A: Well, we were talking and catching up on what we've been doing, talking about work and family, when all of a sudden, Matt saw a mouse run under his chair and he completely lost it! He started freaking out, and screaming...
B: Ha ha, really?
A: Yeah, and the funniest thing was, that he jumped on to his chair and started shrieking like a girl. You should have been there! Everyone was staring and laughing... it was hilarious!
(emphasis added)
For present tense, we say: We are talking and catching up on what we've been doing.
So, for past tense, we should say: We were talking and catching up on what we'd been doing.
Here, the speaker was talking about a past event. Why did he say "We were talking and catching up on what we've been doing"?