets, and exploration and evaluation (E&E) assets are as follows:

	PP&E			E&E Assets			Total

Cost
At December 31, 2010		25,217			3,758			28,975

Acquisitions through business combinations		559			-			559
Other additions		3,491			1,527			5,018
Disposals and derecognition		(384	)		(192	)		(576	)
Transfers from E&E Assets to PP&E		654			(654	)		-
Change in decommissioning liabilities		363			-			363
Expensed to dry hole		-			(241	)		(241	)

At December 31, 2011		29,900			4,198			34,098

Additions		2,312			509			2,821
Disposals and derecognition		(721	)		(84	)		(805	)
Transfers from E&E Assets to PP&E		442			(442	)		-
Change in decommissioning liabilities		128			37			165
Expensed to dry hole		-			(191	)		(191	)

At September 30, 2012		32,061			4,027			36,088

Accumulated DD&A
At December 31, 2010		11,951			316			12,267

Charge for the year		1,949			-			1,949
Disposals and derecognition		(88	)		(119	)		(207	)
Impairment losses		313			47			360
Impairment reversal		(134	)		-			(134	)

At December 31, 2011		13,991			244			14,235

Charge for the period		1,745			-			1,745
Disposals and derecognition		(525	)		(73	)		(598	)
Impairment losses		1,800			363			2,163

At September 30, 2012		17,011			534			17,545

Net book value
At September 30, 2012		15,050			3,493			18,543
At December 31, 2011		15,909			3,954			19,863
At December 31, 2010		13,266			3,442			16,708

9. IMPAIRMENT

	Three months ended September 30				Nine months ended September 30
	2012		2011		2012		2011
Impairment
Exploration and evaluation assets		290		-		363		47
Property, plant and equipment		747		-		1,800		55
		1,037		-		2,163		102

The Yme project in Norway has experienced significant delays and cost overruns and is subject to arbitration with the platform contractor. With respect to the three month period ended March 31, 2012, the Company considered internal and external engineering studies of the Yme facility and updated estimates of project costs and completion dates. The engineering studies indicated that considerable work remained to be completed in order for the facility to comply with Norwegian offshore safety and environmental standards and be ready for first oil. The estimated recoverable amount of the Yme project at March 31, 2012 had declined since December 31, 2011 and was less than its carrying value. Accordingly, the Company recorded an impairment expense of $978 million pre-tax ($248 million after-tax) for the three month period ended March 31, 2012. During the three month period ended September 30, 2012, the decision was made to de-man the platform for safety related reasons and has not been re-manned since. Management conducted further analysis during the third quarter which indicated additional project uncertainty and resulted in an additional impairment of $497 million pre-tax ($125 million after-tax). This represents an impairment of the remaining book value of the property, plant and equipment of Yme, leaving a deferred tax asset of $521 million relating to the investment in the project. Management continues to work with all stakeholders to evaluate project options.

During the three month period ended September 30, 2012, the Rev field in Norway experienced a significant drop in reservoir pressure resulting in a decline in production. As a result, the Company expects revisions to its estimates of recoverable reserves and recorded an impairment expense of $250 million pre-tax ($55 million after-tax).

During the three month period ended September 30, 2012, the Company determined that it would not commit capital in the foreseeable future to exploration and evaluation activities in Quebec, where the prohibition regarding hydraulic fracturing for shale gas developments has been reaffirmed. Accordingly, the Company fully impaired its Quebec exploration and evaluation assets and recorded an impairment expense of $109 million pre-tax ($82 million after-tax).

In September 2012, the Company decided to cease exploration activities in the Marañon Basin in northern Peru and exit the country. As a result, the Company recorded $172 million of impairment expense. The Company will fulfill its outstanding legal obligations as it exits Peru.

For the nine month period ended September 30, 2012, in addition to the impairments discussed above, $72 million of impairment expense was recorded in respect of exploration acreage relinquished in the Kurdistan Region of northern Iraq, where Talisman will focus on the discoveries on the Topkhana and Kurdamir Blocks. The Company also recorded a $60 million impairment expense in respect of the assets sold in North America and $15 million of impairment expense was recorded for a reduction in near-term natural gas price assumptions in relation to a non-core natural gas property in North America.

During the nine month period ended September 30, 2011, the Company recorded impairment of $102 million in the North Sea in respect of PP&E and E&E assets as a result of a change in tax legislation announced by the UK Government in March 2011.

10. DECOMMISSIONING LIABILITIES

	Nine months ended September 30, 2012			Year ended December 31, 2011
Balance, beginning of period		3,035			2,610
Liabilities incurred during the period		44			115
Liabilities settled during the period		(32	)		(44	)
Accretion expense (note 11)		67			76
Revisions in estimated cash flows		6			204
Change in discount rate		128			74
Assets sold		(27	)		-
Balance, end of period		3,221			3,035
Expected to be settled within one year		48			53
Expected to be settled in more than one year		3,173			2,982
		3,221			3,035

Decommissioning liabilities have been discounted using a weighted average credit-adjusted risk free rate of 4.8% at September 30, 2012 (December 31, 2011 – 5.1%).

11. FINANCE COSTS

	Three months ended September 30						Nine months ended September 30
	2012			2011			2012			2011
Interest on long-term debt		67			59			188			180
Miscellaneous interest expense and other fees		11			18			35			33
Accretion expense (note 10)		23			20			67			58
Less: interest capitalized		(27	)		(24	)		(77	)		(62	)
		74			73			213			209

12. LONG-TERM DEBT

	September 30, 2012			December 31, 2011
Bank Credit Facilities		-			648
Commercial Paper		571			402
Tangguh Project Financing		93			97
Debentures and Notes (Unsecured):
US$ denominated		3,947			3,363
UK£ denominated (UK£250 million)		401			385
		5,012			4,895
Less: current portion		(579	)		(410	)
		4,433			4,485

On May 15, 2012, Talisman completed a $600 million offering of 5.5% notes due May 15, 2042. Proceeds, net of the discount and issuance costs, were $583 million. Interest on the notes is payable semi-annually. The notes are redeemable at the option of the Company at a make-whole premium. The notes are unsecured and unsubordinated and rank equally with all of the Company’s other unsecured and unsubordinated indebtedness.

During the nine month period ended September 30, 2012, Talisman repaid $991 million of debt (2011 - $310 million repayment).

At September 30, 2012, $571 million of commercial paper was outstanding, the full amount of which is limited to the availability of backup funds under the Company’s $4.1 billion bank lines that are fully committed through 2014.

13. OTHER LONG-TERM OBLIGATIONS

	September 30, 2012		December 31, 2011
Accrued pension and other post-employment benefits liability		192		163
Deferred credits		25		25
Long-term portion of discounted obligations under finance leases		58		66
Long-term portion of share-based payments liability (note 14)		25		14
Acquired provisions		52		52
Other		34		26
		386		346

14. SHARE CAPITAL AND SHARE-BASED PAYMENTS

Authorized

Talisman's authorized share capital consists of an unlimited number of common shares without nominal or par value and an unlimited number of first and second preferred shares.

Common Shares Issued

Continuity of common shares	Nine months ended September 30, 2012						Year ended December 31, 2011
	Shares			Amount			Shares			Amount
Balance, beginning of period		1,021,422,470			1,561			1,019,290,939			1,480
Issued on exercise of stock options		1,068,183			13			7,500,131			175
Shares purchased and held in trust for long-term PSU plan		(1,872,000	)		(24	)		(5,368,600	)		(94	)
Shares released from trust for long-term PSU plan		4,859,037			88			-			-
Balance, end of period1		1,025,477,690			1,638			1,021,422,470			1,561

1. Excluding aggregate shares held in trust for long-term PSU plan

Subsequent to September 30, 2012, 78,165 common shares were issued pursuant to the exercise of stock options and 150,000 common shares were purchased and held in trust for the long-term PSU plan, resulting in 1,025,405,855 common shares being outstanding at October 25, 2012.

During the three month period ended September 30, 2012, Talisman declared and paid a quarterly common share dividend of $0.0675 per share for an aggregate dividend of $69 million.

Preferred Shares Issued

Continuity of preferred shares	Nine months ended September 30, 2012				Year ended December 31, 2011
	Shares		Amount		Shares		Amount
Cumulative Redeemable Rate Reset First Preferred Shares, 4.2% Series 1:
Balance, beginning of period		8,000,000		191		-		-
Issued		-		-		8,000,000		191
Balance, end of period		8,000,000		191		8,000,000		191

On December 5, 2011, Talisman issued 8,000,000 Cumulative Redeemable Rate Reset First Preferred Shares, Series 1 at a price of C$25 per share for aggregate gross proceeds of C$200 million. Net proceeds, after deducting underwriting fees, were C$194 million ($191 million).

During the three month period ended September 30, 2012, Talisman declared preferred share dividends of C$0.2625 per share for an aggregate dividend of $2 million, which was paid in September 2012. During the nine month period ended September 30, 2012, Talisman paid preferred share dividends of $7 million.

Share-Based Payments

	Options			Cash Units			Restricted Share Units (RSU)			Deferred Share Units (DSU)		Long-term Performance Share Units (PSU)
Continuity of share-based payment plans	Number of shares underlying options			Number of units			Number of units			Number of units		Number of units
Outstanding at December 31, 2011		59,092,044			9,461,164			404,683			394,655		11,219,027
Granted		8,381,000			2,618,380			212,206			187,031		10,953,012
Dividend equivalent		-			-			6,736			7,782		292,901
Exercised for common shares/settled		(1,068,183	)		-			-			-		(4,672,151	)
Surrendered for cash		(192,132	)		(89,776	)		(94,258	)		-		-
Forfeited		(5,059,698	)		(841,833	)		-			-		(1,298,243	)
Outstanding at September 30, 2012		61,153,031			11,147,935			529,367			589,468		16,494,546
Exercisable at September 30, 2012		42,596,649			6,917,459
Weighted average grant price		C$12.52			C$12.37			C$12.48			C$11.85		C$12.69

Subsequent to September 30, 2012, 486,260 stock options were granted, 78,165 stock options were exercised for shares, no units were surrendered for cash and 467,578 were forfeited with 61,093,548 outstanding at October 25, 2012. Subsequent to September 30, 2012, 53,933 cash units were forfeited with 11,094,002 outstanding at October 25, 2012. Subsequent to September 30, 2012, 495,801 long-term PSUs were granted and 231,378 long-term PSUs were forfeited, with 16,758,969 outstanding at October 25, 2012.

During the three month period ended September 30, 2012, the Company recorded a share-based payments expense of $61 million (2011 - $285 million recovery) in respect of the following plans: stock options - $33 million expense, cash units - $6 million expense, long-term PSUs - $21 million expense and RSUs - $1 million expense. The Company also recorded a DSU expense of $1 million and this is recognized in general and administrative expense within the Consolidated Statement of Income (Loss). The share-based payments expense includes a cash payment of $1 million (2011 - $3 million) to employees in settlement of fully accrued share-based payments liabilities for stock options and cash units exercised in the period.

During the nine month period ended September 30, 2012, the Company recorded share-based payments recovery of $11 million (2011 - $345 million recovery) in respect of the following plans: stock options - $39 million recovery, cash units - $1 million expense, long-term PSUs - $25 million expense and RSUs - $2 million expense. The Company also recorded a DSU expense of $3 million and this is recognized in general and administrative expense within the Consolidated Statement of Income (Loss).

Of the combined obligation for cash-settled stock option, cash unit, DSU and RSU plans of $219 million (December 31, 2011 – $244 million), $194 million (December 31, 2011 – $230 million) is included in accounts payable and accrued liabilities on the Consolidated Balance Sheets and $25 million (December 31, 2011 – $14 million) is included in other long-term obligations.

15. FINANCIAL INSTRUMENTS

Talisman’s financial assets and liabilities at September 30, 2012 comprise cash and cash equivalents, accounts receivable, non-equity accounted investments, bank indebtedness, accounts payable and accrued liabilities, long-term debt (including the current portion) and risk management assets and liabilities arising from the use of derivative financial instruments.

Fair Value of Financial Assets and Liabilities

The fair value of public debentures and notes is based on market quotations, which reflect the discounted present value of the principal and interest payments using the effective yield for instruments having the same term and risk characteristics. The fair value of Talisman’s long-term debt at September 30, 2012 was $5.8 billion (December 31, 2011 – $5.5 billion) while the carrying value was $5.0 billion (December 31, 2011 - $4.9 billion). The fair values of all other financial assets and liabilities approximate their carrying values.

Talisman’s processes for estimating and classifying the fair value of financial instruments are consistent with those in place at December 31, 2011. The following table presents the Company’s risk management assets and liabilities measured at fair value for each hierarchy level as at September 30, 2012:

	Fair value measurements using
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Assets
Interest rate swaps		-		38		-		38
Liabilities
Commodity collars		-		92		-		92

Risk Management Assets, Gains and Losses

Derivative instrument	Balance sheet presentation	September 30, 2012		December 31, 2011
Assets
Interest rate swaps	Current assets		13		12
Interest rate swaps	Non-current assets		25		24
Commodity contracts	Current assets		2		30
Commodity contracts	Non-current assets		1		-
Risk management assets			41		66
Liabilities
Commodity contracts	Current liabilities		80		-
Commodity contracts	Non-current liabilities		15		-
Risk management liabilities			95		-

The Company recorded a loss on held-for-trading financial instruments of $116 million for the three month period ended September 30, 2012 (2011 - $120 million gain) and a loss of $128 million for the nine month period ended September 30, 2012 (2011 - $131 million loss).

Currency Risk

Talisman operates internationally and is therefore exposed to foreign exchange risk. Talisman’s primary exposures are from fluctuations in the US$ relative to the C$, UK£ and NOK.

Talisman manages its foreign exchange exposure in a number of ways. By denominating most of its borrowings in US$, the Company is able to reduce some of its economic exposure to currency fluctuations. Talisman also manages its translation exposure by generally matching internal borrowings with its subsidiaries’ functional currencies. The Company purchases foreign currencies, mostly at spot value, to meet its current foreign currency obligations as they come due. Talisman had no material outstanding foreign exchange forward contracts at September 30, 2012.

In respect of financial instruments existing at September 30, 2012, a 1% strengthening of the US$ against the other currencies to which the Company is exposed (C$, UK£ and NOK), with all other variables assumed constant, would have resulted in an increase of $8 million in the net income for the three month period ended September 30, 2012. A similar weakening of the US$ would have had the opposite impact.

Interest Rate Risk

Talisman is exposed to interest rate risk principally by virtue of its borrowings. Borrowing in floating rates exposes Talisman to short-term movements in interest rates. Borrowing at fixed rates exposes Talisman to reset risk (i.e. when refinancing at debt maturity).

In order to mitigate its exposure to interest rate changes, Talisman enters into interest rate swaps from time to time to manage the ratio of fixed rate debt to floating rate debt. At September 30, 2012, the Company had fixed-to-floating interest rate swap contracts with a total notional amount of $300 million that expire on May 15, 2015. For the three and nine month periods ended September 30, 2012, gains of $3 million and $7 million, respectively, were recorded.

In respect of financial instruments existing at September 30, 2012, a 1% increase in interest rates would have resulted in a $7 million decrease in the net income for the three month period ended September 30, 2012, principally related to the fair value of the interest rate swap. 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. At September 30, 2012, approximately 92% of the Company's trade accounts receivable were current and the largest single counterparty exposure, accounting for 19% of the total, was with a highly rated counterparty. Concentration of credit risk is mitigated by having a broad domestic and international customer base of highly rated counterparties. The maximum credit exposure associated with accounts receivable is the carrying value.

Liquidity Risk

Talisman is exposed to liquidity risk, which is the risk that the Company may be unable to generate or obtain sufficient cash to meet its commitments as they come due. Talisman mitigates this risk through its management of cash, debt, committed credit capacity and its capital program.

Talisman maintains appropriate undrawn capacity in its revolving credit facilities to meet short-term fluctuations from forecasted results. Talisman manages its liquidity requirements by use of both short-term and long-term cash forecasts, and by maintaining appropriate undrawn capacity under committed bank credit facilities. The Company has in place a total of $4.1 billion bank lines that are fully committed through 2014, of which $571 million of the available capacity was used to backstop commercial paper outstanding as at September 30, 2012. Available borrowing capacity was $3.5 billion at September 30, 2012.

In addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted. At September 30, 2012, letters of credit totaling $1.8 billion had been issued under these facilities.

With the exception of commercial paper, the Company has no significant debt maturities until 2014.

Except for commodity price derivative contracts that mature as noted below, long-term debt detailed in note 12 and other long-term obligations detailed in note 13, all of the Company’s financial liabilities are due within one year.

Commodity Price Risk

Talisman is exposed to commodity price risk since its revenues are dependent on the price of crude oil, natural gas, and natural gas liquids. Talisman enters into derivative instruments from time to time to mitigate commodity price risk volatility under guidelines approved by the Board of Directors. The Company may hedge a portion of its future production to protect cash flows to allow it to meet its strategic objectives.

The Company had the following commodity price derivative contracts not designated as hedges outstanding at September 30, 2012:

				Floor/ceiling
Two-way collars	Term	bbls/d		US$/bbl		Fair value
Dated Brent oil index	Oct-Dec 2012		20,000		90.00/148.36		-
Dated Brent oil index	Oct-Dec 2012		10,000		90.00/119.89		(1	)
Dated Brent oil index	Oct-Dec 2012		19,000		90.00/104.05		(16	)
Dated Brent oil index	Jan-Dec 2013		6,000		90.00/121.63		(2	)
Dated Brent oil index	Jan-Dec 2013		10,000		90.00/101.91		(35	)
Dated Brent oil index	Jan-Dec 2013		10,000		90.00/105.33		(27	)
WTI	Jan-Dec 2013		10,000		85.00/104.05		3
							(78	)

Fixed price swaps	Term	bbls/d		US$/bbl		Fair value
Dated Brent oil index	Oct-Dec 2012		5,000		109.28		(1	)

				Floor/ceiling
Two-way collars	Term	mcf/d		US$/mcf		Fair value
NYMEX	Oct-Dec 2012		47,468		2.63/3.31		(1	)
NYMEX	Oct-Dec 2012		142,404		2.63/2.98		(6	)
NYMEX	Oct-Dec 2012		94,936		2.63/3.78		(1	)
NYMEX	Jan-Dec 2013		47,468		3.16/4.67		(2	)
NYMEX	Jan-Dec 2013		94,936		3.16/4.74		(3	)
							(13	)

Subsequent to September 30, 2012, the Company entered into dated Brent swaps for 2013 of 15,000 bbls/d for $107.00/bbl and for the first quarter of 2014, a dated Brent swap of 1,500 bbls/d for $101.20/bbl. The Company also entered into NYMEX gas two-way collars of 123,417 mcf/d for 2013 with a floor of $3.71/mcf and a ceiling of $4.82/mcf and 56,962 mcf/d for 2014 with a floor of $4.21/mcf and a ceiling of $4.72/mcf.

In respect of outstanding financial instruments and assuming forward commodity prices in existence at September 30, 2012, an increase of US$1/bbl in the price of oil would have reduced the net fair value of commodity derivatives, thereby resulting in a decrease in net income of approximately $11 million for the three month period ended September 30, 2012. A similar decrease in commodity prices would result in an increase in net income of approximately $12 million for the three month period ended September 30, 2012. However, the net income would also be impacted by the effect of the change in the commodity price on underlying transactions and taxes.

16. CONTINGENCIES AND COMMITMENTS

Contingencies

From time to time, Talisman is the subject of litigation arising out of the Company’s operations. Damages claimed under such litigation 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 defend itself against such litigation. These claims are not currently expected to have a material impact on the Company’s financial position.

The New York Attorney General has commenced an investigation, pursuant to the Martin Act, into the disclosure practices of companies engaged in hydraulic fracturing in the New York State area. The Martin Act provides broad authority to commence and conduct investigations, whether upon receipt of a complaint, or on the Attorney General’s own initiative. Subpoenas have been issued to a number of companies, including Talisman. The Company has been cooperating with the New York Attorney General in the investigation. No enforcement action has been taken against Talisman, nor has the Company been advised that any enforcement action is imminent.

Commitments

During the nine month period ended September 30, 2012, the Company entered into contracts to secure long-term transportation and processing capacity in the Eagle Ford shale play, resulting in a total commitment of approximately $795 million over 15 years, of which approximately $390 million is expected to be incurred within the next five years.

During the three month period ended September 30, 2012, the Company entered into multi-year rig commitments in the North Sea for approximately $365 million over 3 years.

There have been no other significant changes in the Company’s expected future commitments, and the timing of those payments, since December 31, 2011. Refer to note 23 to the 2011 audited Consolidated Financial Statements for details of the Company’s commitments.

17. OTHER EXPENSES, NET

	Three months ended September 30					Nine months ended September 30
	2012		2011			2012		2011
Foreign exchange loss (gain)		29		(56	)		23		(11	)
Derecognition		8		7			20		19
Other		25		11			53		35
		62		(38	)		96		43

18. INCOME TAXES

Current Tax Expense (Recovery)

	Three months ended September 30					Nine months ended September 30
	2012			2011		2012			2011
North America		2			14		(1	)		18
North Sea		(2	)		111		249			689
Southeast Asia		118			116		416			341
Other		34			31		139			103
Total		152			272		803			1,151

Deferred Tax Expense (Recovery)

	Three months ended September 30						Nine months ended September 30
	2012			2011			2012			2011
North America		(145	)		(27	)		(205	)		(175	)
North Sea		(392	)		237			(988	)		449
Southeast Asia		(11	)		45			9			38
Other		(13	)		(6	)		(46	)		(33	)
Total		(561	)		249			(1,230	)		279

The UK government reduced tax relief for decommissioning expenditures to a 50% tax rate from the combined UK tax rate of 62% for corporate and supplemental tax. This change was substantially enacted in July 2012 and the deferred income tax expense associated with the legislative change in the third quarter was approximately $137 million.

In March 2011, the UK Government announced that, from March 24, 2011, the rate of supplementary charge levied on ring fence profits increased from 20% to 32%. Supplementary charge is levied on ring fence profits in addition to the ring fence corporation tax rate of 30%, which remains unchanged. Consequently, there is now a combined corporation tax and supplementary charge rate of 62% for oil and gas companies with fields not subject to PRT and 75% to 81% with fields subject to PRT. If the price of oil falls below a certain level (currently expected to be $75 per barrel) for a sustained period of time, the UK Government has indicated that it will reduce the supplementary charge rate back towards 20% on a “staged and affordable basis” while prices remain low.

19. SUPPLEMENTAL CASH FLOW INFORMATION

Items Not Involving Cash

	Three months ended September 30						Nine months ended September 30
	2012			2011			2012			2011
Depreciation, depletion and amortization		570			455			1,745			1,403
Impairment		1,037			-			2,163			102
Dry hole		66			33			191			173
Share-based payments expense (recovery)		60			(288	)		(14	)		(358	)
(Gain) loss on asset disposals		-			8			(759	)		(206	)
Unrealized (gain) loss on held-for-trading financial instruments		99			(186	)		99			(101	)
Deferred income tax (recovery)		(561	)		249			(1,230	)		279
Foreign exchange		17			(29	)		9			(10	)
Derecognition		8			7			20			19
Other		24			16			47			14
		1,320			265			2,271			1,315

Other Cash Flow Information

	Three months ended September 30				Nine months ended September 30
	2012		2011		2012		2011
Cash interest paid		59		68		188		188
Cash interest received		-		1		6		5
Cash income taxes paid		223		384		882		1,055

20. CASH AND CASH EQUIVALENTS

Of the cash and cash equivalents balance of $496 million, $331 million has been invested in bank deposits and the remainder in highly rated marketable securities with original maturities of less than three months.

21. SEGMENTED INFORMATION

Talisman's activities are conducted in four geographic segments: North America, the North Sea, Southeast Asia and Other. The North America segment includes operations in Canada and the US. The North Sea segment includes operations and exploration activities in the UK and Norway. The Southeast Asia segment includes operations and exploration activities in Indonesia, Malaysia, Vietnam and Papua New Guinea and operations in Australia/Timor-Leste. The Company also conducts operations in Algeria, operations and exploration activities in Colombia, and exploration activities in Peru, Poland, Sierra Leone and the Kurdistan Region of northern Iraq. For ease of reference, the activities in Algeria, Colombia, Peru, Poland, Sierra Leone and the Kurdistan Region of northern Iraq are referred to collectively as the Other geographic segment. All activities relate to the exploration, development, production and transportation of oil, liquids and natural gas.

	North America (1)						North Sea (2)
	Three months ended September 30			Nine months ended September 30			Three months ended September 30				Nine months ended September 30
(millions of US$)	2012		2011	2012		2011	2012		2011		2012		2011
Revenue
Sales	343		424	1,036		1,276	714		853		2,429		3,108
Other income	12		9	51		45	1		2		5		12
Total revenue and other income	355		433	1,087		1,321	715		855		2,434		3,120
Segmented expenses
Operating	116		123	429		334	365		299		1,026		916
Transportation	28		19	76		49	17		16		55		62
DD&A	279		205	828		609	153		135		483		502
Impairment	109		-	184		-	747		-		1,725		102
Dry hole	1		1	22		4	4		(2	)	21		75
Exploration	1		9	24		53	10		10		32		28
Other	9		1	43		7	19		8		40		22
Total segmented expenses	543		358	1,606		1,056	1,315		466		3,382		1,707
Segmented income (loss) before taxes	(188	)	75	(519	)	265	(600	)	389		(948	)	1,413
Non-segmented expenses
General and administrative
Finance costs
Share-based payments expense (recovery)
Currency translation
(Gain) loss on held-for-trading
financial instruments
(Gain) loss on asset disposals
Total non-segmented expenses
Income (loss) before taxes
Capital expenditure
Exploration	42		30	104		168	7		-		64		105
Development	216		595	1,147		1,324	294		288		786		840
Exploration and development	258		625	1,251		1,492	301		288		850		945
Acquisitions
Proceeds on dispositions
Other non-segmented
Net capital expenditures
Property, plant and equipment				7,128		6,740					4,668		5,809
Exploration and evaluation assets				2,103		2,370					416		538
Goodwill				133		140					866		866
Other				1,100		987					1,621		645
Segmented assets				10,464		10,237					7,571		7,858
Non-segmented assets
Total assets (5)
Decommissioning liabilities (5)				355		394					2,579		2,390

	1. North America						2012		2011		2012		2011
	Canada						194		269		629		859
	US						161		164		458		462
	Total revenue and other income						355		433		1,087		1,321
	Canada										3,675		3,937
	US										3,453		2,803
	Property, plant and equipment (5)										7,128		6,740
	Canada										1,084		1,207
	US										1,019		1,163
	Exploration and evaluation assets (5)										2,103		2,370

	2. North Sea						2012		2011		2012		2011
	UK						515		577		1,694		2,179
	Norway						200		278		740		941
	Total revenue and other income						715		855		2,434		3,120
	UK										4,321		3,927
	Norway										347		1,882
	Property, plant and equipment (5)										4,668		5,809
	UK										34		210
	Norway										382		328
	Exploration and evaluation assets (5)										416		538

	5. Current year represents balances at September 30.
	Prior year represents balances at December 31.

	Southeast Asia (3)					Other (4)							Total
	Three months ended September 30		Nine months ended September 30			Three months ended September 30				Nine months ended September 30			Three months ended September 30				Nine months ended September 30
(millions of US$)	2012	2011	2012		2011	2012		2011		2012		2011	2012		2011		2012		2011
Revenue
Sales	501	526	1,696		1,354	150		141		486		394	1,708		1,944		5,647		6,132
Other income	-	1	-		1	1		-		3		-	14		12		59		58
Total revenue and other income	501	527	1,696		1,355	151		141		489		394	1,722		1,956		5,706		6,190
Segmented expenses
Operating	99	113	306		260	24		18		62		50	604		553		1,823		1,560
Transportation	15	14	42		42	1		2		5		6	61		51		178		159
DD&A	103	87	326		212	35		28		108		80	570		455		1,745		1,403
Impairment	-	-	-		-	181		-		254		-	1,037		-		2,163		102
Dry hole	32	35	66		92	29		(1	)	82		2	66		33		191		173
Exploration	32	37	70		172	38		31		102		82	81		87		228		335
Other	3	1	(10	)	5	4		8		2		20	35		18		75		54
Total segmented expenses	284	287	800		783	312		86		615		240	2,454		1,197		6,403		3,786
Segmented income (loss) before taxes	217	240	896		572	(161	)	55		(126	)	154	(732	)	759		(697	)	2,404
Non-segmented expenses
General and administrative													130		97		382		303
Finance costs													74		73		213		209
Share-based payments expense (recovery)													61		(285	)	(11	)	(345	)
Currency translation													27		(56	)	21		(11	)
(Gain) loss on held-for-trading													116		(120	)	128		131
financial instruments
(Gain) loss on asset disposals													-		8		(759	)	(206	)
Total non-segmented expenses													408		(283	)	(26	)	81
Income (loss) before taxes													(1,140	)	1,042		(671	)	2,323
Capital expenditure
Exploration	24	61	64		189	74		41		198		82	147		132		430		544
Development	105	24	243		117	27		42		67		115	642		949		2,243		2,396
Exploration and development	129	85	307		306	101		83		265		197	789		1,081		2,673		2,940
Acquisitions													57		159		59		1,516
Proceeds on dispositions													(1	)	(35	)	(940	)	(574	)
Other non-segmented													21		33		89		77
Net capital expenditures													866		1,238		1,881		3,959
Property, plant and equipment			2,429		2,501					825		859					15,050		15,909
Exploration and evaluation assets			485		498					489		548					3,493		3,954
Goodwill			149		149					162		162					1,310		1,317
Other			597		560					815		788					4,133		2,980
Segmented assets			3,660		3,708					2,291		2,357					23,986		24,160
Non-segmented assets																	41		66
Total assets (5)																	24,027		24,226
Decommissioning liabilities (5)			213		208					74		43					3,221		3,035

	3. Southeast Asia					2012		2011		2012		2011
	Indonesia					283		300		891		834
	Malaysia					99		158		422		386
	Vietnam					21		14		59		50
	Australia					98		55		324		85
	Total revenue and other income					501		527		1,696		1,355
	Indonesia									1,026		1,023
	Malaysia									813		883
	Vietnam									388		297
	Papua New Guinea									44		47
	Australia									158		251
	Property, plant and equipment (5)									2,429		2,501
	Indonesia									12		12
	Malaysia									35		41
	Vietnam									9		5
	Papua New Guinea									429		440
	Exploration and evaluation assets (5)									485		498


	4. Other					2012		2011		2012		2011
	Algeria					65		61		177		195
	Colombia					86		80		312		199
	Total revenue and other income					151		141		489		394
	Algeria									272		284
	Colombia									553		575
	Property, plant and equipment (5)									825		859
	Colombia									110		75
	Kurdistan									307		303
	Peru									4		133
	Other									68		37
	Exploration and evaluation assets (5)									489		548

	5. Current year represents balances at September 30.
	Prior year represents balances at December 31.

Repsol Oil & Gas Canada (TLM) Inactive 6-KInterim Condensed Consolidated Financial Statements