Canadian Oil and Gas Industry

1. Canadian Oil and Gas Industry Fundamental Analysis and Recommendations: Suncor, Imperial Oil, Talisman

2. Presenters • Karen Ford– Industry Overview • Aaron Cawker– Suncor • Stephanie Cornell– Talisman • Rahim Dhanji– Imperial Oil

3. Industry Overview • Largest industry in the world • Oil & gas trade surplus accounts 57% of Canada’s merchandise trade balance in 2003 • 3.5 per cent share of the world market, since 1998 • Employment near 500,000 in Canada • Invest close to $24 billion

4. Overview…continued • Payments to governments have averaged close to $8.5 billion per year over the last 10 years • In 2003, the oil and gas industry contributed an estimated $16 billion to government revenues in the form of royalty payments, bonus payments and income taxes.  • We produce more than 20% of North America’s crude oil and natural gas but account for only 10% of its consumption • Capital Spending 2003: Conventional $23.8 billion Oil Sands $5.0 billion Total $28.8 billion

5. Origins and History • Most crude oil and natural gas originate from plant and animal life millions of years ago: swamps and oceans. • Heat and pressure transformed the soft parts of the plants and animals into solid, liquid or gaseous hydrocarbons known as fossil fuels - coal, crude oil or natural gas • Located in sand oils and oil fields • Found by drilling and creating wells

7. Sectors of the Industry • Petroleum Exploration and Production • Upstream • Refining • Midstream • Distribution and Retail Sales • Downstream

8. Types and Uses • Crude Oil and Natural Gas • Uses: • Mobility, heat and cool our homes and provide electricity • Products: • plastics, life-saving medications, clothing, cosmetics, and many other items you may use daily • Barrel – a unit of measure for oil and petroleum products that is equivalent to 42 U.S. gallons

9. Canadian Economy • Canada's GDP 2003 grew 1.7%., 2002 it grew 2.2% • Slowdown of Canada’s economy: • weak U.S. economic growth for most of the year; • a strong appreciation of the Canadian dollar; • the SARS outbreak in Toronto; • restrictions on exports of softwood lumber and beef (due to mad cow disease). • Recovery of the U.S. economy, high oil and natural gas prices, and continued spending from the Canadian government are expected to boost Canada’s economy in 2004. • The Canadian economy is forecast to grow 3.6% in 2004

10. Situational Analysis • Demand is increasing • Oil and Natural Gas together provide the largest source of energy (64%) in Canada • Natural gas 39% and Oil 25% • Hydro 20% • Coal 11% • Nuclear 5% • Prices have become volatile on the market • Energy shares make up 17 percent of the value of the S&P/TSX, the second-largest group in the index

11. Crude Oil in Canada Highlights • Ninth-largest producer of crude oil in the world • Prior to 2002, Canada did not even rank in the top 20 of countries with the most proven crude oil reserves. Alberta's oil sands, which stood at 174.4 billion barrels as of January 2004 • Saudi Arabia holds most crude oil reserves in the world

12. Crude Oil…continued • Reserves: 178.9 billion barrels (2nd) World Reserves

13. Crude Oil…continued • Production: • 3.1 million barrels per day (bbl/d) for 2003, an increase of 7% over 2002 • Oil sands production is expected to increase significantly and to offset the decline in conventional crude oil production, becoming Canada's major source of oil supply • Western Canada Sedimentary Basin (WCSB), underlying most Alberta and parts of British Columbia, Saskatchewan, Manitoba and the Northwest Territories main source of oil

15. Crude Oil Continued… • Wells Drilled: 4,845 • Exports • US: 1.4 million barrels per day • 3rd largest exporter of crude oil to the US • Canada makes up 15% of total US oil imports • Canada supplies 9% of US oil consumption • Imports • 912,000 barrels per day

16. Crude Oil Prospects

17. Crude Oil Forecast • Significant potential for new crude oil production planned to come on stream over the next ten years • Canada’s crude oil production growth is driven by the development of oil sands in Alberta and to a lesser degree by offshore projects in eastern Canada

18. Crude Oil Prospects • Maturing basin being extended by technology • Horizontal drilling • 3D Seismic • New drilling/recovery technology • Emerging basins • Oil Sands • Northern Canada • Offshore East Coast • Technology is key • Total Canadian production is projected to increase from the current 2.6 million barrels per day to reach 3.6 million barrels per day (b/d) by 2015.

19. Crude Oil Resources (Billions of Barrels)

20. Crude Oil Supply Forecast

21. Natural Gas Highlights • Canada is the third-largest producer of natural gas • Production: • 16.9 billion cubic feet per day • Reserves: • 59.1 Tcf (Jan. 2004) • Wells Drilled in 2003: 12,951 • Exports: • 2nd largest exporter in world • to US: 3.8 trillion cubic feet per year • Largest exporter of natural gas to the US • Canada makes up 94% of total US gas imports • Canada supplies 17% of US gas consumption • No imports listed

22. Natural Gas Production and Consumption

23. Natural Gas Outlook • Short-term outlook, natural gas production is expected to decline 3%, from 16.3 Bcf/d at the end of 2002, to 15.8 Bcf/d in 2005 • new fields coming onstream are small and quickly depleted • If prices stay high, incentive to exploit the many small natural gas pools in the WCSB, as well as coalbead methane, of which the region holds considerable reserves

24. Natural Gas Outlook: Productive Capacity

25. Prospects of Natural Gas • Natural gas demand keeps growing – Supply running hard to catch growing demand – New sources of supply coming on • Gas from tight sands is promising resource • Arctic gas from the Mackenzie Delta to be piped to Canadian and U.S. network of pipes • As demand for gas grows, Canada’s resources will combine with Liquid Natural Gas (LNG) imports as important sources of this cleaner-burning fuel of choice in an increasingly environmentally conscious North America

26. Natural Gas Prospects… • Significant untapped potential remaining • Sufficient pipeline capacity New supplies: • Northern gas • East Coast offshore • Coal-bed methane

27. Potential of Natural Gas (TCF)

28. North America Natural Gas Demand

29. Strengths • Size and number oil sands in Alberta • Potential of Eastern and Northern Canada • high-tech exploration • cold-climate and offshore operations • construction and operations of pipelines • specialized controls and computer applications • environmental protection technology and safety training • innovative products and services that meet customer needs • refining processes that produce quality petroleum-based products while minimizing the impact on the environment.

30. Weaknesses • Limited natural gas reserves • Capacity for natural gas is forecasted to decrease • Canada is one of the high-cost places in the world to find and produce oil and gas • Deep gas, natural gas from coal and developments offshore, in the oil sands and the North are large, complex and expensive and have long lead times before they turn a profit • Challenges in meeting North America’s energy needs

31. Opportunities • Exporting to the US • Oils Sands • Exploration of Northern and Eastern Canada • World population is currently around 6 billion people, but is expected to grow to approximately 7.6 billion by 2020.-- a huge increase in the demand for transportation fuels, electricity, and many other consumer products made from oil and natural gas.

32. Threats • Canada/US Foreign Exchange Rate

33. Threats • Price volatility • High Development costs • Environmental Issue • Especially Marine Life • Substitutes • Alternatives to oil and gas • Solar Power, Coal, Wind, Hydro, and Nuclear Power

34. Competitive Rivalry Top Companies in Oil and Gas Producers (Selected by Assets) • EnCana Corp. • Canadian Natural Resources • Nexen • Penn West Petroleum • Western Oil Sands Inc • Paramount Resources • Compton Petroleum • Bonavista Energy Trust • PetroKazakhstan Inc.

35. Price History –Crude Oil 1 Year

36. Crude Oil Prices since 1920

37. Crude Oil Price Forecast

38. Natural Gas Prices- 1 year

39. Natural Gas Prices-Since 1930

40. Natural Gas Price Forecast

42. Current Events • Despite high oil and gas prices, anticipated market volatility is preventing energy companies from increasing their rate of investment • Nov. 8 (Bloomberg) Canadian Stocks Fall as Oil Prices Slip; Suncor, Talisman Drop -- Canadian stocks fell, led by oil and gas producers such as Suncor Energy Inc., after crude oil prices declined. A rise in the Canadian dollar to 84 U.S. cents for the first time in more than 12 years weighed on the benchmark index. ``Oil and gas stocks in Canada are very sensitive to falling oil prices because of how high'' crude prices are • Tuesday, November 09, 2004 Crude oil futures tumbled below $48 (U.S.) a barrel Tuesday, closing at their lowest level in seven weeks, on rising expectations that the U.S. supply of transport and home-heating fuels will be adequate this winter.

44. Company Overview • Suncor Energy Inc. is an integrated energy company strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands. • Strong focus on technology • 37 years of oil sands experience

45. Company Overview • Became a publicly traded company in 1992 • Total returns to shareholders have averaged more than 25% per year.

46. Corporate Committee • Richard George –President & CEO since 1991 • Kenneth Alley – Senior VP & CFO since 2003, with Suncor since 1984 • Mike Ashar – Executive VP, Refining and Marketing since 2003, with Suncore since 1987 • David Byler – Executive VP, Natural Gas & Renewable Energy since 2000, with Suncore since 1979 • Terrence Hopwood – Senior VP & General Council since 2002, with Suncore since 1988 • Sue Lee – Senior VP, HR & Communications since 1996 • Kevin Nabholz – Senior VP, Major projects since 2002, with Suncore since 1986 • Thomas Ryley – Executive VP, Energy Marketing & Refining, with Suncore since 1983 • Steven Williams – Executive VP Oil Sands since 2003, with Suncore since 2002. 20 years of energy industry experience.

47. Pipeline network

48. Businesses • Oil Sands • Located near Fort McMurray, Alberta • The foundation of Suncor’s assets and is the center of their growth strategy. • Natural Gas and Renewable Energy • Based in Calgary, Alberta • Produce natural gas in Western Canada • Provides a price hedge against internal consumption at oil sands and refining operations.

49. Businesses • Refining, Marketing and Retail • Canada • Refinery feedstock and natural gas production are marketed to commercial and industrial consumers. • Products from the Sarnia refinery are sold to customers in Ontario, Quebec, and the Northeastern US, and to retail customers through approximately 500 Suncor-owned(Sunoco) and joint venture service stations in Ontario.

50. Businesses • United States • In August 2003, acquired a Denver, Colorado refinery along with 43 Phillips 66 retail stations. • Expansion into the rocky Mountain States allows easier movement of crude oil products to US markets.