FORM 6-K
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
 
Date: July 30, 2015
 
TALISMAN ENERGY INC.
Commission File No. 1-6665
[Translation of registrant's name into English]
 
 
2000, 888 - 3rd Street S.W.,
Calgary, Alberta, Canada, T2P 5C5
[Address of principal executive offices]
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
Form 20-F ¨ Form 40-F þ
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
 
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_ ¨____
 
 
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
 
 
Title
   
INTERIM CONDENSED CONSOLIDATED FINANCIALS
99.2
INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS
99.3
CONSOLIDATED FINANCIAL RATIO
99.4 CEO CERTIFICATION OF INTERIM FILINGS
99.5 CFO CERTIFICATION OF INTERIM FILINGS
 

 
 

 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
TALISMAN ENERGY INC.
[Registrant]
   
   
Date: July 30, 2015
By: /s/ Daryn V. MacEachern
 
Daryn V. MacEachern
 
Assistant Corporate Secretary
   
 

 
 

 






Exhibit 99.1
 




 
 






TALISMAN ENERGY INC.














INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 2015

(Unaudited)









 
 

 


Condensed Consolidated Balance Sheets
 
(Unaudited)
           
   
June 30,
   
December 31,
 
(millions of US$)
 
2015
   
2014
 
             
Assets
           
Current
           
      Cash and cash equivalents (note 23)
    168       262  
      Accounts receivable
    526       893  
      Risk management (note 17)
    -       850  
      Income and other taxes receivable
    82       80  
      Restricted cash (note 9)
    -       149  
      Inventories
    132       133  
      Prepaid expenses
    22       34  
      Assets held for sale (notes 4 and 9)
    1,530       -  
      2,460       2,401  
Other assets (note 8)
    175       180  
Investments (note 6)
    613       604  
Risk management (note 17)
    -       421  
Goodwill (note 7)
    279       279  
Property, plant and equipment (note 10)
    8,654       9,064  
Exploration and evaluation assets (note 10)
    2,488       2,544  
Deferred tax assets
    563       1,837  
      12,772       14,929  
Total assets
    15,232       17,330  
                 
Liabilities
               
Current
               
      Bank indebtedness
    5       9  
      Accounts payable and accrued liabilities
    1,031       1,577  
      Current portion of Yme removal obligation (note 9)
    -       186  
      Obligation to fund equity investee (note 6)
    145       186  
      Risk management (note 17)
    -       2  
      Income and other taxes payable
    75       93  
      Loans from related parties (note 14)
    831       -  
      Loans from joint ventures (note 6)
    74       15  
      Current portion of long-term debt (note 14)
    156       1,109  
      Liabilities associated with assets held for sale (notes 4 and 9)
    1,483       -  
      3,800       3,177  
Decommissioning liabilities (note 12)
    967       1,885  
Other long-term obligations (note 15)
    222       273  
Long-term debt (note 14)
    3,807       3,955  
Deferred tax liabilities
    857       635  
      5,853       6,748  
                 
Contingencies and commitments (note 18)
               
                 
Shareholder's equity
               
Common shares (note 16)
    1,992       1,738  
Preferred shares (note 16)
    -       191  
Contributed surplus
    86       176  
Retained earnings
    2,690       4,489  
Accumulated other comprehensive income
    811       811  
      5,579       7,405  
Total liabilities and shareholder's equity
    15,232       17,330  
                 
See accompanying notes.
               
 
 
1

 
 
 
Condensed Consolidated Statements of Income (Loss)
 
(Unaudited)
 
Three months ended
 
Six months ended
 
   
June 30,
   
June 30,
 
(millions of US$)
 
2015
   
2014
   
2015
   
2014
 
         
(restated)
         
(restated)
 
Revenue
                       
     Sales
    617       1,141       1,221       2,264  
     Other income (note 19)
    41       30       81       77  
     Loss from joint ventures, after tax (note 6)
    (107 )     (37 )     (314 )     (31 )
Total revenue and other income
    551       1,134       988       2,310  
                                 
Expenses
                               
     Operating
    193       280       444       543  
     Transportation
    40       39       90       81  
     General and administrative
    83       103       167       205  
     Depreciation, depletion and amortization
    379       430       790       822  
     Impairment, net of reversals (note 11)
    -       (32 )     48       (32 )
     Dry hole
    -       11       13       28  
     Exploration
    98       44       122       83  
     Finance costs (note 13)
    79       83       163       166  
     Share-based payments expense (recovery) (note 16)
    (19 )     23       (24 )     (9 )
     (Gain) loss on held-for-trading financial instruments (note 17)
    131       171       (62 )     231  
     (Gain) loss on disposals (note 5)
    4       5       9       (554 )
     Other, net (note 20)
    130       37       146       44  
Total expenses
    1,118       1,194       1,906       1,608  
Income (loss) from continuing operations before taxes
    (567 )     (60 )     (918 )     702  
Income taxes (note 21)
                               
     Current income tax
    65       134       135       265  
     Deferred income tax
    256       13       232       63  
      321       147       367       328  
Net loss from continuing operations
    (888 )     (207 )     (1,285 )     374  
                                 
Discontinued operations
                               
Net loss from discontinued operations (note 4)
    (364 )     (30 )     (406 )     (120 )
Net income (loss)
    (1,252 )     (237 )     (1,691 )     254  
                                 
Per common share (US$):
                               
     Net income (loss) from continuing operations
    (0.85 )     (0.20 )     (1.24 )     0.36  
     Net loss from discontinued operations
    (0.35 )     (0.03 )     (0.39 )     (0.12 )
     Net income (loss)
    (1.20 )     (0.23 )     (1.63 )     0.24  
     Diluted net income (loss) from continuing operations
    (0.89 )     (0.21 )     (1.28 )     0.31  
     Diluted net loss from discontinued operations
    (0.35 )     (0.03 )     (0.39 )     (0.12 )
     Diluted net income (loss)
    (1.24 )     (0.24 )     (1.67 )     0.19  
Weighted average number of common shares outstanding (millions)
                         
     Basic
    1,041       1,034       1,037       1,033  
     Diluted
    1,041       1,034       1,037       1,039  
                                 
See accompanying notes.
                               

 
 
2

 


Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)
                       
   
Three months ended
 
Six months ended
   
June 30,
   
June 30,
 
(millions of US$)
 
2015
   
2014
   
2015
   
2014
 
                         
                         
Net income (loss)
    (1,252 )     (237 )     (1,691 )     254  
                                 
     Actuarial gains (losses) relating to pension and other post-employment benefits1
    9       (3 )     11       (3 )
Other comprehensive income (loss) not being reclassified to net income or loss in subsequent periods
    9       (3 )     11       (3 )
Comprehensive income (loss)
    (1,243 )     (240 )     (1,680 )     251  
1. For the three and six months ended June 30, 2015, amount is net of tax of $nil and $nil respectively (2014 - $1 million and $1 million respectively).
                                 
See accompanying notes.
                               
 
 
 
3

 
 
 
Condensed Consolidated Statements of Changes in Shareholder’s Equity
 
(Unaudited)
 
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(millions of US$)
 
2015
   
2014
   
2015
   
2014
 
                         
Common shares (note 16)
                       
Balance at beginning of period
    1,794       1,759       1,738       1,723  
Issued on exercise of stock options
    -       -       -       5  
Converted from preferred shares
    195       -       195       -  
Shares purchased and held in trust for long-term PSU plan
    -       -       (30 )     -  
Shares previously held in trust sold on open market
    3       -       3       -  
Shares released from trust for long-term PSU plan
    -       -       86       31  
Balance at end of period
    1,992       1,759       1,992       1,759  
                                 
Preferred shares (note 16)
                               
Balance at beginning of period
    191       191       191       191  
Converted to common shares
    (191 )     -       (191 )     -  
Balance at end of period
    -       191       -       191  
                                 
Contributed surplus
                               
Balance at beginning of period
    95       114       176       135  
Preferred shares conversion difference
    (4 )     -       (4 )     -  
Settlement of long-term PSU plan grant
    (18 )     -       (104 )     (31 )
Share-based payments
    13       10       18       20  
Balance at end of period
    86       124       86       124  
                                 
Retained earnings
                               
Balance at beginning of period
    4,050       6,114       4,489       5,695  
Net income (loss)
    (1,252 )     (237 )     (1,691 )     254  
Actuarial gains (losses) transferred to retained earnings
    9       (3 )     11       (3 )
Common share dividends (note 16)
    (117 )     (70 )     (117 )     (140 )
Preferred share dividends (note 16)
    -       (2 )     (2 )     (4 )
Balance at end of period
    2,690       5,802       2,690       5,802  
                                 
Accumulated other comprehensive income
                               
Balance at beginning of period
    811       811       811       811  
Other comprehensive income (loss)
    9       (3 )     11       (3 )
Transfer of accumulated foreign currency loss to net income
    -       -       -       -  
Actuarial losses (gains) transferred to retained earnings
    (9 )     3       (11 )     3  
Balance at end of period
    811       811       811       811  
                                 
See accompanying notes.
                               
 
 
4

 
 
 
Condensed Consolidated Statements of Cash Flows

(Unaudited)
 
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
(millions of US$)
 
2015
   
2014
   
2015
   
2014
 
         
(restated)
         
(restated)
 
Operating activities
                       
Net income (loss) from continuing operations
    (888 )     (207 )     (1,285 )     374  
Add: Finance costs (cash and non-cash) (note 13)
    79       83       163       166  
Items not involving cash (note 22)
    1,732       637       2,699       513  
      923       513       1,577       1,053  
Changes in non-cash working capital
    113       (212 )     23       (255 )
Cash provided by operating activities from continuing operations
    1,036       301       1,600       798  
                                 
Investing activities
                               
Capital expenditures
                               
     Exploration, development and other
    (224 )     (433 )     (496 )     (928 )
     Property acquisitions
    (8 )     -       (8 )     -  
Proceeds of resource property dispositions (note 5)
    -       52       -       1,392  
Loan to joint venture, net of repayments (note 6)
    -       (178 )     -       (350 )
Investment in joint ventures (note 6)
    (199 )     -       (362 )     -  
Changes in non-cash working capital
    (39 )     (51 )     (228 )     (5 )
Cash provided by (used in) investing activities from continuing operations
    (470 )     (610 )     (1,094 )     109  
                                 
Financing activities
                               
Long-term debt repaid (note 14)
    (1,209 )     (2 )     (1,558 )     (879 )
Long-term debt issued (note 14)
    -       315       452       315  
Loans from (repayments to) joint ventures (note 6)
    39       -       59       18  
Loans from related parties (note 14)
    831       -       831       -  
Common shares issued (note 16)
    -       -       -       4  
Common shares purchased (note 16)
    -       -       (30 )     -  
Common shares held in trust sold (note 16)
    3       -       3       -  
Finance costs (cash)
    (72 )     (76 )     (150 )     (152 )
Common share dividends (note 16)
    (117 )     (70 )     (117 )     (140 )
Preferred share dividends (note 16)
    -       (2 )     (2 )     (4 )
Deferred credits and other
    (23 )     (6 )     (30 )     1  
Changes in non-cash working capital
    (9 )     (3 )     10       13  
Cash provided by (used in) financing activities from continuing operations
    (557 )     156       (532 )     (824 )
Effect of translation on foreign currency cash and cash equivalents
    2       2       1       6  
Cash provided by (used in) operating activities from discontinued operations (note 4)
    (16 )     64       (24 )     37  
Cash used in investing activities from discontinued operations (note 4)
    (9 )     (76 )     (37 )     (125 )
Net increase (decrease) in cash and cash equivalents
    (14 )     (163 )     (86 )     1  
Cash and cash equivalents net of bank indebtedness, beginning of period
    181       515       253       351  
Cash and cash equivalents net of bank indebtedness, end of period
    167       352       167       352  
                                 
Cash and cash equivalents
    168       356       168       356  
Bank indebtedness
    (5 )     (4 )     (5 )     (4 )
Cash and cash equivalents from discontinued operations (note 4)
    4       -       4       -  
Cash and cash equivalents net of bank indebtedness, end of period
    167       352       167       352  
                                 
See accompanying notes.
                               
 
 
 
5

 
 
 
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 company incorporated pursuant to the laws of Canada and domiciled in Alberta, Canada. Talisman’s common shares are wholly owned by a subsidiary of Repsol S.A (“Repsol”).  Talisman continues to be a reporting issuer in each of the jurisdictions of Canada. Its 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, 2015 were approved by the Audit Committee on July 27, 2015.

Repsol Acquisition of Talisman
On May 8, 2015, the acquisition of Talisman by Repsol, by the way of an arrangement under the Canada Business Corporations Act, was completed. Repsol acquired all of the Company’s outstanding common and preferred shares. Upon the completion of the arrangement, the common shares were delisted from the Toronto Stock Exchange and the New York Stock Exchange, and the preferred shares were delisted from the Toronto Stock Exchange and converted into common shares on a 1:1 basis (note 16).

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 of Talisman as at and for the year ended December 31, 2014 and the notes thereto.

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 (Loss).


 
6

 
 

 
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 audited annual Consolidated Financial Statements as at and for the year ended December 31, 2014, except for adoption of the following new standards and interpretations effective as of January 1, 2015:
 
Employee Benefits
 
·
IAS 19 Employee Benefits - Amendments to IAS 19. The amended standard clarified the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service, in that contributions can be, but are not required to be recognized as a reduction in the service cost in the period in which the related service is rendered. The amendment is effective for annual periods beginning on or after July 1, 2014. Application of the amended standard does not have an impact on the Company’s financial statements as it reflects current accounting policy of the Company.

Operating Segments
 
·
IFRS 8 Operating Segments - Amendments to IFRS 8. The amended standard requires (i) disclosure of judgments made by management in aggregating segments, and (ii) a reconciliation of segmented assets to the Company’s assets when segment assets are reported. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment does not have an impact on the Company’s financial position or performance.

Share-based Payments
 
·
IFRS 2 Share-Based Payments - Amendments to IFRS 2. The standard amends the definitions of “vesting condition” and “market condition” and adds definitions for “performance condition” and “service condition”. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment does not have an impact on the Company as it reflects current accounting policy of the Company.

Fair Value Measurement
 
·
IFRS 13 Fair Value Measurement - Amendments to IFRS 13. The amended standard clarifies that short-term receivables and payables with no stated interest rates can be measured at invoice amounts if the effect of discounting is immaterial. It also clarifies that the portfolio exception can be applied not only to financial assets and liabilities, but also to other contracts within scope of IAS 39 and IFRS 9. The amendment is effective for annual periods beginning on or after July 1, 2014. The application does not have a significant impact on the Company’s financial statements.

Related Parties
 
·
IAS 24 Related Parties - Amendments to IAS 24. The amended standard (i) revises the definition of related party to include an entity that provides key management personnel services to the reporting entity or its parent, and (ii) clarifies related disclosure requirements. The amendment does not have an impact on the Company’s financial statements, as there is no entity performing key management services for the Company.
 
 
 
7

 

 
b) Accounting Pronouncements Not Yet Adopted
The Company continues to assess the impact of adopting the pronouncements from the IASB as described below:

Financial Instruments
 
·
IFRS 9 Financial Instruments. IFRS 9 (July 2014) replaces earlier versions of IFRS 9 that had not yet been adopted by the Company and supersedes IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new models for classification and measurement of financial instruments, hedge accounting and impairment of financial assets and is mandatorily effective for periods beginning on or after January 1, 2018. The Company continues to review the standard as it is updated and monitor its impact on the Company’s financial statements.

Revenue from Contracts with Customers
 
·
IFRS 15 Revenue from Contracts with Customers. IFRS 15 specifies that revenue should be recognized when an entity transfers control of goods or services at the amount the entity expects to be entitled to as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard supersedes IAS 18 Revenue, IAS 11 Construction Contracts, and a number of revenue-related interpretations. IFRS 15 will be effective for annual periods beginning on or after January 1, 2017. In an exposure draft in May 2015, the effective date of IFRS 15 was proposed to be deferred to January 1, 2018. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the standard on the Company’s financial statements.



4. DISCONTINUED OPERATIONS
During the three month period ended June 30, 2015, Talisman and Repsol entered into a purchase and sale agreement whereby Repsol will acquire substantially all of the assets and liabilities of Talisman’s Norwegian operations (the “Disposal Group”) for proceeds of $47 million including working capital. The transaction is expected to close prior to September 30, 2015.

The assets and liabilities included in the Disposal Group have been reclassified as current assets or liabilities held for sale on the condensed Consolidated Balance Sheets. Operating results related to the Disposal Group have been included in net loss from discontinued operations in the condensed Consolidated Statements of Income. Comparative period balances of the condensed Consolidated Statements of Income and Cash Flows have been restated. The Disposal Group was remeasured to its recoverable amount of $47 million at June 30, 2015 and as a result, a loss of $472 million pre-tax ($292 million after-tax) was recorded in Norway. A $112 million foreign exchange gain relating to the Disposal Group has been recognized in accumulated other comprehensive income in Shareholder’s Equity at June 30, 2015 and will be recognized in earnings upon disposition.





 
8

 




Assets and liabilities associated with the Disposal Group as at June 30, 2015 are as follows:

   
June 30,
2015
 
Assets
     
     Cash
    4  
     Restricted cash (note 9)
    91  
     Accounts receivable
    55  
     Income and other taxes receivable
    4  
     Inventories
    28  
     Prepaid expenses
    5  
     Deferred tax assets
    1,337  
     Other assets
    6  
Assets held for sale
    1,530  
Liabilities
       
     Accounts payable and accrued liabilities
    117  
     Yme removal obligation (note 9)
    128  
     Decommissioning liabilities (note 12)
    1,215  
     Other long term obligations
    23  
Liabilities associated with assets held for sale
    1,483  

Net loss from discontinued operations reported on the condensed Consolidated Statements of Income (Loss) is composed of the following:
 
       
Three months ended June 30
 
2015
   
2014
 
Revenue
    83       108  
Expenses
    (289 )     (211 )
      (206 )     (103 )
Loss on remeasurement of discontinued operations
    (472 )     -  
Loss from discontinued operations before taxes
    (678 )     (103 )
Income taxes
               
     Current income tax recovery
    (6 )     (5 )
     Deferred income tax recovery
    (308 )     (68 )
Net loss from discontinued operations
    (364 )     (30 )

       
Six months ended June 30
 
2015
   
2014
 
Revenue
    144       273  
Expenses
    (401 )     (547 )
      (257 )     (274 )
Loss on remeasurement of discontinued operations
    (472 )     -  
Loss from discontinued operations before taxes
    (729 )     (274 )
Income taxes
               
     Current income tax recovery
    (7 )     (5 )
     Deferred income tax recovery
    (316 )     (149 )
Net loss from discontinued operations
    (406 )     (120 )


 
 
9

 

 
During the three month period ended June 30, 2015, the Company recorded an impairment of $118 million in Norway E&E assets to fully impair costs associated with a license after a dry exploration well confirmed the license to be uneconomic.  In addition, the Company recorded an impairment of $30 million in Norway, due to an increase in the decommissioning obligation and asset caused by a 1.5% decrease in the credit-adjusted discount rate used to measure decommissioning liabilities.

During the six month period ended June 30, 2014, the Company recorded an impairment of $60 million in Norway, due to an increase in the decommissioning obligation and asset caused by a 1% decrease in the credit-adjusted discount rate used to measure decommissioning liabilities. The Company also recorded $130 million of impairment expense in Norway as a result of the Company’s decision to withdraw from an exploration license following technical evaluation, representing the full book value of the license.

The cash flows from discontinued operations, including changes in related non-cash working capital items, are as follows:
 
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
Operating
    (16 )     64       (24 )     37  
Investing
    (9 )     (76 )     (37 )     (125 )
Cash flows from discontinued operations
    (25 )     (12 )     (61 )     (88 )



5. DISPOSALS
North America Dispositions
In April 2014, Talisman sold non-core assets in western Canada for net proceeds of $42 million after $2 million in working capital adjustments, resulting in a pre-tax loss on disposal of $3 million ($4 million after-tax).

In March 2014, Talisman completed the sale of its Montney acreage in northeast British Columbia for proceeds of $1.3 billion, resulting in a pre-tax gain of $564 million ($493 million after tax).


6. INVESTMENTS
   
June 30,
2015
   
December 31,
 2014
 
Investments in Joint Ventures
           
     Equity investment in Equion Energía Limited (Equion)
    530       523  
      530       523  
Available-for-sale investments
               
     Transasia Pipeline Company Pvt. Ltd.
    34       34  
Other
    49       47  
      83       81  
Total
    613       604  

   
June 30,
2015
   
December 31,
2014
 
Obligation to Fund Equity Investee
           
     Equity investment in Talisman Sinopec Energy (UK) Limited  (TSEUK)
    (659 )     (700 )
     Loan to TSEUK
    514       514  
      (145 )     (186 )

 
 
 
10

 

 
Investments in Joint Ventures
 
Movement in the investment in TSEUK joint venture during the period is as follows:
 
   
Six months ended June 30, 2015
   
Year ended
 December 31, 2014
 
Balance, beginning of period
    (186 )     206  
Investment in TSEUK
    362       961  
Loan to TSEUK, net of repayments and settlements1
    -       (298 )
Share of net loss and comprehensive loss
    (321 )     (1,055 )
Balance, end of period
    (145 )     (186 )
1.
Amount shown net of subscription of common shares which settled a portion of the shareholder loan in June 2014.
 
Talisman has a 51% interest in the ownership and voting rights of TSEUK whose principal place of operations is the United Kingdom (UK) 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.

Movement in the investment in Equion joint venture during the period is as follows:
 
   
Six months ended June 30, 2015
   
Year ended
 December 31, 2014
 
Balance, beginning of period
    523       920  
Share of net income and comprehensive income
    7       15  
Dividend declared by Equion1
    -       (279 )
Impairment
    -       (133 )
Balance, end of period
    530       523  
1.
The dividend declared was settled through a reduction in the loan payable to Equion.

Talisman has a 49% interest in the ownership and voting rights of Equion 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.







 
11

 

 
The following tables summarize the financial information of the joint ventures. The tables also reconcile financial information to the carrying amount of the Company's interests in joint ventures, which are accounted for using the equity method.

Summarized Balance Sheets
 
June 30, 2015
   
December 31, 2014
 
   
TSEUK1
   
Equion1
   
Total
   
TSEUK1
   
Equion1
   
Total
 
Cash and cash equivalents
    23       79       102       37       141       178  
Current assets
    538       254       792       517       314       831  
Loans receivable from shareholders
    -       150       150       -       29       29  
Non-current assets
    5,050       1,117       6,167       4,812       1,246       6,058  
Total assets
    5,611       1,600       7,211       5,366       1,730       7,096  
Current liabilities
    931       272       1,203       1,073       392       1,465  
Loans payable to shareholders
    1,009       -       1,009       1,009       -       1,009  
Non-current liabilities
    5,114       306       5,420       4,807       329       5,136  
Total liabilities
    7,054       578       7,632       6,889       721       7,610  
Net assets (liabilities)
    (1,443 )     1,022       (421 )     (1,523 )     1,009       (514 )
                                                 
Talisman’s interest
    51 %     49 %             51 %     49 %        
Talisman’s share of net assets (liabilities)
    (736 )     501       (235 )     (777 )     494       (283 )
Goodwill
    77       162       239       77       162       239  
      (659 )     663       4       (700 )     656       (44 )
Loan to TSEUK
    514       -       514       514       -       514  
Accumulated impairment on investment
    -       (133 )     (133 )     -       (133 )     (133 )
Talisman’s investment (obligation to fund)
    (145 )     530       385       (186 )     523       337  
1.
Balances represent respective entity’s 100% share.









 
12

 



 


Summarized Statements of Income (Loss)
 
Three months ended
June 30, 2015
   
Three months ended
June 30, 2014
 
   
TSEUK1
   
Equion1
   
Total
   
TSEUK1
   
Equion1
   
Total
 
Revenue
    217       129       346       403       158       561  
                                                 
Operating
    216       21       237       372       24       396  
Transportation
    5       9       14       8       10       18  
General and administrative
    21       -       21       8       -       8  
Depreciation, depletion and amortization
    112       84       196       96       68       164  
Exploration expense
    1       -       1       2       -       2  
Finance costs
    39       -       39       35       -       35  
Impairment
    260       -       260       198       -       198  
Other
    (12 )     (8 )     (20 )     15       (15 )     -  
Income (loss) before tax
    (425 )     23       (402 )     (331 )     71       (260 )
Current income tax expense (recovery)
    (22 )     20       (2 )     1       37       38  
Deferred income tax recovery
    (178 )     (13 )     (191 )     (214 )     (12 )     (226 )
Net income (loss) and comprehensive income (loss)
    (225 )     16       (209 )     (118 )     46       (72 )
Talisman’s interest
    51 %     49 %             51 %     49 %        
Talisman’s share of income (loss) after tax
    (115 )     8       (107 )     (60 )     23       (37 )
Cash dividends received by Talisman
    -       -       -       -       -       -  
1.
Balances represent respective entity’s 100% share.

Summarized Statements of Income (Loss)
 
Six months ended
June 30, 2015
   
Six months ended
June 30, 2014
 
   
TSEUK1
   
Equion1
   
Total
   
TSEUK1
   
Equion1
   
Total
 
Revenue
    390       230       620       706       321       1,027  
                                                 
Operating
    477       39       516       656       45       701  
Transportation
    11       16       27       11       20       31  
General and administrative
    41       -       41       15       -       15  
Restructuring costs
    5       -       5       -       -       -  
Depreciation, depletion and amortization
    284       151       435       176       132       308  
Exploration expense
    2       -       2       5       -       5  
Finance costs
    78       1       79       67       1       68  
Impairment
    260       -       260       198       -       198  
Other
    47       3       50       27       (26 )     1  
Income (loss) before tax
    (815 )     20       (795 )     (449 )     149       (300 )
Current income tax expense (recovery)
    (52 )     16       (36 )     (26 )     75       49  
Deferred income tax recovery
    (134 )     (10 )     (144 )     (272 )     (19 )     (291 )
Net income (loss) and comprehensive income (loss)
    (629 )     14       (615 )     (151 )     93       (58 )
Talisman’s interest
    51 %     49 %             51 %     49 %        
Talisman’s share of income (loss) after tax
    (321 )     7       (314 )     (77 )     46       (31 )
Cash dividends received by Talisman
    -       -       -       -       -       -  
1. 
Balances represent respective entity’s 100% share.
 
 
 
13

 
 

 

Summarized Statements of Cash Flows
 
Three months ended
June 30, 2015
   
Three months ended
June 30, 2014
 
   
TSEUK1
   
Equion1
   
Total
   
TSEUK1
   
Equion1
   
Total
 
Operating activities
                                   
Net income (loss)
    (225 )     16       (209 )     (118 )     46       (72 )
Add: Finance costs (cash and non-cash)
    39       -       39       35       -       35  
Items not involving cash
    176       65       241       89       44       133  
Changes in non-cash working capital
    (164 )     (111 )     (275 )     59       9       68  
Cash provided by (used in) operating activities
    (174 )     (30 )     (204 )     65       99       164  
                                                 
Investing activities
                                               
Capital expenditures
    (198 )     (21 )     (219 )     (332 )     (55 )     (387 )
Proceeds of disposition
    -       7       7       -       14       14  
Loans to shareholders
    -       (80 )     (80 )     -       -       -  
Other
    (31 )     (8 )     (39 )     16       (12 )     4  
Cash used in investing activities
    (229 )     (102 )     (331 )     (316 )     (53 )     (369 )
                                                 
Financing activities
                                               
Common shares issued
    390       -       390       -       -       -  
Loans from shareholders, net of repayments
    -       -       -       349       -       349  
Finance costs (cash)
    (10 )     -       (10 )     (17 )     1       (16 )
Other
    9       -       9       20       -       20  
Cash provided by financing activities
    389       -       389       352       1       353  
1. 
Balances represent respective entity’s 100% share.

Summarized Statements of Cash Flows
 
Six months ended
June 30, 2015
   
Six months ended
June 30, 2015
 
   
TSEUK1
   
Equion1
   
Total
   
TSEUK1
   
Equion1
   
Total
 
Operating activities
                               
Net income (loss)
    (629 )     14       (615 )     (151 )     93       (58 )
Add: Finance costs (cash and non-cash)
    78       1       79       67       1       68  
Items not involving cash
    437       145       582       122       101       223  
Changes in non-cash working capital
    (134 )     (10 )     (144 )     (89 )     (27 )     (116 )
Cash provided by (used in) operating activities
    (248 )     150       (98 )     (51 )     168       117  
                                                 
Investing activities
                                         
Capital expenditures
    (411 )     (42 )     (453 )     (653 )     (69 )     (722 )
Proceeds of dispositions
    -       7       7       -       14       14  
Loans to shareholders
    -       (121 )     (121 )     -       (37 )     (37 )
Other
    (64 )     (56 )     (120 )     106       (15 )     91  
Cash used in investing activities
    (475 )     (212 )     (687 )     (547 )     (107 )     (654 )
                                                 
Financing activities
                                         
Common shares issued
    710       -       710       -       -       -  
Loans from shareholders, net of repayments
    -       -       -       686       -       686  
Finance costs (cash)
    (19 )     -       (19 )     (30 )     -       (30 )
Other
    18       -       18       (8 )     -       (8 )
Cash provided by financing activities
    709       -       709       648       -       648  
1. 
Balances represent respective entity’s 100% share.

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 of the joint venture, as appropriate. The fair value adjustments related to the Company's jointly controlled equity interest in Equion principally relate to property, plant and equipment, provisions and the related indemnification asset and goodwill. In addition, the financial statements of TSEUK have been adjusted with respect to asset impairments, decommissioning liabilities and provisions.
 
 
 
14

 
 

 
TSEUK Joint Venture
As at June 30, 2015, the investment balance in the TSEUK joint venture was negative $145 million. The obligation to fund TSEUK, in proportion of its shareholding, arises from the Company’s past practice of funding TSEUK’s cash flow deficiencies, and the expectation that cash flow deficiencies will continue to be funded through 2015. In addition, the Company, in proportion of its shareholding, has provided certain guarantees to fund TSEUK’s decommissioning obligation if TSEUK is unable to (note 17), and the shareholders of TSEUK have provided equity funding facilities to TSEUK which include funding decommissioning liabilities. As such, the Company has recognized a negative investment value from the application of equity accounting. The Company’s obligation to fund TSEUK will increase to the extent future losses are generated within TSEUK. In addition, future contributions to the TSEUK joint venture could be impaired to the extent recoverability is not probable.

In June 2014, the shareholders of TSEUK provided an equity funding facility totaling $1.2 billion to TSEUK, of which Talisman was committed to $612 million, for the purpose of funding capital, decommissioning and operating expenditures of TSEUK. In March 2015, the maximum available amount was increased to $1.5 billion. This facility expired on June 30, 2015. During the period from July 1, 2014 to December 31, 2014, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $625 million under this facility, of which Talisman’s share was $319 million. During the six month period ended June 30, 2015, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $710 million under this facility, of which Talisman’s share was $362 million.

In June 2015, the shareholders of TSEUK provided a new equity funding facility of $1.7 billion, of which Talisman is committed to $867 million, for the purpose of funding capital, decommissioning and operating expenditures of TSEUK. This facility is effective from July 1, 2015 and expires on December 31, 2016.

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. In January 2015, an agreement was reached by the shareholders of TSEUK, in which the quarterly principal and interest payments of the facility were deferred until July 31, 2015. As at June 30, 2015, $1.0 billion has been drawn under this facility, of which Talisman’s share is $514 million (December 31, 2014 - $514 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. Remaining borrowing capacity under this facility:

   
Six months ended
June 30, 2015
   
Year ended
December 31, 2014
 
Borrowing capacity, beginning of period
    742       1,525  
Advances
    -       (783 )
Borrowing capacity, end of period
    742       742  
 
Talisman’s share
    378       378  
 
 

 
 
15

 
 

 
In June 2014, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $1.26 billion, of which Talisman’s share was $643 million, which settled shareholder loans of $1.24 billion and accrued interest of $18 million, of which Talisman’s share was $634 million and $9 million, respectively.

In July 2015, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $1.06 billion, of which Talisman’s share was $541 million, which settled remaining shareholder loans of $1.01 billion and accrued interest of $52 million, of which Talisman’s share was $514 million and $27 million, respectively.

TSEUK is required to provide demand letters of credit as security in relation to certain decommissioning obligations in the UK pursuant to contractual arrangements under Decommissioning Security Agreements (DSAs). Refer to “Liquidity Risk” in note 17.

During the three months ended March 31, 2015, the UK government announced that effective January 1, 2015 the rate of supplementary charge on ring fence profits decreased from 32% to 20%. Consequently, there is now a combined UK corporation tax and supplementary charge rate of 50% (down from 62%) for oil and gas companies with fields not subject to Petroleum Revenue Tax (PRT). The UK government also announced that the PRT rate will decrease from 50% to 35%, effective for years ending after December 31, 2015. As a result of this legislative change, TSEUK recorded a recovery of deferred PRT of $98 million ($50 million net to Talisman).

During the three months ended June 30, 2015, an impairment expense of $260 million, of which Talisman’s share was $133 million, was recorded in TSEUK as a result of Talisman’s adoption of Repsol’s credit-adjusted discount rate in measuring decommissioning obligations.

Equion Joint Venture
During the year ended December 31, 2014, Equion declared dividends payable to the shareholders in the amount of $570 million, of which Talisman’s share was $279 million. The Company has recorded a reduction in the equity investment in Equion. The dividends were settled through reduction of the loan due to Equion as described below.

The loan due to Equion of $74 million (December 31, 2014 - $15 million) is unsecured, due upon demand and bears interest at LIBOR plus 0.30%.

There have been no significant changes in expected future commitments of TSEUK and Equion, and the timing of those payments, since December 31, 2014. 


7. GOODWILL
Continuity of goodwill
 
Six months ended June 30, 2015
   
Year ended December 31, 2014
 
Balance, beginning of period
    279       575  
Disposals
    -       (9 )
Impairments
    -       (287 )
Balance, end of period
    279       279  

Goodwill has no tax basis.
 
 
 
 
16

 
 
 
8. OTHER ASSETS
   
June 30,
2015
   
December 31,
 2014
 
Accrued pension asset
    5       4  
Decommissioning sinking fund
    71       71  
Transportation rights1
    88       92  
Other
    11       13  
Total
    175       180  
1.
Net of $20 million accumulated depreciation (December 31, 2014 - $16 million).


9. 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.

Balances of restricted cash and Yme removal obligation as at June 30, 2015 were reclassified to assets and liabilities held for sale as a result of Talisman’s expected sale of substantially all of its operating assets and liabilities of the Norwegian operations to Repsol. As at June 30, 2015, Talisman’s share of the liability associated with the Talisman Works in the amount of $128 million (December 31, 2014 - $186 million) has been recorded as the Yme removal obligation. Talisman’s share of the cash held in the escrow account in the amount of $91 million (December 31, 2014 - $149 million) has been recorded as restricted cash. During the three and six months ended June 30, 2015, $20 million and $58 million (2014 - $13 million and $29 million) respectively in eligible expenditures were incurred on the Talisman Works which reduced the Yme removal obligation and the restricted cash balance by an equal amount.
 
 
 
17

 
 
 
10. 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, 2013
    23,039       5,393       28,432  
                         
Additions
    1,743       409       2,152  
Disposals and derecognition
    (1,981 )     (23 )     (2,004 )
Transfers from E&E assets to PP&E
    285       (285 )     -  
Change in decommissioning liabilities
    130       114       244  
Expensed to dry hole
    -       (140 )     (140 )
                         
At December 31, 2014
    23,216       5,468       28,684  
                         
Acquisitions
    -       8       8  
Additions
    467       93       560  
Disposals and derecognition
    (7 )     -       (7 )
Transfers from E&E assets to PP&E
    11       (11 )     -  
Change in decommissioning liabilities
    300       4       304  
Expensed to dry hole
    -       (19 )     (19 )
Transfers to assets held for sale (note 4)
    (3,827 )     (2,124 )     (5,951 )
                         
At June 30, 2015
    20,160       3,419       23,579  
                         
                         
Accumulated DD&A
                       
At December 31, 2013
    13,287       2,228       15,515  
                         
Charge for the period
    1,936       10       1,946  
Disposals and derecognition
    (1,733 )     -       (1,733 )
Transfers from E&E assets to PP&E
    10       (10 )     -  
Impairment losses, net of reversals
    672       676       1,348  
Transfers from PP&E to E&E assets
    (20 )     20       -  
              .          
At December 31, 2014
    14,152       2,924       17,076  
                         
Charge for the period
    887       -       887  
Disposals and derecognition
    (6 )     -       (6 )
Impairment, net of reversals (note 11)
    70       131       201  
Transfers to assets held for sale (note 4)
    (3,597 )     (2,124 )     (5,721 )
              .          
At June 30, 2015
    11,506       931       12,437  
                         
Net book value
                       
At June 30, 2015
    8,654       2,488       11,142  
At December 31, 2014
    9,064       2,544       11,608  
At December 31, 2013
    9,752       3,165       12,917  




 
18

 


11. IMPAIRMENT, NET OF REVERSALS
 
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
Impairment losses
                       
     E&E assets
    -       -       2       -  
     PP&E
    -       -       46       -  
      -       -       48       -  
 
Impairment reversals
                       
     E&E assets
    -       -       -       -  
     PP&E
    -       (32 )     -       (32 )
      -       (32 )     -       (32 )
Net Impairment (reversal)
    -       (32 )     48       (32 )
In conjunction with the acquisition of the Company by Repsol, Repsol has completed a preliminary allocation of the purchase price for purposes of its accounting subsequent to the acquisition date. As part of the purchase price allocation, Repsol estimated fair values of the Company’s assets and liabilities. Based on this preliminary assessment, certain of the Company’s assets could be impaired or subject to impairment reversals in future periods. Management has not recorded these potential impairments or reversals in the June 30, 2015 financial statements as the estimates are considered preliminary and subject to further review. The magnitude of any impairments or reversals to be recorded in future periods will be determined as the purchase price allocation is finalized. This is expected to occur later in 2015.

During the three month period ended June 30, 2014, the Company recorded an impairment reversal of $32 million in North America, due to the estimated recoverable amount of assets held for sale exceeding their carrying amounts.

12. DECOMMISSIONING LIABILITIES
Continuity of decommissioning liabilities
 
Six months ended June 30, 2015
   
Year ended
 December 31, 2014
 
Balance, beginning of period
    1,928       1,769  
Liabilities incurred during the period
    10       75  
Liabilities settled during the period
    (40 )     (59 )
Accretion expense
    28       51  
Revisions in estimated cash flows
    (20 )     109  
Change in discount rate
    314       60  
Disposals
    -       (77 )
Reclassified as liabilities associated with assets held for sale (note 4)
    (1,215 )     -  
Balance, end of period
    1,005       1,928  
Expected to be settled within one year
    38       43  
Expected to be settled in more than one year
    967       1,885  
      1,005       1,928  

As a result of Repsol’s acquisition of Talisman in May 2015, Talisman has adopted Repsol’s credit-adjusted rate to discount its decommissioning liabilities as at June 30, 2015. The provision has been discounted using a weighted average credit-adjusted rate of 2.0% at June 30, 2015 (December 31, 2014 – 3.5%), which excludes the impact of inflation.  As a result, Talisman’s decommissioning liabilities including discontinued operations increased by $314 million.
 
 
 
 
19

 
 

 
13. FINANCE COSTS
   
Three months ended June 30
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
Interest on long-term debt
    64       69       130       137  
Miscellaneous interest expense and other fees
    8       7       20       15  
Accretion expense
    7       7       13       14  
      79       83       163       166  


14. LONG-TERM DEBT
   
June 30,
2015
   
December 31,
 2014
 
Bankers’ Acceptances
    -       475  
Commercial Paper
    -       103  
Tangguh Project Financing
    40       43  
Short-term LIBOR Loan
    -       150  
Loans from Related Parties
    831       -  
Debentures and Notes (Unsecured)
               
US$ denominated
    3,531       3,905  
UK£ denominated (UK£ million)
    392       388  
Gross debt
    4,794       5,064  
Less: current portion
    (156 )     (1,109 )
Less: Loans from Related Parties
    (831 )     -  
Long-term debt
    3,807       3,955  


During the six month period ended June 30, 2015, Talisman repaid debt of $1,558 million, including $150 million of short-term LIBOR loan, $775 million of bankers’ acceptances, $255 million of commercial paper, $375 million of 5.125% notes and $3 million of Tangguh project financing. The Company also issued debt of $452 million, including $300 million of bankers’ acceptances and $152 million of commercial paper. The current liability of $156 million consists of $150 million in 8.5% notes, and $6 million in Tangguh project financing.

Bank Credit Facilities and Commercial Paper
At June 30, 2015, Talisman had unsecured credit facilities totaling $3.2 billion, consisting of facilities of $3 billion (Facility No. 1), maturing March 19, 2019 and $200 million (Facility No. 2), maturing October 21, 2019.

Borrowings under Facility No. 1 are available in the form of prime loans, C$ or US$ bankers’ acceptances, US$ base rate loans, LIBOR-based loans and letters of credit.  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$ bankers’ acceptances, US$ base rate loans, LIBOR-based loans and letters of credit.

At June 30, 2015, there were no drawings in the form of bankers’ acceptances or commercial paper. There was $85 million in letters of credit support outstanding at June 30, 2015. The authorized amount under the Company’s commercial paper program is $1.0 billion, but the amount available under this program is limited to the availability of backup funds under the Company’s Facility No. 1.

At June 30, 2015, available borrowing capacity under the bank credit facilities was $3.1 billion.
 
 
 
20

 
 
 
Related Party Facilities
During the three months period ended June 30, 2015, Talisman has entered into the following revolving facilities with Repsol entities:

On May 8, 2015, TE Holdings SARL., a subsidiary of Talisman, entered into a $500 million revolving facility with Repsol Tesoreria Y Gestion Financiera, S.A. The facility matures on May 8, 2016 and bears an interest rate of LIBOR+0.80%.  As at June 30, 2015, $197 million has been drawn under this facility.  Interest expense related to the facility recognized by Talisman during the period was less than $1 million.

On May 8, 2015, Talisman also entered into a $1.0 billion revolving facility with Repsol Energy Resources Canada, Inc. The facility matures on May 8, 2018 and bears an interest rate of LIBOR+1.20%. As at June 30, 2015, $634 million has been drawn under this facility. Interest expense related to the facility recognized by Talisman during the period was $1 million.

Debt Covenants
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. Considering the current commodity price environment, Talisman may require support from Repsol to ensure continued compliance with its liquidity and covenant requirements.

15. OTHER LONG-TERM OBLIGATIONS
   
June 30,
2015
   
December 31,
 2014
 
Accrued pension and other post-employment benefits liabilities
    102       135  
Deferred credits
    17       41  
    Long-term portion of discounted obligations under finance leases
    36       41  
Long-term portion of share-based payments liability (note 16)
    -       1  
Other
    67       55  
      222       273  
 
The fair value of financial liabilities included above approximates the carrying amount.






 
21

 

 
16. 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, 2015
   
Year ended
December 31, 2014
 
   
Shares
   
Amount
   
Shares
   
Amount
 
Balance, beginning of period
    1,031,525,988       1,738       1,031,356,870       1,723  
Issued on exercise of stock options
    -       -       478,244       5  
Converted from preferred shares
    8,000,000       195       -       -  
Shares previously held in trust sold on the open market
    323,584       3       -       -  
Shares purchased and held in trust for long-term PSU  plan
    (3,793,939 )     (30 )     (2,265,898 )     (21 )
Shares released from trust for long-term PSU plan
    8,110,394       86       1,956,772       31  
Balance, end of period
    1,044,166,027       1,992       1,031,525,988       1,738  

On May 8, 2015, Repsol’s acquisition of Talisman was completed, whereby Repsol acquired all outstanding common and preferred shares of Talisman. The outstanding preferred shares were subsequently converted into common shares on a 1:1 basis.

Subsequent to June 30, 2015, there were no activities relating to the Company’s common shares.

During the three and six month periods ended June 30, 2015, the Company declared common share dividends of $0.1125 per common share for an aggregate dividend of $117 million.

Preferred Shares Issued
Continuity of preferred shares
 
Six months ended
June 30, 2015
   
Year ended
December 31, 2014
 
   
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  
Converted into common shares
    (8,000,000 )     (191 )     -       -  
Balance, end of period
    -       -       8,000,000       191  

During the three month period ended June 30, 2015, no preferred share dividends were declared. During the six month period ended June 30, 2015, Talisman declared preferred share dividends of C$0.2625 per share for an aggregate dividend of $2 million.

Subsequent to the acquisition of Talisman by Repsol on May 8, 2015, all Series 1 preferred shares were converted on a 1:1 basis into common shares.
 
 

 
 
22

 
 

 
Share-Based Payments
Subsequent to the acquisition of Talisman by Repsol on May 8, 2015, all share-based payment units were settled and paid by May 29, 2015.

As at June 30, 2015, there were no short-term or long-term obligations on the Company’s balance sheets, relating to stock options, cash units, DSUs and RSUs, as all such outstanding units were settled and paid in the three month period ended June 30, 2015.

During the three month period ended June 30, 2015, the Company recorded a share-based payments recovery of $19 million (2014 - $23 million expense) in respect of the following plans: stock options - $37 million recovery, cash units - $1 million recovery, PSUs - $12 million expense, RSUs - $8 million expense, and DSUs - $1 million recovery. The share-based payments expense includes cash payments of $32 million (2014 - $14 million) to employees in settlement of fully accrued share-based payments liabilities for RSUs settled in the period.  An additional cash payment of $86 million was made to employees in cash settlement of all stock options, cash units, RSUs, and PSUs outstanding on completion of Repsol’s acquisition of Talisman. In general and administrative expense in the condensed Consolidated Statement of Income (Loss), the Company recognized no DSU expense relating to the director and executive deferrals. General and administrative expense included payments of $8 million for settlement of DSUs as a result of Repsol’s acquisition of Talisman.

During the six month period ended June 30, 2015, the Company recorded share-based payments recovery of $24 million (2014 - $9 million recovery) in respect of the following plans: stock options $38 million recovery, cash units - $3 million recovery, PSUs - $7 million expense, RSUs - $10 million expense, and DSUs - $nil. The share-based payments expense includes cash payments of $32 million (2014 - $16 million) to employees in settlement of fully accrued share-based payments liabilities for RSUs settled in the period. An additional cash payment of $86 million was made to employees in cash settlement of all stock options, cash units, RSUs, and PSUs outstanding on completion of Repsol’s acquisition of Talisman. In general and administrative expense in the condensed Consolidated Statement of Income (Loss), the Company recognized no DSU recovery relating to the directors and executive deferrals. General and administrative expense included payments of $8 million for settlement of DSUs as a result of Repsol’s acquisition of Talisman.

At June 30, 2015, there were no outstanding share-based payment arrangements.


17. FINANCIAL INSTRUMENTS
Talisman’s financial assets and liabilities at June 30, 2015 consisted of cash and cash equivalents, accounts receivable, available-for-sale investments, bank indebtedness, accounts payable and accrued liabilities, loans from joint ventures, loans from related parties, 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 (including the current portion) at June 30, 2015 was $4.9 billion (December 31, 2014 - $5.3 billion), while the carrying value was $4.8 billion (December 31, 2014 - $5.1 billion). The Company uses Level 2 inputs as described below to estimate the fair value of the outstanding long-term debt as at June 30, 2015.
 
 
 
 
23

 
 

 
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 derivative instruments are determined based on the estimated cash payment or receipt necessary to settle the contract. 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. Fair values for interest rate instruments are based on discounted cash flow analysis using current market rates and prices.
 
 

 
 
24

 
 

 
Risk Management Assets, Liabilities, Gains and Losses
During the three and six month periods ended June 30, 2015, the Company received proceeds of $817 million and $1.3 billion, respectively, for settlement of its oil and gas derivative contracts, which included proceeds related to the liquidation of outstanding instruments. As at June 30, 2015, there was less than $1 million of risk management liability associated with the Company’s outstanding fixed price power swaps, which were measured using Level 2 inputs.

During the three month period ended June 30, 2015, the Company recorded a loss on held-for-trading financial instruments of $131 million (2014 - $171 million loss) and a gain of $62 million for the six month period ended June 30, 2015 (2014 - $231 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, 2015, a 1% strengthening of the US$ against the other currencies noted above, with all other variables assumed constant, would have resulted in a decrease of $3 million in net loss and a $3 million impact on comprehensive loss during the three month period ended June 30, 2015. A similar weakening of the US$ 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. The Company had fixed-to-floating interest rate swap contracts with a total notional amount of $300 million outstanding at the beginning of the three month period ended June 30, 2015. These contracts expired on May 15, 2015. The Company did not enter any new interest rate swap contracts during the rest of the quarter.

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, 2015, approximately 84% of the Company's trade accounts receivable was aged less than 90 days and the largest single counterparty exposure, accounting for 7% of the total, was with a highly rated counterparty. Concentration of counterparty credit risk is managed by having a broad domestic and international customer base primarily of highly rated counterparties.
 
 
 
 
25

 
 

 
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 and related party credit facilities. The Company has in place committed bank facilities totaling $3.2 billion, all of which are committed through 2019. At June 30, 2015, there were no drawings in the form of bankers’ acceptance or commercial paper, and there was $85 million in letters of credit support outstanding. Available borrowing capacity under committed bank facilities was $3.1 billion at June 30, 2015. In addition, the Company also has in place related party facilities from Repsol subsidiaries totaling $1.5 billion, $500 million of which is committed through 2016 with the remainder committed through 2018. At June 30, 2015, $831 million were drawn under these facilities.

In addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted.  At June 30, 2015, demand letters of credit guaranteed by the Company totaling $1.3 billion were issued, of which $1.2 billion were issued from uncommitted facilities. Of that total, $1.0 billion is provided as security for the costs of decommissioning obligations in the UK, as described below. The remaining outstanding letters of credit relate primarily to a retirement compensation arrangement, guarantees of minimum work commitments and decommissioning obligations in other areas.

TSEUK is required to provide letters of credit as security in relation to certain decommissioning obligations in the UK pursuant to contractual arrangements under Decommissioning Security Agreements (DSAs). At the commencement of the joint venture, Addax Petroleum UK Limited (Addax) assumed 49% of the decommissioning obligations of TSEUK. Addax’s parent company, China Petrochemical Corporation (Sinopec), has provided an unconditional and irrevocable guarantee for this 49% of the UK decommissioning obligations.

The UK government passed legislation in 2013 which provides for a contractual instrument, known as a Decommissioning Relief Deed, for the government to guarantee tax relief on decommissioning costs at 50%, allowing security under DSAs to be posted on an after-tax basis and reducing the value of letters of credit required to be posted by 50%. TSEUK has entered into a Decommissioning Relief Deed with the UK Government and continues to negotiate with counterparties to amend all DSAs accordingly. Tax relief guaranteed by the UK government is limited to corporate tax paid since 2002. Under the limitation, TSEUK’s tax relief is capped at $2.2 billion, representing corporate income taxes paid and recoverable since 2002.

At June 30, 2015, TSEUK has $2.6 billion of demand shared facilities in place under which letters of credit of $1.9 billion have been issued. The Company guarantees 51% of all letters of credit issued under these shared facilities.

The Company has also granted guarantees to various beneficiaries in respect of decommissioning obligations of TSEUK.

At June 30, 2015, Talisman’s share of TSEUK’s total recorded decommissioning liabilities was $2.6 billion. Decommissioning estimates are subject to a significant amount of management judgment given the long dated nature of the assets and the timing of remediation upon cessation of production. The Company reviews its assessment of decommissioning liabilities annually, or where a triggering event causes a review, taking into account new information and industry experience.
 
 
 
26

 
 

 
Any changes to decommissioning estimates influence the value of letters of credit required to be provided pursuant to DSAs. In addition, the extent to which shared facility capacity is available, and the cost of that capacity, is influenced by the Company’s investment-grade credit rating.

As at June 30, 2015, the investment balance in the TSEUK joint venture was negative $145 million. The obligation to fund TSEUK, in proportion of its shareholding, arises from the Company’s past practice of funding TSEUK’s cash flow deficiencies, and the expectation that cash flow deficiencies will continue to be funded through 2015. In addition, the Company, in proportion of its shareholding, has provided certain guarantees to fund TSEUK’s decommissioning obligation if TSEUK is unable to, and the shareholders of TSEUK have provided equity funding facilities to TSEUK which include funding decommissioning liabilities. As such, the Company has recognized a negative investment value from the application of equity accounting. The Company’s obligation to fund TSEUK will increase to the extent future losses are generated within TSEUK. In addition, future contributions to the TSEUK joint venture could be impaired to the extent recoverability is not probable.
 
Except for commodity price derivative contracts that mature as noted below, long-term debt that matures as outlined in note 14 and other long-term obligations detailed in note 15, 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 may enter 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.

During the six month period ended June 30, 2015, the Company liquidated all its contracts related to commodity price risk management. Subsequent to June 30, 2015, the Company has not entered into any new commodity price risk management derivative contracts.

At June 30, 2015, the Company had power commodity price derivative contracts outstanding with fair value of less than $1 million.

18. 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. A summary of specific legal proceedings and contingencies is as follows:

Galley Pipeline
In August 2012, a portion of the Galley pipeline, in which TSEUK has a 67.41% interest, suffered an upheaval buckle.
 
 
 
27

 
 

 
In September 2012, TSEUK, in which Talisman holds a 51% interest, claimed for the suffered losses as a consequence of the incidence to Oleum Insurance Company (''Oleum''), a wholly-owned Talisman subsidiary. TSEUK delivered a proof of loss seeking recovery under the insuring agreement of $315 million.

In November 2014, TSEUK delivered extensive documentation purporting to substantiate its claim. The information delivered to date does not support a determination of coverage and Oleum is seeking additional information from TSEUK to facilitate final coverage determination.

Addax Arbitration
On July 13, 2015, Addax Petroleum UK Limited and Sinopec International Petroleum Exploration and Production Corporation, filed a Notice of Arbitration against Talisman Energy Inc. and Talisman Colombia Holdco Limited in connection with the purchase of 49% shares of Talisman Energy (UK) Limited (now known as TSEUK). In the Company’s opinion, the claims included in the Notice of Arbitration are without merit.

Government and Legal Proceedings with Tax Implications
Specific tax claims which Talisman and its subsidiaries are parties to at June 30, 2015 are as follows:

Canada
The Canadian tax authorities, Canada Revenue Agency, ("CRA") regularly inspect the tax matters of the Talisman Group companies based in Canada. In 2015, verification and investigation activities related to the years 2006-2010 have been made.

As part of these proceedings, the CRA has questioned certain restructuring transactions, although this line of questioning has not resulted in court proceedings to date.

Indonesia
Indonesian Corporate Tax Authorities have been questioning various aspects of the taxation of permanent establishments that Talisman Group has in the country. These proceedings are pending a court hearing.

Malaysia
Talisman Malaysia Ltd. and Talisman Malaysia (PM3) Ltd., the Talisman Group's operating subsidiaries in Malaysia, have received notifications from the Inland Revenue Board (IRB) in respect of the years 2007, 2008 and 2011 questioning, primarily, the deductibility of certain costs. These proceedings are pending a court hearing.

Norway
As part of the process of verifying the tax affairs of Talisman Energy Norge AS, the Talisman Group's subsidiary in Norway, the Norwegian tax authorities have questioned the deductibility of certain items. These proceedings are pending a court hearing.

Timor-Leste
The authorities of Timor-Leste, questioned the deduction by TLM Resources (JPDA 06-105) Pty Limited, the Talisman Group's subsidiary in East Timor, of certain expenses for income tax purposes. This line of questioning is at a very preliminary stage of debate with the authorities.
 
 
 
 
28

 
 

 
Commitments
There have been no additional significant changes in the Company’s expected future commitments, and the timing of those payments, since December 31, 2014.


19. OTHER INCOME
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
Pipeline and customer treating tariffs
    11       16       26       33  
Investment income
    4       2       6       10  
Interest on loan to TSEUK (note 6)
    5       11       10       19  
Marketing and other income
    21       1       39       15  
      41       30       81       77  



20. OTHER EXPENSES, NET
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
Foreign exchange loss
    27       10       5       5  
Restructuring
    23       14       35       17  
Transaction costs1
    39       -       41       -  
Other miscellaneous
    41       13       65       22  
      130       37       146       44  
1.
Costs incurred in relation to the acquisition of Talisman by Repsol.


21. INCOME TAXES
Current Income Tax Expense
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
North America
    3       5       (5 )     4  
Southeast Asia
    62       108       129       224  
North Sea
    1       (1 )     1       (1 )
Other
    (1 )     22       10       38  
Total
    65       134       135       265  

Deferred Income Tax (Recovery) Expense
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
North America
    206       (8 )     177       44  
Southeast Asia
    42       22       15       13  
North Sea
    (12 )     6       24       3  
Other
    20       (7 )     16       3  
Total
    256       13       232       63  
 
 

 
 
29

 
 

 
During the three month period ended June 30, 2015, the deferred tax expense (recovery) was impacted by a $37 million charge related to a substantively enacted Alberta corporate tax rate increase of 2%. In addition, as a result of the acquisition by Repsol, the Company recorded additional tax expense totaling $275 million related to the derecognition of certain tax assets.

22. SUPPLEMENTAL CASH FLOW
Items Not Involving Cash
   
Three months ended June 30
   
Six months ended Jun 30
 
   
2015
   
2014
   
2015
   
2014
 
Depreciation, depletion and amortization
    379       430       790       822  
Impairment, net of reversals
    -       (32 )     48       (32 )
Dry hole
    -       11       13       28  
Share-based payments expense (recovery)
    (2 )     23       -       (8 )
(Gain) loss on disposals
    4       5       9       (554 )
Unrealized loss on held-for-trading financial instruments
    955       125       1,268       128  
Deferred income tax
    256       13       232       63  
Foreign exchange
    29       8       13       6  
Loss from joint ventures and associates, after tax
    107       37       314       31  
Other
    4       17       12       29  
      1,732       637       2,699       513  

Other Cash Flow Information
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
Cash interest paid
    76       72       130       125  
Cash interest received
    1       1       1       24  
Cash income taxes paid
    75       150       147       331  

23. CASH AND CASH EQUIVALENTS
Of the cash and cash equivalents balance of $168 million (December 31, 2014 - $262 million), the entire balance (December 31, 2014 - $262 million) has been invested in bank deposits. There were no investments in highly rated marketable securities with original maturities of less than three months as at June 30, 2015.



 
30

 


24. RELATED PARTY DISCLOSURES
Interest 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, 2015:
Name of Subsidiary
Jurisdiction of Incorporation
Percentage of Voting
Securities Owned
Talisman Energy Canada¹
Alberta
100%
Talisman Energy USA Inc.
Delaware
100%
Talisman Alberta Shale Partnership
Alberta
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) B.V.
The Netherlands
100%
1.
Talisman Energy Canada is an Alberta general partnership which currently carries on substantially all of Talisman’s conventional Canadian oil and gas operations.
 

Related party transactions with Repsol and Joint Ventures
In June 2015, Talisman (Algeria) B.V. (“TABV”) entered into a Sale and Purchase Agreement with Repsol Trading S.A., a subsidiary of Repsol, under which TABV will sell to Repsol approximately 615,000 barrels of Saharan Blend Crude Oil for an estimated $38 million.  The sale price per barrel is based on June Dated Brent price of US$61.69/barrel minus the agreed differential of US$0.28/barrel. As at June 30, 2015, the amount included in accounts receivable balance as a result of this sale was $38 million.

Other transactions between Talisman and subsidiaries of Talisman’s parent, Repsol, since May 8, 2015, are disclosed in note 4 and note 14. Related party transactions with joint ventures are disclosed as part of note 6 and note 19.

 
 
31

 
 
 
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 and exploration in Canada and the US. The Southeast Asia segment includes operations and exploration activities in Indonesia, Malaysia, Vietnam, Papua New Guinea and in Australia/Timor-Leste. The North Sea segment includes operations and exploration activities in the UK. The Company also has non-operated production in Algeria, operations and exploration activities in Colombia, and exploration activities in the Kurdistan Region of Iraq. Furthermore, the Company is in the process of exiting Peru. For ease of reference, all of the activities in Algeria, Colombia, Peru 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$)
 
2015
   
2014
   
2015
   
2014
   
2015
   
2014
   
2015
   
2014
 
 Revenue
                                               
 Sales
    258       486       502       1,018       298       556       622       1,097  
 Other income
    23       7       45       27       -       -       1       1  
 Income (loss) from joint ventures, after tax
    -       -       -       -       -       -       -       -  
 Total revenue and other income
    281       493       547       1,045       298       556       623       1,098  
 Segmented expenses
                                                               
 Operating
    114       134       241       268       60       130       169       252  
 Transportation
    23       18       51       39       13       12       28       27  
 DD&A
    252       296       509       562       112       114       250       230  
 Impairment, net of reversals
    -       (32 )     -       (32 )     -       -       48       -  
 Dry hole
    -       -       -       -       -       11       (1 )     28  
 Exploration
    45       3       47       9       18       22       36       39  
 Other
    80       22       109       31       21       1       23       2  
 Total segmented expenses
    514       441       957       877       224       290       553       578  
 Segmented income (loss) from continuing operations before taxes
    (233 )     52       (410 )     168       74       266       70       520  
 Non-segmented expenses
                                                               
 General and administrative
                                                               
 Finance costs
                                                               
 Share-based payments expense (recovery)
                                                 
 Currency translation
                                                               
 (Gain) loss on held-for-trading
                                                               
    financial instruments
                                                               
 (Gain) loss on asset disposals
                                                               
 Total non-segmented expenses
                                                               
Income (loss) before taxes from continuing operations
                                 
 Capital expenditure
                                                               
 Exploration
    13       31       39       45       40       31       45       60  
 Development
    120       242       292       556       25       68       63       146  
 Exploration and development
    133       273       331       601       65       99       108       206  
 Acquisitions
                                                               
 Proceeds on dispositions
                                                               
 Other non-segmented
                                                               
 Net capital expenditures
                                                               
 Property, plant and equipment
                    6,429       6,321                       1,972       2,223  
 Exploration and evaluation assets
              1,371       1,345                       719       667  
 Goodwill
                    110       110                       169       169  
 Investments in joint ventures and associates
      -       -                       -       -  
 Other
                    410       555                       613       740  
 Assets held for sale
                    -       -                       -       -  
 Segmented assets
                    8,320       8,331                       3,473       3,799  
 Non-segmented assets
                                                               
 Total assets (5)
                                                               
 Decommissioning liabilities (5)
                    663       381                       313       334  
 
   
Three months ended
June 30
   
Six months ended
June 30
 
                         
1. North America
 
2015
   
2014
   
2015
   
2014
 
                         
Canada
    118       197       232       458  
US
    163       296       315       587  
Total revenue and other income
    281       493       547       1,045  
Canada
                    2,593       2,507  
US
                    3,836       3,814  
Property, plant and equipment (5)
                    6,429       6,321  
Canada
                    910       871  
US
                    461       474  
Exploration and evaluation assets (5)
              1,371       1,345  
                                 
   
Three months ended June 30
   
Six months ended June 30
 
                                 
2. Southeast Asia
    2015       2014       2015       2014  
Indonesia
    170       265       345       528  
Malaysia
    80       132       168       286  
Vietnam
    39       114       78       216  
Australia
    9       45       32       68  
Total revenue and other income
    298       556       623       1,098  
Indonesia
                    905       941  
Malaysia
                    626       698  
Vietnam
                    245       308  
Papua New Guinea
                    132       143  
Australia
                    64       133  
Property, plant and equipment (5)
                    1,972       2,223  
Indonesia
                    45       37  
Malaysia
                    87       41  
Vietnam
                    192       191  
Papua New Guinea
                    395       398  
Exploration and evaluation assets (5)
              719       667  
                                 
5. Current year represents balances at June 30. Prior year represents balances at December 31.
 
 
 
32

 
 
   
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$)
 
2015
   
2014
   
2015
   
2014
   
2015
   
2014
   
2015
   
2014
   
2015
   
2014
   
2015
   
2014
 
 Revenue
                                                                       
 Sales
    -       -       -       -       61       99       97       149       617       1,141       1,221       2,264  
 Other income
    5       11       10       19       13       12       25       30       41       30       81       77  
 Income (loss) from joint ventures, after tax
    (115 )     (60 )     (321 )     (77 )     8       23       7       46       (107 )     (37 )     (314 )     (31 )
 Total revenue and other income
    (110 )     (49 )     (311 )     (58 )     82       134       129       225       551       1,134       988       2,310  
 Segmented expenses
                                                                                               
 Operating
    -       -       -       -       19       16       34       23       193       280       444       543  
 Transportation
    -       -       -       -       4       9       11       15       40       39       90       81  
 DD&A
    -       -       -       -       15       20       31       30       379       430       790       822  
 Impairment, net of reversals
    -       -       -       -       -       -       -       -       -       (32 )     48       (32 )
 Dry hole
    -       -       -       -       -       -       14       -       -       11       13       28  
 Exploration
    20       -       20       -       15       19       19       35       98       44       122       83  
 Other
    4       2       4       (1 )     (2 )     2       5       7       103       27       141       39  
 Total segmented expenses
    24       2       24       (1 )     51       66       114       110       813       799       1,648       1,564  
 Segmented income (loss) from continuing operations before taxes
    (134 )     (51 )     (335 )     (57 )     31       68       15       115       (262 )     335       (660 )     746  
 Non-segmented expenses
                                                                                               
 General and administrative
                                                                    83       103       167       205  
 Finance costs
                                                                    79       83       163       166  
 Share-based payments expense (recovery)
                                                      (19 )     23       (24 )     (9 )
 Currency translation
                                                                    27       10       5       5  
 (Gain) loss on held-for-trading
                                                                    131       171       (62 )     231  
    financial instruments
                                                                                               
 (Gain) loss on asset disposals
                                                                    4       5       9       (554 )
 Total non-segmented expenses
                                                                    305       395       258       44  
Income (loss) before taxes from continuing operations
                                      (567 )     (60 )     (918 )     702  
 Capital expenditure
                                                                                               
 Exploration
    -       -       -       -       (4 )     41       9       90       49       103       93       195  
 Development
    -       -       -       -       11       2       20       7       156       312       375       709  
 Exploration and development
    -       -       -       -       7       43       29       97       205       415       468       904  
 Acquisitions
                                                                    8       13       8       13  
 Proceeds on dispositions
                                                                    -       (52 )     -       (1,392 )
 Other non-segmented
                                                                    16       16       19       20  
 Net capital expenditures
                                                                    229       392       495       (455 )
 Property, plant and equipment
                    -       256                       253       264                       8,654       9,064  
 Exploration and evaluation assets
              -       125                       398       407                       2,488       2,544  
 Goodwill
                    -       -                       -       -                       279       279  
 Investments in joint ventures and associates
      -       -                       530       523                       530       523  
 Other
                    456       2,051                       269       301                       1,748       3,647  
 Assets held for sale
                    1,530       -                       -       -                       1,530       -  
 Segmented assets
                    1,986       2,432                       1,450       1,495                       15,229       16,057  
 Non-segmented assets
                                                                                    3       1,273  
 Total assets (5)
                                                                                    15,232       17,330  
 Decommissioning liabilities (5)
                    -       1,176                       29       37                       1,005       1,928  
 
   
Three months ended
June 30
   
Six months ended
June 30
 
3. North Sea
 
2015
   
2014
   
2015
   
2014
 
UK
    5       11       10       19  
Norway
    -       -       -       -  
Loss from TSEUK
    (115 )     (60 )     (321 )     (77 )
Total revenue and other income
    (110 )     (49 )     (311 )     (58 )
UK
                    -       -  
Norway
                    -       256  
Property, plant and equipment (5)
                    -       256  
UK
                    -       -  
Norway
                    -       125  
Exploration and evaluation assets (5)
              -       125  
                                 
   
Three months ended
June 30
   
Six months ended
June 30
 
                                 
4. Other
    2015       2014       2015       2014  
Algeria
    54       72       78       107  
Colombia6
    28       62       51       118  
Total revenue and other income
    82       134       129       225  
Algeria
                    203       224  
Colombia
                    50       40  
Property, plant and equipment (5)
                    253       264  
Colombia
                    202       208  
Kurdistan
                    196       199  
Exploration and evaluation assets (5)
              398       407  
                                 
5. Current year represents balances at June 30. Prior year represents balances at December 31.
 
                                 
6. Balances include after-tax equity income from Equion.
 
 
33






Exhibit 99.2












TALISMAN ENERGY INC.








 
 INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS
 

FOR THE PERIOD ENDED JUNE 30, 2015



 
 



 
 

 


Management’s Discussion and Analysis (MD&A)
(July 30, 2015)

General
This interim MD&A should be read in conjunction with the unaudited interim condensed Consolidated Financial Statements of Talisman Energy Inc. ("Talisman" or "the Company") as at and for the three and six month periods ended June 30, 2015 and 2014, and the 2014 MD&A and audited annual Consolidated Financial Statements of the Company. The Company’s interim condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting within International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Talisman’s financial statements are prepared on a consolidated basis and include the accounts of Talisman and its subsidiaries. Substantially all of Talisman’s activities are conducted jointly with others, and the condensed Consolidated Financial Statements reflect only the Company’s proportionate interest in such activities, with the exception of the Company’s investments in Talisman Sinopec Energy UK Limited (TSEUK) and Equion Energía Limited (Equion) which are accounted for using the equity method.

All comparisons are between the three month periods ended June 30, 2015 and 2014, unless stated otherwise.  All amounts presented are in US$, except where otherwise indicated.  Abbreviations used in this MD&A are listed in the section “Abbreviations and Definitions”. Unless otherwise indicated, amounts only reflect results from consolidated subsidiaries. Additional information relating to the Company, including its Annual Information Form (AIF), can be found on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

On May 8, 2015, the acquisition of Talisman by a wholly-owned subsidiary of Repsol S.A. (“Repsol”), by the way of an arrangement under the Canada Business Corporations Act, was completed. Repsol acquired all of the Company’s outstanding common and preferred shares. Upon the completion of the arrangement, the common shares were delisted from the Toronto Stock Exchange and the New York Stock Exchange, and the preferred shares were delisted from the Toronto Stock Exchange and converted into common shares on a 1:1 basis.

During the three month period ended June 30, 2015, Talisman and Repsol entered into a purchase and sale agreement whereby Repsol will acquire substantially all of the assets and liabilities of Talisman’s Norwegian operations. The transaction is expected to close prior to September 30, 2015. For further information, see the "Discontinued Operations" and "Transactions with Related Parties" section of the MD&A.

Use of "boe" and Change in Conversion Ratio
In conjunction with the acquisition of the Company by Repsol, the Company has adopted Repsol’s barrels of oil equivalent (boe) conversion ratio. For the period ended June 30, 2015, the Company now applies a conversion factor of 1 barrel of oil equivalent (boe) equals 5,615 standard cubic feet of gas. The previous conversion ratio used was 6,000 standard cubic feet of gas. Comparative periods have been adjusted to reflect the change in conversion. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 5.615mcf:1bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent value equivalence at the wellhead.
 
 
 
1

 
 
 
FINANCIAL AND OPERATING HIGHLIGHTS1,2
 

 
($ millions, unless otherwise stated)
 
Six Months 
Ended June 30,
      Q2       Q1       Q4       Q3       Q2       Q1       Q4       Q3  
   
2015
   
2014
      2015       2015       2014       2014       2014       2014       2013       2013  
Total revenue and other income from continuing operations
    988       2,310       551       437       (71 )     995       1,134       1,176       779       1,134  
Total revenue and other income from discontinued operations3
    144       273       83       61       115       141       108       165       150       110  
Total revenue and other income
    1,132       2,583       634       498       44       1,136       1,242       1,341       929       1,244  
Net income (loss) from continuing operations
    (1,285 )     374       (888 )     (397 )     (1,154 )     439       (207 )     581       (830 )     (78 )
Net income (loss) from discontinued operations3
    (406 )     (120 )     (364 )     (42 )     (436 )     (14 )     (30 )     (90 )     (175 )     24  
Net income (loss)
    (1,691 )     254       (1,252 )     (439 )     (1,590 )     425       (237 )     491       (1,005 )     (54 )
Per common share ($)
                                                                         
    Net income (loss)4
    (1.63 )     0.24       (1.20 )     (0.43 )     (1.54 )     0.41       (0.23 )     0.47       (0.98 )     (0.05 )
    Diluted net income (loss)5
    (1.67 )     0.19       (1.24 )     (0.43 )     (1.54 )     0.38       (0.24 )     0.43       (0.98 )     (0.08 )
Income (loss) from continuing operations per common share
                                                         
    Basic
    (1.24 )     0.36       (0.85 )     (0.39 )     (1.12 )     0.42       (0.20 )     0.56       (0.81 )     (0.08 )
    Diluted
    (1.28 )     0.31       (0.89 )     (0.39 )     (1.12 )     0.39       (0.21 )     0.52       (0.81 )     (0.11 )
Production (Daily Average - Gross)
                                                                 
Oil and liquids (mbbls/d)
    125       129       127       124       125       119       132       125       120       120  
Natural gas (mmcf/d)
    1,323       1,287       1,321       1,325       1,328       1,276       1,308       1,268       1,312       1,234  
Continuing operations (mboe/d)
    361       358       362       360       362       346       365       351       354       340  
Assets sold or held for sale (mboe/d)6
    16       38       16       16       18       23       27       50       50       48  
Total mboe/d (5.615mcf = 1boe)
    377       396       378       376       380       369       392       401       404       388  
1.
Includes the Company’s proportionate interest in production from joint ventures.
2.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.
3.
Discontinued Operations are the results associated with the expected Norway disposition.
4.
Net income (loss) per share includes an adjustment to the numerator for after-tax cumulative preferred share dividends.
5.
Diluted net income (loss) per share computed under IFRS includes an adjustment to the numerator for the change in the fair value of stock options and after-tax cumulative preferred share dividends.
6.
Includes discontinued operations.

During the second quarter of 2015, the Company had a net loss of $1.3 billion compared to net loss of $237 million in the same quarter in 2014 due principally to lower commodity prices, slightly lower volumes, increased losses from joint ventures, increased income taxes, and impairments from discontinued operations in Norway. These were partially offset by lower operating expenses.

Production volumes from continuing operations remained relatively consistent in the second quarter of 2015 compared to the second quarter of 2014, with a small increase in liquids output, slightly offset by a small decrease in natural gas production.
 
 
 
2

 
 
 
DAILY AVERAGE PRODUCTION
   
 Three months ended June 30
 
   
Gross before royalties
   
Net of royalties
 
   
2015
   
2014
   
2015
   
2014
 
Oil and liquids from Consolidated Subsidiaries (mbbls/d)
                       
North America
    41       45       36       35  
Southeast Asia
    38       45       26       28  
North Sea2
    12       11       12       11  
Other
    15       16       11       9  
      106       117       85       83  
Oil and liquids from Joint Ventures (mbbls/d)
                               
TSEUK
    20       19       20       19  
Equion
    13       9       10       7  
      33       28       30       26  
Total oil and liquids from Consolidated Subsidiaries and Joint Ventures (mbbls/d)
    139       145       115       109  
Natural gas from Consolidated Subsidiaries (mmcf/d)
                               
North America
    780       795       678       682  
Southeast Asia
    496       515       356       351  
North Sea2
    21       20       21       20  
Other
    -       -       -       -  
      1,297       1,330       1,055       1,053  
Natural gas from Joint Ventures (mmcf/d)
                               
TSEUK
    5       2       5       2  
Equion
    40       48       32       37  
      45       50       37       39  
Total natural gas from Consolidated Subsidiaries and Joint Ventures (mmcf/d)
    1,342       1,380       1,092       1,092  
Total Daily Production from Consolidated Subsidiaries (mboe/d)1
                               
North America
    180       186       157       157  
Southeast Asia
    126       137       89       91  
North Sea2
    16       15       16       15  
Other
    15       16       11       8  
      337       354       273       271  
Total Daily Production from Joint Ventures (mboe/d)1
                               
TSEUK
    21       20       20       20  
Equion
    20       17       16       14  
      41       37       36       34  
Total daily production from Consolidated Subsidiaries and Joint Ventures (mboe/d)
    378       391       309       305  
Less production from assets sold or held for sale (mboe/d)1
                               
North America
    -       9       -       7  
Southeast Asia
    -       3       -       2  
       North Sea2
    16       15       16       15  
      16       27       16       24  
Total production from continuing operations (mboe/d)1
    362       364       293       281  
1.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.
2.
Discontinued Operations are the results associated with the expected Norway disposition.


 
3

 
 

 
   
Six months ended June 30
 
   
Gross before royalties
   
Net of royalties
 
   
2015
   
2014
   
2015
   
2014
 
Oil and liquids from Consolidated Subsidiaries (mbbls/d)
                       
North America
    43       43       37       34  
Southeast Asia
    38       45       26       28  
North Sea2
    13       13       13       13  
Other
    14       15       10       8  
      108       116       86       83  
Oil and liquids from Joint Ventures (mbbls/d)
                               
TSEUK
    18       19       18       19  
Equion
    12       9       9       7  
      30       28       27       26  
Total oil and liquids from Consolidated Subsidiaries and Joint Ventures (mbbls/d)
    138       144       113       109  
Natural gas from Consolidated Subsidiaries (mmcf/d)
                               
North America
    789       831       687       721  
Southeast Asia
    489       518       352       351  
North Sea2
    19       17       19       17  
Other
    -       -       -       -  
      1,297       1,366       1,058       1,089  
Natural gas from Joint Ventures (mmcf/d)
                               
TSEUK
    3       2       3       2  
Equion
    42       47       32       38  
      45       49       35       40  
Total natural gas from Consolidated Subsidiaries and Joint Ventures (mmcf/d)
    1,342       1,415       1,093       1,129  
Total Daily Production from Consolidated Subsidiaries (mboe/d)1
                               
North America
    184       192       159       162  
Southeast Asia
    125       137       89       91  
North Sea2
    16       16       16       16  
Other
    14       15       10       8  
      339       360       274       277  
Total Daily Production from Joint Ventures (mboe/d)1
                               
TSEUK
    19       19       18       19  
Equion
    19       17       15       14  
      38       36       33       33  
Total daily production from Consolidated Subsidiaries and Joint Ventures (mboe/d)1
    377       396       307       310  
Less production from assets sold or held for sale (mboe/d)1
                               
North America
    -       19       -       17  
Southeast Asia
    -       3       -       2  
North Sea2
    16       16       16       16  
      16       38       16       35  
Total production from continuing operations (mboe/d)1
    361       358       291       275  
1.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.
2.
Discontinued Operations are the results associated with the expected Norway disposition.

Production represents gross production before royalties, unless noted otherwise. Production identified as net is production after deducting royalties.

Total production from continuing operations was 362 mboe/d, a decrease of 1% compared to 2014 due principally to decreased liquids production in Southeast Asia.
 
 
 
 
4

 
 

 
In North America, total production decreased by 3% compared to 2014. Oil and liquids production decreased by 9% due principally to operational issues and natural declines in the Eagle Ford, partially offset by development activity in Duvernay. Natural gas production decreased by 2% due to the disposition of non-core Western Canadian assets, partially offset by development activity in Edson and Marcellus.

In Southeast Asia, total production decreased by 8% compared to 2014. Total oil and liquids production decreased by 16% due principally to a reduction in the Company’s production entitlement at HST/HSD due to a partner’s carrying costs being fully recouped in 2014. Natural gas production decreased by 4% due principally to reduced demand and a full plant turnaround at Corridor, which was partially offset by increased production at PM3.

Total production in TSEUK increased by 5% due to improved uptime and enhanced production at Bleoholm and the restart of production in Monarb after an outage for safety remediation.

In the Other segment, including the Equion joint venture, total production increased 6% compared to 2014 due primarily to new wells in Floreña. Liquids production in Colombia remained consistent to the comparative quarter.

For details on production and netbacks related to the discontinued operations, see the "Discontinued Operations" section in this MD&A.

VOLUMES PRODUCED INTO (SOLD OUT OF) INVENTORY1,2
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
North America - bbls/d
    (1,275 )     (571 )     (503 )     (22 )
Southeast Asia - bbls/d
    10,134       3,822       4,918       3,375  
Other – bbls/d
    (851 )     (3,142 )     (228 )     259  
Total produced into (sold out of) inventory – bbls/d
    8,008       109       4,187       3,612  
Total produced into (sold out of) inventory – mmbbls
    0.7       -       0.7       0.8  
Inventory at June 30 - mmbbls
    2.1       1.6       2.1       1.6  
1.
Gross before royalties.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.

In the Company's international operations, produced oil is frequently stored in tanks until there is sufficient volume to be lifted. The Company recognizes revenue and the related expenses on crude oil production when liftings have occurred and title has transferred. Volumes presented in the “Daily Average Production” table represent production volumes in the period, which include oil volumes produced into inventory and exclude volumes sold out of inventory.

During the three month period ended June 30, 2015, volumes in inventory increased to 2.1 mmbbls from 1.4 mmbbls at the end of the first quarter due principally to increased inventories in Southeast Asia, partially offset by decreased inventories in Algeria.
 
 
 
5

 
 

 
COMPANY NETBACKS1,2
   
Three months ended June 30
 
   
Gross before royalties
   
Net of royalties
 
Continuing Operations3
 
2015
   
2014
   
2015
   
2014
 
Oil and liquids ($/bbl)
                       
Sales price
    50.33       91.52       50.33       91.52  
Royalties
    12.63       31.23       -       -  
Transportation
    1.37       1.46       1.75       2.10  
Operating costs
    11.32       16.47       14.43       23.62  
      25.01       42.36       34.15       65.80  
Natural gas ($/mcf)
                               
Sales price
    3.72       6.15       3.72       6.15  
Royalties
    0.84       1.49       -       -  
Transportation
    0.25       0.21       0.32       0.27  
Operating costs
    0.97       1.04       1.25       1.36  
      1.66       3.41       2.15       4.52  
Total $/boe (5.615mcf=1boe)4
                               
Sales price
    29.49       52.34       29.49       52.34  
Royalties
    7.04       15.52       -       -  
Transportation
    1.39       1.25       1.78       1.73  
Operating costs
    7.17       9.15       9.31       12.55  
      13.89       26.42       18.40       38.06  

   
Six months ended June 30
 
   
Gross before royalties
   
Net of royalties
 
Continuing Operations3
 
2015
   
2014
   
2015
   
2014
 
Oil and liquids ($/bbl)
                       
Sales price
    44.61       91.67       44.61       91.67  
Royalties
    11.71       31.03       -       -  
Transportation
    1.77       1.34       2.28       1.91  
Operating costs
    11.76       16.06       15.16       22.80  
      19.37       43.24       27.17       66.96  
Natural gas ($/mcf)
                               
Sales price
    3.84       6.32       3.84       6.32  
Royalties
    0.85       1.50       -       -  
Transportation
    0.26       0.23       0.33       0.30  
Operating costs
    1.10       1.09       1.40       1.45  
      1.63       3.50       2.11       4.57  
Total $/boe (5.615mcf=1boe)4
                               
Sales price
    28.36       52.35       28.36       52.35  
Royalties
    6.84       15.21       -       -  
Transportation
    1.54       1.29       1.97       1.77  
Operating costs
    7.81       9.10       10.14       12.39  
      12.17       26.75       16.25       38.19  
1.
Netbacks do not include pipeline operations.
2.
Amounts shown only represent netbacks from consolidated subsidiaries and exclude netbacks from equity accounted entities.
3.
Excludes results of discontinued operations associated with the expected Norway disposition.
4.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.
 
 
 
6

 
 
 
During the quarter, the Company’s average gross netback was $13.89/boe, 47% lower than 2014 due principally to lower realized prices, partially offset by lower royalties and lower operating costs.

Talisman’s realized net sales price of $29.49/boe was 44% lower than 2014, due principally to lower commodity prices. Oil and liquids realized prices decreased by 45% and natural gas realized prices decreased by 40% from 2014.

The Company’s realized net sale price includes the impact of physical commodity contracts, but does not include the impact of financial commodity price derivatives discussed in the “Risk Management” section of this MD&A.

The Company’s composite royalty rate was 24%, down from 30% in 2014 due principally to lower commodity prices.

COMMODITY PRICES AND EXCHANGE RATES1,2
 
Three months ended June 30
Six months ended June 30
Continuing Operations
2015
2014
2015
2014
Oil and liquids ($/bbl)
   
 
North America
35.94
66.11
29.56
67.04
 
Southeast Asia
62.96
110.99
57.97
110.67
 
Other
58.24
107.76
53.61
106.07
   
50.33
91.52
44.61
91.67
Natural gas ($/mcf)
   
 
North America
2.22
4.35
2.41
4.62
 
Southeast Asia
6.08
8.94
6.14
9.04
   
3.72
6.15
3.84
6.32
Company $/boe (5.615mcf=1boe)3
29.49
52.34
28.36
52.35
      Benchmark prices and foreign exchange rates
   
   WTI
(US$/bbl)
57.86
102.99
53.25
100.84
   Dated Brent
(US$/bbl)
61.92
109.63
57.95
108.93
   WCS
(US$/bbl)
46.35
83.01
40.13
79.29
   LLS
(US$/bbl)
62.95
105.53
57.89
104.99
   NYMEX
(US$/mmbtu)
2.67
4.57
2.82
4.73
   AECO
(C$/gj)
2.53
4.44
2.66
4.47
C$/US$ exchange rate
1.23
1.09
1.24
1.10
UK£/US$ exchange rate
0.65
0.59
0.66
0.60
1.
Amounts shown only represent consolidated subsidiaries and exclude prices from equity accounted entities.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.
3.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.

Overall realized oil and liquids prices decreased by 45% in 2015 which was consistent with decreases in WTI and Brent pricing. In North America, realized natural gas prices decreased by 49% in 2015, and in Southeast Asia, realized natural gas prices decreased by 32%. A portion of natural gas pricing in Southeast Asia is sold via fixed-price contracts and as a result, the decline in gas prices was less than the decline in benchmark oil prices. Talisman’s overall realized natural gas price of $3.72/mcf decreased by 40% compared to 2014.
 
 
 
7

 
 
 
EXPENSES
Unit Operating Expenses1,2
   
Three months ended June 30
 
Continuing Operations
 
Gross before royalties
   
Net of royalties
 
($/boe)3
 
2015
   
2014
   
2015
   
2014
 
North America
    6.64       7.67       7.63       9.12  
Southeast Asia
    7.19       11.06       10.22       16.65  
Other
    13.49       10.05       17.77       19.09  
      7.17       9.15       9.31       12.55  

   
Six months ended June 30
 
Continuing Operations
 
Gross before royalties
   
Net of royalties
 
($/boe)3
 
2015
   
2014
   
2015
   
2014
 
North America
    7.09       7.74       8.16       9.09  
Southeast Asia
    8.17       10.98       11.58       16.59  
Other
    13.75       9.35       19.52       18.23  
      7.81       9.10       10.14       12.39  
1.
Represents operating expenses from consolidated subsidiaries, excluding operating expenses from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.
3.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.

Total Operating Expenses1,2
   
Three months ended June 30
   
Six months ended June 30
 
Continuing Operations
 
2015
   
2014
   
2015
   
2014
 
($ millions)
           
North America
    114       134       241       268  
Southeast Asia
    60       130       169       252  
Other
    19       16       34       23  
      193       280       444       543  
1.
Represents operating expenses from consolidated subsidiaries, excluding operating expenses from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.

Total operating expenses decreased by 31% to $193 million due principally to operating expense reductions being implemented across the Company, favourable foreign exchange movements, the timing of liftings, and asset dispositions.

In North America, total operating expenses decreased by 15% to $114 million principally due to dispositions of non-core western Canadian properties in 2014, partially offset by increased production activity in remaining properties. Unit operating expenses in North America decreased by 13% due principally to a change in production mix as remaining assets have lower operating costs than assets disposed of in western Canada.

In Southeast Asia, total operating expenses decreased by 54% due primarily to a reduction in planned maintenance activity, revisions to estimated costs for prior periods, insurance proceeds for the jacket repair in HST/HSD in the current quarter and completion of the jacket repair in HST/HSD during 2014. Unit operating expenses in Southeast Asia decreased 35% due to the reasons noted above.
 
 
 
8

 
 

 
In the rest of the world, total operating expenses increased by 19% compared to the same period in 2014 due principally to increased costs in Akacias and revisions to estimated costs for prior periods, partially offset by timing of liftings. Unit operating costs increased by 34% due to the reasons noted above.

Unit Depreciation, Depletion and Amortization (DD&A) Expense1,2
   
Three months ended June 30
 
Continuing Operations
 
Gross before royalties
   
Net of royalties
 
($/boe)3
 
2015
   
2014
   
2015
   
2014
 
North America
    15.20       17.55       17.46       20.87  
Southeast Asia
    11.09       9.48       15.77       14.28  
Other
    11.94       10.99       15.74       20.88  
      13.43       13.99       16.80       18.53  


   
Six months ended June 30
 
Continuing Operations
 
Gross before royalties
   
Net of royalties
 
($/boe)3
 
2015
   
2014
   
2015
   
2014
 
North America
    15.20       16.41       17.50       19.26  
Southeast Asia
    11.56       9.54       16.38       14.42  
Other
    11.61       10.71       16.48       20.88  
      13.63       13.42       17.07       17.63  
1.
Represents unit DD&A expenses from consolidated subsidiaries, excluding unit DD&A from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.
3.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.

Total DD&A Expense1,2
   
Three months ended June 30
   
Six months ended June 30
 
Continuing Operations
 
2015
   
2014
   
2015
   
2014
 
($ millions)
           
North America
    252       296       509       562  
Southeast Asia
    112       114       250       230  
Other
    15       20       31       30  
      379       430       790       822  
1.
Represents DD&A expenses from consolidated subsidiaries, excluding DD&A expense from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.

Total DD&A expense in North America decreased by 15% due principally to a lower depletable base in Eagle Ford as a result of an impairment recognized in 2014, partially offset by increased production in the Duvernay and Marcellus areas. Unit DD&A expenses decreased 13% compared to 2014 due to the same reasons noted above.

In Southeast Asia, total DD&A expense remained relatively stable and unit DD&A expense increased by 17% due principally to new well additions in Malaysia that have higher DD&A rates, and downward reserve revisions during 2014, partially offset by lower production in the current quarter and decreased production entitlement in HST/HSD.

In the rest of the world, total DD&A expense decreased 25% due principally to the timing of liftings in Colombia. Unit DD&A expense increased by 9% due to an increased depletable base in Colombia.

Unit DD&A expense for the Company decreased by 4% to $13.43/boe due to the reasons noted above.
 
 
 
9

 
 
 
Impairment1,2
   
Three months ended June 30
   
Six months ended June 30
 
Continuing Operations
 
2015
   
2014
   
2015
   
2014
 
($ millions)
           
Impairment losses
                       
   North America
    -       -       -       -  
   Southeast Asia
    -       -       48       -  
      -       -       48       -  
Impairment reversals
                               
   North America
    -       (32 )     -       (32 )
   Southeast Asia
    -       -       -       -  
      -       (32 )     -       (32 )
Net Impairment
    -       (32 )     48       (32 )
1.
Represents impairment expenses from consolidated subsidiaries, excluding impairment expenses from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.

In conjunction with the acquisition of the Company by Repsol, Repsol has completed a preliminary allocation of the purchase price for purposes of its accounting subsequent to the acquisition date. As part of the purchase price allocation, Repsol estimated fair values of the Company’s assets and liabilities. Based on this preliminary assessment, certain of the Company’s assets could be impaired or subject to impairment reversals in future periods. Management has not recorded any impairments or reversals in the June 30, 2015 financial statements as the estimates are considered preliminary and subject to further review. The magnitude of any impairments or reversals to be recorded in future periods will be determined as the purchase price allocation is finalized. This is expected to occur later in 2015.

Income (Loss) from Joint Ventures1
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
($ millions)
           
TSEUK
    (115 )     (60 )     (321 )     (77 )
Equion
    8       23       7       46  
      (107 )     (37 )     (314 )     (31 )
1.
Represents the Company’s proportionate interest in joint ventures.

The net loss in TSEUK increased by $55 million compared to 2014 due principally to impairments to the decommissioning obligation and asset caused by the change in discount rate used to measure the decommissioning liabilities and the decreased revenue from lower realized oil and liquids prices, partially offset by lower operating costs.

The net income in Equion of $8 million after-tax as compared to income of $23 million in 2014 is due principally to revenue from lower realized commodity prices and increased DD&A expense from new production, partially offset by lower current tax.
 
 
 
10

 
 

 
Corporate and Other 1,2
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
($ millions)
           
General and administrative (G&A) expense
    83       103       167       205  
Dry hole expense
    -       11       13       28  
Exploration expense
    98       44       122       83  
Finance costs
    79       83       163       166  
Share-based payments expense (recovery)
    (19 )     23       (24 )     (9 )
(Gain) loss on held-for-trading financial instruments
    131       171       (62 )     231  
(Gain) loss on asset disposals
    4       5       9       (554 )
Other income
    41       30       81       77  
Other expenses, net
    130       37       146       44  
1.
Represents corporate and other expense from consolidated subsidiaries, excluding corporate and other expense from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.

G&A expense decreased by $20 million relative to 2014 due principally to lower workforce costs.

Exploration expense increased by $54 million due principally to change of control provisions in seismic contracts primarily in North America and the North Sea as a result of the acquisition of Talisman by Repsol.

Finance costs include interest on long-term debt (including current portion), other finance charges and accretion expense relating to decommissioning liabilities. Finance costs were relatively stable as compared to prior year.

Share-based payments recovery during the three month period ended June 30, 2015 was $19 million due principally to the settlement of share-based payments in conjunction with the acquisition of the Company by Repsol.

Talisman recorded a loss on held-for-trading financial instruments of $131 million, due principally to an increase in oil and gas forward prices in comparison to the first quarter of 2015. See the "Risk Management" section of this MD&A for further details regarding the Company’s financial instruments.

Other income of $41 million consists primarily of marketing and other income of $21 million and pipeline and customer treating tariffs of $11 million.

Other expense of $130 million includes a foreign exchange loss of $27 million, restructuring costs of $23 million and $39 million in transaction costs related to the acquisition of the Company by Repsol and other miscellaneous expenses.
 
 
 
 
11

 
 

 
INCOME TAXES1,2
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
($ millions)
           
Income (loss) from continuing operations before taxes
    (567 )     (60 )     (918 )     702  
Less: Petroleum Revenue Tax (PRT)
                               
Current
    2       -       4       7  
Deferred
    -       (5 )     (3 )     (2 )
Total PRT
    2       (5 )     1       5  
      (569 )     (55 )     (919 )     697  
Income tax expense (recovery)
                               
Current income tax
    63       134       131       258  
Deferred income tax
    256       18       235       65  
Total income tax expense
    319       152       366       323  
Effective income tax rate (%)
    (56 )     (276 )     (40 )     46  
1.
Represents income taxes from consolidated subsidiaries, excluding income taxes from equity investees.
2.
Excludes results of discontinued operations associated with the expected Norway disposition.
 
 
The effective tax rate is expressed as a percentage of income before taxes adjusted for PRT, which is deductible in determining taxable income.  The effective tax rate in the second quarter of 2015 was impacted by pre-tax losses of $233 million in North America where tax rates are between 27% and 39%.

For the three month period ended June 30, 2015, the current tax expense decreased to $63 million compared to $134 million in 2014 due principally to lower net revenues.

For the three month period ended June 30, 2015, the deferred tax expense was $256 million compared to a deferred tax expense of $18 million in 2014.

Impacts to the effective tax rate and the deferred tax expense are principally due to:
 
·
Jurisdictional mix of income
 
·
De-recognition of Canadian tax assets as a result of the Repsol acquisition;
 
·
Foreign exchange on foreign denominated tax pools;
 
·
Substantially enacted Alberta corporate tax rate increase; and
 
·
The non-recognition of losses in the United States and exploration blocks.
 
 
 
12

 
 
 
CAPITAL EXPENDITURES1
   
Three months ended June 30
   
Six months ended June 30
 
   
2015
   
2014
   
2015
   
2014
 
($ millions)
                       
North America
    133       273       331       601  
Southeast Asia
    65       99       108       206  
Other
    7       43       29       97  
Exploration and development expenditure from subsidiaries2
    205       415       468       904  
Corporate, IS and Administrative
    16       16       19       20  
Acquisitions
    8       13       8       13  
Proceeds of dispositions
    -       (52 )     -       (1,392
Net capital expenditure for subsidiaries
    229       392       495       (455 )
                                 
TSEUK
    101       169       210       333  
Equion
    10       27       20       34  
Exploration and development expenditure from joint ventures3
    111       196       230       367  
                                 
Net capital expenditure for consolidated subsidiaries and joint ventures
    340       588       725       (88
1.   
Excludes results of discontinued operations associated with the expected Norway disposition.
2.
Excludes exploration expense of $98 million (2014 - $44 million) for the three month period ended June 30, 2015 and $122 million (2014 - $83 million) for the six month period ended June 30, 2015.
3.   
Represents the Company’s proportionate interest, excluding exploration expensed of $1 million net in TSEUK (2014 - $1 million) for the three month period ended June 30, 2015 and $1 million net in TSEUK (2014 - $3 million) for the six month period ended June 30, 2015.
 
Capital expenditures, excluding exploration expense, decreased in the second quarter of 2015 compared to the same quarter in 2014 due principally to decreased spending across all regions.

North America capital expenditures during the quarter totalled $133 million, a decrease of 51% from 2014. Of this, $120 million related to development activity, with the majority spent in the Eagle Ford, Marcellus and Edson areas. The remaining capital was mainly invested in exploration drilling activities, largely in the Duvernay.

In Southeast Asia, capital expenditures of $65 million included $25 million on development, with the majority spent in Indonesia and Malaysia. The majority of the remaining expenditures were exploration costs focused in Malaysia.

In the rest of the world, capital expenditures of $7 million included development activities in Akacias and exploration and evaluation activities in Colombia and the Kurdistan Region of Iraq.

In the TSEUK joint venture, net capital expenditures of $101 million consisted primarily of development activities at Montrose, Tweedsmuir and Flyndre/Cawdor. In the Equion joint venture, net capital expenditures of $10 million were principally for development activities in Piedemonte.
 
 
 
13

 
 

 
DISCONTINUED OPERATIONS
During the three month period ended June 30, 2015, Talisman and Repsol entered into a purchase and sale agreement whereby Repsol will acquire substantially all of the assets and liabilities of Talisman’s Norwegian operations (the “Disposal Group”) for proceeds of $47 million, including working capital. The transaction is expected to close prior to September 30, 2015.

In the interim condensed Consolidated Financial Statements, the Disposal Group’s assets and liabilities were reclassified as current assets or liabilities held for sale, its operating results included in net loss from discontinued operations and comparative period balances restated. The Disposal Group was remeasured to its recoverable amount of $47 million at June 30, 2015 and as a result, a loss of $472 million pre-tax ($292 million after-tax) was recorded in Norway.

Income Statement for Discontinued Operations
Three months ended June 30
 
2015
   
2014
 
Revenue
    83       108  
Expenses
    (289 )     (211 )
      (206 )     (103 )
Loss on remeasurement of discontinued operations
    (472 )     -  
Loss from discontinued operations before taxes
    (678 )     (103 )
Income taxes
               
     Current income tax recovery
    (6 )     (5 )
     Deferred income tax recovery
    (308 )     (68 )
Loss from discontinued operations
    (364 )     (30 )

       
Six months ended June 30
 
2015
   
2014
 
Revenue
    144       273  
Expenses
    (401 )     (547 )
      (257 )     (274 )
Loss on remeasurement of discontinued operations
    (472 )     -  
Loss from discontinued operations before taxes
    (729 )     (274 )
Income taxes
               
     Current income tax recovery
    (7 )     (5 )
     Deferred income tax recovery
    (316 )     (149 )
Loss from discontinued operations
    (406 )     (120 )

During the three month period ended June 30, 2015, the Company recorded an impairment of $118 million in Norway E&E assets to fully impair costs associated with a license after a dry exploration well confirmed the license to be uneconomic.  In addition, the Company recorded an impairment of $30 million in Norway, due to an increase in the decommissioning obligation and asset caused by a 1.5% decrease in the credit-adjusted discount rate used to measure decommissioning liabilities.
 
 
 
14

 
 

 
Cash Flow for Discontinued Operations
The cash flows from discontinued operations, including changes in related non-cash working capital items, are as follows:
   
Three months ended June 30
   
Six months ended June 30
 
Discontinued Operations
 
2015
   
2014
   
2015
   
2014
 
Operating
    (16 )     64       (24 )     37  
Investing
    (9 )     (76 )     (37 )     (125 )
Cash flows from discontinued operations
    (25 )     (12 )     (61 )     (88 )

Netbacks for Discontinued Operations
   
Three months ended June 30
 
   
Gross before royalties
   
Net of royalties
 
Discontinued Operations
 
2015
   
2014
   
2015
   
2014
 
Total $/boe (5.615mcf=1boe)1
                       
Sales price
    56.50       92.66       56.50       92.66  
Transportation
    3.40       3.68       3.40       3.68  
Operating costs
    35.51       62.47       35.51       62.47  
DD&A
    29.00       39.32       29.00       39.32  
      (11.41 )     (12.81 )     (11.41 )     (12.81 )


   
Six months ended June 30
 
   
Gross before royalties
   
Net of royalties
 
Discontinued Operations
 
2015
   
2014
   
2015
   
2014
 
Total $/boe (5.615mcf=1boe)1
                       
Sales price
    52.76       94.55       52.76       94.55  
Transportation
    3.11       4.18       3.11       4.18  
Operating costs
    35.72       58.23       35.72       58.23  
DD&A
    30.39       44.81       30.39       44.81  
      (16.46 )     (12.67 )     (16.46 )     (12.67 )
1.
For the period ended June 30, 2015, the Company adjusted the conversion ratio of barrels of oil equivalent (boe) of natural gas for one barrel of oil to a ratio of 5.615:1 from 6:1. Comparative periods have been adjusted to reflect the change in conversion.

Commodity Pricing for Discontinued Operations
   
Three months ended June 30
   
Six months ended June 30
 
Discontinued Operations
 
2015
   
2014
   
2015
   
2014
 
Oil and liquids ($/bbl)
    62.14       107.48       56.12       105.45  
Natural gas ($/mcf)
    6.74       7.82       7.10       8.67  
      56.50       92.66       52.76       94.55  
 
 
 
 
15

 
 

 
LIQUIDITY AND CAPITAL RESOURCES
Talisman’s gross debt at June 30, 2015 was $4.8 billion, including loans from related parties of $831 million, compared to $5.1 billion at December 31, 2014.

During the quarter, the Company generated $1.0 billion of cash provided by operating activities and incurred capital expenditures of $232 million.

Talisman’s capital structure consists of shareholder's equity and debt. The Company makes adjustments to its capital structure based on changes in economic conditions and its planned requirements.

On May 8, 2015, TE Holdings SARL., a subsidiary of Talisman, entered into a $500 million revolving facility with Repsol Tesoreria Y Gestion Financiera, S.A. The facility matures on May 8, 2016 and bears an interest rate of LIBOR+0.80%.  See "Transactions with Related Parties" section.

On May 8, 2015, Talisman also entered into a $1.0 billion revolving facility with Repsol Energy Resources Canada, Inc. The facility matures on May 8, 2018 and bears an interest rate of LIBOR+1.20%. See "Transactions with Related Parties" section.

In May 2014, the Company renewed its universal shelf prospectus under the Multi-Jurisdictional Disclosure System pursuant to which it may issue up to $3.5 billion of debt securities, common shares, preferred shares, subscription receipts, warrants and units. The Company simultaneously renewed its medium-term note shelf prospectus in Canada pursuant to which it may issue up to C$1.0 billion of medium-term notes in Canada. Both shelf prospectuses remain valid over a 25-month period.

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 and related parties credit facilities. The Company has in place committed bank facilities totaling $3.2 billion, all of which are committed through 2019. At June 30, 2015, there were no drawings in the form of bankers’ acceptance or commercial paper, and there was $85 million in letters of credit support outstanding. Available borrowing capacity under committed bank facilities was $3.1 billion at June 30, 2015. In addition, the Company also has in place related party facilities from Repsol totaling $1.5 billion, $500 million of which is committed through 2016 with the remainder committed through 2018. At June 30, 2015, $831 million were drawn under these facilities.

The authorized amount under the Company’s commercial paper program is $1.0 billion, but the amount available under this program is limited to the availability of backup funds under the Company’s Facility No. 1. For additional information regarding the Company’s Facilities, refer to note 18 to the Company’s 2014 audited Consolidated Financial Statements and note 14 in the Company’s interim condensed Consolidated Financial Statements.

In addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted.  At June 30, 2015, demand letters of credit guaranteed by the Company totaling $1.3 billion were issued, of which $1.2 billion were issued from uncommitted facilities. Of that total, $1.0 billion is provided as security for the costs of decommissioning obligations in the UK, as described below. The remaining outstanding letters of credit relate primarily to a retirement compensation arrangement, guarantees of minimum work commitments and decommissioning obligations in other areas.
 
TSEUK is required to provide letters of credit as security in relation to certain decommissioning obligations in the UK pursuant to contractual arrangements under Decommissioning Security Agreements (DSAs). At the commencement of the joint venture, Addax Petroleum UK Limited (Addax) assumed 49% of the decommissioning obligations of TSEUK. Addax’s parent company, China Petrochemical Corporation (Sinopec), has provided an unconditional and irrevocable guarantee for this 49% of the UK decommissioning obligations.
 
 
 
 
16

 

 
The UK government passed legislation in 2013 which provides for a contractual instrument, known as a Decommissioning Relief Deed, for the Government to guarantee tax relief on decommissioning costs at 50%, allowing security under DSAs to be posted on an after-tax basis and reducing the amount of letters of credit required to be posted by 50%. TSEUK has entered into a Decommissioning Relief Deed with the UK government and continues to negotiate with counterparties to amend all DSAs accordingly. Tax relief guaranteed by the UK government is limited to corporate tax paid since 2002. Under the limitation, TSEUK’s tax relief is capped at $2.2 billion, representing corporate income taxes paid and recoverable since 2002.

At June 30, 2015, TSEUK has $2.6 billion of demand shared facilities in place under which letters of credit of $1.9 billion have been issued. The Company guarantees 51% of all letters of credit issued under these shared facilities.

The Company also has obligations to fund, in proportion of its shareholding, the losses and net asset deficiency of TSEUK which arises from the Company’s past practice of funding TSEUK’s cash flow deficiencies, and the expectation that cash flow deficiencies will continue to be funded through 2015. In addition, the Company, in proportion of its shareholding, has provided certain guarantees to fund TSEUK’s decommissioning obligation if TSEUK is unable to, and the shareholders of TSEUK have provided equity funding facilities to TSEUK which include funding decommissioning liabilities. As such, the Company has recognized a negative investment value from the application of equity accounting. The Company’s obligation to fund TSEUK will increase to the extent future losses are generated within TSEUK. In addition, future contributions to the TSEUK joint venture could be impaired to the extent recoverability is not probable.

Any changes to decommissioning estimates influence the value of letters of credit to be provided pursuant to the DSAs. In addition, the extent to which shared facility capacity is available, and the cost of that capacity, is influenced by the Company’s investment grade credit rating.

Talisman monitors its balance sheet with reference to its liquidity and a debt-to-cash flow ratio. The main factors in assessing the Company’s liquidity are cash flow, including cash flow from equity accounted entities (defined in accordance with the Company’s debt covenant as cash provided by operating activities before adjusting for changes in non-cash working capital, and exploration expenditure), cash provided by and used in investing activities and available bank credit facilities and related parties facilities. The debt-to-cash flow ratio is calculated using debt (calculated by adding the gross debt and bank indebtedness, loans from related parties, production payments and finance lease) divided by cash flow for the year.
 
 
 
17

 
 

 
The Company 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. For the trailing 12-month period ended June 30, 2015, the debt-to-cash flow ratio was 1.8:1. Considering the current commodity price environment, Talisman may require support from Repsol to ensure continued compliance with its liquidity and covenant requirements.

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, 2015, approximately 84% of the Company's trade accounts receivable were aged less than 90 days and the largest single counterparty exposure, accounting for 7% of the total, was with a highly rated counterparty.  Concentration of counterparty credit risk is managed by having a broad domestic and international customer base consisting primarily of highly rated counterparties.

During the three month period ended June 30, 2015, Talisman declared common share dividends of $0.1125 per common share for an aggregate dividend of $117 million. Subsequent to June 30, 2015, there was no movement  in the number of common shares outstanding resulting in 1,044,166,027 common shares outstanding at July 30, 2015.

In the first quarter of 2015, Talisman declared preferred share dividends of C$0.2625 per share for an aggregate dividend of $2 million. On May 8, 2015, Repsol’s acquisition of Talisman was completed, whereby Repsol acquired all outstanding common and preferred shares of Talisman. The outstanding preferred shares were subsequently converted on a 1:1 basis into common shares. Consequently there were no preferred shares outstanding at June 30, 2015.

Subsequent to the acquisition of Talisman by Repsol on May 8, 2015, all share-based payment units have been settled and paid by May 29, 2015.  At June 30, 2015 there were no stock options, RSUs, deferred share units (DSU) or long-term PSUs outstanding.

Talisman continually monitors its portfolio of assets and investigates business opportunities in the oil and gas sector. The Company may make acquisitions, investments or dispositions, some of which may be material. In connection with any acquisition or investment, Talisman may incur debt.

For additional information regarding the Company’s liquidity and capital resources, refer to note 20 to the Company’s 2014 audited Consolidated Financial Statements and notes 14, 17 and 18 in the Company’s interim condensed Consolidated Financial Statements.
 
 
 
18

 
 

 
SENSITIVITIES4
Talisman’s financial performance is affected by factors such as changes in production volumes, commodity prices and exchange rates. The estimated annualized impact of these factors for 2015 (excluding the effect of derivative contracts) is summarized in the following table, based on a Dated Brent oil price of approximately $63.50/bbl, a NYMEX natural gas price of approximately $3.12/mmbtu and exchange rates of US$0.80=C$1 and UK£1=US$1.51.

(millions of $)
 
Net Income
   
Cash Provided by Operating Activities3
 
Volume changes
           
Oil – 10,000 bbls/d
    31       112  
Natural gas – 60 mmcf/d
    5       45  
Price changes1
               
Oil – $1.00/bbl
    25       31  
Natural gas (North America)2 – $0.10/mcf
    23       25  
Exchange rate changes
               
US$/C$ decreased by US$0.01
    (4 )     (6 )
US$/UK£ increased by US$0.02
    (7 )     7  
1.
The impact of price changes excludes the effect of commodity derivatives.  See specific commodity derivative terms in the ‘Risk Management’ section of this MD&A, and note 17 to the interim condensed Consolidated Financial Statements.
2.
Price sensitivity on natural gas relates to North America natural gas only. The Company’s exposure to changes in the natural gas prices in Norway, Vietnam and Colombia is not material. Most of the natural gas prices in Indonesia and Malaysia are based on the price of crude oil or high-sulphur fuel oil and, accordingly, have been included in the price sensitivity for oil. Most of the remaining part of Indonesia natural gas production is sold at a fixed price.
3.
Changes in cash flow provided by operating activities excludes TSEUK and Equion due to the application of equity accounting.
4.
Excludes results of discontinued operations associated with the expected Norway disposition.


COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
As part of its normal business, the Company has entered into arrangements and incurred obligations that will impact the Company’s future operations and liquidity, some of which are reflected as liabilities in the Consolidated Financial Statements at year-end. The principal commitments of the Company are in the form of debt repayments, decommissioning obligations, lease commitments relating to corporate offices and ocean-going vessels, firm commitments for gathering, processing and transmission services, minimum work commitments under various international agreements, other service contracts and fixed price commodity sales contracts.

Additional disclosure of the Company’s decommissioning liabilities, debt repayment obligations and significant commitments can be found in notes 8, 16, 18, 19 and 24 to the 2014 audited Consolidated Financial Statements. A discussion of the Company’s derivative financial instruments and commodity sales contracts can be found in the “Risk Management” section of this MD&A.

There have been no additional significant changes in the Company’s expected future commitments, and the timing of those payments, since December 31, 2014.
 
 
 
19

 
 

 
TRANSACTIONS WITH RELATED PARTIES
Repsol’s acquisition of Talisman closed on May 8, 2015. During the period from May 8, 2015 to June 30, 2015, Talisman has entered into the following transactions, with Repsol, its ultimate parent.

On May 8, 2015, TE Holdings SARL., a subsidiary of Talisman, entered into a $500 million revolving facility with Repsol Tesoreria Y Gestion Financiera, S.A. The facility matures on May 8, 2016 and bears an interest rate of LIBOR+0.80%.  As at June 30, 2015, $197 million has been drawn under this facility.  Interest expense related to the facility recognized by Talisman during the period was less than $1 million.

On May 8, 2015, Talisman also entered into a $1.0 billion revolving facility with Repsol Energy Resources Canada, Inc. The facility matures on May 8, 2018 and bears an interest rate of LIBOR+1.20%. As at June 30, 2015, $634 million has been drawn under this facility. Interest expense related to the facility recognized by Talisman during the period was $1 million.

During the three month period ended June 30, 2015, Talisman and Repsol entered into a purchase and sale agreement whereby Repsol will acquire substantially all of the assets and liabilities of Talisman’s Norwegian operations. In the Company’s opinion, the consideration for this transaction represents fair value. For further information, see the "Discontinued Operations" section in this MD&A and note 4 in the Company’s interim condensed Consolidated Financial Statements.

In June 2015, Talisman (Algeria) B.V. (“TABV”) entered into a Sale and Purchase Agreement with Repsol Trading S.A., a subsidiary of Repsol, under which TABV will sell to Repsol approximately 615,000 barrels of Saharan Blend Crude Oil for an estimated $38 million. The sale price per barrel is based on June Dated Brent price of US$61.69/barrel minus the agreed differential of US$0.28/barrel. As at June 30, 2015, the amount included in accounts receivable balance as a result of this sale was $38 million. 

In June 2014, the shareholders of TSEUK provided an equity funding facility totaling $1.2 billion to TSEUK, of which Talisman was committed to $612 million, for the purpose of funding capital, decommissioning and operating expenditures of TSEUK. In March 2015, the maximum available amount was increased to $1.5 billion. This facility expired on June 30, 2015. During the period from July 1, 2014 to December 31, 2014, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $625 million under this facility, of which Talisman’s share was $319 million. During the six month period ended June 30, 2015, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $710 million under this facility, of which Talisman’s share was $362 million. For further information see note 6 and note 19 in the interim condensed Consolidated Financial Statements.

In June 2015, the shareholders of TSEUK provided a new equity funding facility of $1.7 billion, of which Talisman is committed to $867 million, for the purpose of funding capital, decommissioning and operating expenditures of TSEUK. This facility is effective from July 1, 2015 and expires on December 31, 2016.
 
 
 
20

 
 

 
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. In January 2015, an agreement was reached by the shareholders of TSEUK, in which the quarterly principal and interest payments of the facility were deferred until July 31, 2015. As at June 30, 2015, $1.0 billion has been drawn under this facility, of which Talisman’s share is $514 million (December 31, 2014 - $514 million).
 
In July 2015, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $1.06 billion, of which Talisman’s share was $541 million, which settled remaining shareholder loans of $1.01 billion and accrued interest of $52 million, of which Talisman’s share was $514 million and $27 million, respectively.

RISK MANAGEMENT
Talisman monitors its exposure to variations in commodity prices, interest rates and foreign exchange rates.  In response, Talisman may periodically enter into physical delivery transactions for commodities of fixed or collared prices and into derivative financial instruments to reduce exposure to unfavourable movements in commodity prices, interest rates and foreign exchange rates.  The terms of these contracts or instruments may limit the benefit of favourable changes in commodity prices, interest rates and currency values, and may result in financial or opportunity loss due to delivery commitments, royalty rates and counterparty risks associated with contracts.

During the three and six month periods ended June 30, 2015, the Company received proceeds of $817 million and $1.3 billion, respectively, for settlement of its oil and gas derivative contracts, which included proceeds related to the liquidation of outstanding instruments. As at June 30, 2015, there was less than $1 million of risk management liability associated with the Company’s outstanding fixed price power swaps.

During the three month period ended June 30, 2015, the Company recorded a loss on held-for-trading financial instruments of $131 million (2014 - $171 million loss) and a gain of $62 million for the six month period ended June 30, 2015 (2014 - $231 million loss).

Subsequent to June 30, 2015, the Company has not entered into any additional new commodity price risk management derivative contracts.

USE OF ESTIMATES AND JUDGMENTS
The preparation of financial statements requires management to make estimates and assumptions that affect reported assets and liabilities, disclosures of contingencies and revenues and expenses. Management is required to adopt accounting policies that require the use of significant estimates and judgment. Actual results could differ materially from those estimates. Judgments and estimates are reviewed by management on a regular basis.

As a result of Repsol’s acquisition of Talisman in May 2015, credit-adjusted rates specific to Repsol have been used to discount Talisman’s decommissioning liabilities as at June 30, 2015. The provision has been discounted using a weighted average credit-adjusted rate of 2.0% at June 30, 2015 (December 31, 2014 – 3.5%), which excludes the impact of inflation.

For additional information regarding the use of estimates and judgments refer to the notes to the Company’s audited Consolidated Financial Statements and Annual MD&A for the year ended December 31, 2014.
 
 
 
21

 
 

 
CHANGES IN 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 Company’s 2014 annual Consolidated Financial Statements except for the following:

Employee Benefits
 
·
IAS 19 Employee Benefits - Amendments to IAS 19. The amended standard clarified the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service, in that contributions can be, but are not required to be recognized as a reduction in the service cost in the period in which the related service is rendered. The amendment is effective for annual periods beginning on or after July 1, 2014. Application of the amended standard does not have an impact on the Company’s financial statements as it reflects current accounting policy of the Company.

Operating Segments
 
·
IFRS 8 Operating Segments - Amendments to IFRS 8. The amended standard requires (i) disclosure of judgments made by management in aggregating segments, and (ii) a reconciliation of segmented assets to the Company’s assets when segment assets are reported. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment does not have an impact on the Company’s financial position or performance.

Share-based Payments
 
·
IFRS 2 Share-Based Payments - Amendments to IFRS 2. The standard amends the definitions of “vesting condition” and “market condition” and adds definitions for “performance condition” and “service condition”. The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment does not have an impact on the Company as it reflects current accounting policy of the Company.

Fair Value Measurement
 
·
IFRS 13 Fair Value Measurement - Amendments to IFRS 13. The amended standard clarifies that short-term receivables and payables with no stated interest rates can be measured at invoice amounts if the effect of discounting is immaterial. It also clarifies that portfolio exception can be applied not only to financial assets and liabilities, but also to other contracts within scope of IAS 39 and IFRS 9. The amendment is effective for annual periods beginning on or after July 1, 2014. The application does not have a significant impact on the Company’s financial statements.
 
Related Parties
 
·
IAS 24 Related Parties - Amendments to IAS 24. The amended standard (i) revises the definition of related party to include an entity that provides key management personnel services to the reporting entity or its parent, and (ii) clarifies related disclosure requirements. The amendment does not have an impact on the Company’s financial statements as there is no entity performing key management services for the Company.
 
 
 
22

 
 

 
b) Accounting Pronouncements Not Yet Adopted
The Company continues to assess the impact of adopting the following pronouncements.

Financial Instruments
 
·
IFRS 9 Financial Instruments. IFRS 9 (July 2014) replaces earlier versions of IFRS 9 that had not yet been adopted by the Company and supersedes IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new models for classification and measurement of financial instruments, hedge accounting and impairment of financial assets and is mandatorily effective for periods beginning on or after January 1, 2018. The Company continues to review the standard as it is updated and monitor its impact on the Company’s financial statements.

Revenue from Contracts with Customers
 
·
IFRS 15 Revenue from Contracts with Customers. IFRS 15 specifies that revenue should be recognized when an entity transfers control of goods or services at the amount the entity expects to be entitled to as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard supersedes IAS 18 Revenue, IAS 11 Construction Contracts, and a number of revenue-related interpretations. IFRS 15 will be effective for annual periods beginning on or after January 1, 2017. In an exposure draft in May 2015, the effective date of IFRS 15 was proposed to be deferred to January 1, 2018. Application of the standard is mandatory and early adoption is permitted. The Company has not yet determined the impact of the standard on the Company’s financial statements.

INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter, Talisman was acquired by Repsol which did not result in a material change to Internal Controls over Financial Reporting (ICFR) as of June 30, 2015. Integration with Repsol will likely impact ICFR over time; however, considering that ICFR of both companies are based on the criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework), it is not expected that these changes will materially affect ICFR.

LEGAL PROCEEDINGS 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. A summary of specific legal proceedings and contingencies is as follows:

Galley Pipeline
In August 2012, a portion of the Galley pipeline, in which TSEUK has a 67.41% interest, suffered an upheaval buckle.

In September 2012, TSEUK, in which Talisman holds a 51% interest, claimed for the suffered losses as a consequence of the incidence to Oleum Insurance Company (''Oleum''), a wholly-owned Talisman subsidiary. TSEUK delivered a proof of loss seeking recovery under the insuring agreement of $315 million.
 
In November 2014, TSEUK delivered extensive documentation purporting to substantiate its claim. The information delivered to date does not support a determination of coverage and Oleum is seeking additional information from TSEUK to facilitate final coverage determination.
 
 
 
23

 
 

 
Addax Arbitration
On July 13, 2015, Addax Petroleum UK Limited and Sinopec International Petroleum Exploration and Production Corporation, filed a Notice of Arbitration against Talisman Energy Inc. and Talisman Colombia Holdco Limited in connection with the purchase of 49% shares of Talisman Energy (UK) Limited (now known as TSEUK). In the Company’s opinion, the claims included in the Notice of Arbitration are without merit.

Government and Legal Proceedings with Tax Implications
Specific tax claims which Talisman and its subsidiaries are parties to at June 30, 2015 are as follows:

Canada
The Canadian tax authorities, Canada Revenue Agency, ("CRA") regularly inspect the tax matters of the Talisman Group companies based in Canada. In 2015, verification and investigation activities related to the years 2006-2010 have been made.

As part of these proceedings, the CRA has questioned certain restructuring transactions, although this line of questioning has not resulted in court proceedings to date.

Indonesia
Indonesian Corporate Tax Authorities have been questioning various aspects of the taxation of permanent establishments that Talisman Group has in the country. These proceedings are pending a court hearing.

Malaysia
Talisman Malaysia Ltd. and Talisman Malaysia (PM3) Ltd., the Talisman Group's operating subsidiaries in Malaysia, have received notifications from the Inland Revenue Board (IRB) in respect of the years 2007, 2008 and 2011 questioning, primarily, the deductibility of certain costs. These proceedings are pending a court hearing.

Norway
As part of the process of verifying the tax affairs of Talisman Energy Norge AS, the Talisman Group's subsidiary in Norway, the Norwegian tax authorities have questioned the deductibility of certain items. These proceedings are pending a court hearing.

Timor-Leste
The authorities of Timor-Leste, questioned the deduction by TLM Resources (JPDA 06-105) Pty Limited, the Talisman Group's subsidiary in East Timor, of certain expenses for income tax purposes. This line of questioning is at a very preliminary stage of debate with the authorities.
 
 
 
 
24

 
 

 
ADVISORIES
Forward-Looking Statements
This interim MD&A contains information that constitutes “forward-looking information” or “forward-looking statements” (collectively “forward-looking information”) within the meaning of applicable securities legislation.

This forward-looking information includes, but is not limited to, statements regarding:

 
·
Business strategy, plans, and priorities;
 
·
Expected capital expenditures, timing and planned focus of such spending;
 
·
The estimated impact on Talisman’s financial performance from changes in production volumes, commodity prices and exchange rates;
 
·
Expected sources of capital to fund the Company’s capital program and potential acquisitions, investments or dispositions;
 
·
Anticipated funding of the decommissioning liabilities;
 
·
Expected future payment commitments and the estimated timing of such payments;
 
·
Expected closing of the disposition of its Norwegian operations to Repsol;
 
·
Matters with respect to continued compliance with covenants of credit facilities; and
 
·
Other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.
 

Statements concerning oil and gas reserves contained in this interim MD&A may be deemed to be forward-looking information as they involve the implied assessment that the resources described can be profitably produced in the future.

The  factors or assumptions on which the forward-looking information is based include: projected capital investment levels; the flexibility of capital spending plans and the associated sources of funding; the successful and timely implementation of capital projects; the continuation of tax, royalty and regulatory regimes; ability to obtain regulatory and partner approval; commodity price and cost assumptions; and other risks and uncertainties described in the filings made by the Company with securities regulatory authorities.  The Company believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.  Forward-looking information for periods past 2015 assumes escalating commodity prices.
 
 
 
25

 
 

 
Undue reliance should not be placed on forward-looking information.  Forward-looking information is based on current expectations, estimates and projections that involve a number of risks which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this MD&A.  The material risk factors include, but are not limited to:

 
·
The risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas;
 
·
Risks and uncertainties involving geology of oil and gas deposits;
 
·
Risks associated with project management, project delays and / or cost overruns;
 
·
Uncertainty related to securing sufficient egress and access to markets;
 
·
The uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk;
 
·
The uncertainty of estimates and projections relating to production, costs and expenses, including decommissioning liabilities;
 
·
Risks related to strategic and capital allocation decisions, including potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
 
·
Fluctuations in oil and gas prices, foreign currency exchange rates, interest rates and tax or royalty rates;
 
·
The outcome and effects of any future acquisitions and dispositions;
 
·
Health, safety, security and environmental risks, including risks related to the possibility of major accidents;
 
·
Environmental regulatory and compliance risks, including with respect to greenhouse gases and hydraulic fracturing;
 
·
Uncertainties as to access to capital, including the availability and cost of credit and other financing, and changes in capital markets;
 
·
Risks in conducting foreign operations (for example, civil, political and fiscal instability and corruption);
 
·
Risks related to the attraction, retention and development of personnel;
 
·
Changes in general economic and business conditions;
 
·
The possibility that government policies, regulations or laws may change or governmental approvals may be delayed or withheld; and
 
·
Results of the Company’s risk mitigation strategies, including insurance activities.

The foregoing list of risk factors is not exhaustive. Additional information on these and other factors which could affect the Company’s operations or financial results are included in the Company’s most recent AIF and Annual Report.  In addition, information is available in the Company’s other reports on file with Canadian securities regulatory authorities and the SEC.

Forward-looking information is based on the estimates and opinions of the Company’s management at the time the information is presented.  The Company assumes no obligation to update forward-looking information should circumstances or management’s estimates or opinions change, except as required by law.
 
 
 
26

 
 

 
Advisory – Oil and Gas Information
Talisman makes reference to production volumes throughout this interim MD&A. Where not otherwise indicated, such production volumes are stated on a gross basis, which means they are stated prior to the deduction of royalties and similar payments. In the US, net production volumes are reported after the deduction of these amounts.

Talisman also discloses netbacks in this interim MD&A.  Netbacks per boe are calculated by deducting from sales price associated royalties, operating and transportation costs.

ABBREVIATIONS AND DEFINITIONS
The following abbreviations and definitions are used in this MD&A:

AIF
Annual Information Form
bbl
barrel
bbls
barrels
bbls/d
barrels per day
bcf
billion cubic feet
boe
barrels of oil equivalent
boe/d
barrels of oil equivalent per day
COSO
Committee of the Sponsoring Organizations of the Treadway Commission
C$
Canadian dollar
DD&A
Depreciation, depletion and amortization
DSA
Decommissioning Security Agreements
DSU
Deferred share unit
E&E
Exploration and evaluation
EU
European Union
G&A
General and administrative
GAAP
Generally Accepted Accounting Principles
GHG
Greenhouse gas emissions
gj
Gigajoule
IFRS
International Financial Reporting Standards
LIBOR
London Interbank Offered Rate
LLS
Light Louisiana Sweet
LNG
Liquefied Natural Gas
mbbls/d
thousand barrels per day
mboe/d
thousand barrels of oil equivalent per day
mcf
thousand cubic feet
mcf/d
thousand cubic feet per day
mmbbls
million barrels
mmboe
million barrels of oil equivalent
mmbtu
million British thermal units
mmcf/d
million cubic feet per day
mmcfe/d
million cubic feet equivalent per day
MWh
megawatt hour
NGL
Natural Gas Liquids
NI
National Instrument
NOK
Norwegian kroner
NYMEX
New York Mercantile Exchange
PP&E
Property, plant and equipment
 
 
 
27

 
 
 
PRT
Petroleum Revenue Tax
PSC
Production Sharing Contract
PSU
Performance share unit
RSU
Restricted share unit
SEC
US Securities and Exchange Commission
tcf
trillion cubic feet
UK
United Kingdom
UK£
Pound sterling
US
United States of America
US$ or $
United States dollar
WCS
Western Canadian Select
WTI
West Texas Intermediate

 
Gross acres means the total number of acres in which Talisman has a working interest.  Net acres means the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.

Gross production means Talisman’s interest in production volumes (through working interests and royalty interests) before the deduction of royalties. Net production means Talisman’s interest in production volumes after deduction of royalties payable by Talisman.

Gross wells means the total number of wells in which the Company has a working interest. Net wells means the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof.

Conversion and equivalency factors
 
Imperial
Metric
1 ton
=0.907 tonnes
1 acre
=0.40 hectares
1 barrel
=0.159 cubic metres
1 cubic foot
=0.0282 cubic metres
 

28







Exhibit 99.3
 
Talisman Energy Inc.
 
Consolidated Financial Ratio
 
June 30, 2015
 
(unaudited)
 

 

 
The following financial ratios are provided in connection with the Company’s shelf prospectuses filed with Canadian and US securities regulatory authorities and are based on the Company’s Consolidated Financial Statements that are prepared in accordance with International Financial Reporting Standards.
 

 
The interest coverage ratio is for the 12-month period ended June 30, 2015.
 
June 30, 2015
     
Interest coverage (times)
     
Income1
    (8.34 )
Income from continuing operations2
    (4.71 )

1
Net income plus income taxes and interest expense, divided by the sum of interest expense and capitalized interest.
2
Income from continuing operations plus income taxes and interest expense from continuing operations; divided by the sum of interest expense and capitalized interest from continuing operations.
 

 


 




Exhibit 99.4
 
FORM 52-109F2
 
CERTIFICATION OF INTERIM FILINGS
 
I, Luis Cabra Dueñas, Vice-Chairman and Chief Executive Officer of Talisman Energy Inc., certify the following:
 
1.
I have reviewed the interim financial report and interim MD&A (together the "interim filings") of Talisman Energy Inc. (the "issuer") for the interim period ended June 30, 2015.
 
2.
Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
 
3.
Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
 
4.
The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
 
5.
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings:
 
 
(a)
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:
 
 
(i)
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
 
 
(ii)
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
 
 
(b)
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
 
 
 
#12935009 V1 

 
 
 
5.1
The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission   ("COSO") (2013 Framework).
 
5.2
N.A.
 
5.3
N.A.
 
6.
The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on April 1, 2015 and ended on
June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
 
 

 
Date:   July 30, 2015
 
/s/
 Luis Cabra Dueñas  
Luis Cabra Dueñas
Vice-Chairman and Chief Executive Officer
 
#12935009 V1







Exhibit 99.5
 
FORM 52-109F2
 
CERTIFICATION OF INTERIM FILINGS
 
I, David Newby, Senior Vice-President Finance, Treasurer and Chief Financial Officer of Talisman Energy Inc., certify the following:
 
1. 
I have reviewed the interim financial report and interim MD&A (together the "interim filings") of Talisman Energy Inc. (the "issuer") for the interim period ended June 30, 2015.
 
2. 
Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
 
3. 
Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
 
4. 
The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.
 
5. 
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer and I have, as at the end of the period covered by the interim filings:
 
(a)  
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that:
 
(i)  
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
 
(ii)  
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
 
(b)  
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
 
 
#12935009 V1
 
 

 
 
 
5.1  
The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (2013 Framework).
 
5.2           N.A.
 
5.3           N.A.
 
6.
The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on April 1, 2015 and ended on
June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.
 

 
Date:   July 30, 2015
 

/s/
 David Newby  
David Newby
Senior Vice-President Finance, Treasurer and
and Chief Financial Officer
 
#12935009 V1