API Gravity Level Between 19 to 22 ‒ Sulfur (Wt%) 2.8 - 3.5% ‒ TAN (Total Acid Number) of Mg KOH/G 0.93

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Christine Colbert

Senior Manager, Risk Consulting, Financial Risk Management

– History of WCS – World crude oil pricing – WCS pricing – Trading opportunities – Hedging opportunities – Developing a strategy – Conclusion

Western Canadian Select (WCS) Western Texas Intermediate (WTI) Brent

• Price is quoted at Hardisty, • Price is quoted at Cushing, • Price is quoted at Sullom Alberta Oklahoma Voe, UK • Trades on the Chicago • Trades on the New York • Trades on the Mercantile Exchange (CME) Mercantile Exchange Intercontinental Exchange as a differential to WTI (NYMEX) (ICE) • Benchmark crude oil in the • Benchmark crude oil for the • Leading global price Canadian market North American market benchmark for Atlantic basin • The differential is also • Also known as Texas Light crude oils referred to as the Heavy Oil Sweet • Used to price two thirds of Discount the world’s internationally traded crude oil supplies

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. History of WCS Western Canadian Select background Western Canadian Select (WCS) was launched in December 2004 as a new heavy oil stream by EnCana (now Cenovus), Canadian Natural Resources Limited, Petro-Canada (now Suncor) and Talisman Energy Inc. WCS is a heavy blended crude oil. It's composition consists of: 1. Heavy conventional and unconventional oil streams 2. Bitumen 3. Sweet synthetic crude oil 4. Condensate diluents The blending of WCS occurs at the Husky terminal in Hardisty, Alberta The blended WCS must adhere to the following specifications: ‒ API Gravity Level between 19 to 22 ‒ Sulfur (Wt%) 2.8 - 3.5% ‒ TAN (Total Acid number) of Mg KOH/g 0.93

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. API Sulphur Transport TAN What drives the differential? Gravity Content Cost API Gravity ‒ American Petroleum Institute (API) Gravity is the measure of how heavy or light a petroleum liquid is compared to water ‒ The API Gravity is quantified in degrees; where a higher value defines a lighter liquid ‒ An API Gravity of over 10º describes the liquid as light enough to float on water ‒ A higher API Gravity is more desirable because it requires less effort to process and transport

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. API Sulphur Transport TAN What drives the differential? Gravity Content Cost Sulphur content ‒ Sulfur content is another measure to the quality of crude oil ‒ The sulfur level is measured in weight percentage (Wt%) WTI (0.24%) Brent (0.37%) ‒ A sulfur level of greater than 0.5% is specified as “sour” and contains more impurities Sweet ‒ Sweet crude is more desirable because there are less processing costs to refine and remove impurities

0.50%

Sour

WCS (3.43%)

‒ The higher the TAN value, the riskier it is to process; as it can cause corrosion to refinery Low-TAN equipment (TAN levels below 0.5 are believed to not pose any corrosion risk for refiners) ‒ High-TAN crudes are discounted because there are a limited number of refineries with the

specification to process it WCS (0.93) 1.0

High-TAN

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. API Sulphur Transport TAN What drives the differential? Gravity Content Cost Transport cost ‒ Transporting crude oil can be performed via pipeline, railroad and tanker ‒ Tanker is less costly but is the slowest mode of transportation ‒ Rail is most expensive and is less efficient compared to pipeline, but has greater access ‒ Pipeline is the most efficient means of transportation but is limited by capacity available ‒ Alberta is considered landlocked and has greater difficulty in transporting its crude oil to refiners and global markets ‒ To remain competitive in the market, WCS is discounted to account for the transportation costs to move its volume

SOURCE: CAPP, KEYSTONE XL REGULATORY FILINGS (COURTESY TRANSCANADA & CRUDECOALITION.ORG)

160 Brent

140 WTI

120

100

60 USD BBL / USD 40

Source: Independent Statistics & Analysis U.S Energy Information Administration © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. World crude oil pricing Crude Oil Price Index Comparison WTI vs. Brent

160 Brent

140 WTI

120

100

USD BBL / USD 40

160 Brent

140 WTI

120

100

60 USD BBL / USD 40

Source: Independent Statistics & Analysis U.S Energy Information Administration © 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. WCS pricing WCS pricing Average monthly prices for Brent, WTI and WCS ‒ WCS - Most liquid benchmark for heavy oil in Western Canada ‒ Stable differential from increased demand from refineries and reduced output from traditional suppliers

140

120 Brent

WTI 100 2009 WCS 80

60 $USD/BBL