Canadian Oil and Gas Outlook and Challenges Calgary Real Estate - PowerPoint PPT Presentation

Canadian Oil and Gas Outlook and Challenges Calgary Real Estate Forum October 24, 2007

Canadian Association of Petroleum Producers • 150 producer member companies who produce more than 95 per cent of Canada’s natural gas and crude oil � Explore for, develop and produce natural gas, natural gas liquids, crude oil, synthetic crude oil, bitumen and sulphur throughout Canada • 130 associate members provide a wide range of services that support the upstream crude oil and natural gas industry

Searching for Clarity in a Haystack of Uncertainty • Commodity Prices – Oil up, natural gas down, impact of exchange rates • Costs – Global costs (steel, materials) up – Labour market tight but easing • Infrastructure Needed – Public (roads, schools, medical, etc.) – Private (pipelines, upgraders, new markets) • Government Policies – In a state of flux

Crude Oil and Natural Gas prices Crude Oil Prices Natural Gas Prices (WTI NYMEX) (AECO Daily Spot Price) $US per barrel $Cdn/mcf 85.00 14.00 75.00 12.00 65.00 10.00 55.00 8.00 45.00 6.00 35.00 4.00 25.00 2.00 15.00 5.00 0.00 '04 '05 '06 '07 '04 '05 '06 '07

U S$ pe r ba rre l Light and bitumen crude oil prices 10 20 30 40 50 60 70 80 0 O ct '04 N o v Dec Jan '05 Feb M ar A pr M ay Jun Jul A ug (West Texas Intermediate) Light crude oil price quoted in media Sep O ct N o v Dec Jan '06 Feb M ar A pr M ay Jun Jul A ug Sep O ct N o v netback Bitumen price Dec Jan '07 Feb M ar A pr M ay Jun Jul A ug Sep

Canada/U.S. Foreign Exchange Rate Oct 22 Impact of exchange rate on oil prices C$ closed 1.05 US $80.00/bbl at parity is equal to at 1.02 1.00 US $52.00/bbl at 0.65 exchange rate 0.95 0.90 0.85 U S$/C dn$ 0.80 0.75 Materials and equipment from the US 0.70 and upgraders in US are more affordable 0.65 0.60 A A A A A J03 J J04 J J05 J J06 J J07 J O O O O

Industry Capital Spending Cdn $billions The oil & gas industry will invest $49 billion in Canada in 2007, down from $53 billion in 2006 Northern Canada ‘04 ‘05 `06 `07F $0.3 $0.5 $0.4 $0.5 Oil Sands ‘04 ‘05 `06 `07F $6.2 $10.4 $14.3 $16.0 East Coast Offshore WCSB ‘04 ‘05 `06 `07F ‘04 ‘05 `06 `07F $1.9 $1.9 $1.6 $1.0 $24.5 $32.7 $36.5 $31.0 Note: Spending in Canada excludes spending associated with mergers & acquisitions

Global Oil/Gas Investment Returns 5 Year Return on Cumulative Capital Costs 50% 39% 40% 35% 30% 30% 26% 22% 22% 21% 20% 20% 19% 18% 18% 20% 15% 14% 14% 12% 12% 12% 10% 0% a e a e e . n l t S l a e d a c c p . d a a l s a a d S i i c d a i . a n n z f a o u u n r i U t i . i l i a i e a o r r U n i c p E w r i r o h e u t r m T c a r e a n c i s B e d C t m E n t a d C n P s e e n A l l y y C d i r - u A n g e s p & S S a o h d r r A t o v & l W i i u e A s t a t . / n r r M S h u A O u w o a r o . t t o E U C i & s N n r d / l o s e w a : l : a u e r N a C a t d o c c o d R / W a i & i i T a s r a c r f n t e e i : A h u r S a a m e t O d C u m h A a o : t A n d S r h o a l t . r N o r C o o N W N Source: John S. Herold Inc. & Harrison Lovegrove & Co. 2007 Global Upstream Performance Review

Natural Gas

Alberta Government Lease Sales January - October 3,500 O il Sands 3,000 P & N G 2,500 2,000 $m m 1,500 1,000 500 0 2004 2005 2006 2007

WCSB Approximate Major Natural Gas Costs and Price 9.00 8.00 7.00 6.00 5.00 C $/G J 4.00 3.00 2.00 1.00 0.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 F& D Costs A nnua l Unit Ope ra ting Costs Roy altie s (a pproximation) A nnua l A v e ra ge A lbe rta Ga s Re fe re nce Price Source: NEB Report Short-term Canadian Natural Gas Deliverability 2007-2009

Drilling Rigs Active in Western Canada # of Rigs active 800 2005 2005 700 2006 600 2007 2006 500 400 300 2007 Rig count down 200 20% from 2006 and lowest since 100 2002 0 l t n b r r n g p v c y u c a p e a e a u e o u J O M A J F J S D M A N Source: Nickle’s

Total Wells Drilled in Canada 28,000 2005=25,200 2006=23,400 24,000 Dry/S u sp . G as 2007=19,000 20,000 Oil 2008F =17,300 16,000 1990’s Avg = 12,000 10,000 Wells 8,000 4,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007F 2008F Source – CAPP. Based on Rig Release

Oil Sands

Oil Sands Projects in Three Deposits Athabasca – Mining Barrels per day Fort Hills Kearl Northern Operator Project Initial Potential Horizon Lake Lights Albian/Shell Muskeg/Jackpine 155,000 560,000 Joslyn Creek Muskeg River Suncor Base Plant 280,000 550,000 Albian Syncrude Base Plant 300,000 600,000 Sunrise Syncrude CNRL Horizon (2008) 135,000 577,000 Firebag Imperial Kearl (2010) 100,000 300,000 MacKay River Peace Jackpine Suncor Petro-Canada Fort Hills (2011) 100,000 190,000 Seal River Fort (Blackrock) Total E&P Joslyn Creek Mine (2013) 50,000 200,000 McMurray Athabasca – In Situ Thermal Surmont Hangingstone Peace River ConocoPhillips Surmont 25,000 110,000 Christina Lake Encana Christina/Foster 42,000 400,000 Long Lake JACOS Hangingstone (pilot) 10,000 30,000 Whitesands Jackfish Suncor Firebag 68,000 375,000 Total E&P Joslyn Creek 10,000 40,000 Devon Jackfish (2008) 35,000 70,000 Foster Cold Lake Creek Husky Sunrise (2012) 50,000 200,000 Hilda Lake Athabasca OPTI/Nexen Long Lake (2007) 72,000 288,000 Petro-Canada MacKay River (2009) 22,000 70,000 Ft. McMurray Peace Cold Lake – In Situ Thermal Wolf Lake/Primrose Cold Lake River Shell Hilda Lake (pilot) 600 20,000 Tucker Lake Edmonton Cold CNRL Primrose 50,000 110,000 Lake Imperial Cold Lake 150,000 170,000 In Situ Projects Husky Tucker (2007) 18,000 40,000 Calgary Peace River – In Situ Thermal Mining Projects Shell Peace River 12,000 100,000

Bitumen Upgraders in Alberta Capacity by 2015 Existing: Volume (bpd) Albian/Shell-Scotford 155,000 Husky-Lloydminster 82,000 Suncor 338,000 Syncrude 410,000 Expansions: Comment Albian/Shell-Scotford 135,000 Increases capacity to 255,000 by 2010. Approval to 290,000 b/d. Husky-Lloydminster 68,000 Expansion to 150,000 b/d (2011). Suncor 336,000 90,000 b/d expansion of Upgrader 2 & in-situ to total planned 428,000 b/d in 2008. Upgrader 3, additional 246,000 b/d to 674,000 b/d in 2012. Syncrude 160,000 Stage 3 debottleneck - capacity to 450,000 b/d in 2012. To 570,000 b/d post 2016. New projects: BA Energy-Heartland 163,200 Phase 1 – 54,400 b/d (2008); Phase 2&3 completed during 2011-13 CNRL-Horizon 270,000 Phase 1-3 (2011); Phase 1 in 2008 – 135,000 b/d. Phase 2&3-135,000 b/d -2012. Nexen/OPTI-Long Lake 288,000 On-stream late 2007 @ 72,000 b/d; 2011-72,000; 2013-72,000; 2015-72,000 b/d Statoil ASA (Kai Kos Dehseh) 250,000 Phase 1 – 75,000 b/d (2012). Phase 2 - 175,000 b/d by 2015 Northwest Upgrading 100,000 3-phased expansion. Phase 1-2010; Phase 2-2013; Phase 3-2016 additional 50,000. Petro-Canada 85,000 Refinery conversion to upgrader/refinery in late 2008 Petro-Canada/UTS-Fort Hills 340,000 Phase 1-165,000 b/d (2011); Phase 2/3-175,000 b/d (2014) PRO (Bluesky) 50,000 Phase 1 on-stream 2011. Shell Scotford Upgrader 2 100,000 Phase 1 on stream by 2012 - total capacity of 400,000 Total E&P-Strathcona 153,000 On-stream in 2013-14. Phase 2 - 82,000 in 2016 TOTAL 3,483,200 NOTE: All volumes expressed as bitumen.

Oil Sands - Key Issues • Costs continue to increase � Capital (steel) is global, not just regional � One of the major operating costs is fuel (natural gas) • Labour availability • Infrastructure � Private – pipelines, upgraders, refineries (new markets), etc. � Public – roads, housing, education, health care, etc. (Radke Report) • New markets � diluent supply and upgrading • Governments’ policies � Climate change, royalty review, value added, etc.

Oil Sands Capital Costs Increases Global Cost Increases Not Just Local Capital Cost of 100,000 bbl/day project $3.3 billion $10-11 billion 120 000 Capital $ per bbl/day (upgraded) 100 000 80 000 60 000 40 000 20 000 0 Suncor - Albian Syncrude - Nexen-OPTI CNRL - Shell - PCA/UTS Millennium Aurora 2 & Horizon Muskeg & Fort Hills UE 1* Scotford Production 2001 2003 2006 2007 2008 2011 Start Date 2010 *Syncrude includes base plant quality improvements and power

Construction Workforce Outlook – Oct 2006 IOL – Mackenzie Gas Project Synenco Northern Lights Phases 1 & 2 Syncrude Northwest OPTI Canada/ North Nexen Upgrader American Joslyn Syncrude UE1 & SERP Albian Sands – Jackpine & Petro Canada Upgrader Expansion Suncor Firebag & Voyageur IOL Cold Lake CNRL – Horizon PC/UTS Fort Hill Phases 1 &2 Conoco Surmont Source: Construction Owners Association of Alberta (COAA) Oct 2006