The Canadian Oil Sands Woodrow Wilson Forum October 17, 2005.

The Canadian Oil SandsWoodrow Wilson Forum

October 17, 2005

Canada’s Oil and Gas Industryin the North American Energy Economy

• Canada is the world’s 3rd largest natural gas producer

• Canada is the world’s 9th largest crude oil producer– and moving up the list quickly

with oil sands production increasing

• Industry Overview– 500,000 jobs– C$35 Billion capital investment– C$20 Billion in payments to

federal and provincial governments

– #1 private sector investor in Canada

• Canada is the largest supplier of energy to the United States

2004Canadian Natural

Gas

Canadian Petroleum

Ranking of importers to U.S.

Share of U.S. consumption

16% 10%

Share of U.S. imports

85% 16%

#1 #1

U.S. Natural Gas Imports from Canada

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2001 2002 2003 2004 2005 Jan-June

bcf

/d

Source: U.S. DOE/EIA

Canada’s exports dropped in 2003 due to a 1.7 bcf/day reduction in US demand

16.8% 16.5% 15.6% 16.2% 16.9%*

* Estimated full-year.Canadian Share of US Consumption

0

500

1 000

1 500

2 000

2 500

Canada Mexico SaudiArabia

Venezuela Nigeria Iraq Algeria United Kingdom

Angola Russia Norway Kuwait

thou

sand

bar

rels

per

day

U.S. Imports of Crude Oil and Petroleum Products by Country of Origin

Petroleum Products

Crude Oil#1

Source: EIA, 2004

Canada, is the largest (#1) supplier of crude oil and of crude oil and petroleum products to the US.

Industry Capital Spending Cdn $billions

Northern Canada‘03 ‘04 ’05F ’06F$0.3 $0.3 $0.5 $0.5

Oil Sands

‘03 ‘04 ‘05F ’06F

$5.0 $6.2 $8.5 $8.8

WCSB

‘03 ‘04 ‘05F ’06F

$21.4 $24.5 $27.0 $29.0

International

‘03 ‘04 ‘05F ’06F

$5.5 $10.4 $5.0 $6.8

East Coast Offshore

‘03 ‘04 ‘05F ‘$06F

$2.2 $1.9 $1.0 $0.7

Note: Spending in Canada excludes spending associated with mergers & acquisitionsInternational are acquisitions net of divestures.

The oil & gas industry will invest over $39 billion in capital in Canada in 2006

Canadian Crude Oil Production by Region

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

mill

ion b

arr

els

/day

OtherEastcoast OffshoreSask.Alberta oil sandsAlberta Conv.

Canadian Natural Gas Production by Region

02468

101214161820

bcf

/day

OtherEastcoast OffshreSaskatchewanBritish ColumbiaAlberta

• 1875 Canada Geological Survey registers oil sands• 1915 shipments to Edmonton for paving• 1938 Abasand commercial production - 2,500 barrels

destroyed by fire in 1941 - not rebuilt• 1950’s separation technology centrifugal force

• Strong interest results in dozens of exploration leases sold by the government

• 1964 Esso starts Cold Lake; GCOS construction• 1967 first GCOS (Suncor) production - 32,000 b/d• 1978 first Syncrude production - 109,000 b/d• 1993 truck and shovel technology adopted

• key to revitalizing the development outlook

• 2004 oil sands production reaches

1 million barrels per day

Canadian Oil Sands History

Global Crude Oil Reserves by Country

Source: Oil & Gas Journal Dec. 2004

223539

6077

9299

115126

179

259

0

50

100

150

200

250

300

SaudiArabia

Canada Iran Iraq Kuwait Abu Dhabi Venezuela Russia Libya Nigeria UnitedStates

billion b

arre

ls

Includes 1

75 billion barre

ls

of oil s

ands rese

rves

Canada, with 175 billion barrels in Oil Sands reserves, ranks 2nd only to Saudi Arabia in global oil reserves

Oil Sands Projects in Three Deposits

• Oil sands production now exceeds one million barrels per day

• US$28 billion built from 1996-2004

• Close to US$36 billion in new oil sands projects expected in 2005-2010

Peace River

Athabasca

ColdLake

Edmonton

Calgary

Ft. McMurray

Value Creation(CNRL)

Deer Creek

SyncrudeSuncor

Petro-Cda

Shell

Encana

Encana

Petro-Canada

Suncor

Imperial

ExxonMobil

Encana

Bristol(CNRL)

Cdn Coastal(Devon)

Synenco

Husky

LEGEND

Denotes SURFACE

MINEABLEAREA

Fort McMurray

Shell

CNRL

Centennial(Conoco) Imperial

Syncrude EM

Petro-Canada

Total Oil Sands Project Production: 2003-2015Total Oil Sands Project Production: 2003-2015Th

ou

san

d B

arr

els

Per

Day

0

500

1,000

1,500

2,000

2,500

3,000

2003 2005 2007 2009 2011 2013 2015

Husky

Nexen/Opti

Conoco

Petro-Canada

CNRL

Encana

Albian

Imperial/Exxon

Syncrude

Suncor

All Projects

Oil Sands Production Technologies

Mining & Upgrading

In-situ

Recoverable resource = 65 billion barrels

Recoverable resource = 250 billion barrels

Cyclic SteamProcess

Source: SyncrudeSource: Imperial Oil

Source: Shell Canada

Oil ProductionSAGD Process

Steam Injection

ReservoirOil Production

SteamChamber

Steam Injection

Source: Petro-Canada

0 5 10 15 20 25

Cold Production

Mining

SAGD

Cyclic Steam

Integrated SCO*

US$/barrel

Oil Sands Supply Costs by Recovery Typeincludes capital, operating, royalty, taxes and return

Source: NEB - based on C$2003 converted @ US$0.80/C$

* Surface mining, extraction & upgrading

Light Oil

Heavy Oil

Canadian Oil ProductionConventional, Oil Sands and Offshore

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

thousa

nd b

arr

els

per

day

1980 1985 1990 1995 2000 2005 2010 2015

WCSB Conventional Oil

Oil Sands

Offshore

Source: CAPP

Actual Forecast

Oil Sands Growth: 2004 = 1 million b/d2015 = 2.7 million b/d

Environmental Stewardship

• Air Monitoring programs Reducing emissions

• Water Reduce, recycle and reuse More efficient, 90+%

recycle

• Land Reclamation and

remediation Directional drilling from

single site to reduce impact

Canada’s Oil SandsChallenges to achieve this potential

• Continuing to Lower Costs Alternatives to natural gas for fuel – free it up for other

markets

• Workforce and Infrastructure Ensuring adequate workforces – trades, technical,

professional Roads, Housing and Municipal services

• Access to Markets – Pipelines/Refineries Need new pipelines

• Decisions needed now for pipelines in 4-5 years Need new refineries, expansions and modifications

• For many conventional refineries, oil sands is either heavier (bitumen blend) or lighter (upgraded crude) than their current feedstock

Natural Gas Use in Oil Sands DecliningNatural Gas Consumed per Barrel of Oil Sands Production

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1994 - 1997 1998 - 2000 2001 -2003 NewTechnologies

thousa

nd c

ubic

fee

t per

bar

rel

Source: Historical data from EUB

Canadian and U.S. Crude Oil Pipeline Alternatives

Sarnia

Fort McMurray

Chicago

Houston

Los Angeles

Patoka

Montreal

Burnaby

St. James

PortlandSalt Lake City

Superior

Hardisty

Edmonton

Anacortes

San Francisco

Casper

PotentialPipeline Expansion

Routes

• Asia• California

• Anacortes

California

USGC

ENBRIDGE GATEWAY

TCPL KEYSTONE

WoodRiver

Cushing

Spea

rhea

d

Extensions toNew Markets

Growing oil sands production will require new pipeline capacity to existing and expanded markets

Midwest

SEC Bitumen Reserves Disclosurefor Financial Reporting

10%

20%

30%

40%

50%

60%

70%

Jan AprMarFeb May Jun Jul Aug Sep Oct Nov Dec

--- 2004 Average Bitumen Price at Cold Lake = 50% of WTI

Data Source : Purvin & Gertz

Calc

ula

ted

Fie

ld P

rice,

% o

f W

TI

Month

Topics for Discussion?

• How can Canada and the US overcome the new constraints to oil sands growth? – workforce, infrastructure, rising costs

• How and where to convert oil sands into petroleum products?

• What can be done from the US to help with the workforce shortages?

• Where will oil sands production be consumed? If in North America, where? What about offshore markets?

• What needs to change in North America as the oil slate shifts to heavier oil?

• Can US gasification technology free up natural gas for other North American markets? How does this fit in a world of CO2 reductions?