Alberta's Oil Sands: an Overview

Alberta’s Oil Sands: An Overview

Presented by Jim Carter to FEI Canada Jasper, Alberta June 2008 Oil sand A unique resource

• Oil sand a mixture of bitumen, sand, water and clay • Two methods of viable recovery today: ¾In-situ—wells below 80 metres ¾Surface mining— accounts for most activity to date Oil sands in three deposits

The Syncrude Mildred Lake plant site

Athabasca Fort McMurray

Peace River Cold Lake

Edmonton

Calgary

Source: Athabasca Oil Sands Developers Oil Sands Related Projects

Syncrude ConocoPhillips Suncor TransCanada JACOS Devon Imperial Oil Petro-Canada EnCana Opti/Nexen ATHABASCA CNRL Total E&P Atco TransAlta Fort McMurray Albian Sands Shell Husky Synenco PEACE RIVER Whitesands Kinder Morgan Fort Hills MEG Energy Connacher Birch Mountain Enbridge Korean Nat’l Oil COLD LAKE UTS North American Value Creation Edmonton EnCana CNRL

Shell Calgary Imperial Husky EnCana Suncor CNRL Petrovera Shell Construction Capital Expenditure Forecast – New Records Predicted for Alberta Oil Sands

30,000 2007 Forecast: All Alberta oil sands projects including mines, insitu, upgraders, pipelines and co-gen plants. 100% all announced & discounted cases.

25,000 $47B spent to date 1996 - 2006 $83B forecast for 2007 – 2012 - Discounted $124B forecast for 2007 – 2012 - All Announced

20,000 Actual Forecast

15,000

$ million Cdn million $ 10,000

5,000

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Construction Capital Expenditure Construction Capital Expenditure Discounted Construction Capital - Actual

Source: CAPP & Nichols Applied Management Forecast of Sustaining Capital & Operating Costs An Ongoing Mega Project for the Life of the Resource

30,000 2007 Forecast: All Alberta oil sands related projects – including mines, insitu, upgraders, pipeline and co-gen plants. 100% all announced case.

25,000 Sustaining Capital: Year 2007 - $2.0B Year 2017 - $5.0 B Actual Forecast 20,000 Operating Costs: Year 2007 – $9.0 B Year 2017 - $22.6 B 15,000

$ million Cdn million $ Operating Costs 10,000

5,000

Sustaining Capital -

1996 1997 1998 1999 3 2000 2001 0 2002 20 Sustaining2004 2005 Capital Operating Costs 2006 2007 2008 2009 2010 2011 13 2012 20 2014 2015 2016 2017 Alberta Oil Sands – Forecast of Combined Expenditures: Opex to Double Current Capex in the Next 10 Years

45,000 2007 Forecast: All Alberta oil sands related projects – including mines, insitu, upgraders, pipeline and co-gen plants. 100% all announced case. 40,000

2007 2017 35,000 Construction $15.8B $7.3B Capital Actual Forecast Operating $9.0B $22.6B 30,000 Costs Sustaining $2.0B $5.0B Construction Capital Capital 25,000 TOTAL $26.8B $34.9B

20,000 $ million Cdn million $ 15,000 Operating Costs

10,000

5,000

Sustaining Capital -

8 1996 9 1997 99 00 1 199 20 2001 4 2002 003 5 6 Sustaining Capital2 200Operating00 Costs0 Construction Capital Expenditure 2 20 9 2007 008 0 1 2 200 01 1 2 4 Source: CAPP, Nichols Applied Management 20 2012 5 2013 01 16 2 201 20 2017 Alberta Oil Sands Bitumen Production Forecast – At Least Triple in 10 Years

5,000 2007 Forecast: All Alberta oil sands projects

4,500 Year 2006 – 1.1 M bpd Year 2017 – 3.1 M bpd (discounted case) 4,000 Year 2017 – 4.4 M bpd (100% case)

3,500 Actual Forecast 3,000

2,500

2,000

'000 per Day Barrels 1,500

1,000

500

97 99 1996 19 04 1998 19 2000 2001 2002 09 11 3 2003 20 2005 2006 2007 2008 20 2010 20 2012 100% All Announced Bitumen Production Discounted Bitumen Production Actual201 Bitumen2014 2015Production2016 2017

Source: CAPP & Nichols Applied Management The rise of the oil sands industry

Conventional vs. Oil Sands Production

4,000

3,500

3,000

2,500

2,000 Oil Sands 1,500

thousand barrels per day per barrels thousand 1,000

Conventional500 Oil

0 2001 2003 2005 2007 2009 2011 2013 2015

Source: Canadian Association of Petroleum Producers Continuing Benefits: Oil Sands Permanent Operations Jobs – Wood Buffalo Region

2007 Forecast: Cumulative permanent operations jobs for oil sands projects 25,000 located in the Wood Buffalo Region (does not include construction jobs).

1998 ~ 6,600 people directly employed by oil sands 2007 ~ Over 5,000 new jobs ~ nearly double 1998 jobs 20,000 2017 ~ 18,500 new jobs ~ nearly triple 1998 jobs

Actual Forecast 15,000

10,000

5,000 Cumulative New Operations Jobs 0

8 0 9 0 2 4 9 0 0 0 6 8 1 1999 2 2001 0 0 0 0 0 2 2 2003 2 2005 0 0 1 1 4 6 2 2007 2 2009 0 0 1 1 2 2011 2 2013 0 015 0 2 2 2 2017 Source: Nichols Applied Management Wood Buffalo Urban Population Forecast

140,000 • 2007 Forecast – Urban Population – Fort McMurray Urban Service Area/Saprae Creek • Does not include over 20,000 workers currently in work camps and hotels/motels

120,000 RIWG’s population forecast Actual Forecast process has been approved by a third party audit performed 100,000 by Deloitte Touche

Average annual 80,000 population increase of 9% over past 7 years and expected average 60,000 67,067 through to 2010 Population

40,000

20,000

97 8 1996 19 99 00 1 1 1999 3 20 200 0 4 2002 20 06 7 Census-Fort McMurray/Saprae200 Cr.2005 Discounted Case9 Total Development Case 20 200 0 0 2008 20 2 3 201 2011 01 14 5 2 201 7 20 201 1 Source: RMWB Census & Nichols Applied Management 2016 20 Wood Buffalo Urban Housing Demand Forecast

2007 Cumulative housing demand forecast for Fort McMurray 35,000 Current Avg. SF House Price1 Fort McMurray $605,495 30,000 Edmonton $417,150 Calgary $505,920 Current Avg. Rent – 2 bdrm2 25,000 Fort McMurray $1,680 Edmonton $ 877 Calgary $1,037 20,000

15,000 • Supply / Demand Gap indicated by high and rising housing costs

# Housing UnitsRequired 10,000 • Timely land release plays a critical role in the solution

5,000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Built Total Demand

Source: Nichols Applied Management 1 – Fort McMurray, Edmonton, Calgary Real Estate Boards July 07, 2 – CMHC – Spring 07 RMWB Municipal Tax Base Growth Forecast – Tax Base Will More than Triple in 10 Years

2007 Forecast of RMWB Tax Base Growth: Oil sands industrial assessment to grow 12% per year compounding for the next 10 years. 40,000 2007 tax payments by oil 35,000 sands companies ($120M) represent 66% of all RMWB 30,000 tax revenue.

25,000

20,000

15,000 $ millions

10,000

5,000

- 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Nichols Applied Management Alberta Oil Sands Royalties: Historical & 2007 Forecast

6,000 2007 Oil Sands Royalty Forecast: Based on oil price of WTI US$60/bbl. 100% all announced case. 5,000 2017 - $4.5 B and Climbing Actual Forecast

4,000

3,000 2006/07 Record Year New Projects $2.4 Billion Reaching Payout US WTI $65/bbl average

$ milion Cdn milion $ 2,000

• High Level of Capital Investment 1,000 • Lower Price Forecast (US WTI $60/bbl) • Syncrude & Suncor Bitumen Election • Capital investment taking some projects back to pre-payout status - 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Nichols Applied Management Alberta Oil Sands – Royalty & Corporate Provincial Taxes Alberta Government Return Will More than Double in 10 Years

2007 Forecast: Based on oil price of WTI US$60/bbl. Includes Bitumen Royalty 8,000 Option (BRO) for Syncrude and Suncor. 100% all announced case.

7,000 Year 2007: AB Corp. Tax - $794M 6,000 Royalties - $1.8B Actual Forecast Year 2017: 5,000 AB Corporate Tax AB Corp. Tax - $2.4B Royalties - $4.4B 4,000

3,000 $ milions Cdn

2,000

1,000 Royalties

- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oil Sands Royalties WTI US$60 Corporate Tax Payments Provincial

Source: Nichols Applied Management Input assumes $0.87 exchange rate Alberta Oil Sands – Royalties, Provincial & Federal Corporate Taxes. Combined Gov’t Return Will Nearly Triple in 10 Years

10,000 2007 Forecast: Based on oil price of WTI US$60/bbl . 100% all announced case.

9,000 Year 2007: AB Corp. Tax - $794M 8,000 Fed. Corp. Tax - $887M Federal Corporate Tax Royalties - $1.8B 7,000 Actual Forecast Year 2017: 6,000 AB Corp. Tax - $2.4B Fed. Corp. Tax - $3.7B Royalties - $4.4B 5,000 AB Corporate Tax

4,000 $ million Cdn million $

3,000

2,000

Royalties 1,000

7 9 9 9 9 1 3 1996 1 9 0 0 4 5 6 1998 1 2000 0 0 0 0 0 7 8 9 0 2 2002 2 0 0 0 0 0 0 1 2 2 2 2 20 0 0 1 4 6 2 20 2 0 1 1 17 Oil Sands Royalties Corporate Tax Payments Alberta Corporate2011 2Tax Payments2013 0 Federal0 0 2 2015 2 2 Source: Nichols Applied Management Input assumes $0.87 exchange rate Alberta Oil Sands – Comparison of Royalties and Construction Capital Expenditures – A Successful Regime According to Plan

• 2007 Royalty Forecast: based on oil price of WTI US$60/bbl. 100% all announced case. 30,000 • 2007 Capital Construction Expenditure Forecast: 100% all announced case. Actual Forecast 25,000

20,000

15,000

$ million Cdn 10,000

5,000

6 9 7 8 9 9 0 1 1 9 999 0 0 2 4 1 199 1 0 0 0 5 6 2 2 200 003 0 0 8 9 2 2 0 007 0 0 0 2 2 200 2 0 0 1 3 4 2 2 011 0 1 6 7 Construction Capital Spending Oil Sands201 Royalties2 2 WTI0 US$60 1 1 2 201 015 0 0 2 2 2

Source: CAPP, Nichols Applied Management Input assumes $0.87 exchange rate Wood Buffalo First Nations

Fort Smith Fort Fitzgerald

S S Mikisew Cree

a a

s s

k k First Nation a Athabasca Chipewyan a

t t

c c

h h

e First Nation e

w a w e ca a Athabasca k a a s

L n L ba n River a th Fort A Wood Buffalo Chipewyan National Park Fort McKay

R First Nation

W Fort McMurray No. 468 Fort First Nation MacKay Syncrude

Fort Clearwater River McMurray Saprae Creek Gregoire Lake Estates Estates Anzac Chipewyan Prairie

Christina First Nation Mariana 881 River Lakes Janvier

63 ATC - December 2002Conklin Working Together – Aboriginal Involvement in Oil Sands Development

• Value of contracts with Aboriginal Companies in 2006 - $412 million • Aboriginal employees in operations jobs in 2006 – 1,500+ • Average annual salary of Aboriginal employees in 2006 - $81,000 • Contributions to Aboriginal communities in 2006 - $3.7 million • Athabasca Tribal Council All-Parties Core Agreement • Industry Relations Corporations (IRCs) • Developing Consultation and Regional Benefits Agreement

Courtesy of Suncor Courtesy of Syncrude Courtesy of Suncor Corporate Donations

• In 2006 the oil sands industry donated $11.5 million to groups and organizations within the Wood Buffalo region. (ie. MRI, recreation centres, schools, United Way) • More than $40 million donated over the past 10 years. Ongoing Net Reduction in Environmental Impact

• Significant and ongoing investment in research and development to improve efficiency • Flue gas desulphurization • Low energy extraction – hydrotransport • Co-generation electrical generation • New methods of reclamation Oil Sands Development… Keys to a Successful Model

• Multi-stakeholder collaboration and issues management/monitoring/resolution: • CEMA, RAMP, WBEA, ATC • Effective Industry Associations: • CAPP, ACR, MAC • Corporations committed to community investment • Leadership in Aboriginal consultation, employment and business development Oil Sands Development… Challenges and Impacts

• Regional Infrastructure – Roads, housing, municipal services, health and recreation – Creating a welcoming community with the “boomtown” label • Environmental Impacts – Air: Reducing emission intensity – Water: Reduce, recycle and re-use – Land: Reclamation, direction drilling from a single site – Waste reduction • Capital and Operating Costs – Costs need to continue to lower – Alternatives for natural gas for fuel – New technologies – Optimized capital designs and modularization • Workforce: – Skilled trades, technical and professional labour • Market Access – Need new pipelines – Need new refineries, expansions and modifications