The Canadian Oil and Gas Industry BUS 417

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The Canadian Oil and Gas Industry BUS 417: Group Presentation Mahmoud Houshmand Francis Santos

The Canadian Oil and Gas Industry BUS 417: Group Presentation Mahmoud Houshmand Francis Santos Ian Graf November 10, 2004 Canadian Oil and Gas 1

Presentation Overview u Industry Analysis and Regulation: Ian v Supply and Demand: Mahmoud v

Presentation Overview u Industry Analysis and Regulation: Ian v Supply and Demand: Mahmoud v Oil Extraction and Refining Explained: Francis v u Company Analysis and Recommendations Canadian Oil Sands: Mahmoud v Petro-Canada: Ian v Suncor: Francis v Canadian Oil and Gas 2

Industry Analysis Canadian Oil and Gas 3

Industry Analysis Canadian Oil and Gas 3

Industry Analysis Agenda u u u Industry Structure Products Regulation Supply and Demand Brief

Industry Analysis Agenda u u u Industry Structure Products Regulation Supply and Demand Brief Overview of Oil Extraction and Refining Canadian Oil and Gas 4

Industry Analysis u Canadian industry produced $77. 5 billion in revenues in 2003 u

Industry Analysis u Canadian industry produced $77. 5 billion in revenues in 2003 u Canada is 3 rd largest producer of natural gas in the world v u 9 th largest producer of crude oil Canadian upstream sector is largest single private investor Canadian Oil and Gas 5

Industry Analysis u In 2003, the industry contributed approx. $16 billion to government revenues

Industry Analysis u In 2003, the industry contributed approx. $16 billion to government revenues u Crude oil & natural gas trade surplus responsible for 57% of the country’s 2003 merchandise trade balance u Canada responsible for over 20% of North America’s crude oil and natural gas u However, we only consume 10% u Industry’s total 2003 employment impact was measured at 500, 000 Canadian Oil and Gas 6

Industry Structure u Industry consists mainly of miners & drillers, refiners, and retailers u

Industry Structure u Industry consists mainly of miners & drillers, refiners, and retailers u Many businesses take an integrated approach and are involved in all aspects u Business is done locally and south of the border; utilize crossborder pipeline to distribute oil u Country’s largest source of crude oil is the Canadian Oil Sands u American VP Dick Cheney described Canada’s oil sands as a, ”pillar of North American energy and economic security. ” 7 Canadian Oil and Gas

Industry Structure u Mergers & acquisitions are frequent u Recent growth in royalty trusts

Industry Structure u Mergers & acquisitions are frequent u Recent growth in royalty trusts (unit trusts) u Highly regulated by Canadian government u Affected by volatile oil prices, interest rate fluctuations, international events Canadian Oil and Gas 8

Industry Structure u Largest Canadian Oil & Gas Companies (in alphabetical order): Albian Sands

Industry Structure u Largest Canadian Oil & Gas Companies (in alphabetical order): Albian Sands Energy Inc. v Canadian Natural Resources Ltd. v Canadian Oil Sands v En. Cana Corporation v Husky Energy Inc. v Imperial Oil Resources Ltd. v Petro-Canada v Shell Canada Ltd. v Suncor Energy Inc. v Syncrude Canada Ltd. v Canadian Oil and Gas 9

Products u Crude oil v u Natural gas v u Used commercially, residentially, in

Products u Crude oil v u Natural gas v u Used commercially, residentially, in fuel cells, building block for methanol which has many industrial purposes Ethanol v u Refined to create petroleum gas, gasoline, kerosene, lubricating oil, industrial fuel, residuals Normally made from fermentation process but is cheaper when processed from petroleum feedstock Green Energy Sources v Wind energy Canadian Oil and Gas 10

Regulation u u u u u Four intertwining levels; municipal, provincial, national, & international

Regulation u u u u u Four intertwining levels; municipal, provincial, national, & international Constitution Act 1982 gives jurisdiction to provinces over natural resources Natural Energy Board (Fed body) has control over movement of oil & gas, taxation, and tariffs Department of energy collects royalties on behalf of the province Companies must adhere to applicable provincial environmental acts and involve the public in process Extraction limits OSC requires companies to declare their reserve levels every 90 days Controls to reduce emissions Kyoto Accord Sept 11 th called for increasing security of pipelines Canadian Oil and Gas 11

Crude Oil : Supply u World Crude Oil Production By Region Canadian Oil and

Crude Oil : Supply u World Crude Oil Production By Region Canadian Oil and Gas 12

Crude Oil : Demand Canadian Oil and Gas 13

Crude Oil : Demand Canadian Oil and Gas 13

Crude Oil : Exports u Crude oil exports have been growing in North America

Crude Oil : Exports u Crude oil exports have been growing in North America Canadian Oil and Gas 14

Canadian Crude Oil : Supply u u u Second largest crude oil reserves after

Canadian Crude Oil : Supply u u u Second largest crude oil reserves after Saudi Arabia Canadian oil sands contains 175 billion barrels of oil reserves 420, 000 barrels of crude have been approved off Canada’s east coast Canadian Oil and Gas 15

Canadian Oil Production & Consumption Canadian Oil and Gas 16

Canadian Oil Production & Consumption Canadian Oil and Gas 16

Natural Gas : Reserves Canadian Oil and Gas 17

Natural Gas : Reserves Canadian Oil and Gas 17

Natural Gas : Supply Canadian Oil and Gas 18

Natural Gas : Supply Canadian Oil and Gas 18

Natural Gas : Demand Canadian Oil and Gas 19

Natural Gas : Demand Canadian Oil and Gas 19

Refined Products Canadian Oil and Gas 20

Refined Products Canadian Oil and Gas 20

Crude Oil Prices Canadian Oil and Gas 21

Crude Oil Prices Canadian Oil and Gas 21

Price of Oil Futures: One Year Chart Canadian Oil and Gas 22

Price of Oil Futures: One Year Chart Canadian Oil and Gas 22

Oil Extraction u Canadian Oil Sands 1. Mining: v Oil that is near the

Oil Extraction u Canadian Oil Sands 1. Mining: v Oil that is near the surface can extracted using traditional techniques 2. SAGD: Steam Assisted Gravity Drainage v u Because of the rising prices of natural gas, crude producers are moving towards using bitumen or high sulphur fuels to generate steam. Natural Gas v Wells are drilled and gas flows under its own pressure. Canadian Oil and Gas 23

Oil Refining u Steps 1. Fractional Distillation 2. Conversion 3. Recombination 4. Treatment Canadian

Oil Refining u Steps 1. Fractional Distillation 2. Conversion 3. Recombination 4. Treatment Canadian Oil and Gas 24

Canadian Oil Sands Canadian Oil and Gas 25

Canadian Oil Sands Canadian Oil and Gas 25

Canadian Oil Sands Agenda u u u u Company Background Core Business Strategy Hedging

Canadian Oil Sands Agenda u u u u Company Background Core Business Strategy Hedging Strategy Financial Statement Analysis Stock Price Performance Recommendation Canadian Oil and Gas 26

Background u Canadian Oil Sands acts as a middleman between oil producers and pipeline

Background u Canadian Oil Sands acts as a middleman between oil producers and pipeline operators. v u Takes possession of the oil and markets it to pipelines Generates income from a 35% interest in the Syncrude operation in the Alberta Oil Sands. v u Largest pure-play investment opportunity in Oil Sands. Organized as an Open-Ended Investment Trust. v Currently has approximately 91. 1 million units outstanding. v Traded on TSX (Ticker COS. UN) v Market Capitalization of approximately $5. 8 Billion v Distributions in 2003 totaled $2. 00 per unit Canadian Oil and Gas 27

Core Business u Income trusts are equity investments designed to deliver cash flows from

Core Business u Income trusts are equity investments designed to deliver cash flows from operations to shareholders in a tax-efficient manner. v u Reduces double taxation of income. Core business is marketing oil from its 31% share of Syncrude oil. v Pure-play oil company. Revenues derived solely from selling crude oil. Canadian Oil and Gas 28

Business Strategy u Expand Syncrude Production Capacity Expansion began in 2001. v Expected to

Business Strategy u Expand Syncrude Production Capacity Expansion began in 2001. v Expected to boost current production by 50% to approximately 350, 000 barrels per day – 124, 000 barrels per day net to Canadian Oil Sands Trust. based on its interest. v Product quality will also be enhanced to Syncrude Sweet Premium (SSP). v The total capital budget for the expansion is estimated at $7. 8 billion, or approximately $2. 8 billion net to the Trust. v It is expected to be in-service by mid 2006. v Canadian Oil and Gas 29

Corporate Value Drivers u Increase production capacity from existing assets. u Reduce operating costs

Corporate Value Drivers u Increase production capacity from existing assets. u Reduce operating costs of existing assets through economies of scale and by upgrading process technologies. u Increase reserves (asset base) by pursuing new developments. Canadian Oil and Gas 30

Reserves Very long-life reserves compared to industry average. u v Thus, disbursements in income

Reserves Very long-life reserves compared to industry average. u v Thus, disbursements in income trust are quite safe. Canadian Oil and Gas 31

Factors That Affect Financials u u u u Ongoing volatility of CDN/US exchange rates

Factors That Affect Financials u u u u Ongoing volatility of CDN/US exchange rates Ongoing volatility of global and North American oil markets New introduction of crude oil supply to North America Ongoing variability in refining & retail margins Unscheduled maintenance shutdowns Oils Sands Alberta Crown Royalties Suncor ability to compete for projects Extreme cold weather in 4 Q Canadian Oil and Gas 32

Hedging Strategy u u Value of revenues is dependent on: v Price of crude

Hedging Strategy u u Value of revenues is dependent on: v Price of crude oil v Exchange rate with USD v Interest rate on debt Crude Oil Hedging v Lost $82 M in revenues in Q 3 2004 ($10. 22 per barrel). v YTD 2004 – have incurred a $182 M loss. Canadian Oil and Gas 33

Hedging Strategy (continued) u Crude Oil Hedging (continued) v As the funding requirements for

Hedging Strategy (continued) u Crude Oil Hedging (continued) v As the funding requirements for expansion diminish (and balance sheet becomes stronger due to Stage 3 revenues), they intend to reduce crude oil hedging u Foreign Exchange Hedging v u Q 3 2004 made $3 M in foreign exchange hedging ($0. 39 per barrel). Interest Rate Hedging v Impact cash flows based on amount of floating rate debt that is outstanding. Canadian Oil and Gas 34

Consolidated Balance Sheet Canadian Oil and Gas 35

Consolidated Balance Sheet Canadian Oil and Gas 35

Balance Sheet Analysis u u The trust increased its capital assets by $2. 5

Balance Sheet Analysis u u The trust increased its capital assets by $2. 5 billion during 2003 (stage 3 expansion). Capital assets are recorded at cost and include the costs of acquiring the working interest and subsequent additions to property, plant, and equipment. In February 2003, the trust gained $ 732 million in new equity to finance a significant portion of the 10 percent working interest in Syncrude from En. Canca. In July 2003, an additional $220 million was raised. The long term debt increased by $ 810 million. Canadian Oil and Gas 36

Consolidated Statement of Earnings Canadian Oil and Gas 37

Consolidated Statement of Earnings Canadian Oil and Gas 37

Income Statement Analysis u u Revenues higher due to increased oil prices. Operating expense

Income Statement Analysis u u Revenues higher due to increased oil prices. Operating expense increased by $ 200 million mainly because of an unplanned coker turnaround and expended maintenance work. v u u Coker : Vessels in which bitumen, the molasses-like substance that comprises up to 18% of oil sand, is cracked into its fractions and from which coke is withdrawn to start the process of converting bitumen to upgraded crude oil. Coker maintenance resulted in a 24 cent increase in operating cost per barrel in 2003. The trust lost $135 million as a result of hedging. Canadian Oil and Gas 38

Stock-based Compensation u u Before Q 3 of 2003, Canadian Oil Sands recorded no

Stock-based Compensation u u Before Q 3 of 2003, Canadian Oil Sands recorded no compensation costs for unit options granted to its employees and directors. The Canadian Institute of Chartered Accountants modified the rules for stock-based compensation program. During the third quarter of 2003, Canadian Oil Sands adopted the fair-value method of accounting for stock based compensation. Compensation costs of $0. 6 million have been included as Administration expenses in the company’s net income. Canadian Oil and Gas 39

Statement of Cash Flow Canadian Oil and Gas 40

Statement of Cash Flow Canadian Oil and Gas 40

Cash Flow Statement Analysis u Free cash flow amount to – 2 billion dollars

Cash Flow Statement Analysis u Free cash flow amount to – 2 billion dollars for 2003, due to the acquisition of Syncrude working interest. On February 28, 2003, Canadian Oil Sands closed the acquisition With En. Cana Corporation to purchase an indirect 10 percent working interest in Suncrude for approximately $1. 05 billion cash v On July 10, 2003, Canadian Oil Sands purchased En. Cana’s remaining 3. 75 percent interest in Syncrude for $430 million cash v The acquisition is treated as a purchase of asset under GAAP v u Cash flow from operating activities decreased due to a $147 million foreign exchange loss on long-term debt Canadian Oil and Gas 41

Financial Strength Ratios Industry Average Present Day Price to Earnings Canadian Oil Sands Present

Financial Strength Ratios Industry Average Present Day Price to Earnings Canadian Oil Sands Present Day 11. 20 Dividend Yield 3. 58% 2. 10% Price to Book 2. 01 2. 10 Debt to Equity 0. 69 0. 89 Canadian Oil and Gas 21. 90 42

Stock Price Summary u Traded on TSX v Symbol: COS. UN v Current Price

Stock Price Summary u Traded on TSX v Symbol: COS. UN v Current Price $55. 79 CDN v 91. 1 million units outstanding v Market Capitalization of approximately $5. 1 Billion Current Price: Change: 55. 79 -0. 61 Percent Change: -1. 08% Open: 56. 38 High: Low: Volume: 56. 38 55. 40 311, 590 Yield: P/E 52 Week Range: 3. 58% Ratio: 38. 65 to 65. 65 11. 23 Canadian Oil and Gas 43

Stock Price Performance: One Year Chart Canadian Oil and Gas 44

Stock Price Performance: One Year Chart Canadian Oil and Gas 44

Stock Price Performance: Five Year Chart Canadian Oil and Gas 45

Stock Price Performance: Five Year Chart Canadian Oil and Gas 45

Stock Price Performance Vs. Oil & Gas Index: One Year Chart Canadian Oil and

Stock Price Performance Vs. Oil & Gas Index: One Year Chart Canadian Oil and Gas 46

Recommendation BUY Canadian Oil and Gas 47

Recommendation BUY Canadian Oil and Gas 47

Petro-Canada Canadian Oil and Gas 48

Petro-Canada Canadian Oil and Gas 48

Petro-Canada Agenda u u u u u Company Background Management Team and Executive Compensation

Petro-Canada Agenda u u u u u Company Background Management Team and Executive Compensation Core Business Units Business Strategy Corporate Value Drivers Reserves Hedging Strategy Financial Statement Analysis Stock Price Performance Recommendation Canadian Oil and Gas 49

Company Background u Petro-Canada was established in 1975 as a Crown Corporation v u

Company Background u Petro-Canada was established in 1975 as a Crown Corporation v u Privatized in 1991; final government stake sold in September 2004 One of Canada’s largest integrated oil and gas companies Produces 464, 500 barrels of oil equivalent per day (2003) v Earnings from operations (2003): $1. 6 Billion v More than 4, 500 employees across Canada and internationally v u Publicly traded on TSX (PCA) and NYSE (PCZ) Stock price of $63. 60 (Friday close) v 262, 100, 000 shares outstanding v Net capitalization exceeding $16 Billion v u Headquartered in Calgary, Alberta Canadian Oil and Gas *All dollar figures in CDN dollars 50

Management Team u Ron A. Brenneman, President & CEO. v u Harry Roberts, Senior

Management Team u Ron A. Brenneman, President & CEO. v u Harry Roberts, Senior VP & CFO. v u Over 25 years experience with Petro-Canada. Gordon Carrick, VP for East Coast Oil. v u 15 years experience with Petro-Canada and 15 years experience working in the financial industry. Kathleen E. Sendall, Senior VP for North American Gas. v u CEO since 2000. Over 30 years of experience in the oil industry. Past CEO of Esso Benelux and past president of Imperial Oil. Over 25 years experience in the oil industry; 23 with Petro-Canada. Brant Sangster, Senior VP for Oil Sands. v Over 35 years experience in the oil industry; over 20 with Petro-Canada. Canadian Oil and Gas 51

Management Team (continued) u Peter S. Kallos, Executive VP for International. v u Over

Management Team (continued) u Peter S. Kallos, Executive VP for International. v u Over 20 years experience in the oil industry. Joined Petro-Canada in 2003. Boris Jackman, Executive VP for Downstream. v Over 10 years experience with Petro-Canada. u Common thread amongst senior management is their extensive experience with the company. u Philip Fisher’s Four Dimensions - The “People Factor” v “Attention must be paid to attracting competent managers at lower levels and to training them for larger responsibilities. Succession should largely be from the available talent pool. ” (p. 379) Canadian Oil and Gas 52

Executive Compensation u Base salary v u Competitive pay based on comparator group of

Executive Compensation u Base salary v u Competitive pay based on comparator group of companies. Annual performance incentives Based on degree of achievement of specific predetermined corporate, business unit, and individual objectives. v Executives may choose to receive all or part of incentive in stock. v u Stock options v Annual awards of stock options link compensation to creation of shareholder value. “During the fourth quarter of 2003, the Company elected to begin prospectively expensing, effective January 1, 2003, the value of stock options pursuant to transitional accounting provisions. As a result, the fair value of stock options granted during 2003 is being charged to earnings over the vesting period with a corresponding increase in contributed surplus. The effect of this change for the year ended December 31, 2003 was a decrease in net earnings of $9 million. ” Canadian Oil and Gas 53

Executive Compensation (continued) Canadian Oil and Gas 54

Executive Compensation (continued) Canadian Oil and Gas 54

Executive Compensation (continued) Canadian Oil and Gas 55

Executive Compensation (continued) Canadian Oil and Gas 55

Core Businesses Units u North American Gas Explores for, produces, and markets natural gas.

Core Businesses Units u North American Gas Explores for, produces, and markets natural gas. v Exploration operations in Western Canada (Alberta, Northeastern BC). v Produces 132, 300 BOE per day (28% of company total) v u East Coast Oil Explores for, produces, and markets oil from offshore Newfoundland (Terra Nova, Hibernia). v Produces 86, 100 BOE per day (19%) v u Oil Sands Heavily involved in Alberta’s oil sands. v 100% interest in the Mac. Kay River operation and 12% interest in Syncrude operation. v Produces 36, 100 BOE per day (8%) v Canadian Oil and Gas 56

Core Businesses Units (continued) u International Explores for, produces, and markets oil and natural

Core Businesses Units (continued) u International Explores for, produces, and markets oil and natural gas from Northwest Europe, North Africa/Near East, and Northern Latin America. v Produces 210, 000 BOE per day (45%) v u Downstream Operations v Refining Converts crude oil into refined products (gas, diesel, lubricants). § Controls 17% of Canada’s refining capacity. § v Marketing Markets petroleum products and services nationwide in Petro-Canada service stations. § Second largest marketer of refined petroleum in Canada (17% market share). § Canadian Oil and Gas 57

Contribution of Business Units (Production - BOE/d) Canadian Oil and Gas 58

Contribution of Business Units (Production - BOE/d) Canadian Oil and Gas 58

Contribution of Business Units (Earnings) *In 2003 the Oil Sands business earned a loss

Contribution of Business Units (Earnings) *In 2003 the Oil Sands business earned a loss of 50 M (– 3%) Canadian Oil and Gas 59

Business Strategy u North American Gas: Strategic Goals v Maximize profitability in Western Canadian

Business Strategy u North American Gas: Strategic Goals v Maximize profitability in Western Canadian properties by increasing exploration and drilling in core areas. § v Pursue high-potential exploration plays such as the Mackenzie Delta, Alaska, and offshore Nova Scotia. § v Future Action: Focus exploration and drilling in core areas. Future Action: Continue to evaluate Mackenzie Delta and Alaska properties in preparation for future pipeline construction. Pursue market expansion into liquefied natural gas (LNG) § Future Action: Commence construction on LNG facility in Cacouna, PQ; agreement to import LNG from Russia Canadian Oil and Gas 60

Business Strategy (continued) u East Coast Oil: Strategic Goals v Expand oil production base

Business Strategy (continued) u East Coast Oil: Strategic Goals v Expand oil production base in offshore Newfoundland. § v Future Action: Continue evaluating growth opportunities in Terra Nova and Hibernia. Pursue high-potential exploration plays § Future Action: Continue White Rose development, targeting start-up in early 2006. Canadian Oil and Gas 61

Business Strategy (continued) u Oil Sands: Strategic Goals Continue developing reserves as market condition

Business Strategy (continued) u Oil Sands: Strategic Goals Continue developing reserves as market condition evolve. v Expand Syncrude operations. v § v Expand upgrade refining capabilities. § u Future Action: Commence improvement of Edmonton refinery from conventional crude oil refinery to bitumen refinery. International: Strategic Goals v Continue developing existing International reserves. § v Future Action: Continue exploration in the U. K. /Netherlands North Sea. Target new theatres of operations. § u Future Action: Continue third phase of Syncrude expansion. Future Action: Where attractive, bid on Middle East developments. Downstream Operations: Strategic Goals v Focus on generating superior returns by leveraging brand strength Canadian Oil and Gas 62

Corporate Value Drivers u Increase production capacity from existing assets. u Reduce operating costs

Corporate Value Drivers u Increase production capacity from existing assets. u Reduce operating costs of existing assets through economies of scale and by upgrading process technologies. u Increase reserves (asset base) by pursuing new developments. Canadian Oil and Gas 63

Reserves Evaluating natural resource companies must take into account their ability to replenish their

Reserves Evaluating natural resource companies must take into account their ability to replenish their assets. u Petro-Canada boasts 1. 220 Billion BOE in proven reserves. u v At current production this will last 7 years. Canadian Oil and Gas 64

Factors that Affect Financials u u u u Ongoing volatility of CDN/US exchange rates

Factors that Affect Financials u u u u Ongoing volatility of CDN/US exchange rates Ongoing volatility of global and North American oil markets New introduction of crude oil supply to North America Ongoing variability in refining & retail margins Unscheduled maintenance shutdowns Oil Sands Alberta Crown Royalties Ability to compete for projects Extreme cold weather in 4 Q v Cannot produce in very cold temperature Canadian Oil and Gas 65

Hedging Strategy u Commodity Prices Significant risk exposure to price of crude oil and

Hedging Strategy u Commodity Prices Significant risk exposure to price of crude oil and natural gas. v Petro-Canada typically does not hedge this exposure. v u Foreign Exchange Petro-Canada’s expense and revenue streams are highly affected by the CDN/USD exchange rate v Partially offset because of integrated business; however, earnings are negatively affected by the strengthening CDN dollar. v Petro-Canada does not hedge this currency exposure. v Canadian Oil and Gas 66

Balance Sheet Canadian Oil and Gas 67

Balance Sheet Canadian Oil and Gas 67

Balance Sheet (continued) u Assets v Increase in cash on hand by $400 M;

Balance Sheet (continued) u Assets v Increase in cash on hand by $400 M; sign that company is not rushing into imprudent investments. v Property, plant, and equipment form more than two-thirds of asset value. § v Very capital intensive. Goodwill increased due to the acquisition of International oil and gas produced Veba Oil & Gas Gmb. H. Canadian Oil and Gas 68

Balance Sheet (continued) u Liabilities Current portion of long-term debt decreased by $350 million

Balance Sheet (continued) u Liabilities Current portion of long-term debt decreased by $350 million v Overall long-term debt decreased by $500 million v Cancelled loans outstanding to provide acquisition credit for Veba Oil & Gas Gmb. H. § Also, this is a sign that the company is plowing exceptional earnings into actively recalling debt. § Canadian Oil and Gas 69

Balance Sheet (continued) u Equity Increased by $2 Billion in 2003; almost all attributable

Balance Sheet (continued) u Equity Increased by $2 Billion in 2003; almost all attributable to increase in retained earnings v Retained earnings increased by $1. 5 Billion dollars per quarter. v Since dividends increased as well (from $0. 10 to $0. 15 per share), we know that the increase in retained earnings is due to higher profits v Canadian Oil and Gas 70

Income Statement Canadian Oil and Gas 71

Income Statement Canadian Oil and Gas 71

Income Statement (continued) u Revenue v Dramatic increase in revenues from 2002 to 2003.

Income Statement (continued) u Revenue v Dramatic increase in revenues from 2002 to 2003. Expanded operations § Higher oil prices § v u YTD 2004 revenues are $10, 880 M. Expenses Crude oil purchases (sell their own crude oil, buyback crude oil for refining closer to distribution points). v Exploration expense decreased slightly year-over-year. v u Earnings v Increase in net earnings and EPS is a function of high oil prices in conjunction with the fact that Petro-Canada does not hedge commodity prices. Canadian Oil and Gas 72

Statement of Cash Flows Canadian Oil and Gas 73

Statement of Cash Flows Canadian Oil and Gas 73

Statement of Cash Flows (continued) u Property, Plant, and Equipment v Spent $500 M

Statement of Cash Flows (continued) u Property, Plant, and Equipment v Spent $500 M on PPE during 2003 – large increase in International investment Canadian Oil and Gas 74

Statement of Cash Flows (continued) u Free Cash Flow: CFO – CFI Free Cash

Statement of Cash Flows (continued) u Free Cash Flow: CFO – CFI Free Cash Flow u u YTD 2004 2003 2002 2001 -$239 $1, 005 -$2, 107 $275 YTD 2004 FCF negative due to acquisition of Prima Energy Corporation ($644 M). 2002 FCF negative due to acquisition of Veba Oil & Gas Gmb. H (spent $2. 2 Billion) v Growth of acquisition helped fuel high cash flow in 2003 Canadian Oil and Gas 75

Financial Strength Ratios Petro-Canada Present Day Industry Average Present Day Price to Earnings 11.

Financial Strength Ratios Petro-Canada Present Day Industry Average Present Day Price to Earnings 11. 90 21. 90 Dividend Yield 0. 94% 2. 10% Price to Book 2. 14 2. 10 Debt to Equity 0. 30 0. 89 Earnings per Share 5. 63 4. 30 Canadian Oil and Gas 76

Stock Price Summary u Stock Price (Friday Close) $63. 60 CDN (TSX) v $53.

Stock Price Summary u Stock Price (Friday Close) $63. 60 CDN (TSX) v $53. 10 USD (NYSE) v u TSX Data for Friday, November 5 th Last Traded: $63. 60 v Net Change: -$0. 74 (-1. 15%) v Volume: 1, 858, 222 v 52 Week High: $70. 40 v 52 Week Low: $54. 50 v Canadian Oil and Gas 77

Stock Price Summary (continued) C$ 63. 600 Net Change: C$ -1. 150 % Change:

Stock Price Summary (continued) C$ 63. 600 Net Change: C$ -1. 150 % Change: -1. 15% Volume 1, 913, 600 P/E 11. 90 52 -Week High 70. 400 Indicated Annual Div. 0. 60 52 -Week Low 53. 800 Yield 0. 94 Canadian Oil and Gas 78

Stock Price Performance: One Year Chart *Based on TSX Data (CDN dollars) Canadian Oil

Stock Price Performance: One Year Chart *Based on TSX Data (CDN dollars) Canadian Oil and Gas 79

Stock Price Performance: Five Year Chart *Based on TSX Data (CDN dollars) Canadian Oil

Stock Price Performance: Five Year Chart *Based on TSX Data (CDN dollars) Canadian Oil and Gas 80

Stock Price Performance Vs. Oil & Gas Index: One Year Chart *Based on NYSE

Stock Price Performance Vs. Oil & Gas Index: One Year Chart *Based on NYSE Data (PCZ and Oil & Gas Index) Canadian Oil and Gas 81

Stock Price Performance Vs. S&P 500: One Year Chart *Based on NYSE Data (PCZ

Stock Price Performance Vs. S&P 500: One Year Chart *Based on NYSE Data (PCZ and S&P 500) Canadian Oil and Gas 82

Recommendation BUY Canadian Oil and Gas 83

Recommendation BUY Canadian Oil and Gas 83

Suncor Energy Canadian Oil and Gas 84

Suncor Energy Canadian Oil and Gas 84

Sun. Cor Agenda u u u u u Company Background Management Team Core Business

Sun. Cor Agenda u u u u u Company Background Management Team Core Business Segments Business Strategy Corporate Value Drivers Reserves Hedging Strategy Financial Statement Analysis Stock Price Performance Recommendation Canadian Oil and Gas 85

Company Background u Suncor Energy is an integrated energy company. v u Formed in

Company Background u Suncor Energy is an integrated energy company. v u Formed in 1979 as a result of an amalgamation of several operations. Focused on developing the Athabasca Oil Sands: one of the world’s largest petroleum resource basins. 2004 YTD earnings are $337 million. v Produces 264, 900 barrels of oil per day v 4, 000 employees v u Listed on both the TSX and NYSE (Ticker SU). $39. 88 CDN per share (Tues close) v 453, 420, 617 shares outstanding v Net capitalization exceeding $18 Billion CDN v u Headquartered in Calgary, Alberta. Canadian Oil and Gas 86

Management Team u Richard L. George, President and CEO v u J. Kenneth Alley,

Management Team u Richard L. George, President and CEO v u J. Kenneth Alley, Sr. VP and CFO v u 24 years experience at Suncor. Thomas L. Ryley, Exec. VP, Energy Marketing and Refining v u Over 20 years of international energy industry experience. David W. Byler, Exec. VP, Natural Gas & Renewable Energy v u 19 years experience at Suncor. Steven W. Williams, Exec. VP, Oil Sands v u 23 years experience at Suncor; 13 years as CEO. 20 years experience at Suncor. M. (Mike) Ashar, Exec. VP, Refining and Marketing USA v 16 years experience at Suncor. Previous experience with Petro-Canada. Canadian Oil and Gas 87

Management Compensation Canadian Oil and Gas 88

Management Compensation Canadian Oil and Gas 88

Core Business Segments u Oil Sands Operating in Canada’s Athabasca Oil Sands, Alberta v

Core Business Segments u Oil Sands Operating in Canada’s Athabasca Oil Sands, Alberta v Oil is part of bitumen; can be extracted by mining and by in-situ (onsite) v Surface mines produce majority of crude oil but in-situ processes are expanding v u Natural Gas v Extracted through pressurized wells u Energy Marketing & Refining (Canada) Refine bitumen feedstock and natural gas and market it to customers in Ontario, Quebec, Northeastern USA v Sunoco chain of service stations in Ontario v Refinery based in Sarnia, Ontario v Canadian Oil and Gas 89

Core Business Segments (continued) u Energy Marketing & Refining (USA) In August 2003, Suncor

Core Business Segments (continued) u Energy Marketing & Refining (USA) In August 2003, Suncor acquired a Denver refinery and 43 Phillips 66 service stations. v Expansion gives Suncor greater ability to move oil products to American markets. v u Renewable Energy v Two projects in Canada Canadian Oil and Gas 90

Contribution of Business Units (Earnings) Canadian Oil and Gas 91

Contribution of Business Units (Earnings) Canadian Oil and Gas 91

Business Strategy u Athabasca Oil Sands Next major goal is a targeted production capacity

Business Strategy u Athabasca Oil Sands Next major goal is a targeted production capacity of 260, 000 bpd by late 2005 v Focus on efficient operations and management to maintain low crude oil production costs v Suncor continually will pursue new technology that will reduce operating costs and environmental impact - Expanding oil sands operation is a priority - Planned 2007 expansion of Steepbank Mine, Fort Mc. Murray, Alberta - Expansion of the second upgrader along with a third one on 2010 - Maintain oil sands cash operating costs at an annual average of $10. 75 to $11. 75 per barrel v Canadian Oil and Gas 92

Business Strategy (continued) u Natural Gas v v v u Suncor has found a

Business Strategy (continued) u Natural Gas v v v u Suncor has found a solution to deal with high natural gas prices Strategy is to exceed natural gas purchases for internal consumption Functions as a price hedge Energy Marketing & Refining (Canada) Project Genesis: Sarnia refinery is investing in equipment to produce lower sulphur diesel v Helps to increase company’s ability to manufacture environmentally friendlier products to meet demand v u Energy Marketing & Refining (USA) v Looking to further integrate products and services within the US, branching out from Denver, Colorado. Canadian Oil and Gas 93

Business Strategy (continued) Canadian Oil and Gas 94

Business Strategy (continued) Canadian Oil and Gas 94

Corporate Value Drivers u Increase production capacity from existing assets. u Reduce operating costs

Corporate Value Drivers u Increase production capacity from existing assets. u Reduce operating costs of existing assets through economies of scale and by upgrading process technologies. u Increase reserves (asset base) by pursuing new developments. u Be a first-mover in new energy technologies such as wind. Canadian Oil and Gas 95

Reserves u Company has an estimated 12 billion barrels of crude on hand that

Reserves u Company has an estimated 12 billion barrels of crude on hand that can be refined to produce approximately 10 billion barrels of oil. v At current production this will last 10 years. Canadian Oil and Gas 96

Factors That Affect Financials u u u u Ongoing volatility of CDN/US exchange rates

Factors That Affect Financials u u u u Ongoing volatility of CDN/US exchange rates Ongoing volatility of global and North American oil markets New introduction of crude oil supply to North America Ongoing variability in refining & retail margins Unscheduled maintenance shutdowns Oils Sands Alberta Crown Royalties Ability to compete for projects Extreme cold weather in 4 Q Canadian Oil and Gas 97

Hedging Strategy u Commodity Hedging Activities Company utilizes commodity based forwards, futures, swaps and

Hedging Strategy u Commodity Hedging Activities Company utilizes commodity based forwards, futures, swaps and options. v Board authorized the hedging of 35% of crude oil volume in 2004 and up to 30% for 2005 -2007. v In 2003, hedging reduced net earnings by $155 million. v As of Q 1, 2004, the Bo. D suspended the crude oil hedging program and no new contracts were entered in Q 2 or Q 3. v u Financial Hedging Activities Employs interest rate and cross-currency swaps v Interest rate swaps involve the exchange of floating rate and fixed rate interest payments v Cross-currency swaps involve the exchange of CDN dollar interest payments and US dollar interest payments, and an exchange of the principal amounts at the maturity date of the underlying security. v Canadian Oil and Gas 98

Hedging Strategy Canadian Oil and Gas 99

Hedging Strategy Canadian Oil and Gas 99

Income Statement Canadian Oil and Gas 100

Income Statement Canadian Oil and Gas 100

Income Statement (continued) Canadian Oil and Gas 101

Income Statement (continued) Canadian Oil and Gas 101

Balance Sheet Canadian Oil and Gas 102

Balance Sheet Canadian Oil and Gas 102

Balance Sheet (continued) u $1 Billion increase in PPE during 2003 due to acquisitions

Balance Sheet (continued) u $1 Billion increase in PPE during 2003 due to acquisitions Canadian Oil and Gas 103

Balance Sheet (continued) u u Retained earnings went up by $ 1 billion and

Balance Sheet (continued) u u Retained earnings went up by $ 1 billion and dividends have remained fairly stable We can infer that Suncor is pumping most of their money back into the company Canadian Oil and Gas 104

Statement of Cashflows Canadian Oil and Gas 105

Statement of Cashflows Canadian Oil and Gas 105

Statement of Cash Flows (continued) u Free Cash Flow: CFO – CFI Free Cash

Statement of Cash Flows (continued) u Free Cash Flow: CFO – CFI Free Cash Flow u u u YTD 2004 2003 2002 2001 $338 $516 $595 -$868 2003 FCF fell from 2002 due to investment in new refinery and new retail stations & business 2001 FCF negative due to a large restructuring of natural gas business YTD 2004 FCF was not as drastically improved by high oil prices because Suncor invested a large amount in upgrading and expanding their extraction and refining operations as well as opening a new wind power facility Canadian Oil and Gas 106

Financial Strength Ratios Sun. Cor Present Day Industry Average Present Day Price to Earnings

Financial Strength Ratios Sun. Cor Present Day Industry Average Present Day Price to Earnings 16. 50 21. 90 Dividend Yield 0. 60% 2. 10% Price to Book 3. 94 2. 10 Debt to Equity 0. 51 0. 89 Earnings per Share 2. 42 4. 30 Canadian Oil and Gas 107

Income Statement YTD Canadian Oil and Gas 108

Income Statement YTD Canadian Oil and Gas 108

Balance Sheet YTD Canadian Oil and Gas 109

Balance Sheet YTD Canadian Oil and Gas 109

Statement of Cashflows YTD Canadian Oil and Gas 110

Statement of Cashflows YTD Canadian Oil and Gas 110

Stock Price Summary (continued) C$ 39. 68 Net Change: C$ -0. 02 % Change:

Stock Price Summary (continued) C$ 39. 68 Net Change: C$ -0. 02 % Change: -0. 5% Volume 617, 100 P/E 16. 40 52 -Week High 44. 49 Indicated Annual Div. 0. 24 52 -Week Low 27. 00 Yield 0. 60 Canadian Oil and Gas 111

Stock Price Performance: One Year Chart (TSX) Canadian Oil and Gas 112

Stock Price Performance: One Year Chart (TSX) Canadian Oil and Gas 112

Stock Price Performance: Five Year Chart (TSX) Canadian Oil and Gas 113

Stock Price Performance: Five Year Chart (TSX) Canadian Oil and Gas 113

Recommendation BUY Canadian Oil and Gas 114

Recommendation BUY Canadian Oil and Gas 114

Summary Canadian Oil and Gas 115

Summary Canadian Oil and Gas 115

Summary BUY Canadian Oil and Gas BUY 116

Summary BUY Canadian Oil and Gas BUY 116

Questions Canadian Oil and Gas 117

Questions Canadian Oil and Gas 117