Performance Share Unit Plan

1.

PREAMBLE AND DEFINITIONS

1.1

Title .

1.2

Purposes of the Plan .

a.

to promote a further alignment of interests between employees of the Corporation and its Affiliates and the shareholders of the Corporation; and

b.

to retain employees with the knowledge, experience and expertise required by the Corporation and its Affiliates.

1.3

Definitions .

1.3.1

“Affiliate” means any corporation, partnership or other entity in which the Corporation, directly or indirectly, has majority ownership interest.

1.3.2

“Agent” means such bank or trust company that is independent of and unaffiliated with the Corporation which may from time to time be appointed by the Committee to acquire Shares on behalf of and for the account of Eligible Employees in settlement of their Vested PSUs.

1.3.3

“Applicable Law” means any applicable provision of law, domestic or foreign, including, without limitation, applicable securities legislation, together with all regulations, rules, policy statements, rulings, notices, orders or other instruments promulgated thereunder, and Stock Exchange Rules.

1.3.4

“Beneficiary” means, subject to Applicable Law, an individual who has been designated by an Eligible Employee, in such form and manner as the Committee may determine, to receive benefits payable under the Plan upon the death of the Eligible Employee, or, where no such designation is validly in effect at the time of death, the Eligible Employee’s legal representative.

1.3.5

“Board” means the Board of Directors of the Corporation.

1.3.6

“Cause” in respect of an Eligible Employee means just cause or cause under Applicable Law and, in addition, includes the Eligible Employee’s:

(a)

willful breach or neglect of the duties of his employment or willful breach or neglect of obligations to the Corporation or an Affiliate under the terms of his or her employment (whether written or

(b)

failure or refusal to perform such duties or obligations after demand for performance or to comply with the rules, policies or practices of the Corporation or an Affiliate, as applicable;

(c)

dishonesty;

(d)

insubordination;

(e)

gross, serious or repeated misconduct;

(f)

conduct where such conduct endangers, or is likely to endanger, the health or safety of others;

(g)

conviction of a crime constituting a felony or indictable offence;

(h)

serious breach of his or her contract of employment;

(i)

gross incompetence; or

(j)

action or failure to act which has the effect of bringing the Corporation and/or any Affiliate into disrepute.

1.3.7

“Change in Control” means, notwithstanding the terms of any agreement between the Corporation or an Affiliate and an Eligible Employee relating to a change in control of the Corporation or an Affiliate, the occurrence of any of the following events:

(a)

any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, or any persons acting jointly or in concert with the foregoing, is or becomes the beneficial owner, directly or indirectly of, securities of the Corporation which directly or following conversion thereof represent more than 50% of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of the directors of the Corporation;

(b)

the Corporation shall have disposed of, other than to an affiliate within the meaning of the Securities Act (Alberta), (A) all or substantially all of its assets, such that shareholder approval was required to be obtained under the Canada Business Corporations Act ;

(c)

the shareholders of the Corporation approve the liquidation, winding up or other dissolution of the Corporation;

(d)

the Corporation enters into an amalgamation, arrangement, restructuring, reorganization, merger or consolidation (a “Transaction”) whereby, or the ultimate effect of which is, that the shareholders of the Corporation immediately prior to the Transaction have the right to vote less than 50% of the voting securities of the Corporation or the surviving entity (if different from the Corporation) following completion of the Transaction;

(e)

pursuant to a single election or appointment or a series of elections or appointments over any period from and after the effective date of this Plan (A) those individuals who at the effective date of this Plan constituted the Board, together with (B) any new or additional director or directors whose nomination for election by the Corporation’s shareholders, or whose appointment to the Board by the Board, has been approved by a majority of the votes cast by all of the directors then still in office, who either were directors at the effective date of this Plan or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board; or

(f)

the Board, by resolution duly adopted by the affirmative vote of a simple majority of the votes cast by the Board, determines that for purposes of this Plan, a Change in Control of the Corporation has occurred.

(a)

the term “acting jointly or in concert” shall be interpreted in accordance with Section 159 of the Securities Act (Alberta), as amended; and

(b)

the term “beneficial ownership” shall have the meaning ascribed thereto in Section 5 of the Securities Act (Alberta).

1.3.8

“Committee” means the Management Succession and Compensation Committee of the Board, any successor thereto, or such other committee of the Board which may be appointed by the Board to, among other things, interpret, administer and implement the Plan and includes any delegate of the Committee under Section 10.3 with respect to such duties and powers as have been delegated to him or her thereunder.

1.3.9

“Corporation” means Talisman Energy Inc. and any successor corporation whether by amalgamation, merger or otherwise.

1.3.10

“Disability” means the Eligible Employee’s physical or mental incapacity that prevents him from substantially fulfilling his duties and obligations on behalf of the Corporation or, if applicable, an Affiliate, and in respect of which the Eligible Employee commences receiving, or is eligible to receive, disability benefits under the Corporation’s or an Affiliate’s short-term or long-term disability plan.

1.3.11

“Dividend Equivalent PSU” has the meaning set out in Section 5.2.

1.3.12

“Effective Date” has the meaning set out in Section 3.1.

1.3.13

“Eligible Employee” means any permanent non-union employee of the Corporation or an Affiliate as the Committee may, in its sole discretion, designate as eligible to participate in the Plan.

1.3.14

“Employed” means, with respect to an Eligible Employee, that:

(a)

he or she is performing work at a workplace of the Corporation or an Affiliate; or

(b)

he or she is not actively at work at a workplace of the Corporation or an Affiliate due to an approved leave of absence, maternity or parental leave or Disability.

1.3.15

“Grant” means a grant of PSUs made to an Eligible Employee pursuant to Section 4.1.

1.3.16

“Grant Agreement” means an agreement between the Corporation or an Affiliate and an Eligible Employee under which a PSU is granted, as contemplated by Section 4.2, together with such schedules, amendments, deletions or changes thereto as are permitted under the Plan.

1.3.17

“Grant Date” means the effective date of a Grant.

1.3.18

“Market Value” means, with respect to any particular date, the average closing price per Share on the Stock Exchange over the immediately preceding 5 Trading Days.

1.3.19

“Performance Condition” means such financial and/or operational performance criteria as may be determined by the Committee in respect of a Grant to any Eligible Employee or Eligible Employees and set out in a Grant Agreement. Performance Conditions may apply to the Corporation, an Affiliate, the Corporation and its Affiliates as a whole, a business unit of the Corporation or group comprised of the Corporation and some of its Affiliates or a group of Affiliates, either individually, alternatively or in any combination, and measured either in total, incrementally or cumulatively over a specified performance period, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparator group, or otherwise.

1.3.20

“Performance Period” means, with respect to a Grant, the period commencing on January 1 of the year that includes the Grant Date and ending on December 31 of the second anniversary of such Grant Date, or such other date as may be specified in the Grant Agreement relating to such Grant, subject to Section 4.5.

1.3.21

“Plan” means this Performance Share Unit Plan for Eligible Employees of Talisman Energy Inc. and its Affiliates including any schedules or appendices hereto, as amended from time to time.

1.3.22

“Pro Rated PSUs” has the meaning ascribed thereto in Sections 6.5, 6.6, 6.7, and 6.8 as applicable.

1.3.23

“ PSU” means a unit granted to an Eligible Employee that is represented by a bookkeeping entry on the books of the Corporation, the value of which on any particular date shall be equal to the Market Value.

1.3.24

“PSU Account” has the meaning set out in Section 5.1.

1.3.25

“Retirement” means the Eligible Employee’s retirement from the Corporation or an Affiliate, as applicable, provided that such retirement is accepted by the Corporation or Affiliate pursuant to a letter from the Corporation or Affiliate granting the Eligible Employee retirement status and confirming the Eligible Employee’s date of retirement.

1.3.26

“Settlement Date” means, with respect to a Grant, the date following the end of the Performance Period for such Grant fixed by the Committee for settlement of Vested PSUs.

1.3.27

“Share” means a common share of the Corporation and such other share as may be substituted for it as a result of amendments to the articles of the

1.3.28

“Share Purchase Trust” means a trust established pursuant to Section 7.1 hereof, to acquire and hold Shares for delivery from time to time to Eligible Employees upon settlement of Vested PSUs.

1.3.29

“Stock Exchange” means The Toronto Stock Exchange, or if the Shares are not listed on The Toronto Stock Exchange, such other stock exchange on which the Shares are listed, or if the Shares are not listed on any stock exchange, then on the over-the-counter market.

1.3.30

“Stock Exchange Rules” means the applicable rules of any stock exchange upon which shares of the Corporation are listed.

1.3.31

“Talisman” means the Corporation and its Affiliates, collectively.

1.3.32

“Target Award” means, with respect to a Grant, 100% of the PSUs included in such Grant, determined without regard for any graduated vesting of such PSUs that may apply under the terms of the Grant Agreement applicable thereto.

1.3.33

“Trading Day” means any date on which the Stock Exchange is open for the trading of Shares and on which Shares are actually traded.

1.3.34

“Trustee” means such bank or trust company that is independent of and unaffiliated with the Corporation and any Affiliate as may from time to time be appointed by the Committee as trustee of a Share Purchase Trust and may be the same person as the Agent.

1.3.35

“Vested PSUs” has the meaning set out in Section 6.1.

2.

CONSTRUCTION AND INTERPRETATION

2.1

Gender, Singular, Plural . In the Plan, references to the masculine include the feminine; and references to the singular shall include the plural and vice versa, as the context shall require.

2.2

Governing Law . The Plan shall be governed and interpreted in accordance with the laws of the Province of Alberta and any actions, proceedings or claims in any way pertaining to the Plan shall be commenced in the courts of the Province of Alberta.

2.3

Severability . If any provision or part of the Plan is determined to be void or unenforceable in whole or in part, such determination shall not affect the validity or enforcement of any other provision or part thereof.

2.4

Headings, Sections . Headings wherever used herein are for reference purposes only and do not limit or extend the meaning of the provisions herein contained. A reference to a section or schedule shall, except where expressly stated otherwise, mean a section or schedule of the Plan, as applicable.

3.

EFFECTIVE DATE AND EMPLOYMENT RIGHTS

3.1

Effective Date . The Corporation is establishing the Plan effective April 1, 2009.

3.2

No Employment Rights . Nothing contained in the Plan shall be deemed to give any person the right to be retained as an employee of the Corporation or of an Affiliate.

4.

PSU GRANTS AND PERFORMANCE PERIODS

4.1

Grant of PSUs . Each Eligible Employee may receive a Grant of PSUs in such number as may be specified by the Committee, with effect from such date(s) as the Committee may specify.

4.2

Grant Agreement. Each Grant and the participation of an Eligible Employee in the Plan shall be evidenced by a written Grant Agreement issued by the Corporation or an Affiliate containing such terms and in such form as may be prescribed by the Committee. Each Grant Agreement shall set forth, at a minimum, the Grant Date of the Grant evidenced thereby, the number of PSUs subject to such Grant, the applicable Performance Conditions, the applicable Performance Period(s) and the treatment of the Grant upon termination of employment.

4.3

PSUs . Each PSU will give an Eligible Employee the right, subject to S