Repsol Oil & Gas Canada 6K Talisman Energy 6-K | TLM 31 Jul 13

Exhibit 99.1

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2013

(Unaudited)

Condensed Consolidated Balance Sheets

(Unaudited)
	June 30,		December 31,
(millions of US$)	2013		2012
			(restated - note 4)
Assets
Current
Cash and cash equivalents (note 24)		270		553
Accounts receivable		970		884
Risk management (note 19)		85		48
Income and other taxes receivable		25		10
Restricted cash (note 11)		103		-
Inventories		118		122
Prepaid expenses		23		19
		1,594		1,636
Other assets (note 10)		204		55
Restricted cash (note 11)		135		-
Investments (note 8)		1,801		1,791
Risk management (note 19)		73		26
Goodwill (note 9)		775		775
Property, plant and equipment (note 12)		10,659		10,462
Exploration and evaluation assets (note 12)		3,193		3,319
Deferred tax assets		1,148		1,273
		17,988		17,701
Total assets		19,582		19,337

Liabilities
Current
Bank indebtedness		38		-
Accounts payable and accrued liabilities		1,686		1,744
Current portion of Yme removal obligation (note 11)		103		-
Risk management (note 19)		8		81
Income and other taxes payable		82		84
Loans from joint ventures (note 8)		197		148
Current portion of long-term debt (note 16)		567		8
		2,681		2,065
Decommissioning liabilities (note 14)		1,361		1,514
Yme removal obligation (note 11)		172		-
Other long-term obligations (note 17)		240		256
Risk management (note 19)		2		1
Long-term debt (note 16)		4,356		4,434
Deferred tax liabilities		1,051		1,157
		7,182		7,362

Contingencies and commitments (note 20)

Shareholders' equity
Common shares (note 18)		1,709		1,639
Preferred shares (note 18)		191		191
Contributed surplus		110		121
Retained earnings		6,898		7,148
Accumulated other comprehensive income		811		811
		9,719		9,910
Total liabilities and shareholders' equity		19,582		19,337

See accompanying notes.

Condensed Consolidated Statements of Income (Loss)


(Unaudited)	Three months ended						Six months ended
	June 30,						June 30,
(millions of US$)	2013			2012			2013			2012
				(restated - note 4)						(restated - note 4)
Revenue
Sales		1,152			1,740			2,250			3,715
Other income		10			17			37			43
Income from joint ventures and associates, after tax (note 8)		23			43			21			98
Total revenue and other income		1,185			1,800			2,308			3,856

Expenses
Operating		381			629			710			1,193
Transportation		51			58			102			117
General and administrative		111			133			214			252
Depreciation, depletion and amortization (note 12)		464			545			885			1,119
Impairment (impairment reversals) (note 13)		(9	)		73			(2	)		1,126
Dry hole		69			65			69			125
Exploration		67			91			142			147
Finance costs (note 15)		79			67			157			138
Share-based payments expense (recovery) (note 18)		2			(31	)		24			(72	)
(Gain) loss on held-for-trading financial instruments (note 19)		(221	)		(35	)		(141	)		12
Gain on disposals (note 5)		(59	)		(254	)		(59	)		(759	)
Other, net (note 21)		13			(42	)		19			30
Total expenses		948			1,299			2,120			3,428
Income before taxes		237			501			188			428
Income taxes (note 22)
Current income tax		139			179			286			584
Deferred income tax (recovery)		1			126			18			(643	)
		140			305			304			(59	)
Net income (loss)		97			196			(116	)		487

Per common share (US$):
Net income (loss)		0.09			0.19			(0.12	)		0.47
Diluted net income (loss)		0.06			0.14			(0.14	)		0.38
Weighted average number of common shares outstanding (millions)
Basic		1,030			1,026			1,029			1,025
Diluted		1,033			1,033			1,033			1,032

See accompanying notes.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)
	Three months ended					Six months ended
	June 30,					June 30,
(millions of US$)	2013		2012			2013			2012
			(restated - note 4)						(restated - note 4)

Net income (loss)		97		196			(116	)		487

Actuarial gains (losses) relating to pension and other post-employment benefits1		5		(7	)		8			(5	)
Other comprehensive income (loss) not being reclassified to net income or loss in subsequent periods		5		(7	)		8			(5	)
Comprehensive income (loss)		102		189			(108	)		482
1. For the three and six months ended June 30, 2013, is net of tax of $1 million and $nil respectively (2012 - $8 million and $6 million respectively).

See accompanying notes.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)	Three months ended						Six months ended
	June 30,						June 30,
(millions of US$)	2013			2012			2013			2012
				(restated - note 4)						(restated - note 4)
Common shares
Balance at beginning of period		1,708			1,650			1,639			1,561
Issued on exercise of stock options		1			1			26			6
Shares purchased and held in trust for long-term PSU plan (note 18)		-			(9	)		-			(13	)
Shares released from trust for long-term PSU plan (note 18)		-			-			44			88
Balance at end of period		1,709			1,642			1,709			1,642

Preferred shares
Balance at beginning of period		191			191			191			191
Issued (note 18)		-			-			-			-
Balance at end of period		191			191			191			191

Contributed surplus
Balance at beginning of period		92			87			121			186
Settlement of long-term PSU plan grant (note 18)		-			-			(44	)		(88	)
Share-based payments (note 18)		18			15			33			4
Balance at end of period		110			102			110			102

Retained earnings
Balance at beginning of period		6,866			7,582			7,148			7,292
Net income (loss)		97			196			(116	)		487
Actuarial gains (losses) transferred to retained earnings		5			(7	)		8			(5	)
Common share dividends (note 18)		(68	)		(138	)		(138	)		(138	)
Preferred share dividends (note 18)		(2	)		(2	)		(4	)		(5	)
Balance at end of period		6,898			7,631			6,898			7,631

Accumulated other comprehensive income
Balance at beginning of period		811			788			811			788
Other comprehensive income (loss)		5			(7	)		8			(5	)
Actuarial losses (gains) transferred to retained earnings		(5	)		7			(8	)		5
Balance at end of period		811			788			811			788

See accompanying notes.

Condensed Consolidated Statements of Cash Flows

(Unaudited)	Three months ended						Six months ended
	June 30,						June 30,
(millions of US$)	2013			2012			2013			2012
				(restated - note 4)						(restated - note 4)
Operating activities
Net income (loss)		97			196			(116	)		487
Add: Finance costs (cash and non-cash) (note 15)		79			67			157			138
Items not involving cash (note 23)		242			421			729			820
		418			684			770			1,445
Changes in non-cash working capital		(61	)		11			(82	)		164
Cash provided by operating activities		357			695			688			1,609

Investing activities
Capital expenditures
Exploration, development and other		(649	)		(901	)		(1,218	)		(1,894	)
Property acquisitions		-						-			(2	)
Proceeds of resource property dispositions (note 5)		99			437			99			939
Yme removal obligation (note 11)		(7	)		-			275			-
Restricted cash (note 11)		7			-			(238	)		-
Investments		-			1			(7	)		(4	)
Loan to joint venture (note 8)		(19	)		-			(89	)		-
Changes in non-cash working capital		(31	)		(211	)		(115	)		(139	)
Cash used in investing activities		(600	)		(674	)		(1,293	)		(1,100	)

Financing activities
Long-term debt repaid (note 16)		(4	)		(562	)		(4	)		(991	)
Long-term debt issued (note 16)		416			583			509			841
Loans from (repayments to) joint ventures (note 8)		(61	)		73			49			108
Common shares issued (note 18)		1			1			17			3
Common shares purchased (note 18)		-			(9	)		-			(13	)
Finance costs (cash)		(71	)		(45	)		(141	)		(94	)
Common share dividends		(68	)		(138	)		(138	)		(138	)
Preferred share dividends		(2	)		(2	)		(4	)		(5	)
Deferred credits and other		(6	)		16			(15	)		9
Changes in non-cash working capital		(7	)		2			11			9
Cash provided by (used in) financing activities		198			(81	)		284			(271	)
Effect of translation on foreign currency cash and cash equivalents		1			(5	)		-			2
Net increase (decrease) in cash and cash equivalents		(44	)		(65	)		(321	)		240
Cash and cash equivalents net of bank indebtedness, beginning of period		276			645			553			340
Cash and cash equivalents net of bank indebtedness, end of period		232			580			232			580

Cash and cash equivalents		270			594			270			594
Bank indebtedness		(38	)		(14	)		(38	)		(14	)
Cash and cash equivalents net of bank indebtedness, end of period		232			580			232			580

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, Canada, 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 six month periods ended June 30, 2013 were approved by the Audit Committee on July 30, 2013.

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, 2012 and the notes thereto included in Talisman’s 2012 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 Condensed Consolidated Statement of Income.

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 2012 Annual Consolidated Financial Statements except for adoption of the following new standards and interpretations effective as of January 1, 2013:

Joint Arrangements, Consolidation, Associates and Disclosures

IFRS 10 Consolidated Financial Statements – establishes the accounting principles for consolidated financial statements when one entity controls other entities and replaces IAS 27 Consolidated and Separate Financial Statements and the related provisions of SIC-12 Consolidation – Special Purpose Entities. This standard established a new control model that applies to all entities. This standard did not have a significant impact on Talisman’s financial results as all subsidiaries are wholly-owned. The trust holding common shares, to settle the Company’s obligation arising from its long-term performance share unit plan, is consolidated since it is a special purpose entity controlled by the Company and all other results are from joint operations;

IFRS 11 Joint Arrangements – establishes the accounting principles for parties to a joint arrangement and replaces IAS 31 Interest in Joint Ventures and SIC-13 Jointly Controlled Entities: Non-Monetary Contributions by Venturers. This standard requires a party to assess its rights and obligations from the arrangement in order to determine whether a joint arrangement represents a joint venture or a joint operation. As at December 31, 2012, the Company proportionately consolidated all its interest in joint arrangements. Upon adoption of this standard on January 1, 2013, the Company accounted for its investments in Talisman Sinopec Energy UK Limited (TSEUK) and Equión Energía Limited (Equión) using the equity method of accounting and retrospectively restated the results and financial position. Refer to note 4;

IFRS 12 Disclosure of Interests in Other Entities – establishes comprehensive disclosure requirements for subsidiaries, joint arrangements, associates, and unconsolidated structured entities and replaces existing disclosures in related standards. The Company has provided the additional disclosures in notes 7 and 8 of the interim condensed Consolidated Financial Statements;

IAS 27 Separate Financial Statements – establishes the accounting and disclosure requirements for investments in subsidiaries, joint ventures, and associates when an entity prepares separate financial statements and replaces the current IAS 27 Consolidated and Separate Financial Statements as the consolidation guidance is included in IFRS 10 Consolidated Financial Statements. The adoption of this standard did not have an impact on Talisman’s interim condensed Consolidated Financial Statements; and

IAS 28 Investments in Associates and Joint Ventures – establishes the accounting for investments in associates and defines how the equity method is applied when accounting for associates and joint ventures. This standard did not have an impact on Talisman’s interim condensed Consolidated Financial Statements.

Employee Benefits

IAS 19 Employee Benefits (revised) – IAS 19 provides the accounting and disclosure requirements by employers for employee benefits. The amendments require the recognition of changes in defined benefit obligations and fair value of plan assets when they occur, eliminating the “corridor approach”, and accelerates the recognition of past service costs. In order for the net defined benefit liability or asset to reflect the full value of the plan deficit or surplus, all actuarial gains and losses are to be recognized immediately through other comprehensive income (OCI). In addition, entities will be required to calculate net interest on the net defined benefit liability or asset using the same discount rate used to measure the defined benefit obligation. The amendments also enhance financial statement disclosures. The amended standard requires retrospective application. The adoption of this standard did not have a material impact on the Company’s interim condensed Consolidated Financial Statements.

Presentation of items of Other Comprehensive Income

IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1. The amendments to IAS 1 improve the quality of the presentation of OCI. The amendments require companies preparing financial statements in accordance with IFRS to group together items within OCI that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. The amendment affected presentation only and had no impact on the Company’s financial position or performance.

Offsetting Financial Assets and Financial Liabilities

IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7. These amendments to IFRS 7 introduce new disclosure requirements about the effects of offsetting financial assets and financial liabilities and related arrangements on an entity’s financial position. The disclosures will provide users with information that may be useful in evaluating the effect of any netting arrangements in an entity's financial position. The amendments to IFRS 7 are effective for annual periods beginning on or after January 1, 2013. As the Company is not netting any significant amounts related to financial instruments in accordance with IAS 32 and does not have significant offsetting arrangements, the amendment does not have a significant impact on the Company.

Fair Value Measurement

IFRS 13 Fair Value Measurement – establishes a single framework for fair value measurement and disclosures when fair value is required or permitted under IFRS. Adoption of the standard did not require adjustments to the valuation techniques used by the Company to measure fair value and did not result in any measurement adjustments as at January 1, 2013. This standard had no material impact on the Company’s financial position or performance.

b) Accounting Pronouncements Not Yet Adopted

The Company continues to assess the impact of adopting the pronouncements from the IASB as described in the 2012 Annual Consolidated Financial Statements.

4. ADOPTION OF IFRS 11 - JOINT ARRANGEMENTS

Effective January 1, 2013, the Company adopted IFRS 11 Joint Arrangements which establishes the accounting principles for parties to a joint arrangement and replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities: Non-Monetary Contributions by Venturers. Upon adoption of this standard, the Company now accounts for its investments in TSEUK and Equión using the equity method of accounting. Changes have been applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, resulting in the adjustment of prior period financial information. The impact of adopting IFRS 11 is outlined below.

The accounting policies described in note 3 have been applied in preparing the interim condensed Consolidated Financial Statements as at and for the period ended June 30, 2013, the comparative information as at and for the three and six month periods ended June 30, 2012 and as at and for the year ended December 31, 2012. The Company’s 2012 comparative balances reflect the deconsolidation of Equión’s entire 2012 balances as joint control was shared over this period. The Company’s 2012 comparative balances reflect the deconsolidation of TSEUK’s balances commencing December 17, 2012 triggered by the sale of its 49% equity interest in Talisman Energy (UK) Limited (TEUK). The Company has elected not to present a restated January 1, 2012 balance sheet as the only investment impacted is Equión, and the impact was not material for disclosure purposes.

On transition to IFRS 11, the net assets of TSEUK were negative, however Talisman has a long-term loan in place with TSEUK. This loan is a long-term interest that in substance forms part of Talisman’s net investment in TSEUK.

The most significant impact of adoption is from the application of equity accounting on joint arrangements which are classified as joint ventures.

Reconciliations from Proportionate Consolidation of Joint Ventures to Equity Accounting under IFRS 11

The Company has adjusted amounts reported previously in its Consolidated Financial Statements. The transition from proportionate consolidation of joint ventures to equity accounting affected the Company’s financial position, results of operations and cash flows as presented in the following reconciliations:

Reconciliation of Consolidated Balance Sheet at December 31, 2012

	December 31, 2012 Previously Released		Deconsolidation of Equión1			Deconsolidation of TSEUK1			December 31, 2012 Restated
Assets
Current
Cash and cash equivalents		721		(104	)		(64	)		553
Accounts receivable		1,210		(158	)		(168	)		884
Risk management		48		-			-			48
Income and other taxes receivable		10		-			-			10
Inventories		150		(11	)		(17	)		122
Prepaid expenses		23		-			(4	)		19
		2,162		(273	)		(253	)		1,636
Other assets		115		(60	)		-			55
Investments		747		785			259			1,791
Risk management		26		-			-			26
Goodwill		1,014		(162	)		(77	)		775
Property, plant and equipment		13,005		(554	)		(1,989	)		10,462
Exploration and evaluation assets		3,516		-			(197	)		3,319
Deferred tax assets		1,273		-			-			1,273
		19,696		9			(2,004	)		17,701
Total assets		21,858		(264	)		(2,257	)		19,337

Liabilities
Current
Accounts payable and accrued liabilities		2,250		(205	)		(301	)		1,744
Risk management		81		-			-			81
Income and other taxes payable		137		(49	)		(4	)		84
Loan from joint ventures		-		148			-			148
Current portion of long-term debt		8		-			-			8
		2,476		(106	)		(305	)		2,065
Decommissioning liabilities		2,743		(25	)		(1,204	)		1,514
Other long-term obligations		313		(52	)		(5	)		256
Risk management		1		-			-			1
Long-term debt		4,434		-			-			4,434
Deferred tax liabilities		1,981		(81	)		(743	)		1,157
		9,472		(158	)		(1,952	)		7,362
Shareholders' equity
Common shares		1,639		-			-			1,639
Preferred shares		191		-			-			191
Contributed surplus		121		-			-			121
Retained earnings		7,148		-			-			7,148
Accumulated other comprehensive income		811		-			-			811
		9,910		-			-			9,910
Total liabilities and shareholders' equity		21,858		(264	)		(2,257	)		19,337
1. TSEUK deconsolidation adjustments effective for transactions subsequent to sharing of joint control on December 17, 2012. Refer to note 5. Equión deconsolidation includes amounts effective January 2011.

Reconciliation of Consolidated Statement of Income for the three month Period Ended June 30, 2012

	June 30, 2012 Previously Released			Deconsolidation of Equión			Deconsolidation of TSEUK1		June 30, 2012 Restated
Revenue
Sales		1,850			(110	)		-		1,740
Other income		19			(2	)		-		17
Income from joint ventures and associates, after tax		-			43			-		43
Total revenue and other income		1,869			(69	)		-		1,800

Expenses
Operating		642			(13	)		-		629
Transportation		58			-			-		58
General and administrative		131			2			-		133
Depreciation, depletion and amortization		572			(27	)		-		545
Impairment		73			-			-		73
Dry hole		65			-			-		65
Exploration		91			-			-		91
Finance costs		68			(1	)		-		67
Share-based payments expense (recovery)		(31	)		-			-		(31	)
(Gain) loss on held-for-trading financial instruments		(35	)		-			-		(35	)
Gain on disposals		(254	)		-			-		(254	)
Other, net		(43	)		1			-		(42	)
Total expenses		1,337			(38	)		-		1,299
Loss before taxes		532			(31	)		-		501
Income taxes
Current income tax		218			(39	)		-		179
Deferred tax recovery		118			8			-		126
		336			(31	)		-		305
Net income		196			-			-		196
1. TSEUK deconsolidation adjustments presented as $nil as sharing of joint control did not occur until December 17, 2012. Refer to note 5.

Reconciliation of Consolidated Statement of Income for the six month Period Ended June 30, 2012

	June 30, 2012 Previously Released			Deconsolidation of Equión			Deconsolidation of TSEUK1		June 30, 2012 Restated
Revenue
Sales		3,939			(224	)		-		3,715
Other income		45			(2	)		-		43
Income from joint ventures and associates, after tax		-			98			-		98
Total revenue and other income		3,984			(128	)		-		3,856

Expenses
Operating		1,219			(26	)		-		1,193
Transportation		117			-			-		117
General and administrative		252			-			-		252
Depreciation, depletion and amortization		1,175			(56	)		-		1,119
Impairment		1,126			-			-		1,126
Dry hole		125			-			-		125
Exploration		147			-			-		147
Finance costs		139			(1	)		-		138
Share-based payments expense (recovery)		(72	)		-			-		(72	)
Loss on held-for-trading financial instruments		12			-			-		12
Gain on disposals		(759	)		-			-		(759	)
Other, net		34			(4	)		-		30
Total expenses		3,515			(87	)		-		3,428
Income before taxes		469			(41	)		-		428
Income taxes
Current income tax		651			(67	)		-		584
Deferred tax recovery		(669	)		26			-		(643	)
		(18	)		(41	)		-		(59	)
Net income		487			-			-		487
1. TSEUK deconsolidation adjustments presented as $nil as sharing of joint control did not occur until December 17, 2012. Refer to note 5.

Reconciliation of Consolidated Statement of Income for the Year Ended

December 31, 2012

	December 31, 2012 Previously Released			Deconsolidation of Equión			Deconsolidation of TSEUK1			December 31, 2012 Restated
Revenue
Sales		7,229			(403	)		(59	)		6,767
Other income		83			-			1			84
Income (loss) from joint ventures and associates, after tax		-			361			(46	)		315
Total revenue and other income		7,312			(42	)		(104	)		7,166

Expenses
Operating		2,452			(58	)		(33	)		2,361
Transportation		221			-			-			221
General and administrative		510			-			-			510
Depreciation, depletion and amortization		2,501			(108	)		(22	)		2,371
Impairment		2,744			-			(155	)		2,589
Dry hole		269			(31	)		-			238
Exploration		346			1			(1	)		346
Finance costs		276			(3	)		(1	)		272
Share-based payments recovery		(62	)		-			(1	)		(63	)
Loss on held-for-trading financial instruments		93			-			-			93
Gain on disposals		(1,624	)		-			-			(1,624	)
Gain on revaluation of investment		(365	)		365			-			-
Other, net		125			-			(1	)		124
Total expenses		7,486			166			(214	)		7,438
Income (loss) before taxes		(174	)		(208	)		110			(272	)
Income taxes
Current income tax		874			(90	)		8			792
Deferred income tax (recovery)		(1,180	)		(118	)		102			(1,196	)
		(306	)		(208	)		110			(404	)
Net income		132			-			-			132
1. TSEUK deconsolidation adjustments effective for transactions subsequent to sharing of joint control on December 17, 2012. Refer to note 5.

Reconciliation of Consolidated Statement of Cash Flows for the three month Period Ended June 30, 2012

	June 30, 2012 Previously Released			Deconsolidation of Equión			Deconsolidation of TSEUK1		June 30, 2012 Restated
Operating activities
Net income		196			-			-		196
Add: Finance costs (cash and non-cash)		68			(1	)		-		67
Items not involving cash		487			(66	)		-		421
		751			(67	)		-		684
Changes in non-cash working capital		58			(47	)		-		11
Cash provided by operating activities		809			(114	)		-		695

Investing activities
Capital expenditures
Exploration, development and other		(936	)		35			-		(901	)
Property acquisitions		-			-			-		-
Proceeds of resource property dispositions		437			-			-		437
Investments		(1	)		2			-		1
Changes in non-cash working capital		(212	)		1			-		(211	)
Cash used in investing activities		(712	)		38			-		(674	)

Financing activities
Long-term debt repaid		(562	)		-			-		(562	)
Long-term debt issued		583			-			-		583
Loan from joint venture		-			73			-		73
Common shares issued		1			-			-		1
Common shares purchased		(9	)		-			-		(9	)
Preferred shares issued		-			-			-		-
Finance costs (cash)		(46	)		1			-		(45	)
Common share dividends		(138	)		-			-		(138	)
Preferred share dividends		(2	)		-			-		(2	)
Deferred credits and other		16			-			-		16
Changes in non-cash working capital		2			-			-		2
Cash used in financing activities		(155	)		74			-		(81	)
Effect of translation on foreign currency cash and cash equivalents		(5	)		-			-		(5	)
Net decrease in cash and cash equivalents		(63	)		(2	)		-		(65	)
Cash and cash equivalents, beginning of period		732			(87	)		-		645
Cash and cash equivalents, end of period		669			(89	)		-		580
Cash and cash equivalents		683			(89	)		-		594
Bank indebtedness		(14	)		-			-		(14	)
Cash and cash equivalents net of bank indebtedness, end of period		669			(89	)		-		580
1. TSEUK deconsolidation adjustments presented as $nil as sharing of joint control did not occur until December 17, 2012. Refer to note 5.

Reconciliation of Consolidated Statement of Cash Flows for the six month Period Ended June 30, 2012

	June 30, 2012 Previously Released			Deconsolidation of Equión			Deconsolidation of TSEUK1		June 30, 2012 Restated
Operating activities
Net income		487			-			-		487
Add: Finance costs (cash and non-cash)		139			(1	)		-		138
Items not involving cash		951			(131	)		-		820
		1,577			(132	)		-		1,445
Changes in non-cash working capital		212			(48	)		-		164
Cash provided by operating activities		1,789			(180	)		-		1,609

Investing activities
Capital expenditures
Exploration, development and other		(1,947	)		53			-		(1,894	)
Property acquisitions		(2	)		-			-		(2	)
Proceeds of resource property dispositions		939			-			-		939
Investments		(4	)		-			-		(4	)
Changes in non-cash working capital		(142	)		3			-		(139	)
Cash used in investing activities		(1,156	)		56			-		(1,100	)

Financing activities
Long-term debt repaid		(991	)		-			-		(991	)
Long-term debt issued		841			-			-		841
Loan from joint venture		-			108			-		108
Common shares issued		3			-			-		3
Common shares purchased		(13	)		-			-		(13	)
Preferred shares issued		-			-			-		-
Finance costs (cash)		(95	)		1			-		(94	)
Common share dividends		(138	)		-			-		(138	)
Preferred share dividends		(5	)		-			-		(5	)
Deferred credits and other		9			-			-		9
Changes in non-cash working capital		9			-			-		9
Cash used in financing activities		(380	)		109			-		(271	)
Effect of translation on foreign currency cash and cash equivalents		2			-			-		2
Net increase in cash and cash equivalents		255			(15	)		-		240
Cash and cash equivalents, beginning of period		414			(74	)		-		340
Cash and cash equivalents, end of period		669			(89	)		-		580
Cash and cash equivalents		683			(89	)		-		594
Bank indebtedness		(14	)		-			-		(14	)
Cash and cash equivalents net of bank indebtedness, end of period		669			(89	)		-		580
1. TSEUK deconsolidation adjustments presented as $nil as sharing of joint control did not occur until December 17, 2012. Refer to note 5.

Reconciliation of Consolidated Statement of Cash Flows for the Year Ended December 31, 2012

	December 31, 2012 Previously Released			Deconsolidation of Equión			Deconsolidation of TSEUK1			December 31, 2012 Restated
Operating activities
Net income		132			-			-			132
Add: Finance costs (cash and non-cash)		276			(3	)		(1	)		272
Items not involving cash		2,433			(255	)		(72	)		2,106
		2,841			(258	)		(73	)		2,510
Changes in non-cash working capital		(125	)		(86	)		97			(114	)
Cash provided by operating activities		2,716			(344	)		24			2,396

Investing activities
Capital expenditures
Exploration, development and other		(3,658	)		125			24			(3,509	)
Property acquisitions		(109	)		-			-			(109	)
Proceeds of resource property dispositions		964			-			-			964
Repayment of note receivable		-			-			-			-
Acquisition deposit		-			-			-			-
Investments		(20	)		-			-			(20	)
Proceeds on reduction in UK investment, net of cash disposed		1,349			-			-			1,349
Changes in non-cash working capital		8			105			9			122
Cash used in investing activities		(1,466	)		230			33			(1,203	)

Financing activities
Long-term debt repaid		(1,807	)		-			-			(1,807	)
Long-term debt issued		1,336			-			-			1,336
Loan from joint venture		-			109			-			109
Common shares issued		13			-			-			13
Common shares purchased		(25	)		-			-			(25	)
Preferred shares issued		-			-			-			-
Finance costs (cash)		(190	)		(1	)		1			(190	)
Common share dividends		(277	)		-			-			(277	)
Preferred share dividends		(9	)		-			-			(9	)
Deferred credits and other		13			(25	)		-			(12	)
Changes in non-cash working capital		(6	)		-			-			(6	)
Cash used in financing activities		(952	)		83			1			(868	)
Effect of translation on foreign currency cash and cash equivalents		9			-			-			9
Net increase in cash and cash equivalents		307			(31	)		58			334
Cash and cash equivalents, beginning of year		414			(73	)		(122	)		219
Cash and cash equivalents, end of year		721			(104	)		(64	)		553
1. TSEUK deconsolidation adjustments effective for transactions subsequent to sharing of joint control on December 17, 2012. Refer to note 5.

As a result of adopting IFRS 11, there was no significant impact on the Company’s Consolidated Statements of Comprehensive Income nor Consolidated Statements of Changes in Shareholders’ Equity.

5. DISPOSALS

North America Dispositions

In May 2013, Talisman completed sales of non-core assets in western Canada for proceeds of $63 million, resulting in a pre-tax gain of $52 million ($39 million after tax).

In June 2012, Talisman completed sales of oil and gas producing assets in western Canada for proceeds of $437 million, resulting in a pre-tax gain of $254 million ($187 million after tax).

Southeast Asia Disposition

On May 3, 2013, Talisman completed the sale of its 5.03% interest in the Offshore Northwest Java Production Sharing Contract (PSC) in Indonesia for net proceeds of $36 million, resulting in a pre-tax gain of $9 million ($3 million after tax).

Sale of 49% Equity Interest of Talisman Energy (UK) Limited to China Petrochemical Corporation (Sinopec)

On December 17, 2012, Talisman completed the sale of 49% of its equity interest in TEUK, now renamed TSEUK, which owns substantially all of Talisman’s UK assets, to Addax Petroleum UK Limited (Addax), an indirect wholly-owned subsidiary of Sinopec, for cash consideration of $1.5 billion based on an effective date of January 1, 2012. The $1.5 billion cash consideration was comprised of $1,349 million in cash ($1,467 million in cash received net of $118 million cash disposed) and $33 million of working capital and other adjustments. This newly created entity was accounted for using the equity method effective December 17, 2012.

6. BUSINESS COMBINATIONS

Kinabalu PSC

During the three month period ended December 31, 2012, the Company entered into a new PSC with PETRONAS, the national oil company of Malaysia, acquiring a 60% working interest in the Kinabalu PSC, as well as assuming operatorship on December 26, 2012. As consideration for receipt of the PSC interest, the Company paid to PETRONAS a financial commitment in the amount of $50 million in January 2013.

This acquisition, which builds on the Company's acreage position in Malaysia and is being reported in the Southeast Asia segment, was accounted for using the acquisition method. The fair values of the identifiable assets acquired and liabilities assumed by Talisman, after working capital and other adjustments were preliminarily allocated as follows:

Fair value of share of net assets acquired
Property, plant and equipment	61
Exploration and evaluation assets	39
Decommissioning liability	(53)
Deferred tax liability	(19)
Total identifiable net assets at fair value	28
Goodwill arising on acquisition (note 9)	22
Total cost of acquisition	50
Satisfied by:
Cash paid in 2013	50

The goodwill arising on this acquisition is attributable to the difference between the accounting fair value and the tax basis of the net assets acquired, and is not expected to be deductible for income tax purposes. No contingent consideration or contingent liabilities arose from this transaction.

7. INTERESTS IN SUBSIDIARIES

The interim condensed Consolidated Financial Statements include the financial statements of Talisman Energy Inc. and its directly or indirectly owned subsidiaries. Transactions between subsidiaries are eliminated on consolidation. The following table lists the material operating subsidiaries owned directly or indirectly by Talisman as at June 30, 2013:

Name of Subsidiary	Jurisdiction of Incorporation	Percentage of Voting Securities Owned
Talisman Energy Canada Partnership¹	Alberta	100%
Talisman Energy USA Inc.	Delaware	100%
Talisman Energy Norge AS	Norway	100%
Talisman (Corridor) Ltd.	Barbados	100%
Talisman (Vietnam 15-2/01) Ltd.	Alberta	100%
Talisman Malaysia Limited	Barbados	100%
Talisman Malaysia (PM3) Limited	Barbados	100%
Talisman (Algeria) BV	The Netherlands	100%

1.	Talisman Energy Canada Partnership is an Alberta general partnership which currently carries on substantially all of Talisman’s conventional Canadian oil and gas operations.

8. INVESTMENTS

	June 30, 2013			December 31, 2012
Investments in Joint Ventures
Equity investment in Equión		865			803
Equity investment in TSEUK		(223	)		(155	)
Loan to TSEUK		503			414
		1,145			1,062
Investment in Associate
Oleoducto Central S.A. (Ocensa)		582			-
Available-for-sale investments
Ocensa		-			662
Transasia Pipeline Company Pvt. Ltd.		34			34
Other		40			33
		74			729
Total		1,801			1,791

The Company assesses investments for impairment whenever changes in circumstances or events indicate that the carrying value may not be recoverable. If such impairment indicators exist, the carrying amount of the investment is compared to its recoverable amount. The recoverable amount is the higher of the investment’s fair value less costs to sell and its value in use. The investment is written down to its recoverable amount when its carrying amount exceeds the recoverable amount.

Investments in Joint Ventures

Movement in investments in joint ventures during the period:

	Six months ended June 30, 2013			Year ended December 31, 2012
Balance, beginning of period		1,062			890
Investment in TSEUK subsequent to disposal (note 5)		-			(109	)
Loan to TSEUK		89			414
Share of net income (loss) and comprehensive income (loss)		(6	)		315
Non-cash dividend received, net of income tax benefit of $214 million		-			(448	)¹
Balance, end of period		1,145			1,062

1. In November 2012, Talisman, together with Ecopetrol SA, completed a restructuring of Equión whereby the investment in Ocensa was distributed to the shareholders as a non-cash dividend.

Talisman has a 49% interest in the ownership and voting rights of Equión whose principal place of operations is Colombia. Talisman is one of two shareholders in this strategic corporate joint venture engaged in the exploration for, and development and production of crude oil and natural gas. The corporate joint venture is governed by a heads of agreement amongst the shareholders, which requires that unanimous consent be obtained from the shareholders for all significant operating and financing decisions.

Talisman has a 51% interest in the ownership and voting rights of TSEUK whose principal place of operations is the United Kingdom and is incorporated in England and Wales. Talisman is one of two shareholders in this corporate joint venture engaging in the exploration for, and development and production of crude oil and natural gas. The corporate joint venture is governed by a shareholders’ agreement, which requires that unanimous consent be obtained from the shareholders for all significant operating and financing decisions.

The following table summarizes the financial information of the joint ventures. The table also reconciles financial information to the carrying amount of the Company's interest in joint ventures, which is accounted for using the equity method.

Summarized Balance Sheets	June 30, 2013								December 31, 2012
	TSEUK1			Equión1			Total		TSEUK1			Equión1			Total
Cash and cash equivalents		81			122			203		125			212			337
Current assets		337			329			666		371			343			714
Loans receivable from shareholders		-			403			403		-			302			302
Non-current assets, excluding goodwill		4,199			1,283			5,482		4,287			1,290			5,577
Total assets, excluding goodwill		4,617			2,137			6,754		4,783			2,147			6,930
Current liabilities		594			383			977		600			516			1,116
Loans payable to shareholders		987			-			987		811			-			811
Non-current liabilities		3,625			319			3,944		3,827			322			4,149
Total liabilities		5,206			702			5,908		5,238			838			6,076
Net assets (liabilities), excluding goodwill		(589	)		1,435			846		(455	)		1,309			854

Talisman’s interest		51	%		49	%				51	%		49	%
Talisman’s share of net assets (liabilities), excluding goodwill		(300	)		703			403		(232	)		641			409
Goodwill		77			162			239		77			162			239
		(223	)		865			642		(155	)		803			648
Loan to TSEUK		503			-			503		414			-			414
		280			865			1,145		259			803			1,062

1. Balances represent respective entity’s 100% share.

Summarized Statements of Income (Loss)	Three months ended June 30, 2013									Three months ended June 30, 2012
	TSEUK1			Equión1			Total			TSEUK1,2			Equión1			Total
Revenue		305			190			495			-			228			228

Operating		291			24			315			-			22			22
Transportation		6			12			18			-			1			1
General and administrative		2			-			2			-			-			-
Depreciation, depletion and amortization		70			56			126			-			55			55
Exploration expense		10			1			11			-			-			-
Finance costs		21			-			21			-			3			3
Other		(11	)		(4	)		(15	)		-			(4	)		(4	)
Income (loss) before tax		(84	)		101			17			-			151			151
Current income tax expense (recovery)		(10	)		38			28			-			79			79
Deferred income tax expense (recovery)		(43	)		17			(26	)		-			(16	)		(16	)
Net income (loss) and comprehensive income (loss)		(31	)		46			15			-			88			88

Talisman’s interest		51	%		49	%					100	%		49	%
Talisman’s share of income (loss) after tax		(16	)		23			7			-			43			43
Cash Dividends received by Talisman		-			-			-			-			-			-

Summarized Statements of Income (Loss)	Six months ended June 30, 2013									Six months ended June 30, 2012
	TSEUK1			Equión1			Total			TSEUK1,2			Equión1			Total
Revenue		711			397			1,108			-			461			461

Operating		584			46			630			-			52			52
Transportation		12			20			32			-			1			1
General and administrative		6			-			6			-			-			-
Depreciation, depletion and amortization		167			109			276			-			115			115
Exploration expense		13			1			14			-			-			-
Finance costs		39			-			39			-			3			3
Impairment		349			-			349			-			-			-
Other		(35	)		3			(32	)		-			7			7
Income (loss) before tax		(424	)		218			(206	)		-			283			283
Current income tax expense (recovery)		(45	)		92			47			-			137			137
Deferred income tax expense (recovery)		(246	)		(1	)		(247	)		-			(54	)		(54	)
Net income (loss) and comprehensive income (loss)		(133	)		127			(6	)		-			200			200

Talisman’s interest		51	%		49	%					100	%		49	%
Talisman’s share of income (loss) after tax		(68	)		62			(6	)		-			98			98
Cash dividends received by Talisman		-			-			-			-			-			-

1. Balances represent respective entity’s 100% share.

2. TSEUK balances presented as $nil as entity did not become a joint arrangement until December 17, 2012. Refer to note 5.

Summarized Statements of Cash Flows	Three months ended June 30, 2013									Three months ended June 30, 2012
	TSEUK1			Equión1			Total			TSEUK1,2		Equión1			Total
Operating activities
Net income (loss)		(31	)		46			15			-		88			88
Add: Finance costs (cash and non-cash)		21			-			21			-		3			3
Items not involving cash		16			72			88			-		46			46
Changes in non-cash working capital		70			(35	)		35			-		96			96
Cash provided by operating activities		76			83			159			-		233			233

Investing activities
Capital expenditures		(195	)		(63	)		(258	)		-		(71	)		(71	)
Loans to shareholders		120			-			120			-		(149	)		(149	)
Other		(7	)		(25	)		(32	)		-		(6	)		(6	)
Cash used in investing activities		(82	)		(88	)		(170	)		-		(226	)		(226	)

Financing activities
Loans from shareholders		37			-			37			-		-			-
Finance costs (cash)		(9	)		-			(9	)		-		(2	)		(2	)
Other		-			-			-			-		-			-
Cash provided by (used in) financing activities		28			-			28			-		(2	)		(2	)

1. Balances represent respective entity’s 100% share.

2. TSEUK balances presented as $nil as entity did not become a joint arrangement until December 17, 2012. Refer to note 5.

Summarized Statements of Cash Flows	Six months ended June 30, 2013									Six months ended June 30, 2012
	TSEUK1			Equión1			Total			TSEUK1,2		Equión1			Total
Operating activities
Net income (loss)		(133	)		127			(6	)		-		200			200
Add: Finance costs (cash and non-cash)		39			-			39			-		3			3
Items not involving cash		236			107			343			-		67			67
Changes in non-cash working capital		60			(56	)		4			-		97			97
Cash provided by operating activities		202	��		178			380			-		367			367

Investing activities
Capital expenditures		(404	)		(111	)		(515	)		-		(109	)		(109	)
Loans to shareholders		-			(100	)		(100	)		-		(219	)		(219	)
Other		(3	)		(57	)		(60	)		-		(6	)		(6	)
Cash used in investing activities		(407	)		(268	)		(675	)		-		(334	)		(334	)

Financing activities
Loans from shareholders		176			-			176			-		-			-
Finance costs (cash)		(15	)		-			(15	)		-		(2	)		(2	)
Other		-			-			-			-		-			-
Cash provided by (used in) financing activities		161			-			161			-		(2	)		(2	)

1. Balances represent respective entity’s 100% share.

2. TSEUK balances presented as $nil as entity did not become a joint arrangement until December 17, 2012. Refer to note 5.

The summarized financial information presented is the amounts included in the financial statements of the joint venture entities adjusted for fair value adjustments made at the time of acquisition, as appropriate. The fair value adjustments related to the Company's jointly controlled equity interest in Equión principally relate to property, plant and equipment, provisions and the related indemnification asset and goodwill.

The shareholders of TSEUK have provided an unsecured loan facility totaling $2.4 billion to TSEUK, of which Talisman is committed to $1.2 billion, for the purpose of funding capital expenditures of TSEUK. As at June 30, 2013, $986 million has been drawn under this facility, of which Talisman’s share is $503 million. Loans under this facility bear interest at the UK interest rate swap rate plus 2.5%, and are repayable quarterly in equal installments based upon a five year repayment period calculated from the date each loan is advanced. All outstanding loans mature December 31, 2017, although the maturity date may be extended from time to time upon agreement between the shareholders and TSEUK. Prior to the maturity date, TSEUK may repay in full or in part the balance outstanding on any loan under this facility.

The loan due to Equión of $197 million (2012 - $148 million) is unsecured, due upon demand and bears interest at LIBOR plus 0.30%.

The following summary of commitments was included in the Company’s expected future commitments included in the Company’s 2012 audited Consolidated Financial Statements. This summarizes TSEUK commitments as at December 31, 2012. Equión did not have any material commitments as at December 31, 2012. There have been no significant changes to these expected future commitments, and the timing of those payments, since December 31, 2012.

	2013	2014	2015	2016	2017	Subsequent to 2017	Total
Office leases	2	2	2	2	2	16	26
Vessel leases	19	15	14	9	8	5	70
Transportation and processing commitments	14	9	8	8	8	9	56
Decommissioning liabilities	11	17	17	62	96	1,472	1,675
PP&E and E&E assets	78	66	63	-	-	-	207
Other service contracts	80	30	29	5	3	3	150
	204	139	133	86	117	1,505	2,184

Investments in Joint Operations

Talisman accounts for joint operations using proportionate consolidation. Talisman’s interest in the Talisman Sasol Montney Partnership (TSMP) has been accounted for as a joint operation and continues to be proportionately consolidated as Talisman shares its interests in the partnership assets based on the Company’s 50% ownership interest and is jointly and severally liable for the obligations of the partnership. TSMP’s principal place of operations and country of incorporation is Canada. The joint operation is strategic to the Company’s business given the similarity in business lines.

Investments in Associate

Talisman has a 12.152% interest in Ocensa whose principal place of operations and country of incorporation is Colombia. On January 17, 2013, Ocensa’s shareholders approved a resolution to change the nature of Ocensa’s business from a cost recovery operating model to a profit oriented operating model, and certain elements of the governance structure within Ocensa. Among these changes, the arrangement for appointing the Board of Directors was modified, which provided Talisman with the ability to appoint one director to Ocensa’s Board based upon its current ownership interest in Ocensa. Talisman is now able to exercise significant influence over Ocensa from its ability to participate in the significant operating and financing decisions of Ocensa and as a result, Talisman has accounted for its investment in Ocensa using the equity method commencing January 17, 2013.

In addition, the shareholders of Ocensa now have the option to sell, on a temporary or permanent basis, all or a part of their entitlement to shipping capacity on the Ocensa pipeline (the Transportation Rights). As a result of this change, Talisman has attributed $108 million to the Transportation Rights given its ability to sell excess transportation capacity in the Colombian markets. The Transportation Rights are recorded in other assets (see note 10), and are being depreciated using the straight-line method at an annual rate of 8%.

The change in accounting for the investment in Ocensa from an available-for-sale financial asset to an equity accounted investment for Talisman’s ownership interest in Ocensa and for the Transportation Rights has been done at fair value. Talisman considered recent market transactions and the value of the transportation cost savings as well as the value of excess transportation capacity in the Colombian markets in determining fair value.

Movement in investment in associate during the period:

	Six months ended June 30, 2013		Year ended December 31, 2012
Balance, beginning of period		-		-
Transfer from available-for-sale investment		555		-
Share of comprehensive income		27		-
Balance, end of period		582		-

The following table summarizes the financial information of Ocensa. The table also reconciles financial information to the carrying amount of the Company's interest in Ocensa, which is accounted for using the equity method.

Summarized Balance Sheets	June 30, 2013			December 31, 2012¹
Total Assets		5,440			-
Total Liabilities		651			-
Net Assets		4,789			-
Talisman’s interest		12.152	%		12.152	%
Talisman’s share of net assets		582			-

	Three months ended June 30				Six months ended June 30
Summarized Statements of Income	2013			2012¹		2013		2012¹
Revenue		324		-		584		-
Expenses (including income taxes)		189		-		362		-
Net income and comprehensive income		135		-		222		-
Talisman’s Interest		12.152	%	-		12.152	%	-
Talisman’s share of net income and comprehensive income		16		-		27		-

	Three months ended June 30				Six months ended June 30
Summarized Statements of Cash Flows	2013			2012¹		2013		2012¹
Operating Activities
Net income		135		-		222		-
Items not involving cash		68		-		120		-
Changes in non-cash working capital		161		-		325		-
Cash provided by operating activities		364		-		667		-

Cash used in investing activities		(3	)	-		(7	)	-

Cash used in financing activities		-		-		(55	)	-

1. Talisman recognized Ocensa as an associate effective January 17, 2013 when Talisman gained significant influence.

9. GOODWILL

Continuity of goodwill	Six months ended June 30, 2013		Year ended December 31, 2012
Balance, beginning of period		775		1,155
Acquisitions		-		22
Disposals		-		(325	)
Deconsolidation of TSEUK for equity accounting		-		(77	)
Balance, end of period		775		775

There was no change to the Company’s goodwill in 2013. The December 31, 2011 balance in goodwill was restated by $162 million in the opening balance sheet of the Other segment. The December 31, 2012 balance in goodwill was restated by $77 million in the North Sea segment related to the deconsolidation of TSEUK. Refer to note 4 to the December 31, 2012 balance sheet reconciliation.

10. OTHER ASSETS

	June 30, 2013		December 31, 2012
Accrued pension asset		4		3
Decommissioning sinking fund		58		50
Transportation rights (net of $4 million accumulated depreciation) (note 8)		104		-
Income taxes receivable		29		-
Other		9		2
Total		204		55

11. YME REMOVAL OBLIGATION

In March 2013, Talisman, acting on behalf of its partners in the Yme field in Norway, entered into an agreement with the platform contractor. This agreement terminated all existing Yme contracts and outstanding disputes between the Yme partners and the platform contractor, set out the provisions regarding the removal of the existing above-surface Yme structure, the delivery of the existing above-surface Yme structure to the platform contractor (which Talisman, acting on behalf of the Yme partners, will complete as the “Talisman Works”) and provided for a payment of $470 million from the platform contractor to the Yme partners to fund the cost of the Talisman Works. The Yme partners agreed to deposit $409 million into an escrow account, which can only be withdrawn for purposes of settling costs and liabilities associated with the Talisman Works.

As at June 30, 2013, Talisman’s share of the liability associated with the Talisman Works in the amount of $275 million has been recorded as the Yme removal obligation of which $103 million has been classified as current, as it is expected to be settled within the next twelve months, while the remaining $172 million has been classified as long-term. Talisman’s share of the cash held in the escrow account in the amount of $238 million has been recorded as restricted cash of which $103 million has been classified as current, while the remaining $135 million has been classified as long-term. During the three month period ended June 30, 2013, $7 million in eligible expenditures were incurred on the Talisman Works which reduced both the restricted cash and the Yme removal obligation by an equal amount.

12. OIL AND GAS ASSETS

The cost and accumulated DD&A of the Company’s PP&E (including corporate assets) and E&E assets are as follows:

	PP&E			E&E assets			Total

Cost
At December 31, 2011		29,243			4,198			33,441

Acquisitions through business combinations (note 6)		61			39			100
Additions		2,991			595			3,586
Disposals and derecognition		(716	)		(46	)		(762	)
Transfers from E&E assets to PP&E		552			(552	)		-
Transfers from PP&E to E&E assets		(1,574	)		1,574			-
Change in decommissioning liabilities		494			45			539
Expensed to dry hole		-			(238	)		(238	)
Disposals - TEUK		(4,701	)		(19	)		(4,720	)
Deconsolidation of TSEUK for equity accounting		(4,800	)		(19	)		(4,819	)

At December 31, 2012		21,550			5,577			27,127

Additions		998			210			1,208
Disposals and derecognition		(138	)		(37	)		(175	)
Transfers from E&E assets to PP&E		248			(248	)		-
Change in decommissioning liabilities		(129	)		(17	)		(146	)
Expensed to dry hole		-			(69	)		(69	)

At June 30, 2013		22,529			5,416			27,945

Accumulated DD&A
At December 31, 2011		13,905			244			14,149

Charge for the year		2,373			-			2,373
Disposals and derecognition		(516	)		(24	)		(540	)
Impairment losses		2,125			464			2,589
Transfers from PP&E to E&E assets		(1,574	)		1,574			-
Disposals - TEUK		(2,597	)		-			(2,597	)
Deconsolidation of TSEUK for equity accounting		(2,628	)		-			(2,628	)

At December 31, 2012		11,088			2,258			13,346

Charge for the period		877			-			877
Disposals and derecognition		(92	)		(36	)		(128	)
Impairment losses		-			19			19
Impairment reversals		(3	)		(18	)		(21	)

At June 30, 2013		11,870			2,223			14,093

Net book value
At June 30, 2013		10,659			3,193			13,852
At December 31, 2012		10,462			3,319			13,781
At December 31, 2011		15,338			3,954			19,292

13. IMPAIRMENT


	Three months ended June 30				Six months ended June 30
	2013		2012		2013		2012
Impairment losses
E&E assets		12		73		19		73
PP&E		-		-		-		1,053
		12		73		19		1,126

Impairment reversals
E&E assets	(18	)	-	(18	)	-
PP&E	(3	)	-	(3	)	-
	(21	)	-	(21	)	-
Net Impairment (reversal)	(9	)	73	(2	)	1,126

During the three month period ended June 30, 2013, the Company recorded $12 million of impairment expense relating to its exit from Sierra Leone. The Company also recorded impairment reversals of $21 million in the North Sea, due primarily to a reduction in the decommissioning obligation and assets caused by a 1% increase in the real discount rated used to measure decommissioning liabilities.

During the three month period ended June 30, 2012, the Company recorded $73 million of impairment expense related to exploration acreage being relinquished in the Kurdistan Region of northern Iraq in order to focus on the potential of discoveries on the Topkhana and Kurdamir blocks.

14. DECOMMISSIONING LIABILITIES

Continuity of decommissioning liabilities	Six months ended June 30, 2013			Year ended December 31, 2012
Balance, beginning of period		1,557			3,009
Liabilities incurred during the period		-			190
Liabilities settled during the period		(23	)		(53	)
Accretion expense (note 15)		16			81
Revisions in estimated cash flows		-			179
Change in discount rate		(146	)		228
Disposals		(2	)		(1,023	)
Deconsolidation of TSEUK for equity accounting on transition to IFRS11		-			(1,054	)
Balance, end of period		1,402			1,557
Expected to be settled within one year		41			43
Expected to be settled in more than one year		1,361			1,514
		1,402			1,557

The provision has been discounted using a weighted average credit-adjusted risk free rate of 3.5% at June 30, 2013 (December 31, 2012 – 2.5%), which excludes the impact of inflation.

15. FINANCE COSTS

	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012
Interest on long-term debt		68			61			135			121
Miscellaneous interest expense and other fees		7			8			16			23
Accretion expense (note 14)		8			23			16			44
Less: interest capitalized		(4	)		(25	)		(10	)		(50	)
		79			67			157			138

Interest capitalization ceased on certain North Sea projects including Yme effective January 1, 2013.

16. LONG-TERM DEBT

	June 30, 2013			December 31, 2012
Commercial Paper		509			-
Tangguh Project Financing		86			89
Debentures and Notes (Unsecured)
US$ denominated		3,950			3,949
UK£ denominated (UK£ million)		378			404
Gross debt		4,923			4,442
Less: current portion		(567	)		(8	)
Long-term debt		4,356			4,434

Bank Credit Facilities and Commercial Paper

At June 30, 2013, Talisman had unsecured credit facilities totaling $3.1 billion, consisting of facilities of C$3.0 billion (Facility No. 1) and $200 million (Facility No. 2). On March 19, 2013, the Company renegotiated Facility No. 1 of its revolving syndicated credit facility which matures March 19, 2018. Facility No. 2 matures November 26, 2014 although the maturity dates may be extended from time to time upon agreement between the Company and the respective lenders. Facility No. 1 acts as a five-year committed credit facility which must be repaid on the maturity date.

Borrowings under Facility No. 1 are available in the form of prime loans, C$ or US$ bankers’ acceptances, US$ base rate loans or LIBOR-based loans. In addition, drawings to a total of $1.0 billion are available in the form of letters of credit. Borrowings under Facility No. 2 are available in the form of prime loans, C$ or US$ guaranteed notes, US$ base rate loans and LIBOR-based loans.

At June 30, 2013, $509 million of commercial paper was outstanding and a further $86 million of supporting letters of credit was outstanding under Facility No. 2. The amount available under the commercial paper program is limited to the availability of backup funds under the Company’s bank credit facilities.

With the exception of the $567 million of debt presented as a current liability, Talisman has no significant debt maturities until 2015. The current liability consists of $509 million in commercial paper, $50 million of 8.25% notes, and $8 million in Tangguh project financing.

At June 30, 2013, available borrowing capacity under the bank credit facilities was $2.5 billion.

Talisman is in compliance with all of its debt covenants. The Company’s principal financial covenant under its primary bank credit facility is a debt-to-cash flow ratio of less than 3.5:1, calculated quarterly on a trailing 12-month basis as of the last day of each fiscal quarter.

17. OTHER LONG-TERM OBLIGATIONS

	June 30, 2013		December 31, 2012
Accrued pension and other post-employment benefits liability		108		125
Deferred credits		34		21
Long-term portion of discounted obligations under finance leases		50		55
Long-term portion of share-based payments liability (note 18)		11		20
Other		37		35
		240		256

The fair value of financial liabilities included above approximates the carrying amount.

18. 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	Six months ended June 30, 2013				Year ended December 31, 2012
	Shares		Amount		Shares			Amount
Balance, beginning of period		1,025,449,730		1,639		1,021,422,470			1,561
Issued on exercise of stock options		2,122,473		26		1,190,223			15
Shares purchased and held in trust for long-term PSU plan		-		-		(2,022,000	)		(25	)
Shares released from trust for long-term PSU plan		2,783,330		44		4,859,037			88
Balance, end of period		1,030,355,533		1,709		1,025,449,730			1,639

Subsequent to June 30, 2013, 1,070 stock options were exercised for shares and no further common shares were purchased and held in trust for the long-term PSU plan. There were 1,030,356,603 common shares outstanding at July 26, 2013.

During the three month period ended June 30, 2013, Talisman declared common share dividends of $0.0675 per share for an aggregate dividend of $68 million.

Preferred Shares Issued

Continuity of preferred shares	Six months ended June 30, 2013				Year ended December 31, 2012
	Shares		Amount		Shares		Amount
Cumulative Redeemable Rate Reset First Preferred Shares, 4.2% Series 1:
Balance, beginning of period		8,000,000		191		8,000,000		191
Issued		-		-		-		-
Balance, end of period		8,000,000		191		8,000,000		191

During the three month period ended June 30, 2013, Talisman declared preferred share dividends of C$0.2625 per share for an aggregate dividend of $2 million.

Share-Based Payments1

	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, 2012		59,836,097			6,795,106			529,367			565,751		16,536,701
Deconsolidation of TSEUK for equity accounting		-			(4,300,526	)		-			-		-
Granted		117,270			51,830			8,942,685			1,285,816		1,287,901
Dividend equivalent		-			-			55,515			15,422		147,847
Exercised for common shares/settled		(2,122,473	)		(18,738	)		(142,677	)		-		(2,783,329	)
Surrendered for cash		(471,608	)		-			-			-		-
Forfeited		(7,976,812	)		(367,280	)		(731,310	)		-		(2,340,208	)
Outstanding at June 30, 2013		49,382,474			2,160,392			8,653,580			1,866,989		12,848,912
Exercisable at June 30, 2013		39,689,093			3,450

Weighted average grant price	$	C12.62		$	C13.05							$	C12.35

1. Dollar amounts in share-based payments tables are provided in C$.

During the three month period ended June 30, 2013, the Company recorded a share-based payments expense of $2 million (2012 - $31 million recovery) in respect of the following plans: stock options - $30 million recovery, cash units - $1 million expense, PSUs - $18 million expense and RSUs - $9 million expense. The Company also recorded a DSU expense of $7 million, of which $3 million relating specifically to directors and bonus deferrals to executives, is recognized in general and administrative expense within the condensed Consolidated Statement of Income. The share-based payments expense includes a cash payment of $2 million (2012 - $1 million) to employees in settlement of fully accrued share-based payments liabilities for stock options and cash units exercised in the period.

During the six month period ended June 30, 2013, the Company recorded share-based payments expense of $24 million (2012 - $72 million recovery) in respect of the following plans: stock options $23 million recovery, cash units - $1 million expense, PSUs - $35 million expense, long-term 2010 PSU grant settled to UK employees $3 million recovery and RSUs - $10 million expense. The Company also recorded a DSU expense of $8 million, of which $4 million relating to directors and executive deferrals is recognized in general and administrative expense within the condensed Consolidated Statement of Income.

Of the combined obligation for cash-settled stock option, cash unit, DSU and RSU plans of $145 million (December 31, 2012 – $154 million), $134 million (December 31, 2012 – $134 million) is included in accounts payable and accrued liabilities on the interim condensed Consolidated Balance Sheets and $11 million (December 31, 2012 – $20 million) is included in other long-term obligations.

On April 1, 2013, Talisman implemented the “Global Restricted Share Unit Plan for Eligible Employees of Talisman Energy Inc. and its affiliates”. All RSUs issued by the Company permit the holder to receive a cash payment equal to the market value of the common shares at the vest date. Participants are also credited with additional RSUs corresponding to any associated notional dividend payments (referred to as ‘dividend equivalent RSUs’). Typically, one third of the RSUs granted under the plan are paid on the grant anniversary date every year for the three years following the grant date. In 2013, non-executive employees were granted a total of 8,942,685 RSUs in place of stock options, cash units and PSUs.

Subsequent to June 30, 2013, no stock options were granted, 1,070 stock options were exercised for shares, no options were surrendered for cash and 374,092 were forfeited with 49,007,312 outstanding at July 26, 2013. Subsequent to June 30, 2013, no cash units were granted, 20,797 cash units were forfeited with 2,139,595 outstanding at July 26, 2013. Subsequent to June 30, 2013, no PSUs were granted and 103,954 PSUs were forfeited, with 12,744,958 outstanding at July 26, 2013. Subsequent to June 30, 2013, no RSUs were granted, 14,733 were exercised and 119,686 forfeited, with 8,519,161 outstanding at July 26, 2013. There were no DSU’s granted or forfeited subsequent to June 30, 2013.

19. FINANCIAL INSTRUMENTS

Talisman’s financial assets and liabilities at June 30, 2013 consisted of cash and cash equivalents, accounts receivable, available-for-sale investments, bank indebtedness, accounts payable and accrued liabilities, loans from joint ventures, 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 values of cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, and loans from joint ventures approximate their carrying values due to the short-term maturity of those instruments.

Borrowings under bank credit facilities are short-term in nature and are market rate-based, thus, carrying value approximates fair value. 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 values of private notes are based on estimations provided by third parties. The fair value of Talisman’s floating rate debt is determined by discounting future estimated coupon payments at the current market interest rate. The fair value of Talisman’s long-term debt at June 30, 2013 was $5.3 billion (December 31, 2012 - $5.2 billion), while the carrying value was $4.9 billion (December 31, 2012 - $4.4 billion).

The fair values of all other financial assets and liabilities approximate their carrying values.

Risk management assets and liabilities are recorded at their estimated fair values. To estimate fair value, the Company uses quoted market prices when available, or models that utilize observable market data. In addition to market information, the Company incorporates transaction-specific details that market participants would utilize in a fair value measurement, including the impact of non-performance risk. The Company’s non-performance risk is determined based on third party quotes for the Company’s debt instruments with maturity dates that are similar, or in close approximation, to the maturity dates of the corresponding financial instrument. The Company characterizes inputs used in determining fair value using a hierarchy that prioritizes inputs depending on the degree to which they are observable.

The three levels of the fair value hierarchy are as follows:

·	Level 1 – inputs represent quoted prices in active markets for identical assets or liabilities (for example, exchange-traded commodity derivatives). Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis;

Level 2 – inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, market interest rates and volatility factors, which can be observed or corroborated in the marketplace. The Company obtains information from sources such as the New York Mercantile Exchange (NYMEX) and independent price publications; and

Level 3 – inputs that are less observable, unavailable or where the observable data does not support the majority of the instrument’s fair value, such as the Company’s internally developed assumptions about market participant assumptions used in pricing an asset or liability, for example, an estimate of future cash flows used in the Company’s internally developed present value of future cash flows model that underlies the fair value measurement.

In forming estimates, the Company utilizes the most observable inputs available for valuation purposes. If a fair value measurement reflects inputs of different levels within the hierarchy, the measurement is categorized based upon the lowest level of input that is significant to the fair value measurement. The valuation of over the counter financial swaps and collars is based on similar transactions observable in active markets or industry standard models that rely primarily on market observable inputs. Substantially all of the assumptions for industry standard models are observable in active markets throughout the full term of the instrument. These are categorized as level 2.

Fair values for cross-currency and interest rate derivative instruments are determined based on the estimated cash payment or receipt necessary to settle the contract. Cash payments or receipts are based on discounted cash flow analysis using current market rates and prices. Fair values for commodity price derivatives are based on discounted cash flow analysis using current market rates and prices and option pricing models using forward pricing curves and implied volatility, as appropriate, which are compared to quotes received from financial institutions for reasonability.

The following table presents the Company’s risk management assets and liabilities measured at fair value for each hierarchy level at June 30, 2013:

	Fair value measurements using
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Assets
Interest rate swaps		-		26		-		26
Commodity contracts		-		132		-		132
Liabilities
Commodity contracts		-		10		-		10

Risk Management Assets, Liabilities, Gains and Losses

Derivative instrument	Balance sheet presentation	June 30, 2013		December 31, 2012
Interest rate swaps	Current assets		13		13
Interest rate swaps	Non-current assets		13		19
Commodity contracts	Current assets		72		35
Commodity contracts	Non-current assets		60		7
Risk management assets			158		74

Commodity contracts	Current liabilities		8		81
Commodity contracts	Non-current liabilities		2		1
Risk management liabilities			10		82

During the three month period ended June 30, 2013, the Company recorded a gain on held-for-trading financial instruments of $221 million (2012 - $35 million gain) and a gain of $141 million for the six month period ended June 30, 2013 (2012 - $12 million loss).

Currency Risk

Talisman operates internationally and is therefore exposed to foreign exchange risk. Talisman’s primary exposure is 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.

In respect of financial instruments existing at June 30, 2013, a 1% strengthening of the US$ against the other currencies noted above, with all other variables assumed constant, would have resulted in an increase of $3 million in net income and a $3 million impact on other comprehensive income during the three month period ended June 30, 2013. A similar weakening of the US$ would have had the opposite impact.

Interest Rate Risk

Talisman is exposed to interest rate risk principally by virtue of its borrowings including loans from joint ventures. Borrowing at floating rates exposes Talisman to short-term movements in interest rates. Borrowing at fixed rates exposes Talisman to reset risk (i.e. at debt maturity). Risk management activities aim to manage the mix of fixed-to-floating debt to best manage the trade-off between longer term interest rate reset risk and shorter term volatility in interest rates.

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 June 30, 2013, the Company had fixed-to-floating interest rate swap contracts with a total notional amount of $300 million that expire on May 15, 2015. During both the three and six month periods ended June 30, 2013, the fair value of the fixed-to-floating interest rate swaps decreased by $7 million. During the second quarter of 2013, the Company received $6 million of cash related to these swaps.

In respect of financial instruments existing at June 30, 2013, a 1% increase in interest rates would have resulted in a $1 million decrease in net income and a $1 million impact on other comprehensive income during the three month period ended June 30, 2013.

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 June 30, 2013, approximately 91% of the Company's trade accounts receivable was current and the largest single counterparty exposure, accounting for 10% 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.

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 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 facilities totaling $3.1 billion, of which $2.9 billion is fully committed through 2018. At June 30, 2013, $509 million of commercial paper was drawn and $86 million was supporting letters of credit. Available borrowing capacity was $2.5 billion at June 30, 2013.

In addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted. At June 30, 2013, letters of credit totaling $1.9 billion had been issued under these facilities, of which $1.5 billion were provided as security for the costs of decommissioning obligations in the UK. Under the contractual arrangements pursuant to which Addax acquired 49% of the share capital of TEUK, Addax’s parent company, Sinopec, has provided an unconditional and irrevocable guarantee for 49% of the UK decommissioning obligations. The remaining outstanding letters of credit relate primarily to a retirement compensation arrangement, guarantees of minimum work commitments and decommissioning obligations in other areas.

Talisman renewed its syndicated credit facility on March 19, 2013 and the maturity date on the majority of the facilities is March 2018. The Company has no significant debt maturities until 2015.

Except for commodity price derivative contracts that mature as noted below, long-term debt that matures as outlined in note 16 and other long-term obligations detailed in note 17, 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 NGLs. 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 outstanding at June 30, 2013, none of which are designated as hedges:

Two-way collars (Oil)	Term	bbls/d	Floor/ceiling $/bbl	Fair value asset (liability)
Dated Brent oil index	2013 Jul - Dec	6,000	90.00/121.63	1
Dated Brent oil index	2013 Jul - Dec	10,000	90.00/101.91	(5)
Dated Brent oil index	2013 Jul - Dec	10,000	90.00/105.33	(2)
WTI	2013 Jul - Dec	10,000	85.00/104.05	(1)
Dated Brent oil index	2014 Jan - Dec	10,000	95.00/110.00	11
Dated Brent oil index	2014 Jan - Dec	10,000	90.00/105.00	(2)
WTI	2014 Jan - Dec	5,000	80.00/95.00	(4)
Dated Brent oil index	2015 Jan - Dec	5,000	90.00/100.01	1
WTI	2015 Jan - Dec	5,000	80.00/95.02	2
				1

Fixed priced swaps (Oil)	Term	bbls/d	$/bbl	Fair value asset
Dated Brent oil index	2013 Jul - Dec	7,500	110.01	11
Dated Brent oil index	2013 Jul - Dec	26,500	105.22	16
Dated Brent oil index	2014 Jan - Mar	10,000	103.22	3
Dated Brent oil index	2014 Jan - Jun	10,000	103.06	6
Dated Brent oil index	2014 Jul - Dec	10,000	103.31	11
WTI	2014 Jan - Dec	2,500	91.91	2
Dated Brent oil index	2014 Jan - Dec	10,000	104.02	20
				69

Two-way collars (Gas)	Term	mcf/d	Floor/ceiling $/mcf	Fair value asset (liability)
NYMEX HH LD	2013 Jul - Dec	47,468	3.16/4.67	(1)
NYMEX HH LD	2013 Jul - Dec	94,936	3.16/4.74	(1)
NYMEX HH LD	2013 Jul - Dec	94,936	3.69/4.86	2
NYMEX HH LD	2013 Jul - Dec	94,936	3.79/4.69	3
NYMEX HH LD	2014 Jan - Dec	94,936	4.21/4.72	9
NYMEX HH LD	2014 Jan - Dec	47,468	4.21/4.64	4
NYMEX HH LD	2014 Jan - Dec	47,468	4.21/4.99	6
NYMEX HH LD	2015 Jan - Dec	47,468	4.23/4.87	2
NYMEX HH LD	2015 Jan - Dec	94,936	4.21/5.06	6
				30
Fixed priced swaps (Gas)	Term	mcf/d	$/mcf	Fair value asset
NYMEX HH LD	2014 Jan - Dec	47,468	4.24	2
NYMEX HH LD	2014 Jan - Dec	47,468	4.25	2
NYMEX HH LD	2014 Jan - Dec	47,468	4.34	4
NYMEX HH LD	2014 Jan - Dec	47,468	4.42	5
NYMEX HH LD	2014 Jan - Dec	47,468	4.44	6
NYMEX HH LD	2015 Jan - Dec	47,468	4.54	3
				22

Subsequent to June 30, 2013, the Company entered into a Western Canadian Select (WCS) swap for the fourth quarter of 2013 of 6,500 bbls/d for $75.42/bbl, a WCS swap for the first quarter of 2014 of 6,500 bbls/d for $72.47/bbl and a WTI swap for 2014 of 10,000 bbls/d for $94.28/bbl.

In respect of outstanding financial instruments and assuming forward commodity prices in existence at June 30, 2013, an increase of $1/bbl in the price of oil and an increase of $0.10/mcf in the price of gas would have reduced the net fair value of commodity derivatives, thereby resulting in a decrease in net income of $35 million for the three month period ended June 30, 2013. A similar decrease in commodity prices would result in an increase in net income of approximately $37 million for the three month period ended June 30, 2013.

20. CONTINGENCIES AND COMMITMENTS

Provisions and 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

As a result of the Yme settlement in March 2013 (see note 11), ocean-going vessel commitments in Norway of $375 million, included in note 23 of the Company’s 2012 audited Consolidated Financial Statements, no longer represent expected future commitments as at June 30, 2013.

There have been no additional significant changes in the Company’s expected future commitments, and the timing of those payments, since December 31, 2012. Refer to note 23 to the 2012 audited Consolidated Financial Statements for details of the Company’s commitments.

21. OTHER EXPENSES, NET

	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012
Foreign exchange gain		(7	)		(37	)		(39	)		(6	)
PP&E derecognition		-			6			-			12
Restructuring		11			-			28			-
Other miscellaneous		9			(11	)		30			24
		13			(42	)		19			30

22. INCOME TAXES

Current Tax Expense (Recovery)

	Three months ended June 30					Six months ended June 30
	2013			2012		2013			2012
North America		(18	)		-		(17	)		(3	)
North Sea		(16	)		38		(34	)		251
Southeast Asia		163			123		304			298
Other		10			18		33			38
Total		139			179		286			584

Deferred Tax Expense (Recovery)

	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012
North America		(31	)		(52	)		(90	)		(60	)
North Sea		33			146			120			(596	)
Southeast Asia		9			33			3			20
Other		(10	)		(1	)		(15	)		(7	)
Total		1			126			18			(643	)

In the second quarter of 2013, the Company recorded a tax liability associated with a tax position taken in Southeast Asia. While the Company believes it has a strong technical and legal basis for its position, recent court rulings suggest it is more likely than not that the Company’s tax position will not prevail. Accordingly, the Company recorded a $31 million current tax and a $26 million deferred tax expense, which relates to the years 2003 to 2013. Additionally during the second quarter, the Company recorded a $16 million benefit from the resolution of a tax position in North America and expects to receive a $16 million refund in the third quarter of 2013.

23. SUPPLEMENTAL CASH FLOW

Items Not Involving Cash

	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012
Depreciation, depletion and amortization		464			545			885			1,119
Impairment, net of reversals		(9	)		73			(2	)		1,126
Dry hole		69			65			69			125
Share-based payments expense (recovery)		1			(32	)		21			(74	)
Gain on disposals		(59	)		(254	)		(59	)		(759	)
Unrealized gain on held-for-trading financial instruments		(203	)		(38	)		(155	)		-
Deferred income tax (recovery)		1			126			18			(643	)
Foreign exchange		(5	)		(33	)		(35	)		(8	)
Income from joint ventures and associates, after tax		(23	)		(43	)		(21	)		(98	)
Other		6			12			8			32
		242			421			729			820

Other Cash Flow Information

	Three months ended June 30				Six months ended June 30
	2013		2012		2013		2012
Cash interest paid		83		65		139		129
Cash interest received		6		2		11		4
Cash income taxes paid		128		229		333		633

24. CASH AND CASH EQUIVALENTS

Of the cash and cash equivalents balance of $270 million (December 31, 2012 - $553 million), $245 million (December 31, 2012 - $456 million) has been invested in bank deposits and the remainder in highly rated marketable securities with original maturities of less than three months.

25. 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 Southeast Asia segment includes operations and exploration activities in Indonesia, Malaysia, Vietnam and Papua New Guinea and in Australia/Timor-Leste. The North Sea segment includes operations and exploration activities in the UK and Norway. The Company also has non-operated production in Algeria, operations and exploration activities in Colombia, and exploration activities in Sierra Leone and the Kurdistan Region of Iraq. In 2013, the Company exited or is in the process of exiting Peru, Poland and Sierra Leone. For ease of reference, the activities in Algeria, Colombia, Peru, Poland, Sierra Leone and the Kurdistan Region of 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)												Southeast Asia (2)
	Three months ended June 30						Six months ended June 30						Three months ended June 30					Six months ended June 30
(millions of US$)	2013			2012			2013			2012			2013		2012			2013		2012
Revenue
Sales		416			330			785			693			554		581			1,042		1,195
Other income		10			18			26			39			-		-			-		-
Income (loss) from joint ventures and associates, after tax		-			-			-			-			-		-			-		-
Total revenue and other income		426			348			811			732			554		581			1,042		1,195
Segmented expenses
Operating		144			164			291			313			146		109			249		207
Transportation		29			25			56			48			15		13			29		27
DD&A		305			276			586			549			114		105			197		223
Impairment		-			-			-			75			-		-			-		-
Dry hole		-			10			-			21			49		31			52		34
Exploration		6			22			14			23			15		20			35		38
Other		18			5			46			34			2		(14	)		8		(13	)
Total segmented expenses		502			502			993			1,063			341		264			570		516
Segmented income (loss) before taxes		(76	)		(154	)		(182	)		(331	)		213		317			472		679
Non-segmented expenses
General and administrative
Finance costs
Share-based payments (recovery) expense
Currency translation
(Gain) loss on held-for-trading
financial instruments
Gain on asset disposals
Total non-segmented expenses
Income before taxes
Capital expenditure
Exploration		13			29			32			62			71		27			74		40
Development		346			370			636			931			81		68			184		138
Exploration and development		359			399			668			993			152		95			258		178
Acquisitions
Proceeds on dispositions
Other non-segmented
Net capital expenditures
Property, plant and equipment								7,369			7,145								2,522		2,582
Exploration and evaluation assets								1,862			2,078								560		527
Goodwill								133			133								170		170
Investments in joint ventures and associates								-			-								-		-
Other								652			685								579		637
Segmented assets								10,016			10,041								3,831		3,916
Non-segmented assets
Total assets (5)
Decommissioning liabilities (5)								405			476								331		347

	Three months ended June 30				Six months ended June 30
1. North America	2013		2012		2013		2012
Canada		204		206		399		435
US		222		142		412		297
Total revenue and other income		426		348		811		732
Canada						3,416		3,588
US						3,953		3,557
Property, plant and equipment (5)						7,369		7,145
Canada						1,069		1,070
US						793		1,008
Exploration and evaluation assets (5)						1,862		2,078
	Three months ended June 30				Six months ended June 30
2. Southeast Asia		2013		2012		2013		2012
Indonesia		308		293		627		609
Malaysia		168		165		271		323
Vietnam		43		12		65		38
Australia		35		111		79		225
Total revenue and other income		554		581		1,042		1,195
Indonesia						1,007		1,040
Malaysia						769		852
Vietnam						564		494
Papua New Guinea						41		44
Australia						141		152
Property, plant and equipment (5)						2,522		2,582
Indonesia						12		11
Malaysia						78		72
Vietnam						28		14
Papua New Guinea						442		430
Exploration and evaluation assets (5)						560		527
5. Current period represents balances at June 30. Prior year represents balances at December 31. Equión results have been equity accounted effective January 24, 2011 and TSEUK results effective December 17, 2012.

	North Sea (3)											Other (4)												Total
	Three months ended June 30					Six months ended June 30						Three months ended June 30						Six months ended June 30						Three months ended June 30						Six months ended June 30
(millions of US$)	2013			2012		2013			2012			2013			2012			2013			2012			2013			2012			2013			2012
Revenue
Sales		144			770		316			1,715			38			59			107			112			1,152			1,740			2,250			3,715
Other income		5			1		9			4			(5	)		(2	)		2			-			10			17			37			43
Income (loss) from joint ventures and associates, after tax		(16	)		-		(68	)		-			39			43			89			98			23			43			21			98
Total revenue and other income		133			771		257			1,719			72			100			198			210			1,185			1,800			2,308			3,856
Segmented expenses
Operating		86			349		157			661			5			7			13			12			381			629			710			1,193
Transportation		6			18		14			38			1			2			3			4			51			58			102			117
DD&A		44			156		90			330			1			8			12			17			464			545			885			1,119
Impairment		(21	)		-		(14	)		978			12			73			12			73			(9	)		73			(2	)		1,126
Dry hole		19			18		19			17			1			6			(2	)		53			69			65			69			125
Exploration		15			8		28			22			31			41			65			64			67			91			142			147
Other		4			11		8			21			(4	)		(7	)		(4	)		(6	)		20			(5	)		58			36
Total segmented expenses		153			560		302			2,067			47			130			99			217			1,043			1,456			1,964			3,863
Segmented income (loss) before taxes		(20	)		211		(45	)		(348	)		25			(30	)		99			(7	)		142			344			344			(7	)
Non-segmented expenses
General and administrative																									111			133			214			252
Finance costs																									79			67			157			138
Share-based payments (recovery) expense																									2			(31	)		24			(72	)
Currency translation																									(7	)		(37	)		(39	)		(6	)
(Gain) loss on held-for-trading																									(221	)		(35	)		(141	)		12
financial instruments
Gain on asset disposals																									(59	)		(254	)		(59	)		(759	)
Total non-segmented expenses																									(95	)		(157	)		156			(435	)
Income before taxes																									237			501			188			428
Capital expenditure
Exploration		1			57		35			57			38			57			58			113			123			170			199			272
Development		70			263		173			492			7			6			11			10			504			707			1,004			1,571
Exploration and development		71			320		208			549			45			63			69			123			627			877			1,203			1,843
Acquisitions																									-			-			-			2
Proceeds on dispositions																									(99	)		(437	)		(99	)		(939	)
Other non-segmented																									19			32			10			56
Net capital expenditures																									547			472			1,114			962
Property, plant and equipment							494			460									274			275									10,659			10,462
Exploration and evaluation assets							266			254									505			460									3,193			3,319
Goodwill							472			472									-			-									775			775
Investments in joint ventures and associates							280			259									1,447			803									1,727			1,062
Other							1,555			1,418									280			905									3,066			3,645
Segmented assets							3,067			2,863									2,506			2,443									19,420			19,263
Non-segmented assets																															162			74
Total assets (5)																															19,582			19,337
Decommissioning liabilities (5)							632			688									34			46									1,402			1,557


	Three months ended June 30					Six months ended June 30
3. North Sea	2013			2012		2013			2012
UK6		5			516		9			1,179
Norway		144			255		316			540
Loss from TSEUK		(16	)		-		(68	)		-
Total revenue and other income		133			771		257			1,719
UK							-			-
Norway							494			460
Property, plant and equipment (5)							494			460
UK							-			-
Norway							266			254
Exploration and evaluation assets (5)							266			254
	Three months ended June 30					Six months ended June 30
	Three months ended June 30					Six months ended June 30
4. Other		2013			2012		2013			2012
Algeria		28			58		97			112
Colombia7		44			42		101			98
Total revenue and other income		72			100		198			210
Algeria							273			273
Colombia							1			2
Property, plant and equipment (5)							274			275
Colombia							167			124
Kurdistan							338			323
Other							-			13
Exploration and evaluation assets (5)							505			460

5. Current period represents balances at June 30. Prior year represents balances at December 31. Equión results have been equity accounted effective January 24, 2011 and TSEUK results effective December 17, 2012.

6. 2012 includes revenue from the UK. Subsequent to December 17, 2012, TSEUK results are included in income (loss) from joint ventures and associates.

7. Balances include after-tax equity income from Equión.

Repsol Oil & Gas Canada (TLM) Inactive 6-KTalisman Energy 6-K