North America

Talisman’s objective is to become a top-tier unconventional natural gas producer in North America. The Company has extensive unconventional landholdings totaling approximately three million net acres. Unconventional plays have large potential resources, high deliverability, low decline rates and can provide attractive returns on investment. Talisman’s focus areas are the Marcellus Shale, the Montney and Quebec.

To support the new strategy, Talisman implemented a reorganization in North America and a new unconventional business model that focuses on identifying and piloting new plays, executing development programs and conducting efficient operations.

2008 in review

Talisman invested $2.5 billion* in North America with 72% directed toward unconventional projects ($1.8 billion, of which 37% was for land). In total, over 320,000 net acres of prospective unconventional land was acquired in new areas. The Company drilled 427 gross (279.9 net) wells, with 169 gross pilot and development wells in new unconventional areas.

Talisman has 800,000 net acres in the Marcellus Shale play. The Company had encouraging results in its Pennsylvania shale pilot program, where it increased total landholdings to 140,000 net acres, including the addition of highly prospective state lands. Early drilling results have been very successful, with six wells completed last year.

In the Montney, Talisman holds 600,000 net acres of land. In the Montney Core play, Talisman holds 380,000 net acres and drilled 39 gross development wells (31.1 net), as well as 13 gross pilot wells to test drilling and completion techniques and rock quality. Total production in the Core averaged 35 mmcfe/d (5,900 boe/d). Talisman also holds 220,000 net acres in the Montney Shale play in northeastern BC, where piloting activities began in mid-2008, with nine gross (3.2 net) wells drilled.

Talisman was also encouraged by early pilot work in Quebec where the Company holds rights to 770,000 net acres. The existing vertical well at Gentilly was successfully fracture stimulated and additional drilling was underway at year-end.

The Bakken Core was another excellent story from 2008. Talisman drilled 43 gross (36 net) wells, achieving top tier results in drilling costs and production rates. However, the Company has decided to exit southeast Saskatchewan to focus on more material assets in North America.

Talisman was also successful in the Outer Foothills at both Hinton and Ojay. Talisman now holds 430,000 net acres in the area, with the addition of new land in the Hinton area, and 21 gross (15.8 net) wells were drilled.

The Company’s conventional natural gas program achieved excellent drilling results in the Foothills and at Monkman. Talisman’s Midstream Operations had another strong year, with average throughput of 635 mmcf/d. Talisman will use its expertise in infrastructure development to facilitate unconventional natural gas development.

In line with the new strategic framework to exit non-strategic areas, Talisman completed the sale of its Lac La Biche assets in Alberta for proceeds of $247 million.

unconventional natural gas plays can provide superior returns on investment due to their large resource potential, high production rates, long production life and low decline rates.

Shale is one of the most common types of sedimentary rock and is widely distributed across North America. Shale gas (natural gas) is contained in predominantly organic-rich, fine-grained rocks and silts with low permeability, dominated by shale. Shale reservoirs can span thousands of square kilometres reaching 200 metres or more in thickness. Shale gas has been produced for many years; however, production in commercial quantities requires fractures to improve permeability. Until recently, shale reservoirs were not economic to develop. Significant improvements in horizontal drilling and fracture (“frac”) technology have helped unlock the potential of these large resource plays.

Horizontal drilling allows multiple wells to be drilled from the same surface location, minimizing the footprint of development. However, simply penetrating the formation is not sufficient to produce economic gas since these reservoirs typically have lower porosity and permeability. As such, frac stimulation is used to enhance the natural fractures of the rock, thus freeing more gas and improving recoveries. By combining multiple horizontal wells and numerous frac events, the developments benefit from higher production levels. Unlocking this potential and generating top tier returns requires a strong process-oriented execution model that focuses on “lean” processes, which eliminate waste, variability and inflexibility.

lean culture

Talisman’s commitment to lean culture includes:

• continuous process improvement
• relentlessly improving performance and eliminating waste
• consistent business processes that enable high performance with the objective of being a low-cost producer

Talisman believes the key to unlocking the full potential of unconventional shale plays requires lean manufacturing. The Company is focused on building processes, tools and a corporate culture that can effectively scale up a successful pilot program into sustainable long-term development.