6-K

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:  November 4, 2014

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.

Exhibit	Title
99.1	INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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: November 4, 2014	By:     /s/ Daryn V. MacEachern
	Daryn V. MacEachern
	Assistant Corporate Secretary

EX-99.1

Exhibit 99.1

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED SEPTEMBER 30, 2014

(Unaudited)

Talisman Energy Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30,		December 31,
(millions of US$)	2014		2013
Assets
Current
Cash and cash equivalents (note 22)		237		364
Accounts receivable		1,168		1,117
Risk management (note 16)		116		17
Income and other taxes receivable		96		52
Restricted cash (note 8)		177		121
Inventories		215		137
Prepaid expenses		40		14
Assets held for sale (note 4)		-		776
		2,049		2,598
Other assets (note 7)		178		160
Restricted cash (note 8)		-		94
Investments (note 5)		1,421		1,204
Risk management (note 16)		82		20
Goodwill (note 6)		568		575
Property, plant and equipment (note 9)		9,654		9,752
Exploration and evaluation assets (note 9)		3,133		3,165
Deferred tax assets		1,680		1,593
		16,716		16,563
Total assets		18,765		19,161
Liabilities
Current
Bank indebtedness		7		13
Accounts payable and accrued liabilities		1,628		1,835
Current portion of Yme removal obligation (note 8)		195		121
Risk management (note 16)		6		101
Income and other taxes payable		76		155
Loans from joint ventures (note 5)		318		288
Current portion of long-term debt (note 13)		722		882
Liabilities associated with assets held for sale (note 4)		-		160
		2,952		3,555
Decommissioning liabilities (note 11)		1,826		1,727
Yme removal obligation (note 8)		19		131
Other long-term obligations (note 14)		286		246
Risk management (note 16)		-		37
Long-term debt (note 13)		3,973		4,357
Deferred tax liabilities		675		553
		6,779		7,051
Contingencies and commitments (note 17)
Shareholders' equity
Common shares (note 15)		1,742		1,723
Preferred shares (note 15)		191		191
Contributed surplus		135		135
Retained earnings		6,155		5,695
Accumulated other comprehensive income		811		811
		9,034		8,555
Total liabilities and shareholders' equity		18,765		19,161
See accompanying notes.

2

Talisman Energy Inc.

Condensed Consolidated Statements of Income (Loss)

(Unaudited)	Three months ended						Nine months ended
	September 30,						September 30,
(millions of US$)	2014			2013			2014			2013
Revenue
Sales		1,114			1,159			3,649			3,409
Other income (note 18)		35			41			114			83
Income (loss) from joint ventures and associates, after tax (note 5)		(13	)		44			(44	)		65
Total revenue and other income		1,136			1,244			3,719			3,557
Expenses
Operating		339			338			1,051			1,048
Transportation		57			46			150			148
General and administrative		95			106			305			320
Depreciation, depletion and amortization		458			482			1,407			1,367
Impairment (note 10)		-			2			158			-
Dry hole		36			13			64			82
Exploration		53			66			162			208
Finance costs (note 12)		85			87			266			244
Share-based payments expense (recovery) (note 15)		(17	)		6			(24	)		30
(Gain) loss on held-for-trading financial instruments (note 16)		(428	)		120			(197	)		(21	)
(Gain) loss on disposals (note 4)		(6	)		1			(560	)		(58	)
Other, net (note 19)		(3	)		47			42			71
Total expenses		669			1,314			2,824			3,439
Income (loss) before taxes		467			(70	)		895			118
Income taxes (note 20)
Current income tax		58			171			318			457
Deferred income tax recovery		(16	)		(187	)		(102	)		(169	)
		42			(16	)		216			288
Net income (loss)		425			(54	)		679			(170	)
Per common share (US$):
Net income (loss)		0.41			(0.05	)		0.65			(0.17	)
Diluted net income (loss)		0.38			(0.08	)		0.57			(0.23	)
Weighted average number of common shares outstanding (millions)
Basic		1,033			1,031			1,033			1,029
Diluted		1,041			1,034			1,040			1,035
See accompanying notes.

3

Talisman Energy Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)
	Three months ended						Nine months ended
	September 30,						September 30,
(millions of US$)	2014			2013			2014			2013
Net income (loss)		425			(54	)		679			(170	)
Actuarial gains (losses) relating to pension and other post-employment benefits1		(1	)		(4	)		(4	)		4
Other comprehensive income (loss) not being reclassified to net income or loss in subsequent periods		(1	)		(4	)		(4	)		4
Comprehensive income (loss)		424			(58	)		675			(166	)
1. For the three and nine months ended September 30, 2014, is net of tax of $nil and $1 million respectively (2013 - $1 million and $1 million respectively).
See accompanying notes.

4

Talisman Energy Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)	Three months ended						Nine months ended
	September 30,						September 30,
(millions of US$)	2014			2013			2014			2013
Common shares (note 15)
Balance at beginning of period		1,759			1,709			1,723			1,639
Issued on exercise of stock options		-			5			5			31
Shares purchased and held in trust for long-term PSU plan		(17	)		-			(17	)		-
Shares released from trust for long-term PSU plan		-			-			31			44
Balance at end of period		1,742			1,714			1,742			1,714
Preferred shares (note 15)
Balance at beginning of period		191			191			191			191
Issued		-			-			-			-
Balance at end of period		191			191			191			191
Contributed surplus
Balance at beginning of period		124			110			135			121
Settlement of long-term PSU plan grant		-			-			(31	)		(44	)
Share-based payments		11			14			31			47
Balance at end of period		135			124			135			124
Retained earnings
Balance at beginning of period		5,802			6,898			5,695			7,148
Net income (loss)		425			(54	)		679			(170	)
Actuarial gains (losses) transferred to retained earnings		(1	)		(4	)		(4	)		4
Common share dividends (note 15)		(69	)		(70	)		(209	)		(208	)
Preferred share dividends (note 15)		(2	)		(2	)		(6	)		(6	)
Balance at end of period		6,155			6,768			6,155			6,768
Accumulated other comprehensive income
Balance at beginning of period		811			811			811			811
Other comprehensive income (loss)		(1	)		(4	)		(4	)		4
Actuarial losses (gains) transferred to retained earnings		1			4			4			(4	)
Balance at end of period		811			811			811			811
See accompanying notes.

5

Talisman Energy Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)	Three months ended						Nine months ended
	September 30,						September 30,
(millions of US$)	2014			2013			2014			2013
Operating activities
Net income (loss)		425			(54	)		679			(170	)
Add: Finance costs (cash and non-cash) (note 12)		85			87			266			244
Dividends from associates (note 5)		-			37			-			37
Items not involving cash (note 21)		37			401			709			1,130
		547			471			1,654			1,241
Changes in non-cash working capital		(89	)		166			(360	)		84
Cash provided by operating activities		458			637			1,294			1,325
Investing activities
Capital expenditures
Exploration, development and other		(549	)		(608	)		(1,543	)		(1,826	)
Property acquisitions		-			(94	)		(23	)		(94	)
Proceeds of resource property dispositions (note 4)		102			4			1,494			103
Yme removal obligation (note 8)		(9	)		(14	)		(38	)		261
Restricted cash (note 8)		9			14			38			(224	)
Investments (note 5)		(186	)		(2	)		(186	)		(9	)
Loan to joint venture, net of repayments (note 5)		7			(126	)		(343	)		(215	)
Changes in non-cash working capital		141			(74	)		99			(189	)
Cash used in investing activities		(485	)		(900	)		(502	)		(2,193	)
Financing activities
Long-term debt repaid (note 13)		(18	)		-			(897	)		(4	)
Long-term debt issued (note 13)		44			557			359			1,066
Loans from joint venture (note 5)		12			1			30			50
Common shares issued (note 15)		-			4			4			21
Common shares purchased (note 15)		(17	)		-			(17	)		-
Finance costs (cash) (note 12)		(74	)		(77	)		(226	)		(218	)
Common share dividends (note 15)		(69	)		(70	)		(209	)		(208	)
Preferred share dividends (note 15)		(2	)		(2	)		(6	)		(6	)
Deferred credits and other		12			3			13			(12	)
Changes in non-cash working capital		18			20			31			31
Cash provided by (used in) financing activities		(94	)		436			(918	)		720
Effect of translation on foreign currency cash and cash equivalents		(1	)		-			5			-
Net increase (decrease) in cash and cash equivalents		(122	)		173			(121	)		(148	)
Cash and cash equivalents net of bank indebtedness, beginning of period		352			232			351			553
Cash and cash equivalents net of bank indebtedness, end of period		230			405			230			405
Cash and cash equivalents		237			407			237			407
Bank indebtedness		(7	)		(2	)		(7	)		(2	)
Cash and cash equivalents net of bank indebtedness, end of period		230			405			230			405
See accompanying notes.

6

Notes to the Interim Condensed Consolidated Financial Statements

(Unaudited)

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

1. CORPORATE INFORMATION

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

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

The interim condensed Consolidated Financial Statements as at and for the three and nine month periods ended September 30, 2014 were approved by the Audit Committee on November 3, 2014.

2. BASIS OF PREPARATION

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

The interim condensed Consolidated Financial Statements should be read in conjunction with the audited annual Consolidated Financial Statements as at and for the year ended December 31, 2013 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).

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, 2013, except for adoption of the following new standards and interpretations effective as of January 1, 2014:

Offsetting Financial Assets and Financial Liabilities

· IAS 32 Offsetting Financial Assets and Financial Liabilities - Financial Instruments Presentation.  The amended standard requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement.  The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and securities lending agreements.  The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and require retrospective application. As the Company is not netting any significant amounts related to financial instruments and does not have any significant offsetting arrangements, the amendment does not have an impact on the Company’s financial statements.

7

Impairment of Assets

· IAS 36 Impairment of Assets – Amendments to IAS 36. The amended standard requires entities to disclose the recoverable amount of an impaired Cash Generating Unit (CGU). The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014 and require retrospective application. This standard did not have an impact on the Company’s financial position or performance.

Levies

· IFRIC 21 Levies - Interpretation of IAS 37 Provisions, contingent liabilities and assets: IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event. The interpretation clarifies that the obligation that gives rise to the liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The Company reviewed payments considered to be levies and concluded that the application of the standard did not have a significant impact on the Company.

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

· IFRS 15 Revenue from Contracts with Customers: IFRS 15 specifies how and when to recognize revenue 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. 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.

8

4. DISPOSALS AND ASSETS HELD FOR SALE

North America Dispositions

In June 2014, Talisman signed a purchase and sale agreement to sell non-core assets in western Canada for total cash consideration of C$120 million, before closing adjustments. The transaction closed on July 31, 2014 with net proceeds of $99 million, resulting in a loss on disposal of $3 million ($3 million after tax).

In April 2014, Talisman sold non-core assets in western Canada for net proceeds of $45 million after $10 million in working capital adjustments, resulting in a loss on disposal of $3 million ($3 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 $567 million ($493 million after tax).  The assets held for sale and liabilities associated with assets held for sale included in the Consolidated Balance Sheet as at December 31, 2013 were $776 million and $160 million respectively.  The operating results from January 1, 2014 up to the date of closing were included in net income for the three month period ended March 31, 2014 and the gain was included in ‘Gain on disposals’ on the condensed Consolidated Statement of Income (Loss).

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

Southeast Asia Disposition

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

5. INVESTMENTS

	September 30, 2014		December 31,  2013
Investments in Joint Ventures
Equity investment in Equion		704		920
Equity investment in TSEUK		116		(606	)
Loan to TSEUK		521		812
		1,341		1,126
Available-for-sale investments
Transasia Pipeline Company Pvt. Ltd.		34		34
Other		46		44
		80		78
Total		1,421		1,204

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

9

Investments in Joint Ventures

Movement in investment in TSEUK joint ventures during the period:

	Nine months ended September 30, 2014			Year ended December 31, 2013
Balance, beginning of period		206			258
Investment in TSEUK		829			-
Loan to TSEUK, net of repayments and settlements		(291	)		398
Share of net loss and comprehensive loss		(107	)		(450	)
Balance, end of period		637			206

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

Movement in investment in Equion joint ventures during the period:

	Nine months ended September 30, 2014			Year ended December 31, 2013
Balance, beginning of period		920			804
Share of net loss and comprehensive loss		63			116
Dividend declared by Equion		(279	)		-
Balance, end of period		704			920

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

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

10

Summarized Balance Sheets	September 30, 2014								December 31, 2013
	TSEUK1			Equion1			Total		TSEUK1			Equion1			Total
Cash and cash equivalents		94			192			286		42			69			111
Current assets		547			422			969		527			304			831
Loans receivable from shareholders		-			648			648		-			587			587
Non-current assets		4,297			1,247			5,544		3,515			1,321			4,836
Total assets		4,938			2,509			7,447		4,084			2,281			6,365
Current liabilities		758			1,121			1,879		700			420			1,120
Loans payable to shareholders		1,021			-			1,021		1,592			-			1,592
Non-current liabilities		3,082			282			3,364		3,131			315			3,446
Total liabilities		4,861			1,403			6,264		5,423			735			6,158
Net assets (liabilities)		77			1,106			1,183		(1,339	)		1,546			207
Talisman’s interest		51	%		49	%				51	%		49	%
Talisman’s share of net assets (liabilities)		39			542			581		(683	)		758			75
Goodwill		77			162			239		77			162			239
		116			704			820		(606	)		920			314
Loan to TSEUK		521			-			521		812			-			812
		637			704			1,341		206			920			1,126
1.    Balances represent respective entity’s 100% share.

Summarized Statements of Income (Loss)	Three months ended September 30, 2014									Three months ended September 30, 2013
	TSEUK1			Equion1			Total			TSEUK1			Equion1			Total
Revenue		233			167			400			411			166			577
Operating		349			26			375			308			21			329
Transportation		6			11			17			6			12			18
General and administrative		12			-			12			3			-			3
Depreciation, depletion and amortization		64			60			124			86			47			133
Exploration expense		5			-			5			21			-			21
Finance costs		27			-			27			23			2			25
Impairment		-			-			-			-			-			-
Other		26			(9	)		17			8			(11	)		(3	)
Income (loss) before tax		(256	)		79			(177	)		(44	)		95			51
Current income tax expense (recovery)		(24	)		50			26			(54	)		37			(17	)
Deferred income tax expense (recovery)		(173	)		(6	)		(179	)		20			(9	)		11
Net income (loss) and comprehensive income (loss)		(59	)		35			(24	)		(10	)		67			57
Talisman’s interest		51	%		49	%					51	%		49	%
Talisman’s share of income (loss) after tax		(30	)		17			(13	)		(5	)		33			28
Cash dividends received by Talisman		-			-			-			-			-			-

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

11

Summarized Statements of Income (Loss)	Nine months ended September 30, 2014									Nine months ended September 30, 2013
	TSEUK1			Equion1			Total			TSEUK1			Equion1			Total
Revenue		939			488			1,427			1,122			563			1,685
Operating		1,005			71			1,076			892			67			959
Transportation		17			31			48			18			32			50
General and administrative		27			-			27			9			-			9
Depreciation, depletion and amortization		240			192			432			253			156			409
Exploration expense		10			-			10			34			1			35
Finance costs		94			1			95			62			2			64
Impairment		198			-			198			349			-			349
Other		53			(35	)		18			(27	)		(8	)		(35	)
Income (loss) before tax		(705	)		228			(477	)		(468	)		313			(155	)
Current income tax expense (recovery)		(50	)		125			75			(99	)		129			30
Deferred income tax recovery		(445	)		(25	)		(470	)		(226	)		(10	)		(236	)
Net income (loss) and comprehensive income (loss)		(210	)		128			(82	)		(143	)		194			51
Talisman’s interest		51	%		49	%					51	%		49	%
Talisman’s share of income (loss) after tax		(107	)		63			(44	)		(73	)		95			22
Cash dividends received by Talisman		-			-			-			-			-			-

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

Summarized Statements of Cash Flows	Three months ended September 30, 2014									Three months ended September 30, 2013
	TSEUK1			Equion1			Total			TSEUK1			Equion1			Total
Operating activities
Net income (loss)		(59	)		35			(24	)		(10	)		67			57
Add: Finance costs (cash and non-cash)		27			-			27			23			2			25
Items not involving cash		(87	)		53			(34	)		119			39			158
Changes in non-cash working capital		24			48			72			(147	)		22			(125	)
Cash provided by (used in) operating activities		(95	)		136			41			(15	)		130			115
Investing activities
Capital expenditures		(237	)		(62	)		(299	)		(268	)		(55	)		(323	)
Loans to shareholders		-			(24	)		(24	)		-			-			-
Other		(19	)		12			(7	)		76			(35	)		41
Cash used in investing activities		(256	)		(74	)		(330	)		(192	)		(90	)		(282	)
Financing activities
Common shares issued		365			-			365			-			-			-
Loans from shareholders, net of repayments		(12	)		-			(12	)		245			-			245
Finance costs (cash)		(10	)		-			(10	)		(12	)		(2	)		(14	)
Other		10			-			10			-			-			-
Cash provided by (used in)  financing activities		353			-			353			233			(2	)		231

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

12

Summarized Statements of Cash Flows	Nine months ended September 30, 2014									Nine months ended September 30, 2013
	TSEUK1			Equion1			Total			TSEUK1			Equion1			Total
Operating activities
Net income (loss)		(210	)		128			(82	)		(143	)		194			51
Add: Finance costs (cash and non-cash)		94			1			95			62			2			64
Items not involving cash		35			154			189			355			146			501
Changes in non-cash working capital		(65	)		21			(44	)		(87	)		(34	)		(121	)
Cash provided by (used in) operating activities		(146	)		304			158			187			308			495
Investing activities
Capital expenditures		(890	)		(131	)		(1,021	)		(672	)		(166	)		(838	)
Proceeds of dispositions		-			14			14			-			-			-
Loans to shareholders		-			(61	)		(61	)		-			(100	)		(100	)
Other		87			(3	)		84			73			(92	)		(19	)
Cash used in investing activities		(803	)		(181	)		(984	)		(599	)		(358	)		(957	)
Financing activities
Common shares issued		365			-			365			-			-			-
Loans from shareholders, net of repayments		674			-			674			421			-			421
Finance costs (cash)		(40	)		-			(40	)		(27	)		(2	)		(29	)
Other		2			-			2			-			-			-
Cash provided by (used in)  financing activities		1,001			-			1,001			394			(2	)		392

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, 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.

TSEUK Joint Venture

Throughout 2014, TSEUK has been challenged with respect to asset uptime, declining production and emerging potential increases to development and decommissioning cost estimates. These challenges will be factored into the Company’s reserves, planning and impairment processes due to be completed in the fourth quarter of 2014. An adverse movement in any of these factors will result in lower estimated future cash flows than previously anticipated, and under these circumstances there is a risk of impairments. Management expects to reach its conclusions and book impairments, if any, in the fourth quarter. The total value of the Company’s investment in TSEUK at September 30, 2014 is $637 million. The magnitude of potential impairments could result in a material reduction in the carrying value of the Company’s investment in TSEUK.

During the nine month period ended September 30, 2014, TSEUK recorded an impairment of $100 million (net to Talisman), due to an increase in the decommissioning obligation and assets caused by a decrease in the discount rate used to measure decommissioning liabilities.

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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 addition, the shareholders of TSEUK provided an equity funding facility totaling $1.2 billion to TSEUK in June 2014, of which Talisman is committed to $612 million, for the purpose of funding capital, decommissioning and operating expenditures of TSEUK. TSEUK may fund operating expenditures under this facility to a maximum amount of $150 million.  This facility expires on June 30, 2015. During the three months ended September 30, 2014, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $365 million under this facility, of which Talisman’s share was $186 million. As at September 30, 2014, remaining facility commitment is $835 million, of which the Company’s share is $426 million.

The shareholders of TSEUK have provided an unsecured loan facility with a borrowing limit of $2.4 billion to TSEUK, of which Talisman is committed to $1.2 billion, for the purpose of funding capital expenditures of TSEUK.  As at September 30, 2014, $1.0billion has been drawn under this facility, of which Talisman’s share is $521 million (December 31, 2013 - $812 million).  Remaining borrowing capacity under this facility as at September 30, 2014 is $740 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.

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 16.

Equion Joint Venture

During the three months ended September 30, 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 dividends receivable of $279 million with a corresponding reduction in the equity investment in Equion.

The loan due to Equion of $318million (December 31, 2013 - $288 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, 2013. 

Investments in Joint Operations

Talisman accounts for joint operations using proportionate consolidation.  Talisman’s interest in the Talisman Sasol Montney Partnership (TSMP) was accounted for as a joint operation and proportionately consolidated as Talisman shared its interests in the partnership assets based on the Company’s 50% ownership interest and was jointly and severally liable for the obligations of the partnership. TSMP’s principal place of operations and country of incorporation was Canada. In 2013, Talisman reached an agreement to sell part of its Montney acreage in British Columbia, which included Talisman’s interest in TSMP. Talisman’s interest in TSMP was therefore classified as assets held for sale as at December 31, 2013. Talisman completed the sale during the three month period ended March 31, 2014 (note 4).

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Investments in Associate

Talisman held a 12.152% interest in Ocensa whose principal place of operations and country of incorporation is Colombia. On January 17, 2013, Ocensa’s shareholders approved a resolution to change the nature of Ocensa’s business from a cost recovery operating model to a profit oriented operating model, and certain elements of the governance structure within Ocensa.  Among these changes, the arrangement for appointing the Board of Directors was modified, which provided Talisman with the ability to appoint one director to Ocensa’s Board based upon its ownership interest in Ocensa.  Talisman was able to exercise significant influence over Ocensa from its ability to participate in the significant operating and financing decisions of Ocensa and as a result, Talisman accounted for its investment in Ocensa using the equity method commencing January 17, 2013 until December 19, 2013, when Talisman sold its 12.152% equity interest in Ocensa. In addition, Talisman obtained the option to sell, on a temporary or permanent basis, all or a part of its entitlement to shipping capacity on the Ocensa pipeline (the Transportation Rights). As a result of this change, Talisman attributed $108 million to the Transportation Rights given its ability to sell excess transportation capacity in the Colombian markets. After the sale of its interest in Ocensa, Talisman retained its crude oil transportation rights and its right to generate third party revenue from sales of excess capacity (note 7).

The following table summarizes the financial information of Ocensa. No summarized balance sheet of Ocensa is presented as there was no investment balance at the beginning or end of 2012 and 2013, or as at September 30, 2014.

	Three months ended September 30					Nine months ended September 30
Summarized Statements of Income1	2014		2013			2014		2013
Revenue		-		338			-		922
Expenses (including income taxes)		-		209			-		571
Net income and comprehensive income		-		129			-		351
Talisman’s Interest		-		12.152	%		-		12.152	%
Talisman’s share of net income and comprehensive income		-		16			-		43

	Three months ended September 30					Nine months ended September 30
Summarized Statements of Cash Flows1	2014		2013			2014		2013
Operating Activities
Net income		-		129			-		351
Items not involving cash		-		57			-		177
Changes in non-cash working capital		-		77			-		402
Cash provided by operating activities		-		263			-		930
Cash used in investing activities		-		(12	)		-		(19	)
Cash used in financing activities		-		(557	)		-		(612	)

1.   Talisman recognized Ocensa as an associate effective January 17, 2013, when Talisman gained significant influence, until December 19, 2013 when the Company sold its 12.152% equity interest in Ocensa.

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6. GOODWILL

Continuity of goodwill	Nine months ended September 30, 2014			Year ended December 31, 2013
Balance, beginning of period		575			775
Reclassified to assets held for sale (note 4)		-			(14	)
Disposals		(7	)		(1	)
Impairments		-			(185	)
Balance, end of period		568			575

During 2013, the Company recorded a non-taxable impairment of $185 million relating to North Sea goodwill arising from diminution of the Company’s view of the value of its North Sea assets.

The Company’s goodwill balance includes $287 million relating to the North Sea. The value of North Sea goodwill is supported by a combination of United Kingdom and Norway asset values, and any potential future diminution of those valuations, as referenced in note 5, will increase the risk of impairment of North Sea goodwill.

7. OTHER ASSETS

	September 30, 2014		December 31,  2013
Accrued pension asset		3		-
Decommissioning sinking funds		54		50
Transportation rights (net of $14 million accumulated depreciation) (note 5)		94		100
Income taxes receivable		10		-
Other		17		10
Total		178		160

8. YME REMOVAL OBLIGATION

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

As at September 30, 2014, Talisman’s share of the liability associated with the Talisman Works in the amount of $214 million has been recorded as the Yme removal obligation of which $195 million has been classified as current, as it is expected to be settled within the next twelve months, while the remaining $19 million has been classified as long-term.  Talisman’s share of the cash held in the escrow account in the amount of $177 million has been recorded as restricted cash, all of which has been classified as current.  During the three and nine month periods ended September 30, 2014, $9 million and $38 million in eligible expenditures, respectively, were incurred on the Talisman Works which reduced both the restricted cash and the Yme removal obligation by an equal amount.

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9. 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, 2012		21,550			5,577			27,127
Additions		1,943			522			2,465
Disposals and derecognition		(354	)		(39	)		(393	)
Transfers from E&E assets to PP&E		481			(481	)		-
Change in decommissioning liabilities		271			(5	)		266
Expensed to dry hole		-			(89	)		(89	)
Transfers to assets held for sale		(852	)		(92	)		(944	)
At December 31, 2013		23,039			5,393			28,432
Additions		1,235			343			1,578
Disposals and derecognition		(1,835	)		-			(1,835	)
Transfers from E&E assets to PP&E		177			(177	)		-
Change in decommissioning liabilities		159			23			182
Expensed to dry hole		-			(64	)		(64	)
At September 30, 2014		22,775			5,518			28,293
Accumulated DD&A
At December 31, 2012		11,088			2,258			13,346
Charge for the period		1,921			-			1,921
Disposals and derecognition		(269	)		(36	)		(305	)
Impairment losses		755			17			772
Impairment reversals		-			(11	)		(11	)
Transfers to assets held for sale		(208	)		-			(208	)
At December 31, 2013		13,287			2,228			15,515
Charge for the period		1,425			7			1,432
Disposals and derecognition		(1,599	)		-			(1,599	)
Impairment losses, net of reversals (note 10)		28			130			158
Transfers from PP&E to E&E assets		(20	)		20			-
					.
At September 30, 2014		13,121			2,385			15,506
Net book value
At September 30, 2014		9,654			3,133			12,787
At December 31, 2013		9,752			3,165			12,917
At December 31, 2012		10,462			3,319			13,781

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10. IMPAIRMENT

	Three months ended September 30					Nine months ended September 30
	2014		2013			2014			2013
Impairment losses
E&E assets		-		1			130			20
PP&E		-		3			60			3
		-		4			190			23
Impairment reversals
E&E assets		-		(2	)		-			(20	)
PP&E		-		-			(32	)		(3	)
		-		(2	)		(32	)		(23	)
Net Impairment (reversal)		-		2			158			-

During the three month period ended September 30, 2014, the Company did not record any impairment losses or reversals.

During the nine month period ended September 30, 2014, the Company recorded an impairment of $60 million in Norway ($13 million after tax), due to an increase in the decommissioning obligation and asset caused by a 1% decrease in the real discount rate used to measure decommissioning liabilities (note 11), and a $130 million impairment expense relating to the withdrawal from an exploration license in Norway. The Company also 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.

During the three months ended September 30, 2014, the Company declared commerciality and filed a development plan for the K44 license in the Kurdistan Region of Iraq. The Kurdistan Regional Government (KRG) has requested revisions to the development plan, which will require further negotiations between the K44 partners and the KRG within the contractual framework set out in the production sharing contract. The carrying value of the Company’s investment in K44 is $234 million at September 30, 2014.

During the nine month period ended September 30, 2013, the Company recorded $12 million of impairment expense relating to its exit from Sierra Leone, and $7 million of impairment expense relating to Yme in Norway. The Company also recorded impairment reversals of $21 million in the North Sea, due primarily to a reduction in the decommissioning obligation and assets caused by a 1% increase in the real discount rate used to measure decommissioning liabilities.

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11. DECOMMISSIONING LIABILITIES

Continuity of decommissioning liabilities	Nine months ended September 30, 2014			Year ended December 31, 2013
Balance, beginning of period		1,769			1,557
Liabilities incurred during the period		5			73
Liabilities settled during the period		(45	)		(77	)
Accretion expense (note 12)		40			36
Revisions in estimated cash flows		(1	)		405
Change in discount rate		178			(212	)
Disposals		(77	)		(4	)
Reclassified to liabilities associated with assets held for sale (note 4)		-			(9	)
Balance, end of period		1,869			1,769
Expected to be settled within one year		43			42
Expected to be settled in more than one year		1,826			1,727
		1,869			1,769

The provision has been discounted using a weighted average credit-adjusted risk free rate of 2.8% at September 30, 2014 (December 31, 2013 – 3.8%), which excludes the impact of inflation.

12. FINANCE COSTS

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
Interest on long-term debt		66		68		203		203
Miscellaneous interest expense and other fees		8		9		23		25
Accretion expense (note 11)		11		10		40		26
Less: interest capitalized		-		-		-		(10	)
		85		87		266		244

Interest capitalization ceased in the HST/HSD blocks in Vietnam upon first production in May 2013.

13. LONG-TERM DEBT

	September 30, 2014	December 31,  2013
Bank Credit Facilities	-	250
Commercial Paper	341	544
Tangguh Project Financing	46	81
Debentures and Notes (Unsecured)
US$ denominated	3,904	3,951
UK£ denominated (UK£250 million)	404	413
Gross debt	4,695	5,239
Less: current portion	(722)	(882)
Long-term debt	3,973	4,357

During the three and nine month periods ended September 30, 2014, Talisman repaid debt of $18million and $897 million, respectively. The current liability of $722 million consists of $341 million in commercial paper, $375 million of 5.125% notes, and $6 million in Tangguh project financing.

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Bank Credit Facilities and Commercial Paper

At September 30, 2014, Talisman had unsecured credit facilities totaling $3.2 billion, consisting of facilities of $3billion (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 September 30, 2014, $341 million of commercial paper was outstanding. Available borrowing capacity was $2.9 billion at September 30, 2014.

On May 5, 2014, Talisman amended certain terms of Facility No.1, converting the denomination to US dollars, extending the facility to $3 billion, and extending the term to five years maturing on March 19, 2019.

On August 12, 2014, the maturity date of Facility No.2 was extended to October 21, 2019.

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.

14. OTHER LONG-TERM OBLIGATIONS

	September 30, 2014		December 31,  2013
Accrued pension and other post-employment benefits liability		128		114
Deferred credits		52		33
Long-term portion of discounted obligations under finance leases		36		44
Long-term portion of share-based payments liability (note 15)		17		10
Other		53		45
		286		246

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

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15. SHARE CAPITAL AND SHARE-BASED PAYMENTS

Authorized

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

Common Shares Issued

Continuity of common shares	Nine months ended September 30, 2014						Year ended December 31, 2013
	Shares			Amount			Shares			Amount
Balance, beginning of period		1,031,356,870			1,723			1,025,449,730			1,639
Issued on exercise of stock options		478,244			5			3,223,810			41
Shares purchased and held in trust for long-term PSU plan		(1,769,900	)		(17	)		(100,000	)		(1	)
Shares released from trust for long-term PSU plan		1,956,772			31			2,783,330			44
Balance, end of period		1,032,021,986			1,742			1,031,356,870			1,723

Subsequent to September 30, 2014,nostock options were exercised for shares and 450,000 common shares were purchased and held in trust for the long-term PSU plan.  There were 1,031,571,986common shares outstanding at October 30, 2014.

During the three month period ended September 30, 2014, Talisman declared common share dividends of $0.0675 per share for an aggregate dividend of $69 million.  During the nine month period ended September 30, 2014, Talisman declared common share dividends of $209 million.

Preferred Shares Issued

Continuity of preferred shares	Nine months ended September 30, 2014				Year ended December 31, 2013
	Shares		Amount		Shares		Amount
Cumulative Redeemable Rate Reset First Preferred Shares, 4.2% Series 1:
Balance, beginning and end of period		8,000,000		191		8,000,000		191

During the three month period ended September 30, 2014, Talisman declared preferred share dividends of C$0.2625 per share for an aggregate dividend of $2 million. During the nine month period ended September 30, 2014, Talisman declared preferred share dividends of $6 million.

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Share-Based Payments1

	Options			Restricted Share Units (RSU)			Deferred Share Units (DSU)			Long-term Performance Share Units (PSU)
Continuity of share-based payment plans	Number of shares underlying options			Number of units			Number of units			Number of units
Outstanding at December 31, 2013		43,285,254			7,005,696			1,932,380			12,496,313
Employees transferred from TSEUK		-			105,397			-			-
Granted		-			7,875,044			1,077,274			1,341,145
Dividend equivalent		-			208,333			59,055			212,966
Exercised for common shares/settled		(518,834	)		(2,520,986	)		(109,653	)		(1,956,772	)
Surrendered for cash		(27,812	)		-			-			-
Forfeited		(7,825,962	)		(1,280,089	)		-			(1,495,792	)
Outstanding at September 30, 2014		34,912,646			11,393,395			2,959,056			10,597,860
Exercisable at September 30, 2014		30,660,912
Weighted average grant price during period	$nil									$	11.05

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

During the three month period ended September 30, 2014, the Company recorded a share-based payments recovery of $17 million (2013 - $6 million expense) in respect of the following plans: stock options - $25 million recovery, cash units - $1 million recovery, PSUs - $10 million expense, RSUs - $2 million expense, and DSUs - $3 million recovery.   The share-based payments expense includes cash payments of $2 million (2013 - $nil) to employees in settlement of fully accrued share-based payments liabilities for RSUs, stock options and cash units exercised in the period. In general and administrative expense in the condensed Consolidated Statement of Income (Loss), the Company recognized a $nil DSU expense relating to the directors and executive deferrals.

During the nine month period ended September 30, 2014, the Company recorded a share-based payments recovery of $24 million (2013 - $30 million expense) in respect of the following plans: stock options $70 million recovery, cash units - $2 million expense, PSUs - $28 million expense, RSUs - $15 million expense, and DSUs - $1 million expense. The share-based payments expense includes cash payments of $20 million (2013 - $4 million) to employees in settlement of fully accrued share-based payments liabilities for RSUs, stock options and cash units exercised in the period. In general and administrative expense in the condensed Consolidated Statement of Income (Loss), the Company recognized $1 million DSU recovery relating to the directors and executive deferrals.

Of the combined obligation for cash-settled stock option, cash unit, DSU and RSU plans of $95 million (December 31, 2013 – $152 million), $78 million (December 31, 2013 – $142 million) is included in accounts payable and accrued liabilities on the interim condensed Consolidated Balance Sheets and $17 million (December 31, 2013 – $10 million) is included in other long-term obligations.

In April 2014, Talisman granted RSUs under the “Global Restricted Share Unit Plan for Eligible Employees of Talisman Energy Inc. and its affiliates”. All RSUs issued by the Company permit the holder to receive a cash payment equal to the market value of the common shares at the vest date. Participants are also credited with additional RSUs corresponding to any associated notional dividend payments (referred to as ‘dividend equivalent RSUs’). One third of the RSUs granted will be paid on the grant anniversary date every year for the three years following the grant date.  In April 2014, non-executive employees were granted a total of 7.8 millionRSUs.

22

Subsequent to September 30, 2014, no stock options were granted, surrendered for cash, or exercised for shares, and 667,596 were forfeited with 34,245,050 outstanding at October 30, 2014.  Subsequent to September 30, 2014, no PSUs were granted, long-term PSUs forfeitures were reduced by 10,116, with 10,607,976 outstanding at October 30, 2014. Subsequent to September 30, 2014, no RSUs were granted, 19,266 were exercised and 113,981 were forfeited, with 11,260,148 outstanding at October 30, 2014. There were 226 DSUs granted subsequent to September 30, 2014, no DSUs were exercised, with 2,959,282 outstanding at October 30, 2014.

16. FINANCIAL INSTRUMENTS

Talisman’s financial assets and liabilities at September 30, 2014 consisted of cash and cash equivalents, accounts receivable, available-for-sale investments, bank indebtedness, accounts payable and accrued liabilities, loans from joint ventures, long-term debt (including the current portion) and risk management assets and liabilities arising from the use of derivative financial instruments.

Fair Value of Financial Assets and Liabilities

The fair values of cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, and loans from joint ventures approximate their carrying values due to the short-term maturity of those instruments.

Borrowings under bank credit facilities are short-term in nature and are market rate-based, thus, carrying value approximates fair value.  The fair value of public debentures and notes is based on market quotations, which reflect the discounted present value of the principal and interest payments using the effective yield for instruments having the same term and risk characteristics.  The fair values of private notes are based on estimations provided by third parties.  The fair value of Talisman’s floating rate debt is determined by discounting future estimated coupon payments at the current market interest rate.  The fair value of Talisman’s long-term debt (including the current portion) at September 30, 2014 was $5.2billion (December 31, 2013 - $5.5 billion), while the carrying value was $4.7billion (December 31, 2013 - $5.2 billion). The Company uses level 2 inputs as described below to estimate the fair value of the outstanding long-term debt as at September 30, 2014.

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.

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

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

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

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

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

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

The following table presents the Company’s risk management assets and liabilities measured at fair value for each hierarchy level at September 30, 2014:

	Fair value measurements using
	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Assets
Interest rate swaps		-		13		-		13
Commodity contracts		-		185		-		185
Liabilities
Commodity contracts		-		6		-		6

24

Risk Management Assets, Liabilities, Gains and Losses

Derivative instrument	Balance sheet presentation	September 30, 2014		December 31, 2013
Interest rate swaps	Current assets		13		13
Interest rate swaps	Non-current assets		-		6
Commodity contracts	Current assets		103		4
Commodity contracts	Non-current assets		82		14
Risk management assets			198		37
Commodity contracts	Current liabilities		6		101
Commodity contracts	Non-current liabilities		-		37
Risk management liabilities			6		138

During the three month period ended September 30, 2014, the Company recorded a gain on held-for-trading financial instruments of $428million (2013 - $120 million loss) and a gain of $197 millionfor the nine month period ended September 30, 2014 (2013 - $21 million gain).

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 September 30, 2014, a 1% strengthening of the US$ against the other currencies noted above, with all other variables assumed constant, would have resulted in an increase of $4million in net income and a $4 million impact on comprehensive income during the three month period ended September 30, 2014.  A similar weakening of the US$ would have had the opposite impact.

Interest Rate Risk

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

In order to mitigate its exposure to interest rate changes, Talisman enters into interest rate swaps from time to time to manage the ratio of fixed rate debt to floating rate debt.  At September 30, 2014, the Company had fixed-to-floating interest rate swap contracts with a total notional amount of $300 million that expire on May 15, 2015.  During the three month and nine month periods ended September 30, 2014, the fair value of the fixed-to-floating interest rate swaps decreased by $nil and $7 million, respectively.

25

In respect of financial instruments existing at September 30, 2014, a 1% increase in interest rates would have resulted in a $5million decrease in net income and a $5 million impact on comprehensive income during the three month period ended September 30, 2014.

Credit Risk

A significant proportion of Talisman’s accounts receivable balance is with customers in the oil and gas industry and is subject to normal industry credit risks. At September 30, 2014, approximately 87% of the Company's trade accounts receivable was current and the largest single counterparty exposure, accounting for 4% of the total, was with an investment grade counterparty.  Concentration of counterparty credit risk is mitigated by having a broad domestic and international customer base of highly rated counterparties.

Liquidity Risk

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

Talisman manages its liquidity requirements by use of both short-term and long-term cash forecasts, and by maintaining appropriate undrawn capacity under committed bank credit facilities. At September 30, 2014, Talisman had unsecured credit facilities totaling $3.2billion, consisting of facilities of $3 billion (Facility No. 1), maturing March 19, 2019 and $200 million (Facility No. 2) maturing October 21, 2019. Available borrowing capacity was $2.9 billion at September 30, 2014.

In addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted.  At September 30, 2014, demand letters of credit guaranteed by the Company totaling $1.1 billion were issued, of which $1.0 billion were issued from uncommitted facilities.  Of that total, $0.8 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 United Kingdom pursuant to contractual arrangements under Decommissioning Security Agreements (DSAs). At the commencement of the joint venture, 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 United Kingdom 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 correspondingly. TSEUK has entered into a Decommissioning Relief Deed with the United Kingdom Government and continues to negotiate with counterparties to amend all DSAs accordingly.

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At September 30, 2014, TSEUK has $2.5 billion of demand shared facilities in place under which letters of credit of $1.6 billion have been issued. Total letters of credit issued by TSEUK have been reduced from $1.8 billion at July 1, 2014 to $1.6 billion at September 30, 2014, as a result of selective letters of credit that are now posted on an after-tax basis. The Company intends to complete the process of replacing the remaining letters of credit as planned during the remainder of 2014, recognizing that beneficiary approval is required for these to be placed on an after-tax basis. 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 September 30, 2014, TSEUK’s total recorded decommissioning liabilities were $3.4 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.  Management is in the process of reviewing the latest decommissioning liability estimates and believes, based on emerging information, that there is a possibility of increases being confirmed as the process is progressed. At this stage, management has not concluded on the magnitude of the adjustments, if any, but will progress the review process, and make any necessary adjustments to remediation liabilities, in future periods.

Any changes to decommissioning estimates influence the value of letters of credit 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.

Except for commodity price derivative contracts that mature as noted below, long-term debt that matures as outlined in note 13 and other long-term obligations detailed in note 14, all of the Company’s financial liabilities are due within one year.

Commodity Price Risk

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

The Company had the following commodity price derivative contracts outstanding at September 30, 2014, none of which are designated as hedges:

Two-way collars (Oil)	Term	bbls/d		Floor/ceiling $/bbl		Fair value asset (liability)
Dated Brent oil index	2014 Oct – Dec		10,000		95.00/110.07		2
Dated Brent oil index	2014 Oct – Dec		10,000		90.00/105.22		-
NYMEX WTI oil index	2014 Oct – Dec		5,000		80.00/95.00		-
Dated Brent oil index	2015 Jan – Dec		5,000		90.00/100.01		(2	)
NYMEX WTI oil index	2015 Jan – Dec		5,000		80.00/95.02		-
Dated Brent oil index	2015 Jan – Dec		20,000		90.00/106.16		5
Dated Brent oil index	2016 Jan – Dec		5,000		90.00/108.00		3
NYMEX WTI oil index	2016 Jan – Dec		5,000		85.00/95.95		6
							14

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Fixed priced swaps (Oil)	Term	bbls/d		$/bbl			Fair value asset (liability)
NYMEX WTI oil index	2014 Oct - Dec		2,500		91.91			-
Dated Brent oil index	2014 Oct - Dec		10,000		104.02			9
NYMEX WTI oil index	2014 Oct - Dec		10,000		94.28			4
Dated Brent oil index	2014 Oct - Dec		10,000		103.31			8
Dated Brent oil index	2014 Oct - Dec		8,000		111.79			13
WCS Differential	2014 Nov - Dec1		6,500		(21.55	)		(2	)
Dated Brent oil index	2015 Jan - Dec		10,000		100.46			14
Dated Brent oil index	2015 Jan - Dec		1,000		104.00			3
Dated Brent oil index	2015 Jan - Dec		9,000		100.59			13
NYMEX WTI oil index	2015 Jan - Dec		5,000		96.36			16
WCS Differential	2015 Jan - Mar		6,500		(21.55	)		(2	)
Dated Brent oil index	2016 Jan - Dec		10,000		98.01			6
Dated Brent oil index	2016 Jan - Dec		5,000		100.29			7
Dated Brent oil index	2016 Jan - Dec		10,000		102.98			24
								113

Two-way collars (Gas)	Term	mcf/d		Floor/ceiling $/mcf		Fair value asset (liability)
NYMEX HH LD	2014 Nov - Dec1		94,936		4.21/4.71		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.21/4.64		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.21/4.99		-
NYMEX HH LD	2015 Jan - Dec		47,468		4.23/4.87		4
NYMEX HH LD	2015 Jan - Dec		94,936		4.21/5.06		9
NYMEX HH LD	2016 Jan - Dec		47,468		4.21/4.75		2
NYMEX HH LD	2016 Jan - Dec		47,468		4.21/4.87		3
							18

Fixed priced swaps (Gas)	Term	mcf/d		$/mcf		Fair value asset (liability)
NYMEX HH LD	2014 Nov - Dec1		47,468		4.24		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.25		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.34		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.42		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.44		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.29		-
NYMEX HH LD	2014 Nov - Dec1		47,468		4.43		-
NYMEX HH LD	2015 Jan - Dec		47,468		4.54		6
NYMEX HH LD	2015 Jan - Dec		47,468		4.39		3
NYMEX HH LD	2015 Jan - Dec		47,468		4.39		3
NYMEX HH LD	2015 Jan - Dec		47,468		4.48		4
NYMEX HH LD	2015 Jan - Dec		47,468		4.53		5
NYMEX HH LD	2015 Jan - Dec		47,468		4.55		6
NYMEX HH LD	2016 Jan - Dec		47,468		4.48		3
NYMEX HH LD	2016 Jan - Dec		42,721		4.55		4
							34

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Fixed priced swaps (Power)	Term	MWh		$CAD/MWh		Fair value asset (liability)
Alberta Power	2014 Oct - Dec		7		74.66		-
Alberta Power	2015 Jan - Dec		5		73.72		-
Alberta Power	2016 Jan - Dec		2		73.83		-
Alberta Power	2017 Jan - Dec		1		74.75		-
Alberta Power	2018 Jan - Dec		1		74.75		-
							-

1.  The fair value balances as at September 30, 2014 do not include October 2014 commodity derivatives contracts that were settled in September.

Subsequent to September 30, 2014, the Company did not enter into any derivative contracts as at October 30, 2014.

In respect of outstanding financial instruments and assuming forward commodity prices in existence at September 30, 2014, an increase of $1/bbl in the price of oil and an increase of $0.10/mcf in the price of gas would have reduced the net fair value of commodity derivatives, thereby resulting in a decrease in net income of $39 million for the three month period ended September 30, 2014.  A similar decrease in commodity prices would result in an increase in net income of approximately $41 million for the three month period ended September 30, 2014.

17. 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.

Commitments

During the nine month period ended September 30, 2014, as a result of the sale of the Company’s Montney acreage and non-core assets in western Canada, there was a total of $339 million decrease in the Company’s expected future commitments, including a $286 million decrease in transportation and processing commitments, a $50 million decrease in PP&E and E&E asset commitments, and a $3 million decrease in office lease commitments. There was a further $135 million decrease in the Company’s transportation and processing commitments in western Canada and Indonesia.  There have been no additional significant changes in the Company’s expected future commitments, and the timing of those payments, since December 31, 2013.

18. OTHER INCOME

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
Pipeline and customer treating tariffs		14		20		47		42
Investment income		4		6		14		10
Interest on loan to TSEUK (note 5)		4		7		23		16
Marketing and other income		13		8		30		15
		35		41		114		83

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19. OTHER EXPENSES, NET

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
Foreign exchange (gain) loss		(18	)		45			(15	)		6
PP&E derecognition		4			1			4			1
Restructuring		1			6			18			34
Other miscellaneous		10			(5	)		35			30
		(3	)		47			42			71

20. INCOME TAXES

Current Income Tax Expense

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
North America		(38	)		(1	)		(34	)		(18	)
Southeast Asia		94			149			318			453
North Sea		(6	)		(2	)		(12	)		(36	)
Other		8			25			46			58
Total		58			171			318			457

Deferred Income Tax (Recovery) Expense

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
North America		(34	)		(36	)		10			(126	)
Southeast Asia		7			(106	)		20			(103	)
North Sea		14			(35	)		(132	)		85
Other		(3	)		(10	)		-			(25	)
Total		(16	)		(187	)		(102	)		(169	)

During the three months ended September 30, 2014, the Company recorded a $60 million benefit ($38 million current and $22 million deferred) as a result of a settlement of appeals in Canada.

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21. SUPPLEMENTAL CASH FLOW

Items Not Involving Cash

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
Depreciation, depletion and amortization		458			482			1,407			1,367
Impairment, net of reversals		-			2			158			-
Dry hole		36			13			64			82
Share-based payments expense (recovery)		(17	)		5			(23	)		26
(Gain) loss on disposals		(6	)		1			(560	)		(58	)
Unrealized (gain) loss on held-for-trading financial instruments		(420	)		94			(292	)		(61	)
Deferred income tax recovery		(16	)		(187	)		(102	)		(169	)
Foreign exchange		(18	)		38			(16	)		3
Derecognition		4			1			4			1
(Income) loss from joint ventures and associates, after tax		13			(44	)		44			(65	)
Other		3			(4	)		25			4
		37			401			709			1,130

Other Cash Flow Information

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
Cash interest paid		49		57		174		166
Cash interest received		-		10		24		21
Cash income taxes paid		115		152		446		485

22. CASH AND CASH EQUIVALENTS

Of the cash and cash equivalents balance of $237 million (December 31, 2013 - $364 million), $206 million (December 31, 2013 - $364 million) has been invested in bank deposits and the remainder in highly rated marketable securities with original maturities of less than three months.

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23. INTERESTS IN SUBSIDIARIES

The interim condensed Consolidated Financial Statements include the financial statements of Talisman Energy Inc. and its directly or indirectly owned subsidiaries.  Transactions between subsidiaries are eliminated on consolidation.  The following table lists the material operating subsidiaries owned directly or indirectly by Talisman as at September 30, 2014:

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) BV	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.

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24. 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 Australia/Timor-Leste. The North Sea segment includes operations and exploration activities in the UK and Norway. The Company also has non-operated production in Algeria, operations and exploration activities in Colombia, and exploration activities in the Kurdistan Region of Iraq. In 2013, the Company exited Poland and received government approval to transfer its interests in Sierra Leone.  Furthermore, the Company is in the process of exiting Peru. For ease of reference, all of the activities in Algeria, Colombia, Peru, Poland, Sierra Leone and the Kurdistan Region of Iraq are referred to collectively as the Other geographic segment.  All activities relate to the exploration, development, production and transportation of oil, liquids and natural gas.

	North America (1)												Southeast Asia (2)
	Three months ended September 30						Nine months ended September 30						Three months ended September 30				Nine months ended September 30
(millions of US$)	2014			2013			2014			2013			2014		2013		2014		2013
Revenue
Sales		427			428			1,445			1,213			494		551		1,591		1,593
Other income		18			17			45			43			-		1		1		1
Income (loss) from joint ventures and associates, after tax		-			-			-			-			-		-		-		-
Total revenue and other income		445			445			1,490			1,256			494		552		1,592		1,594
Segmented expenses
Operating		128			135			396			426			114		135		366		384
Transportation		26			23			65			79			13		15		40		44
DD&A		282			309			844			895			111		129		341		326
Impairment		-			3			(32	)		3			-		1		-		1
Dry hole		-			-			-			-			6		14		34		66
Exploration		2			15			11			29			27		15		66		50
Other		10			-			41			46			1		-		3		8
Total segmented expenses		448			485			1,325			1,478			272		309		850		879
Segmented income (loss) before taxes		(3	)		(40	)		165			(222	)		222		243		742		715
Non-segmented expenses
General and administrative
Finance costs
Share-based payments (recovery) expense
Currency translation
(Gain) loss on held-for-trading
financial instruments
(Gain) loss on asset disposals
Total non-segmented expenses
Income (loss) before taxes
Capital expenditure
Exploration		33			25			78			57			66		18		103		92
Development		315			322			871			958			59		76		205		260
Exploration and development		348			347			949			1,015			125		94		308		352
Acquisitions
Proceeds on dispositions
Other non-segmented
Net capital expenditures
Property, plant and equipment								6,663			6,636							2,308		2,318
Exploration and evaluation assets								1,570			1,579							698		717
Goodwill								111			118							170		170
Investments in joint ventures and associates								-			-							-		-
Other								553			677							774		740
Asset held for sale								-			776							-		-
Segmented assets								8,897			9,786							3,950		3,945
Non-segmented assets
Total assets (5)
Decommissioning liabilities (5)								436			450							300		280

	Three months ended September 30				Nine months ended September 30
1. North America	2014		2013		2014		2013
Canada		177		209		635		608
US		268		236		855		648
Total revenue and other income		445		445		1,490		1,256
Canada						2,405		2,544
US						4,258		4,092
Property, plant and equipment (5)						6,663		6,636
Canada						946		905
US						624		674
Exploration and evaluation assets (5)						1,570		1,579

	Three months ended September 30			Nine months ended September 30
2. Southeast Asia		2014	2013		2014	2013
Indonesia		266	273		794	900
Malaysia		136	110		422	381
Vietnam		88	116		304	181
Australia		4	53		72	132
Total revenue and other income		494	552		1,592	1,594
Indonesia					980	1,023
Malaysia					752	707
Vietnam					342	460
Papua New Guinea					119	40
Australia					115	88
Property, plant and equipment (5)					2,308	2,318
Indonesia					40	19
Malaysia					81	83
Vietnam					178	145
Papua New Guinea					399	470
Exploration and evaluation assets (5)					698	717
5. Current year represents balances at September 30. Prior year represents balances at December 31.

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	North Sea (3)								Other (4)							Total
	Three months ended September 30				Nine months ended September 30				Three months ended September 30				Nine months ended September 30			Three months ended September 30				Nine months ended September 30
(millions of US$)	2014		2013		2014		2013		2014		2013		2014	2013		2014		2013		2014		2013
Revenue
Sales	141		110		412		426		52		70		201	177		1,114		1,159		3,649		3,409
Other income	5		9		26		18		12		14		42	21		35		41		114		83
Income (loss) from joint ventures and associates, after tax	(30	)	(5	)	(107	)	(73	)	17		49		63	138		(13	)	44		(44	)	65
Total revenue and other income	116		114		331		371		81		133		306	336		1,136		1,244		3,719		3,557
Segmented expenses
Operating	76		57		245		214		21		11		44	24		339		338		1,051		1,048
Transportation	10		6		22		20		8		2		23	5		57		46		150		148
DD&A	60		33		187		123		5		11		35	23		458		482		1,407		1,367
Impairment	-		-		190		(14	)	-		(2	)	-	10		-		2		158		-
Dry hole	-		(1	)	-		18		30		-		30	(2	)	36		13		64		82
Exploration	9		5		35		33		15		31		50	96		53		66		162		208
Other	1		1		3		9		3		1		10	2		15		2		57		65
Total segmented expenses	156		101		682		403		82		54		192	158		958		949		3,049		2,918
Segmented income (loss) before taxes	(40	)	13		(351	)	(32	)	(1	)	79		114	178		178		295		670		639
Non-segmented expenses
General and administrative																95		106		305		320
Finance costs																85		87		266		244
Share-based payments (recovery) expense																(17	)	6		(24	)	30
Currency translation																(18	)	45		(15	)	6
(Gain) loss on held-for-trading																(428	)	120		(197	)	(21	)
financial instruments
(Gain) loss on asset disposals																(6	)	1		(560	)	(58	)
Total non-segmented expenses																(289	)	365		(225	)	521
Income (loss) before taxes																467		(70	)	895		118
Capital expenditure
Exploration	3		3		20		38		28		39		118	97		130		85		319		284
Development	31		96		103		269		1		4		8	15		406		498		1,187		1,502
Exploration and development	34		99		123		307		29		43		126	112		536		583		1,506		1,786
Acquisitions																-		105		36		105
Proceeds on dispositions																(102	)	(4	)	(1,494	)	(103	)
Other non-segmented																10		19		30		29
Net capital expenditures																444		703		78		1,817
Property, plant and equipment					457		537						226	261						9,654		9,752
Exploration and evaluation assets					199		289						666	580						3,133		3,165
Goodwill					287		287						-	-						568		575
Investments in joint ventures and associates					637		206						704	920						1,341		1,126
Other					2,231		1,911						311	402						3,869		3,730
Asset held for sale					-		-						-	-						-		776
Segmented assets					3,811		3,230						1,907	2,163						18,565		19,124
Non-segmented assets																				200		37
Total assets (5)																				18,765		19,161
Decommissioning liabilities (5)					1,104		1,009						29	30						1,869		1,769

	Three months ended September 30						Nine months ended September 30
3. North Sea	2014			2013			2014			2013
Norway		146			119			438			444
Loss from TSEUK JV after tax		(30	)		(5	)		(107	)		(73	)
Total revenue and other income		116			114			331			371
Norway								457			537
Property, plant and equipment (5)								457			537
Norway								199			289
Exploration and evaluation assets (5)								199			289
	Three months ended September 30						Nine months ended September 30
4. Other		2014			2013			2014			2013
Algeria		27			67			134			164
Colombia6		54			66			172			172
Total revenue and other income		81			133			306			336
Algeria								226			260
Colombia								-			1
Property, plant and equipment (5)								226			261
Colombia								234			203
Kurdistan Region of Iraq								432			377
Exploration and evaluation assets (5)								666			580
5. Current year represents balances at September 30. Prior year represents balances at December 31.
6. Balances include after-tax equity income from Equion.

34

EX-99.2

Exhibit 99.2

 INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE PERIOD ENDED SEPTEMBER 30, 2014

1

Management’s Discussion and Analysis (MD&A)

(November 4, 2014)

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 nine month periods ended September 30, 2014 and 2013, and the 2013 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. Talisman’s investment in the Ocensa pipeline was accounted for using the equity method of accounting until December 19, 2013 when the Company sold its 12.152% equity interest.

All comparisons are between the three month periods ended September 30, 2014 and 2013, 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.

2

THIRD QUARTER 2014 PERFORMANCE HIGHLIGHTS

· Total production averaged 353,000 boe/d, with production from North America, Colombia, Southeast Asia and Algeria businesses at 323,000 boe/d. Production from ongoing operations in these regions was 318,000 boe/d.

· Total liquids production averaged 135,000 boe/d, with North American production up 11%.

· Net income for the quarter was $425 million compared to a net loss of $54 million in the previous year, mainly driven by mark-to-market gains on commodity derivatives, partially offset by decreased income tax recoveries and losses from the TSEUK joint venture.

FINANCIAL AND OPERATING HIGHLIGHTS

	Nine Months Ended Sept 30,					Q3	Q2		Q1	Q4		Q3		Q2	Q1		Q4
($ millions, unless otherwise stated)	2014		2013			2014	2014		2014	2013		2013		2013	2013		2012
Total revenue and other income1		3,719		3,557		1,136	1,242		1,341	929		1,244		1,190	1,123		1,663
Net income (loss)		679		(170	)	425	(237	)	491	(1,005	)	(54	)	97	(213	)	376
Per common share ($)
Net income (loss)2		0.65		(0.17	)	0.41	(0.23	)	0.47	(0.98	)	(0.05	)	0.09	(0.21	)	0.37
Diluted net income (loss)3		0.57		(0.23	)	0.38	(0.24	)	0.43	(0.98	)	(0.08	)	0.06	(0.21	)	0.31
Production4 (Daily Average - Gross)
Oil and liquids (mbbls/d)		141		130		135	145		142	137		134		126	129		143
Natural gas (mmcf/d)		1,379		1,433		1,310	1,380		1,452	1,505		1,423		1,414	1,461		1,498
Total mboe/d (6mcf = 1boe)		371		368		353	375		384	387		371		361	372		392

1. 2012 restated to reflect the change to equity accounting of Equion. Adjustments relating to TSEUK are effective for the period of December 17, 2012 to December 31, 2012 as the TSEUK joint venture was formed on December 17, 2012.

2. Net income (loss) per share includes an adjustment to the numerator for after-tax cumulative preferred share dividends.

3. 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.

4. Includes the Company’s proportionate interest in production from joint ventures.

During the third quarter of 2014, the Company had net income of $425 million compared to a net loss of $54 million in the same quarter in 2013 as a result of a gain on held-for-trading financial instruments compared to a loss in 2013, partially offset by decreased income tax recoveries and losses from the TSEUK joint venture.

Higher production volumes from ongoing operations in the third quarter of 2014 were due principally to increases in North American production of both oil and liquids and gas as well as increases in oil production in Colombia from the Akacias field.

3

DAILY AVERAGE PRODUCTION

	Three months ended September 30
	Gross before royalties				Net of royalties
	2014		2013			2014	2013
Oil and liquids from Consolidated Subsidiaries (mbbls/d)
North America		41		37		33	29
Southeast Asia		43		44		28	27
North Sea		14		12		14	12
Other		16		12		8	6
		114		105		83	74
Oil and liquids from Joint Ventures (mbbls/d)
TSEUK		12		20		12	20
Equion		9		9		7	8
		21		29		19	28
Total oil and liquids from Consolidated Subsidiaries and Joint Ventures (mbbls/d)		135		134		102	102
Natural gas from Consolidated Subsidiaries (mmcf/d)
North America		745		882		648	762
Southeast Asia		494		491		330	327
North Sea		21		4		21	3
Other		-		-		-	-
		1,260		1,377		999	1,092
Natural gas from Joint Ventures (mmcf/d)
TSEUK		1		2		1	2
Equion		49		44		41	36
		50		46		42	38
Total natural gas from Consolidated Subsidiaries and Joint Ventures (mmcf/d)		1,310		1,423		1,041	1,130
Total Daily Production from Consolidated Subsidiaries (mboe/d)
North America		165		184		140	156
Southeast Asia		125		125		83	81
North Sea		18		13		18	13
Other		16		12		8	6
		324		334		249	256
Total Daily Production from Joint Ventures (mboe/d)
TSEUK		12		21		12	21
Equion		17		16		14	13
		29		37		26	34
Total daily production from Consolidated Subsidiaries and Joint Ventures (mboe/d)		353		371		275	290
Less production from assets sold or held for sale (mboe/d)
North America		2		30		1	30
Southeast Asia		3		3		2	2
		5		33		3	32
Total production from ongoing operations (mboe/d)		348		338		272	258

4

	Nine months ended September 30
	Gross before royalties				Net of royalties
	2014		2013		2014		2013
Oil and liquids from Consolidated Subsidiaries (mbbls/d)
North America		43		33		34		26
Southeast Asia		44		43		28		23
North Sea		13		14		14		14
Other		16		11		8		5
		116		101		84		68
Oil and liquids from Joint Ventures (mbbls/d)
TSEUK		16		19		16		19
Equion		9		10		7		8
		25		29		23		27
Total oil and liquids from Consolidated Subsidiaries and Joint Ventures (mbbls/d)		141		130		107		95
Natural gas from Consolidated Subsidiaries (mmcf/d)
North America		801		868		696		757
Southeast Asia		510		514		344		343
North Sea		19		7		19		7
Other		-		-		-		-
		1,330		1,389		1,059		1,107
Natural gas from Joint Ventures (mmcf/d)
TSEUK		2		2		2		2
Equion		47		42		38		34
		49		44		40		36
Total natural gas from Consolidated Subsidiaries and Joint Ventures (mmcf/d)		1,379		1,433		1,099		1,143
Total Daily Production from Consolidated Subsidiaries (mboe/d)
North America		176		178		151		152
Southeast Asia		129		128		85		80
North Sea		16		15		16		15
Other		16		11		8		5
		337		332		260		252
Total Daily Production from Joint Ventures (mboe/d)
TSEUK		17		20		16		19
Equion		17		16		14		14
		34		36		30		33
Total daily production from Consolidated Subsidiaries and Joint Ventures (mboe/d)		371		368		290		285
Less production from assets sold or held for sale (mboe/d)
North America		12		31		11		31
Southeast Asia		3		5		2		3
		15		36		13		34
Total production from ongoing operations (mboe/d)		356		332		277		251

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

Production from ongoing operations was 348 mboe/d, an increase of 3% compared to 2013 due principally to increased oil and liquids production in North America and Colombia, partially offset by lower production in TSEUK, due to phasing of turnaround activity and increased production declines.

In North America, production from ongoing operations increased by 6%, from 154 mboe/d to 163 mboe/d. Capital investment in North America continues to be prioritized towards liquids-rich opportunities, primarily in the Eagle Ford and the Edson area, resulting in oil and liquids production from ongoing operations increasing 11% from 37 mbbls/d to 41 mbbls/d. Natural gas production from ongoing operations increased by 5% from 701 mmcf/d to 736 mmcf/d due principally to growth in the Marcellus and the Eagle Ford.

5

In Southeast Asia, total production from ongoing operations was stable at 122 mboe/d. Total oil and liquids production decreased by 2% due principally to a reduction of the Company’s production entitlement at HST/HSD in Vietnam, as the partner’s exploration carry was fully recovered and natural declines at Kitan in Australia. This was partially offset by increased production from Kinabalu in Malayisa as a result of continued platform debottlenecking and an infill drilling program. Natural gas production increased 1% due principally to increases in Corridor from facility expansion projects brought on-stream in December 2013 partially offset by decreased gas sales demand in PM3.

Production in Norway increased by 38% due principally to prior year turnaround activity in Brage and Blane, increased gas export volumes at Veslefrikk and increased production at Varg as a result of the start-up of the Varg gas export in the first quarter of 2014. In the TSEUK joint venture, production decreased by 43% due principally to turnaround activity at Bleoholm and Tweedsmuir.
 

In the Other segment, including the Equion joint venture, production increased 18% compared to 2013. Liquids production in Colombia increased due principally to additional long-term testing wells in Akacias. Algeria production increased due principally to increased liquids production at EMK from a liquids train brought online in 2014.

VOLUMES PRODUCED INTO (SOLD OUT OF) INVENTORY1,2

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
North America - bbls/d³		(652	)		-			(235	)		-
Southeast Asia - bbls/d		7,062			(1,231	)		4,617			(1,556	)
North Sea – bbls/d		(435	)		1,924			28			568
Other – bbls/d		6,549			(3,832	)		2,379			(1,591	)
Total produced into (sold out of) inventory – bbls/d		12,524			(3,139	)		6,789			(2,579	)
Total produced into (sold out of) inventory – mmbbls		1.2			(0.3	)		1.9			(0.7	)
Inventory at September 30 - mmbbls		3.1			1.4			3.1			1.4

1. Gross before royalties.

2. Effective January 1, 2013, the North Sea volumes only include Norway.

3. Volumes exclude any amounts capitalized to PP&E.

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. 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.

Volumes in inventory increased from 1.9 mmbbls at June 30, 2014 to 3.1 mmbbls at September 30, 2014 due principally to increased inventories in Algeria and Southeast Asia, partially offset by decreased inventories in North America and the North Sea.

6

COMPANY NETBACKS1,2

	Three months ended September 30
	Gross before royalties				Net of royalties
	2014		2013		2014		2013
Oil and liquids ($/bbl)
Sales price		87.02		97.04		87.02		97.04
Royalties		24.45		30.01		-		-
Transportation		2.20		1.09		3.06		1.58
Operating costs		21.75		22.39		30.25		32.42
		38.62		43.55		53.71		63.04
Natural gas ($/mcf)
Sales price		5.88		5.51		5.88		5.51
Royalties		1.47		1.41		-		-
Transportation		0.29		0.28		0.39		0.38
Operating costs		1.16		1.08		1.55		1.46
		2.96		2.74		3.94		3.67
Total $/boe (6mcf=1boe)
Sales price		53.44		53.11		53.44		53.11
Royalties		14.31		15.23		-		-
Transportation		1.91		1.49		2.62		2.09
Operating costs		12.16		11.49		16.45		15.80
		25.06		24.90		34.37		35.22

1. Netbacks do not include pipeline operations.

2. Amounts shown only represent netbacks from consolidated subsidiaries and exclude netbacks from equity accounted entities.

	Nine months ended September 30
	Gross before royalties				Net of royalties
	2014		2013		2014		2013
Oil and liquids ($/bbl)
Sales price		91.15		94.80		91.15		94.80
Royalties		26.53		32.18		-		-
Transportation		1.74		1.31		2.46		1.99
Operating costs		21.95		22.73		30.96		34.41
		40.93		38.58		57.73		58.40
Natural gas ($/mcf)
Sales price		6.20		5.86		6.20		5.86
Royalties		1.48		1.47		-		-
Transportation		0.26		0.29		0.34		0.39
Operating costs		1.12		1.13		1.47		1.51
		3.34		2.97		4.39		3.96
Total $/boe (6mcf=1boe)
Sales price		55.64		53.27		55.64		53.27
Royalties		14.91		15.93		-		-
Transportation		1.63		1.63		2.22		2.32
Operating costs		11.91		11.62		16.03		16.09
		27.19		24.09		37.39		34.86

1. Netbacks do not include pipeline operations.

2. Amounts shown only represent netbacks from consolidated subsidiaries and exclude netbacks from equity accounted entities.

7

During the quarter, the Company’s average gross netback was $25.06/boe, 1% higher than 2013 due principally to higher realized gas prices in North America and lower royalties on liquids production, partially offset by lower realized prices and royalties on liquids production.

The Company’s realized net sale price was stable. The 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 corporate royalty rate was 25%, down from 30% in 2013 due principally to lower royalty payments in Southeast Asia.

COMMODITY PRICES AND EXCHANGE RATES1

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
Oil and liquids ($/bbl)
North America		67.90		73.89		67.32		68.32
Southeast Asia		102.24		108.98		107.91		107.39
North Sea		91.59		111.01		100.53		108.96
Other		91.89		110.68		101.20		106.72
		87.02		97.04		91.15		94.80
Natural gas ($/mcf)
North America		3.72		3.29		4.34		3.51
Southeast Asia		9.07		9.41		9.05		9.72
North Sea		7.22		14.42		8.11		14.73
Other		-		-		-		-
		5.88		5.51		6.20		5.86
Company $/boe (6mcf=1boe)		53.44		53.11		55.64		53.27
Benchmark prices and foreign exchange rates
WTI                       (US$/bbl)		97.17		105.83		99.61		98.14
Dated Brent          (US$/bbl)		101.85		110.36		106.57		108.45
WCS                      (US$/bbl)		77.20		88.88		78.59		75.36
LLS                        (US$/bbl)		101.13		110.15		103.70		109.57
NYMEX                (US$/mmbtu)		4.07		3.60		4.51		3.68
AECO                    (C$/gj)		4.00		2.67		4.32		3.00
C$/US$ exchange rate		1.09		1.04		1.09		1.02
UK£/US$ exchange rate		0.60		0.64		0.60		0.65

1. Amounts shown only represent prices from consolidated subsidiaries and exclude prices from equity investees.

The Company’s overall realized oil and liquids price of $87.02/bbl decreased by 10% compared to 2013. In North America, realized oil and liquids prices decreased 8% due primarily to decreases in benchmark crude prices as well as a heavier weighting towards Natural Gas Liquids (NGL) products compared to 2013. In Southeast Asia realized oil and liquids prices decreased by 6% consistent with decreases in Brent pricing and in the North Sea, prices declined 17% due principally to the decline in Brent pricing and the timing of liftings.

The Company’s overall realized natural gas price of $5.88/mcf increased by 7% compared to 2013. In North America, realized natural gas prices increased by 13% in 2014, consistent with increases in NYMEX prices. In Southeast Asia, realized natural gas prices decreased by 4% due principally to declines in contracts that are linked to oil indices, partially offset by higher fixed-price contracts. For example, Corridor gas prices, where approximately 47% of sales are referenced to Duri crude and Singapore high-sulphur fuel oil on an energy equivalent basis, averaged $9.71/mcf in the third quarter versus $10.67/mcf in the prior year.

8

EXPENSES

Unit Operating Expenses1

	Three months ended September 30
	Gross before royalties				Net of royalties
($/boe)	2014		2013		2014		2013
North America		7.93		7.91		9.30		9.32
Southeast Asia		12.70		12.13		19.24		18.77
North Sea		43.87		59.36		43.87		59.36
Other		16.87		8.34		31.64		18.18
		12.16		11.49		16.45		15.80

	Nine months ended September 30
	Gross before royalties				Net of royalties
($/boe)	2014		2013		2014		2013
North America		8.07		8.61		9.49		10.07
Southeast Asia		11.87		11.20		17.97		17.90
North Sea		53.51		54.58		53.51		54.58
Other		11.93		6.56		22.98		14.08
		11.91		11.62		16.03		16.09

1. 2013 represents unit operating expenses from consolidated subsidiaries, excluding unit operating expenses from equity investees.

Total Operating Expenses1

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
($ millions)
North America		128		135		396		426
Southeast Asia		114		135		366		384
North Sea		76		57		245		214
Other		21		11		44		24
		339		338		1,051		1,048

1. Represent operating expenses from consolidated subsidiaries, excluding operating expenses from equity investees.

Total operating expenses were stable due principally to increases from the timing of liftings in the North Sea and long-term testing in Colombia, offset by a decrease in Southeast Asia due to the timing of liftings.

In North America, total operating expenses decreased by 5% to $128million due principally to property dispositions in western Canada, partially offset by a gas plant turnaround at Edson, increased production activity and higher gathering and processing fees in the Eagle Ford.

9

In Southeast Asia, total operating expenses decreased by 16% due primarily to the timing of liftings partially offset by additional maintenance in Vietnam and Malaysia. Unit operating expenses increased by 5% due principally to additional maintenance in Vietnam and Malaysia.

In the North Sea, operating expenses in Norway increased by 33% due principally to the timing of liftings, partially offset by higher maintenance costs in Varg in 2013. Unit operating costs in Norway decreased by 26% due to higher production volumes and higher maintenance costs in Varg in 2013 as mentioned above.

In the rest of the world, total operating expenses increased by $10 million compared to the same period in 2013 due to increased long-term production testing in the Akacias field in Colombia, partially offset by the timing of liftings in Algeria.

Unit operating expense for the Company increased 6% compared to 2013 due to the reasons noted above.

Unit Depreciation, Depletion and Amortization (DD&A) Expense1

	Three months ended September 30
	Gross before royalties				Net of royalties
($/boe)	2014		2013		2014		2013
North America		18.46		18.28		21.67		21.53
Southeast Asia		10.20		11.09		15.51		17.09
North Sea		36.30		32.77		36.30		32.77
Other		6.30		7.51		8.52		12.70
		16.00		15.55		20.42		20.28

	Nine months ended September 30
	Gross before royalties				Net of royalties
($/boe)	2014		2013		2014		2013
North America		17.53		18.47		20.60		21.60
Southeast Asia		10.04		9.20		15.19		14.60
North Sea		41.86		31.17		41.86		31.17
Other		9.73		6.39		17.25		12.03
		15.61		14.96		20.12		19.64

1. Represents unit DD&A from consolidated subsidiaries, excluding unit DD&A from equity investees.

Total DD&A Expense1

	Three months ended September 30				Nine months ended September 30
	2014		2013		2014		2013
($ millions)
North America		282		309		844		895
Southeast Asia		111		129		341		326
North Sea		60		33		187		123
Other		5		11		35		23
		458		482		1,407		1,367

1. Represents DD&A expenses from consolidated subsidiaries, excluding DD&A expense from equity investees.

Total DD&A expense decreased by 5% as a result of decreases in North America and Southeast Asia, partially offset by increased expense in the North Sea.

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DD&A expense in North America decreased by 9% principally due to lower production attributable to property dispositions as well as reserve additions in Marcellus, partially offset by increased production from ongoing operations and an increased depletable base in the Eagle Ford.

In Southeast Asia, DD&A expense decreased by 14% due principally to decreased production entitlement from HST/HSD in Vietnam as well as the timing of liftings. Unit DD&A expense decreased by 8%, due principally to impacts from the reduced production entitlement in HST/HSD.

In the North Sea, DD&A expense for Norway increased by 82% due principally to increased production and the timing of liftings. Unit DD&A expense increased by 11% due to an $11 million adjustment to historic DD&A charges in 2013, partially offset by rate changes in Brage, Varg and Veslefrikk.

In the rest of the world, total DD&A expense decreased due principally to the timing of liftings in Algeria.

Unit DD&A expense for the Company increased by 3% to $16.00/boe due to the reasons noted above.

Impairment1

	Three months ended September 30					Nine months ended September 30
	2014		2013			2014			2013
($ millions)
Impairment losses
North America		-		3			-			3
Southeast Asia		-		1			-			1
North Sea		-		-			190			7
Other		-		-			-			12
		-		4			190			23
Impairment reversals
North America		-		-			(32	)		-
Southeast Asia		-		-			-			-
North Sea		-		-			-			(21	)
Other		-		(2	)		-			(2	)
		-		(2	)		(32	)		(23	)
Net Impairment		-		2			158			-

1. Represents impairment expenses from consolidated subsidiaries, excluding impairment expenses from equity investees.

During the three month period ended September 30, 2014, the Company did not record any impairment losses or reversals.

During the nine month period ended September 30, 2014, the Company recorded $190 million of impairment expense consisting of $130 million in Norway due to withdrawal from an exploration license following technical evaluation and a further $60 million in Norway due to an increase in the decommissioning obligation and asset caused by a 1% decrease in the real discount rate used to measure decommissioning liabilities.

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The Company recorded an impairment reversal of $32 million in North America in the second quarter of 2014, due to the estimated recoverable amount of assets held for sale exceeding their carrying amounts.

During the three months ended September 30, 2014, the Company declared commerciality and filed a development plan for the K44 license in the Kurdistan Region of Iraq. The Kurdistan Regional Government (KRG) has requested revisions to the development plan, which will require further negotiations between the K44 partners and the KRG within the contractual framework set out in the production sharing contract. The carrying value of the Company’s investment in K44 is $234 million at September 30, 2014.

The Company’s goodwill balance includes $287 million relating to the North Sea. The value of North Sea goodwill is supported by a combination of United Kingdom and Norway asset values, and any potential future diminution of those valuations, as referenced in note 5, to the interim condensed Consolidated Financial Statements, will increase the risk of impairment of North Sea goodwill.

Income (Loss) from Joint Ventures and Associates1

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
($ millions)
TSEUK		(30	)		(5	)		(107	)		(73	)
Equion		17			33			63			95
Oleoducto Central S.A. (Ocensa)		-			16			-			43
		(13	)		44			(44	)		65

1. Represents the Company’s proportionate interest in joint ventures and associates.

TSEUK Joint Venture

The net loss in TSEUK increased by $25 million compared to prior year due principally to decreased production volumes, lower pricing and increased operating expenses, partially offset by an increase in deferred income tax recovery.

Throughout 2014, TSEUK has been challenged with respect to asset uptime, declining production and emerging potential increases to development and decommissioning cost estimates. These challenges will be factored into the Company’s reserves, planning and impairment processes due to be completed in the fourth quarter of 2014. An adverse movement in any of these factors will result in lower estimated future cash flows than previously anticipated, and under these circumstances there is a risk of impairments. Management expects to reach its conclusions and book impairments, if any, in the fourth quarter of 2014. The total value of the Company’s investment in TSEUK at September 30, 2014 is $637 million. The magnitude of potential impairments could result in a material reduction in the carrying value of the Company’s investment in TSEUK.

EQUION Joint Venture

Income from Equion decreased by $16 million compared to prior year due principally to increased DD&A expenses as well as a higher current tax expense.

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OCENSA Joint Venture

In December 2013, Talisman sold its 12.152% equity interest in the Ocensa pipeline. Talisman retained its crude oil transportation rights in the pipeline and retained its option to transport proprietary crude and to market any unused capacity to third parties.

Corporate and Other1

	Three months ended September 30					Nine months ended September 30
	2014			2013		2014			2013
($ millions)
General and administrative (G&A) expense		95			106		305			320
Dry hole expense		36			13		64			82
Exploration expense		53			66		162			208
Finance costs		85			87		266			244
Share-based payments expense (recovery)		(17	)		6		(24	)		30
(Gain) loss on held-for-trading financial instruments		(428	)		120		(197	)		(21	)
(Gain) loss on asset disposals		(6	)		1		(560	)		(58	)
Other income		35			41		114			83
Other expenses, net (recovery)		(3	)		47		42			71

1. Represents corporate and other expense from consolidated subsidiaries, excluding corporate and other expense from equity investees.

G&A expense decreased by $11 million relative to 2013 due principally to lower workforce costs.

In the third quarter of 2014, Talisman recorded dry hole expense of $36 million due principally to the write-off of exploration wells in Colombia and Malaysia.

Exploration expense decreased by $13 million due principally to reduced spending in North America and the rest of the world, partially offset by increased spending in Southeast Asia.

Share-based payments recovery during the three month period ended September 30, 2014 was $17 million, mainly due to a reduction in the valuation of outstanding options, Restricted Share Units (RSUs) and Deferred Share Units (DSUs) caused by a decline in the Company’s share price and forfeited units for RSUs and options, partially offset by expenses related to the vesting of the long-term Performance Share Unit (PSU) plan units and the RSUs.

Talisman recorded a gain on held-for-trading financial instruments of $428 million, due principally to a decrease in oil and gas forward prices, partially offset by a reduction in the remaining volumes included under derivative contracts. See the ‘Risk Management’ section of this MD&A for further details concerning the Company’s financial instruments.

Other income consists primarily of $14 million in pipeline and customer treating tariffs along with $13 million in marketing and other income.

Other expense recovery of $3 million includes a foreign exchange gain of $18 million and PP&E derecognition costs of $4 million.

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INCOME TAXES1

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
($ millions)
Income (loss) before taxes		467			(70	)		895			118
Less: Petroleum Revenue Tax (PRT)
Current		(3	)		10			4			22
Deferred		4			(1	)		2			2
Total PRT		1			9			6			24
		466			(79	)		889			94
Income tax expense (recovery)
Current income tax		61			161			314			435
Deferred income tax		(20	)		(186	)		(104	)		(171	)
Income tax expense  (recovery) (excluding PRT)		41			(25	)		210			264
Effective income tax rate (%)		9			32			24			281

1. Represents income taxes from consolidated subsidiaries, excluding income taxes from equity investees.

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 third quarter of 2014 was impacted by gains on held-for-trading financial instruments of $428 million, of which a portion are not taxable for tax purposes, partially offset by pre-tax income of $222 million in Southeast Asia where tax rates range from 30% to 55%.

In addition to the jurisdictional mix of income, the effective tax rate was also impacted by:

· The effect of foreign exchange fluctuations in foreign denominated currency tax pools; and

· The non-recognition of deferred tax assets in the United States and Southeast Asia exploration blocks;

· Settlement of prior year appeals with Canada Revenue Agency (CRA).

Current tax expense of $61 million decreased due to lower revenues in Southeast Asia and a $38 million benefit associated with the settlement of appeals in Canada in the third quarter of 2014.

The deferred tax recovery of $20 million in the three month period ended September 30, 2014, compared to a deferred tax recovery of $186 million in the three month period ended September 30, 2013, was due principally to foreign exchange fluctuations in foreign denominated tax pools as well as the recognition of previously unrecognized deferred tax assets in Vietnam in the third quarter of 2013.

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CAPITAL EXPENDITURES1,2

	Three months ended September 30						Nine months ended September 30
	2014			2013			2014			2013
($ millions)
North America		348			347			949			1,015
Southeast Asia		125			94			308			352
North Sea1		34			99			123			307
Other		29			43			126			112
Exploration and development expenditure from subsidiaries2		536			583			1,506			1,786
Corporate, IS and Administrative		10			19			30			29
Acquisitions		-			105			36			105
Proceeds of dispositions		(102	)		(4	)		(1,494	)		(103	)
Net capital expenditure for subsidiaries		444			703			78			1,817
TSEUK		121			138			454			343
Equion		30			26			64			81
Exploration and development expenditure from joint ventures3		151			164			518			424
Net capital expenditure for consolidated subsidiaries and joint ventures		595			867			596			2,241

1.	Effective January 1, 2013, capital expenditures in the North Sea only relate to Norway.
2.	Excludes exploration expense of $53 million (2013 - $66 million) for the three month period ended September 30, 2014 and $162 million (2013 - $208 million) for the nine month period ended September 30, 2014.
3.	Represents the Company’s proportionate interest, excluding exploration expensed of $3 million net in TSEUK (2013 - $11 million) for the three month period ended September 30, 2014 and $5 million net in TSEUK (2013 - $17 million) for the nine month period ended September 30, 2014.

Net capital expenditure for consolidated subsidiaries and joint ventures, excluding exploration expense, decreased by 31% in the third quarter of 2014 compared to the same quarter in 2013 due principally to reduced spending in Norway and TSEUK, higher proceeds from dispositions and no acquisitions expenditure. This was partially offset by increased spending in Southeast Asia.

North American capital expenditures were relatively stable compared with 2013. Of the $348 million spent in the quarter, $315 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 $125 million included $59 million on development, with the majority spent in Malaysia, Indonesia and Australia. The majority of the $66 million for exploration was spent in Malaysia and Vietnam.

In Norway, capital expenditures of $34 million included $31 million of development activity, the majority being spent at Brage,Veslefrikk and Brynhild.

In the rest of the world, capital expenditures of $29 million included crude processing facilities in Colombia and exploration and evaluation activities in Colombia and the Kurdistan Region of Iraq.

In the TSEUK joint venture, net capital expenditures of $121 million consisted primarily of development activities at Montrose, Flyndre/Cawdor and Godwin and exploration drilling at Seagull. In the Equion joint venture, net capital expenditures of $30 million were principally for expansion of the Piedemonte facility as well as development wells in Florena and Pauto.

15

ASSET DISPOSALS

North America Dispositions

In July 2014, Talisman sold non-core assets in western Canada for net proceeds of $99 million, resulting in a loss on disposal of $3 million ($3 million after tax).

In April 2014, Talisman sold non-core assets in western Canada for net proceeds of $45 million, after $10 million in working capital adjustments, resulting in a loss on disposal of $3 million ($3 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 $567 million ($493 million after tax).

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

LIQUIDITY AND CAPITAL RESOURCES

Talisman’s gross debt at September 30, 2014 was $4.7 billion ($4.5 billion, net of cash and cash equivalents and bank indebtedness), compared to $5.2 billion ($4.9 billion, net of cash and cash equivalents and bank indebtedness) at December 31, 2013.

During the quarter, the Company generated $458 million of cash provided by operating activities and incurred capital expenditures of $549 million.

On an ongoing basis, Talisman plans to fund its capital program and acquisitions through a combination of cash on hand, cash provided by operating activities and cash proceeds from the disposition of non-core assets, and also by drawing on the Company’s credit facilities, issuing commercial paper, or issuing equity, long-term notes or debentures under the Company’s shelf prospectuses.

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 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 credit facilities. At September 30, 2014, 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. At September 30, 2014, $341 million of commercial paper was outstanding. Available borrowing capacity was $2.9 billion at September 30, 2014.

On May 5, 2014, Talisman amended certain terms of Facility No.1, converting the denomination to US dollars, extending the facility to $3 billion and extending the terms to five years maturing on March 19, 2019. On August 12, 2014, the maturity date of Facility No. 2 was extended to October 21, 2019.

16

In addition, the Company utilizes letters of credit pursuant to letter of credit facilities, most of which are uncommitted. At September 30, 2014, demand letters of credit guaranteed by the Company totaling $1.1 billion were issued, of which $1.0 billion were issued from uncommitted facilities. Of that total, $0.8 billion, issued from shared facilities with Addax, 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 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 United Kingdom 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 correspondingly. TSEUK has entered into a Decommissioning Relief Deed with the United Kingdom Government and continues to negotiate with counterparties to amend all DSAs accordingly.

At September 30, 2014, TSEUK has $2.5 billion of demand shared facilities in place under which letters of credit of $1.6 billion have been issued. Total letters of credit issued by TSEUK have been reduced from $1.8 billion at July 1, 2014 to $1.6 billion at September 30, 2014, as a result of selective letters of credit that are now posted on an after-tax basis. The Company intends to complete the process of replacing the remaining letters of credit as planned during the remainder of 2014, recognizing that beneficiary approval is required for these to be placed on an after-tax basis. 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.

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. Since the second quarter of 2014, Talisman was downgraded by Moody’s, Standard &Poor’s, Fitch and Dominion Bond Rating Service to Baa3 (stable), BBB- (stable), BBB- (stable), and BBB (negative trend), respectively. The Company remains investment grade and believes it will continue to have access to capital, as and when needed, at a reasonable cost of funds.

As of September 30, 2014, TSEUK’s total recorded decommissioning liabilities were $3.4 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. Management is in the process of reviewing the latest decommissioning liability estimates and believes, based on emerging information, that there is a possibility of increases being confirmed as the process is progressed. At this stage, management has not concluded on the magnitude of the adjustments, if any, but will progress the review process, and make any necessary adjustments to remediation liabilities, in future periods.

17

Talisman manages 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. The debt-to-cash flow ratio is calculated using debt (calculated by adding the gross debt and bank indebtedness, production payments and finance lease) divided by cash flow for the year.

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 September 30, 2014, the debt-to-cash flow ratio was 1.9:1.

The Company established a US commercial paper program in November 2011. The authorized amount under this program is $1 billion. The amount available under the commercial paper program is limited to the availability of backup funds under the Company’s bank credit facilities. At September 30, 2014 the amount of commercial paper outstanding was $341 million and the average interest rate on outstanding commercial paper was 0.6993%. The classification of commercial paper as a current liability at September 30, 2014 reflects management’s intent with respect to its repayment.

A significant proportion of Talisman’s accounts receivable balance is with customers in the oil and gas industry and is subject to normal industry credit risks. At September 30, 2014, approximately 87% of the Company's trade accounts receivable were aged less than 90 days and the largest single counterparty exposure, accounting for 4% of the total, was with an investment grade counterparty. Concentration of counterparty credit risk is mitigated by having a broad domestic and international customer base of highly rated counterparties.

The Company also has credit risk arising from cash and cash equivalents held with banks and financial institutions.  The Company’s policy allows it to deposit cash balances at financial institutions subject to a sliding scale limit, depending on creditworthiness. The maximum credit exposure associated with financial assets is the carrying values.

At September 30, 2014, there were 1,036,166,028 common shares outstanding, of which 4,144,042 were held in trust by the Company resulting in 1,032,021,986 common shares outstanding for accounting purposes. During the three month period ended September 30, 2014, Talisman declared common share dividends of $0.0675 per share for an aggregate dividend of $69 million. Subsequent to September 30, 2014, no stock options were exercised for shares and 450,000 common shares were purchased and held in trust for the long-term PSU plan. At October 30, 2014 1,036,166,028 shares were outstanding, of which 4,594,042 were held in trust by the Company resulting in 1,031,571,986 common shares outstanding for accounting purposes.

At September 30, 2014, there were 8,000,000 Series 1 preferred shares outstanding. Holders of Series 1 preferred shares are entitled to receive cumulative quarterly fixed dividends of 4.2% per annum for the initial period ending December 31, 2016, if, as, and when declared by the Board of Directors. Thereafter, the dividend rate will be reset every five years at a rate equal to the five-year Government of Canada bond yield plus 2.77%. During the three month period ended September 30, 2014, Talisman declared preferred share dividends of C$0.2625per share for an aggregate dividend of $2million.

18

At September 30, 2014, there were 34,912,646 stock options, 11,393,395 RSUs, 2,959,056 DSUs and 10,597,860 long-term PSUs outstanding.

Subsequent to September 30, 2014, no stock options were granted, surrendered for cash, or exercised for shares, and 667,596 were forfeited with 34,245,050 outstanding at October 30, 2014. Subsequent to September 30, 2014, no PSUs were granted, and long-term PSUs forfeitures were reduced by 10,116, with 10,607,976 outstanding at October 30, 2014. Subsequent to September 30, 2014, no RSUs were granted, 19,266 were exercised and 113,981 were forfeited with 11,260,148 outstanding at October 30, 2014. There were 226 DSUs granted subsequent to September 30, 2014, no DSUs were exercised, with 2,959,282 outstanding at October 30, 2014.

The Company may purchase shares on the open market which are held in trust and used to satisfy its obligation to settle long-term PSUs. The 2011 long-term PSU grant vested on December 31, 2013 and was settled in March 2014 based on the vesting of 75% of the PSUs granted as approved by the Board of Directors.

During the nine month period ended September 30, 2014, 1,769,900 common shares were purchased on the open market for $17 million and held in trust for the long-term PSU plan (During the same period in 2013 – no common shares were purchased). Between October 1 and October 30, 2014, 450,000 common shares were purchased on the open market for $4 million and held in trust for the long-term PSU plan.

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 or issue equity.

For additional information regarding the Company’s liquidity and capital resources, refer to notes 18 and 21 to the 2013 audited Consolidated Financial Statements and notes 13 and 15 to the interim condensed Consolidated Financial Statements.

19

SENSITIVITIES

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 2014 (excluding the effect of derivative contracts) is summarized in the following table, based on a Dated Brent oil price of approximately $105/bbl, a NYMEX natural gas price of approximately $4.45/mmbtu and exchange rates of US$0.90=C$1 and UK£1=US$1.65.

(millions of $)	Net Income			Cash Provided by Operating Activities3
Volume changes
Oil – 10,000 bbls/d		80			180
Natural gas – 60 mmcf/d		20			70
Price changes1
Oil – $1.00/bbl		20			25
Natural gas (North America)2 – $0.10/mcf		15			25
Exchange rate changes
US$/C$ decreased by US$0.01		(5	)		(5	)
US$/UK£ increased by US$0.02		-			-

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 16 to the interim condensed Consolidated Financial Statements.

2. Price sensitivity on natural gas relates to North American natural gas only.  The Company’s exposure to changes in the natural gas prices in Norway and 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 exclude TSEUK and Equion due to the application of equity accounting.

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 debt repayment obligations can be found in note 18 to the 2013 audited Consolidated Financial Statements and note 13 to the interim condensed 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.

During the nine month period ended September 30, 2014, as a result of the sale of the Company’s Montney acreage and non-core assets in western Canada, there was a total of $339 million decrease in the Company’s expected future commitments, including a $286 million decrease in transportation and processing commitments, a $50 million decrease in PP&E and E&E asset commitments, and a $3 million decrease in office lease commitments. There was a further $135 million decrease in the Company’s transportation and processing commitments in western Canada and Indonesia. There have been no additional significant changes in the Company’s expected future commitments, and the timing of those payments, since December 31, 2013.

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TRANSACTIONS WITH RELATED PARTIES

During the three months ended September 30, 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 dividends receivable of $279 million with a corresponding reduction in the equity investment in Equion.

During the three months ended September 30, 2014, the shareholders of TSEUK agreed to subscribe for common shares of TSEUK in the amount of $365 million, of which Talisman’s share was $186 million.

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 addition, the shareholders of TSEUK provided an equity funding facility totaling $1.2 billion to TSEUK in June 2014, of which Talisman is committed to $612 million, for the purpose of funding capital, decommissioning and operating expenditures of TSEUK. TSEUK may fund operating expenditures under this facility to a maximum amount of $150 million. This facility expires on June 30, 2015.

RISK MANAGEMENT

Talisman monitors its exposure to variations in commodity prices, interest rates and foreign exchange rates. In response, Talisman periodically enters 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.

The Company has established a system of internal controls to minimize risks associated with its derivatives program and credit risk associated with derivatives counterparties.

The accounting policy with respect to derivative financial instruments and commodity sales contracts is set out in note 3(q) to the 2013 audited Consolidated Financial Statements. Derivative financial instruments and commodity sales contracts outstanding at September 30, 2014, including their respective fair values, are detailed in note 16 to the interim condensed Consolidated Financial Statements.

The Company has elected not to designate any commodity price derivative contracts entered into as hedges for accounting purposes. These derivatives are classified as held-for-trading financial instruments and are measured at fair value with changes in fair value recognized in net income. This can potentially increase the volatility of net income.

21

Commodity Price Derivative Financial Instruments

The Company had the following commodity price derivative contracts outstanding at September 30, 2014, none of which are designated as hedges:

Two-way collars (Oil)	Term	bbls/d		Floor/ceiling $/bbl
Dated Brent oil index	2014 Oct – Dec		10,000		95.00/110.07
Dated Brent oil index	2014 Oct – Dec		10,000		90.00/105.22
NYMEX WTI oil index	2014 Oct – Dec		5,000		80.00/95.00
Dated Brent oil index	2015 Jan – Dec		5,000		90.00/100.01
NYMEX WTI oil index	2015 Jan – Dec		5,000		80.00/95.02
Dated Brent oil index	2015 Jan – Dec		20,000		90.00/106.16
Dated Brent oil index	2016 Jan – Dec		5,000		90.00/108.00
NYMEX WTI oil index	2016 Jan – Dec		5,000		85.00/95.95

Fixed priced swaps (Oil)	Term	bbls/d		$/bbl
NYMEX WTI oil index	2014 Oct - Dec		2,500		91.91
Dated Brent oil index	2014 Oct - Dec		10,000		104.02
NYMEX WTI oil index	2014 Oct - Dec		10,000		94.28
Dated Brent oil index	2014 Oct - Dec		10,000		103.31
Dated Brent oil index	2014 Oct - Dec		8,000		111.79
WCS Diferential	2014 Oct - Dec		6,500		(21.55	)
Dated Brent oil index	2015 Jan - Dec		10,000		100.46
Dated Brent oil index	2015 Jan - Dec		1,000		104.00
Dated Brent oil index	2015 Jan - Dec		9,000		100.59
NYMEX WTI oil index	2015 Jan - Dec		5,000		96.36
WCS Differential	2015 Jan – Mar		6,500		(21.55	)
Dated Brent oil index	2016 Jan - Dec		10,000		98.01
Dated Brent oil index	2016 Jan - Dec		5,000		100.29
Dated Brent oil index	2016 Jan - Dec		10,000		102.98
Two-way collars (Gas)	Term	mcf/d		Floor/ceiling $/mcf
NYMEX HH LD	2014 Oct - Dec		94,936		4.21/4.71
NYMEX HH LD	2014 Oct - Dec		47,468		4.21/4.64
NYMEX HH LD	2014 Oct - Dec		47,468		4.21/4.99
NYMEX HH LD	2015 Jan - Dec		47,468		4.23/4.87
NYMEX HH LD	2015 Jan - Dec		94,936		4.21/5.06
NYMEX HH LD	2016 Jan - Dec		47,468		4.21/4.75
NYMEX HH LD	2016 Jan - Dec		47,468		4.21/4.87

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Fixed priced swaps (Gas)	Term	mcf/d		$/mcf
NYMEX HH LD	2014 Oct - Dec		47,468		4.24
NYMEX HH LD	2014 Oct - Dec		47,468		4.25
NYMEX HH LD	2014 Oct - Dec		47,468		4.34
NYMEX HH LD	2014 Oct - Dec		47,468		4.42
NYMEX HH LD	2014 Oct - Dec		47,468		4.44
NYMEX HH LD	2014 Oct - Dec		47,468		4.29
NYMEX HH LD	2014 Oct - Dec		47,468		4.43
NYMEX HH LD	2015 Jan - Dec		47,468		4.54
NYMEX HH LD	2015 Jan - Dec		47,468		4.39
NYMEX HH LD	2015 Jan - Dec		47,468		4.39
NYMEX HH LD	2015 Jan - Dec		47,468		4.48
NYMEX HH LD	2015 Jan - Dec		47,468		4.53
NYMEX HH LD	2015 Jan - Dec		47,468		4.55
NYMEX HH LD	2016 Jan - Dec		47,468		4.48
NYMEX HH LD	2016 Jan - Dec		42,721		4.55
Fixed priced swaps (Power)	Term	MWh		$CAD/MWh
Alberta Power	2014 Oct - Dec		7		74.66
Alberta Power	2015 Jan - Dec		5		73.72
Alberta Power	2016 Jan - Dec		2		73.83
Alberta Power	2017 Jan - Dec		1		74.75
Alberta Power	2018 Jan - Dec		1		74.75

Subsequent to September 30, 2014, the Company did not enter into any derivative contracts as at October 30, 2014.

Interest Rate Swaps

In order to swap a portion of the $375 million 5.125% notes due 2015 to floating interest rates, the Company entered into fixed-to-floating interest rate swap contracts with a total notional amount of $300 million that expire on May 15, 2015. These swap contracts require Talisman to pay interest at a rate of three month US$ LIBOR plus 0.433% while receiving payments of 5.125% semi-annually.

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.

Decommissioning liabilities are measured based on the estimated cost of abandonment discounted to its net present value using a weighted average credit-adjusted risk free rate, which was 2.8% at September 30, 2014 (December 31, 2013 – 3.8%). Due to this rate decrease, the net present value of the decommissioning liability increased by $178 million during the nine months ended September 30, 2014.

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For additional information regarding the use of estimates and judgments refer to the notes to the audited Consolidated Financial Statements and Annual MD&A for the year ended December 31, 2013.

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 2013 annual Consolidated Financial Statements except for the following:

Offsetting Financial Assets and Financial Liabilities

· IAS 32 Offsetting Financial Assets and Financial Liabilities - Financial Instruments Presentation. The amended standard requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and securities lending agreements. The amendments to IAS 32 are effective for annual periods beginning on or after January 1, 2014 and require retrospective application. As the Company is not netting any significant amounts related to financial instruments and does not have any significant offsetting arrangements, the amendment does not have an impact on the Company’s financial statements.

Impairment of Assets

· IAS 36 Impairment of Assets – Amendments to IAS 36. The amended standard requires entities to disclose the recoverable amount of an impaired Cash Generating Unit (CGU). The amendments to IAS 36 are effective for annual periods beginning on or after January 1, 2014 and require retrospective application. This standard did not have an impact on the Company’s financial position or performance.

Levies

· IFRIC 21 Levies - Interpretation of IAS 37 Provisions, contingent liabilities and assets: IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event. The interpretation clarifies that the obligation that gives rise to the liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The Company reviewed payments of levies and concluded that the application of the standard did not have a significant impact on the Company.

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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

· IFRS 15 Revenue from Contracts with Customers: IFRS 15 specifies how and when to recognize revenue 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. 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

There have been no significant changes in Talisman’s internal control over financial reporting during the three month period ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Talisman utilizes the original Internal Control - Integrated Framework (1992) issued by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO) to design and evaluate its internal control over financial reporting. In May 2013, COSO updated the Internal Control – Integrated Framework which will supersede the 1992 Framework on December 15, 2014.

LEGAL PROCEEDINGS

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 expected to have a material impact on the Company's financial position.

REGULATORY DEVELOPMENT

Dodd-Frank Act

In 2010, the US Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or the Act) was signed into law. The Dodd-Frank Act provides for numerous new substantive requirements in areas such as the disclosure of payments made to foreign governments, rules regarding the use of credit ratings, and corporate governance and executive compensation reforms, among others, some of which apply to Talisman as a foreign private issuer. Talisman will continue to assess the effect on the Company of the Dodd-Frank Act and related rules.  The SEC has yet to adopt the rules relating to pay-for-performance, pay parity, hedging and executive compensation clawbacks.

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In August 2012, the SEC adopted rules to implement Section 1504 of the Dodd-Frank Act, requiring resource extraction issuers to disclose payments made to the US federal government or a foreign government (including a department, agent or instrumentality of a foreign government or a company owned by a foreign government) in their annual reports. On July 2, 2013, the US District Court for the District of Columbia vacated these rules, meaning that the rules are no longer in effect. As at October 30, 2014, the SEC had not issued new or revised rules in response to the Court’s ruling.

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;

· The estimated impact on Talisman’s financial performance from changes in production volumes, commodity prices and exchange rates;

· Potential effects of the hedging program;

· Expected sources of capital to fund the Company’s capital program and potential acquisitions, investments or dispositions;

· Expected future payment commitments;

· Expected timing of securing amendments to all DSAs pursuant to signing of the Decommissioning Relief Deed; 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: assumptions inherent in current guidance; 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 2014 assumes escalating commodity prices.

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:

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· 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;

· Fluctuations in crude oil or natural gas prices could have a material adverse effect on the Company’s operations and financial condition, the value of its oil and natural gas reserves and its level of expenditure for oil and gas exploration and development. Downward trends in commodity prices could result in downward adjustments to the Company’s estimated reserves and asset values which could result in further impairment of assets;

· 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 and any hedging 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.

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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.

Non-Core Assets

In this MD&A, all references to “core” or “non-core” assets and properties align with the Company’s current public disclosures regarding its assets and properties.

Use of ‘boe’

Throughout this interim MD&A, the calculation of barrels of oil equivalent (boe) is at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf:1bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

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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	mllion 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
PGN	PT Perusahaan Gas Negara (Persero), Tbk
PP&E	Property, plant and equipment
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

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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

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EX-99.3

Exhibit 99.3

Talisman Energy Inc.

Consolidated Financial Ratio

September 30, 2014

(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 September 30, 2014.

September 30, 2014
Interest coverage (times)
Income1	(0.91	)

1 Net income plus income taxes and interest expense, divided by the sum of interest expense and capitalized interest.

EX-99.4

Exhibit 99.4

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

I, Harold N. Kvisle, President 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 September 30, 2014.

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.

5.1 The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the original Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

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 July 1, 2014 and ended on

September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

Date:   November 4, 2014

 /s/ Harold N. Kvisle                                                                           

Harold N. Kvisle

President and Chief Executive Officer

EX-99.5

Exhibit 99.5

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

I, Paul R. Smith, Executive Vice-President, Finance 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 September 30, 2014.

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 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.

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.

5.1 The control framework the issuer's other certifying officer and I used to design the issuer's ICFR is the original Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

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 July 1, 2014 and ended on September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

Date:   November 4, 2014

 /s/ Paul R. Smith                                                      

Paul R. Smith

Executive Vice-President, Finance

   and Chief Financial Officer