corporate governance and corporate responsibility

responsibilities of the board of directors

Talisman’s Board of Directors sees its principal role as stewardship of the Company and its fundamental objective as the creation of shareholder value, including the protection and enhancement of the value of the Company’s assets. The Board oversees the conduct of the business and management, which, in turn, is responsible for developing long-term strategy and conducting the Company’s day-to-day business.

Among its duties, the Board ensures systems are in place to manage the risks and, through the Chief Executive Officer, sets the attitude and disposition of the Company toward regulatory compliance, environmental, health and safety policies, and financial practices and reporting.

independence of the board and board committees

All of Talisman’s directors, except for the President and Chief Executive Officer, are independent. Talisman’s Board has appropriate structures in place to ensure that the Board can function independently of management. All committees of the Talisman Board are composed entirely of independent directors, with the exception of the Executive Committee and the Pension Funds Committee, the majority of whose members are independent.

The roles of the Chairman of the Board and the Chief Executive Officer have been split since 1993 and Douglas D. Baldwin, the Chairman of the Board, is an independent director. The terms of reference for the Board, each Board Committee, the Chief Executive Officer and the Chairman of the Board have been in place since 1995 and are regularly reviewed and updated to reflect new legislation, refinements in roles and responsibilities and best practices.

board and director effectiveness

The ability of any board of directors to carry out its mandate and statutory obligations is contingent on maintaining an effective board and on recruiting and retaining effective directors. To ensure continuing effectiveness, assessments of the Board, its Committees and individual directors (including special assessments of the Chairman of the Board and Committee Chairs) are conducted on an annual basis.

The Board’s ongoing succession and recruitment processes are also designed to ensure the continuing effectiveness of the Board and its Committees. To assist in the director selection process, the Governance and Nominating Committee has created a profile of ideal characteristics and qualifications of new nominees, which takes into account the Company’s governance framework and current Board composition. In 2006, the Governance and Nominating Committee updated its profile of all current directors’ experience and qualifications to assist in succession planning. The Governance and Nominating Committee also reviewed the Board Succession Policy in detail, and considered it against various governance principles, including mandatory retirement ages and term limits for directors.

stock exchange and regulatory compliance

Talisman’s corporate governance practices satisfy all the existing guidelines for effective corporate governance established by National Instrument 58-101 and National Policy 58-201 (collectively, CSA Rules), all of the NYSE corporate governance listing standards applicable to non-US companies and substantially all of the NYSE corporate governance listing standards applicable to US companies.

With respect to the NYSE corporate governance listing standards, Talisman’s corporate governance practices differ in only three aspects from those applicable to US companies.

• First, the NYSE listing standards require that the Audit Committee charter specify that the Audit Committee assist the Board of Directors in its oversight of Talisman’s compliance with legal and regulatory requirements. Talisman’s Board oversees Talisman’s compliance with legal and regulatory requirements and this responsibility specifically forms part of the Board’s Terms of Reference. Each of the Board committees assists the Board in its oversight of Talisman’s compliance with legal and regulatory requirements in each of their areas of responsibility.
• Second, the NYSE listing standards require shareholder approval of all equity compensation plans and any material revisions to such plans, regardless of whether the securities to be delivered under such plans are newly issued or purchased on the open market, subject to a few limited exceptions. In contrast, the TSX rules require shareholder approval of equity compensation plans only when such plans involve newly issued securities. Equity compensation plans that do not provide for a fixed maximum number of securities to be issued must have a rolling maximum number of securities to be issued, based on a fixed percentage of the issuer’s outstanding securities, and must also be approved by shareholders every three years. If the plan provides a procedure for its amendment, the TSX rules require shareholder approval of amendments only where the amendment involves a reduction in the exercise price or an extension of the term of options held by insiders.
• Finally, the NYSE listing standards require that any waivers of a company’s code of business conduct and ethics for directors or executive officers be promptly disclosed. Talisman complies with the requirements of the CSA Rules, which specify that material departures from the Company’s Policy on Business Conduct and Ethics (PBCE) by a director or executive officer that constitute a material change to Talisman will be promptly disclosed to shareholders.

corporate responsibility – beyond regulatory compliance

The foundational governance structures listed above have allowed Talisman to move beyond traditional indicators of good governance into industry-leading practices in corporate responsibility. Talisman integrates its corporate responsibility initiatives into its day-to-day oil and gas operations and decision making activities. The Company recognizes corporate responsibility as a tool that helps the Company manage risks, including maintaining its social licence to operate, its employee recruitment and retention efforts and the need for access to capital. Talisman’s global corporate responsibility framework includes the following:

• Policy on Business Conduct and Ethics Since being formed as an independent company in 1992, Talisman has maintained and updated its PBCE. This policy is a statement of principles to which Talisman is committed and is designed to direct all employees, officers and directors of Talisman and its subsidiaries in determining ethical business conduct.
• Annual compliance certificate process for PBCE All employees of Talisman worldwide and its directors are required on an annual basis, to complete a certificate certifying compliance with the PBCE.
• Online ethics training In 2005, Talisman internally developed and launched an online ethics training program, which all employees worldwide are required to complete biennially.
• Risk assessments Multi-departmental risk assessments, both technical and non-technical, are completed for new investments or new country entries.
• Security Policy The objectives of the Security Policy are to assist Talisman in creating a safe work environment for its employees and assets, to assist the Company in promoting respect for human rights and advancing best practices with governments, joint venture participants and third parties. One of the most fundamental principles in the Security Policy obligates Talisman to conduct itself in accordance with the Voluntary Principles on Security and Human Rights.
• Incorporation of Security Policy in international operating agreements In accordance with the Company’s joint operating agreement (JOA) guidelines, Talisman endeavours to include our Environmental and Community Relations guidelines and a commitment to the Talisman Security Policy or the Voluntary Principles on Security and Human Rights in all new international JOAs (outside the UK).
• Adoption of EITI and Global Compact Talisman participates in global multistakeholder initiatives such as the Global Compact and the Extractive Industries Transparency Initiative to learn from and share information with a broad spectrum of stakeholders.
• Stakeholder and community consultations Talisman regularly solicits community, NGO and government feedback on potential risks associated with a project before commencing operations or entering into contractual arrangements.
• Third party verifications Annual third party verified reporting of corporate responsibility initiatives and impacts are undertaken.

Talisman’s 2006 corporate responsibility report – “risky business�

Since 2000, Talisman has annually prepared a Corporate Responsibility Report for its global stakeholders. These third-party verified reports detail Talisman’s corporate responsibility initiatives and impacts, helping stakeholders better understand and evaluate the Company’s corporate responsibility performance.

Talisman’s Corporate Responsibility Reports enhance transparency, ensure accountability, engage stakeholders and help improve the Company’s social and environmental performance.

“Risky business� addresses the most significant corporate responsibility-related risks the Company faced in 2006 and describes how the Company managed them.

additional information

For more information on Talisman’s corporate governance and corporate responsibility initiatives, please see the following documents, which are posted at www.talisman-energy.com:

• Talisman’s corporate governance statement, which appears as Schedule A to Talisman’s Management Proxy Circular dated March 13, 2007;
• Terms of reference of the Board and each of its Committees; and
• Talisman’s 2006 Corporate Responsibility Report.

Each of the above documents is available in print to any shareholder upon request.