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Pension Advisory Committee Meeting

May 29, 2007

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1. Proposed Castrol PAC Representative Terry Vigdorth 9:00

2. PAC Training Introduction Mercer 9:05 -PR

3. Trust Investments Portfolio Review Greg Williamson 9:30 -PR

4. Pension and Saving Plan HR Strategy Stacey Norman 10:00

5. Acceptance of PAC Meeting Minutes Herb Kostler 10:15

• For February 22th and March 28th Meeting - PR

• Pension Task List / Point-Out items - PR Discontinued the historical review of surplus position of the plan

Discontinued the Review Indemnity item.

BPRP Enhancements

• Review of outstanding action items from previous meeting

6. PAC Investment Portfolio Reviews Herb Kostler 10:30 - PR

BP Canada Pension Advisory Committee Meeting Agenda for May 29, 2007

Topic Presenter Time PR=PreRead.

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6. Other Topics for Discussion 10:45

a. DPSP Account Performance & Fees (AI #2) Herb Kostler

b. BP Plan Amendment #8 Exec Memo (AI #3) Francine Swanson

c. PAC Training Selection Process Herb Kostler

d. Lower DC Plan Fees (AI # 12) Herb Kostler

e. Castrol Canada Valuation Completed & Filed Herb Kostler

f. BP Canada 2006-10-01 Funding Valuation Filed Herb Kostler

g. RBC Dexia DC Plan Reporting Package Herb Kostler PR

7. Lunch 11:30

BP Canada Pension Advisory Committee Meeting Agenda for May 29, 2007

Topic Presenter Time PR=PreRead.

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Future Meeting Dates

• Scheduled dates

– 2007-9-6 (Meeting Notice Sent)

– 2007-12-13 (Meeting Notice Sent)

– 2008-2-19 (Proposed)

– 2008-5-13 (Proposed)

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Outstanding Action Items As of Last Meeting 2/22/2007 - Updates to be discussed

1. Check with Towers Perrin on what opportunities there may be to utilize surplus to pay restoration plan benefits (2/22/207 – Francine)

2. Prepare additional information regarding the Scotia McLeod DPSP accounts including fees paid on these investment options and their performance. (2/22/2007 – Herb / TP)

3. Complete and file the BP Canada Plan Amendment #8 by June 30, 2007 (12/14/200 – Francine / TP)

4. Complete a BP Canada Pension Plan portfolio review to determine potential manager changes and consider the use of currency hedging (1/14/2003 – Herb / Greg)

5. Provide a memo to e-mail to PAC that summarizes & confirms the indemnity coverage of PAC members, employees, directors and officers under the bylaws of BP Canada Energy Company (12/14/2006 – Francine)

6. Prepare an action plan and update PAC wrt implementation of CAPSA Governance Guidelines (12/13/2004 – Herb)

7. Set up oversight reports on the DB Plan A components. (12/15/2005 - Herb)

8. Work with SM to determine how to address CAP Issues related to the Group RSP and DPSP accounts (12/15/2005 - Herb)

9. HR to advise on their consideration of a plan design change for DB Plan A that may also impact the SM CAP compliance issues (12/15/2005 - Brent)

10. Prepare Castrol Plan SIPP (2005-12-15 – Herb)

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Outstanding Action Items As of Last Meeting 12/14/2006 - Updates to be discussed

11. Send out RFP for Development of a Training Program for PAC (2/22/2007 – Herb / Francine / Stacey)

12. Contact DC Manager to see if there are lower fee class shares available for the DC plan funds (2/22/2007 - Herb)

13. Replace Castrol Representative for the PAC (2/22/2007 – Herb)

14. Send out RFP to Asset Consultants for an Asset Liability Study in 2007 (2/22/2007 – Herb)

Supplemental Meeting Held on March 28, 2007 re Castrol Funding Valuation

1. Contact Castrol to advise them to stop monthly contributions to the Castrol Canada Pension Plan (3/28/2007 Herb).

2. Towers Perrin will send a Employer Certification Letter for BP Signature next week. Upon the return of the signed letter, TP will proceed to finalized the valuation and file an Actuarial Information Summary with the CRA and FSCO . (3/28/2007 Towers Perrin / Herb)

3. Upon receipt of a final copy of the Valuation and Actuarial Information Summary, a revised Form 7 (Contribution Schedule) will be sent to FSCO and Castrol Canada (3/28/2007 Herb)

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DB Plan Performance – As of 03/31/07

• Highlights

– 2007 Q1 Pension Fund total asset return is 1.29% vs the portfolio benchmark of 1.59%.

– $18.2M asset Rebalancing took place on March 12 ($13.3M for various managers to Fiera and SSgA Portable Alpha) and April 2 ($5.9M for NTGA to Fiera)

• Pre reading information send out for PAC information, describing:

– 130/30 type of investment strategy.

– Maple Bonds

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DB Plan PerformanceYTD as of 03/31/2007

Asset Manager% of Fund Asset Class

Actual Return

Bench-mark Comparative Indices

KBSH 18.8% Cdn Equities 1.55% 2.60% S&P/TSX Composite

Northern Trust 17.7% Cdn Equities 2.60% 2.60% S&P/TSX Composite

BlackRock 17.3% US Equity Derivative -0.35% -0.23% S&P 500

State Street 6.3% EAFE Equites 3.29% 3.18% MSCI EAFE (Cdn$)

New Star 6.2% EAFE Equites 3.62% 3.18% MSCI EAFE (Cdn$)

Morgan Stanely 2.5% Emerging Markets 1.79% 1.45% MSCI EM Free

Franklin Templeton 2.5% Emerging Markets 0.72% 1.45% MSCI EM Free

Fiera 13.7% Fixed Income 0.51% 0.75% SM Univers / Long

SSgA Port Alpha 14.9% Fixed Income 0.27% 0.75% SM Univers / Long

Total Fund 100.0%   1.29% 1.59%  

Total Fund Value $ 533.7

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DB SIPP Monitoring – As of 03/31/2007Quarterly Over / Under Benchmark Performance

Over / Under Benchmark Performance:

> than 1% negative performance for active and 0.2% for passive highlighted as

< than 1% negative performance for active and 0.2% for passive highlighted as

 

Target Alpha

2 Yr Annualz

2005Q2

2005Q3

2005Q4

2006Q1

2006Q2

2006Q3

2006Q4

2007Q1

KBSH 1.90% -0.56% -1.47% 1.80% 1.02% -0.05% 1.39% -0.48% -2.16% -1.05%

NTGA 1.00% -0.73% -0.56% -2.17% -0.39% -0.73% -0.34% 2.66% 0.18% 0.00%

BlackRock (Passive) 0.00% -0.30% -0.18% -0.01% 0.12% -0.31% -0.05% -0.05% 0.02% -0.12%

SSGA 3.00% 1.29% 0.36% 0.35% 0.66% 0.42% -0.07% -0.61% 1.17% 0.11%

New Star 2.00% -3.89% 0.38% -1.96% -1.90% -0.92% -0.53% 0.00% -2.61% 0.44%

Morgan Stanley 2.00% 3.04% 0.12% -0.71% -0.59% 2.36% -0.17% 1.28% 2.77% 0.33%

Franklin Templeton 2.00% -3.59% 0.14% -3.88% -0.14% -0.74% 0.16% -0.14% -0.85% -0.74%

Fiera 1.00% 1.13% 0.67% 0.51% 0.33% -0.29% -0.33% 1.12% 0.40% -0.24%

SSGA - Port Alpha 0.20% -0.48%

Total Plan   0.11% 0.04% 0.03% 0.17% -0.16% -0.13% 0.70% -0.15% -0.30%

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Key Manager Performance Commentary for Q1 2007

• KBSH (1.1% under benchmark)

– Under performance in stocks selected in the materials sector lead to the majority of KBSH negative performance

• New Star (2.6% under benchmark)

– Shortfalls resulted from under representation in the cyclicals and utilities which have lead the market rise.

– Overweight in the Japanese financials was a negative contributor in the surprisingly weak Tokyo market.

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BP Canada Pension Master TrustAsset Mix Components

0%10%20%30%40%50%60%70%80%90%

100%

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Canadian Equity U.S. Equity Intl. Equity Fixed Income Cash

DB - BP Canada Pension Master Trust As of 03/31/2007

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DB Asset Balances as of 03/31/2007

0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006 2007YTD

Assets Contributioins

342.1

403.7

297.2

378.0

488.4449.6

534.0 533.7

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DC Plan Performance – As of 03/31/2007

Total BP and Castrol DC Plan assets = $18.5 M

BP CANADA DEFINED CONTRIBUTION PLANANNUALIZED RATES OF RETURN

MARCH 31, 2007  One Year Performance Four Year Performance

DC PLAN FUNDSMgr

ReturnBench

markValue

AddedMgr

ReturnBenchmark

Value Added

          PH&N - Balanced Pension Trust Fund 9.92% 9.76% 0.17% 13.51% 13.74% -0.23% PH&N - Canadian Equity Plus Fund 11.74% 11.74% 0.00% 19.32% 20.24% -0.91% PH&N - Bond Fund 5.80% 5.46% 0.34% 6.84% 6.50% 0.34%

        BISSETT - Canadian Equity Plus Fund 11.36% 11.71% -0.35% 20.86% 20.35% 0.51%

       TRIMARK - Global Equity 25.59% 14.16% 11.43% #NUM! 14.23% #NUM!

        Money Market Fund 4.12% 4.17% -0.06% 3.06% 3.05% 0.01%             

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DC Verses DB Asset Mix -As of 03/31/07

6.80%

42.50%26.70%

24.00%

CDN Equities Foreign Equities Fixed Income Cash

0.20%28.50%

36.50%

34.80%

DC Asset Mix DB Asset Mix

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Castrol Investments Review As of 03/31/07

1 Year 4 Year Annualized

Asset Class Value % FundBench mark

Value Add Fund

Bench mark

Value Add

Canadian Equities 8,708.2 35.3%13.05

% 11.42% 1.63%22.17

% 22.41% -0.24%

US Equities 3,516.9 14.2%10.45

% 10.47% -0.02% 8.10% 9.03% -0.93%International Equities 2,438.2 9.9%

21.87% 14.19% 7.68%

21.36% 23.23% -1.87%

Total Equities14,663.

3 59.4%            

Real Estate 980.5 4.0%16.54

% 18.00% -1.46%13.07

% 12.70% 0.37%

Bonds 8,705.0 35.3% 5.70% 5.46% 0.24% 6.35% 6.50% -0.15%

Mortgage 341.3 1.4% 5.45% 5.50% -0.05% 5.59% 5.90% -0.31% Total Fixed Income

10,026.8 40.6%        

Total Assets24,690.

1 100.0

%10.72

% 10.19% 0.53%13.97

% 14.13% -0.16%     

BP Canada Portfolio - Total Returns  

11.11% 10.99% 0.12%

15.68% 15.78% -0.10%

  2003 2004 2005 20062007 YTD

Total Asset Value 18,202 18,728 21,434 24,251 24,690

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Other Topics for Discussion – 6aDPSP Account Performance & Fees (AI #2)

• Analysis on the attached worksheet shows:

– On average the 5 year net of fee returns of funds in the DPSP (7.07%) are below the FPX Balanced index (Financial Post Index, Balanced is a 50%/50% Balanced fund 8.28%)

– Average Manager Fee is 1.91% as compared to DC Plan PH&N Balanced Fund manger fee of 0.98% and BP Canada DB plan fees of 0.35%

– Scotia MacLeod is allowing investment outside of BP Policy of only Balanced Funds for the DPSP account.

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Other Topics for Discussion – 6aDPSP Account Performance & Fees (AI #2)

BP Canada Energy CompanyReview of DPSP Investment Option ReturnsOn Scotica Short ListBalanced Funds - Returns Net MER and Manager FeesAs of February 28, 2007

Mgmt No $M

Fund 1 Yr 3 Yr 5 YR 10 Yr MER% Fee% Load Fd Invested

AGF Canadian Balanced Fd 13.93% 10.26% 8.50% 6.33% 2.51% 2.25% 3.4$ AGF Canadian Real Value Balanced Fd 12.05% 8.14% 5.45% 7.10% 2.41% 2.00% 0.2$ AIC Canadian Balanced Fd 7.44% 12.74% 6.53% n/a 2.47% 2.00%Beutel Goodman Balanced Fd 11.88% 9.10% 8.27% 6.49% 1.17% 1.00% 4.6$ CI Canadian Balanced Fd 11.31% 10.12% 7.95% 6.80% 2.34% 2.00% *CI Harbour Growth & Income Fd 8.22% 12.82% 9.31% n/a 2.34% 2.00%Fidelity Canadian Asset Allocation Fd 9.86% 10.95% 8.71% 8.96% 2.48% 2.00% * 3.0$ GGOF Canadian Balanced Fd 8.02% 8.69% 7.12% 4.03% 2.47% 2.10% 0.1$ Mackenzie Maxxum Monthly Income Fd 7.85% 7.64% 5.67% 6.66% 2.44% 2.00% 0.1$ Mackenzie Ivy Growth & Income Fd 7.40% 6.25% 5.39% 7.20% 2.14% 1.75%Scotia Canadian Balanced Fd 8.84% 8.10% 6.23% 6.33% 1.98% 1.75% * 2.0$ Scotia Total Return Fd 10.65% 8.66% 6.81% 5.07% 2.14% 1.75%Talvest Canadian Asset Allocation Fd 8.32% 7.28% 4.89% 5.38% 2.69% 2.00%Trimark Income Growth Fd 14.79% 8.65% 8.37% n/a 2.35% 2.00%Trimark Selected Balanced Fd 13.65% 8.58% 6.89% 6.38% 2.31% 2.00% 8.6$

DPSP Average Balanced Fd Performance 10.28% 9.20% 7.07% 6.39% 2.28% 1.91% 22.0$ Not Balanced Funds as required by BP Policy

Comparatives:FPX Balanced Benchmark 10.64% 9.36% 8.28% 7.86%PH&N Balanced Fund (DC Plan) 11.44% 8.24% 7.22% 6.83% 0.88% 0.98%

BP Canada DB Plan (net of IMA fees) 14.79% 12.72% 8.51% 8.75% 0.35%DC Plan Total Assets Returns 12.37% 10.49% 1.00%

PH&N Balanced Fund - B4 Mgr Fees 12.42% 9.22% 8.20% 7.81% 0.88% 0.98%This is Series A MERDB uses Series O, but that is not published.

Annualized Returns

No Fees Applicable

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Other Topics for Discussion – 6dLower DC Plan Fees (AI #12)

BP Canada / Castrol Canada

DC Pension Plan Fees paid to Great West Life

Proposed Changes   Investment Management Fee      

Fund Current Proposed  

Add Operating

Exp

Total Fund Fees

     a b  a+b

PH&N Balanced Pension Trust Fund 0.984% 0.876% 0.046% 0.922%

PH&N Canadian Equity Plus Pension Fd 0.984% 0.876% 0.058% 0.934%

PH&N Bond Fund 0.984% 0.876% 0.190% 1.066%

Bisset Canadian Equity Fund 1.150% 1.000% 0.025% 1.025%

Trimark Global Equity Fund 1.300% 1.150% 0.025% 1.175%

LondonLife Money Market Fund 0.500% 0.400% 0.170% 0.570%

              

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Other Topics for Discussion – 6gRBC Dexia DC Plan Reporting Package

• A sample reporting package of the DC plan investment manager’s performance was provided by RBC Dexia

• Cost of this DC Plan quarterly performance reporting would be $6k per year.

RBC Dexia BP DC Sample.pdf

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Supplemental DB and DC Performance Details

BP CANADA ENERGY COMPANY PENSION MASTER TRUST INVESTMENT PERFORMANCE

AS AT MARCH 31, 200710-May-07 8:07 AM

MARKET VALUE OF ASSETS BY MANAGER$MM

NTGA KBSH MLIM SSGA NEWSTAR TEMPLE- MSAM J.R. SSgA TOTAL FUND Total Fd

(WI) TON SENECAL Port Alpha YEAR TO DATE YTD USD

1.15365

CANADIAN EQUITY 100.3 94.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 194.6 36.5% 168.7 U.S. SYNTHETIC EQUITY 0.0 0.0 92.5 0.0 0.0 0.0 0.0 0.0 0.0 92.5 17.3% 80.1 EAFE EQUITY 0.0 0.0 0.0 33.4 33.3 0.0 0.0 0.0 0.0 66.7 12.5% 57.8 EMERGING MARKETS 0.0 0.0 0.0 0.0 0.0 13.4 13.3 0.0 0.0 26.7 5.0% 23.1 FIXED INCOME (BONDS) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 72.8 79.5 152.2 28.5% 131.9 SHORT-TERM & CASH 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.6 0.2 1.1 0.2% 0.9 DESIGNATED CASH 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0% 0.0

* * * * * * * * TOTAL FUND 100.3 94.5 92.5 33.4 33.3 13.4 13.3 73.3 79.7 533.7 462.6 % of TTL PORTFOLIO 18.8% 17.7% 17.3% 6.3% 6.2% 2.5% 2.5% 13.7% 14.9% 100.0%

TOTAL EQUITY AS % OF PORTFOLIO 71.3% YEAR TO DATE CONTRIBUTIONS 1.6 PORTFOLIO ALLOCATION TO EQUITY MANAGERS 71.3% YEAR TO DATE DISPURSEMENTS -33.8

YEAR TO DATE ASSET RETURNS 31.9

ANNUALIZED RATES OF RETURN(before fees)

YTD 3 MO 6 MO 1 YR 2 YRS 3 YRS 4 YRS 5 YRS 6 YRS 7 YRS 10 YRS

KNIGHT BAIN - Cdn Equities 1.55% 1.55% 9.94% 9.17% 19.09% 18.04% 21.28% 11.64% 10.22% 6.48% 10.66% NTGA (DFMI) - Core Cdn Equities 2.60% 2.60% 13.48% 14.12% 18.92% 16.71% 21.71% 12.54% 11.78% 9.19% 0.1233286

MERRILL LYNCH - US Equity Derivatives -0.35% -0.35% 10.92% 10.35% 8.88% 5.07% 9.34% -0.59% -0.23% -3.33% 0.0554454

STATE STREET - EAFE Equities 3.29% 3.29% 20.10% 19.43% 20.76% 16.13% 22.58% 10.97% 8.36% 4.56% 0.0780132

CCL/NEWSTAR - EAFE Equities 3.62% 3.62% 16.57% 16.05% 15.58% 11.97% 18.37% 8.27% 6.58% 1.98% 0.0854613

MORGAN STANLEY - Emerging Markets 1.79% 1.79% 27.72% 24.06% 33.76% 23.53% 33.11% 17.65% 18.37% 6.76% 0.097925

TEMPLETON - Emerging Markets 0.72% 0.72% 22.72% 18.04% 27.13% 22.10% 29.97% 18.44% 18.18% 10.63% #N/A

SENECAL - Fixed Income 0.51% 0.51% 1.61% 6.89% 7.73% 6.23% 7.83% 8.41% 7.94% 8.11% 7.69% SSgA - Fixed Income 0.27% 0.27% 1.16% #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! n/a n/a

TOTAL FUND 1.29% 1.29% 10.01% 11.11% 14.41% 11.76% 15.68% 8.99% 8.27% 5.62% 9.18%

COMPARATIVE INDICES INVESTMENT POLICY RETURNS 1.59% 1.59% 10.49% 10.99% 14.30% 12.07% 15.78% 8.94% 7.98% 5.55% 8.77%

S&P/TSX Compsite Index* 2.60% 2.60% 13.30% 11.42% 19.63% 17.70% 22.41% 13.10% 11.68% 6.75% 10.35% S&P/TSX Capped Compsite Index* 2.60% 2.60% 13.30% 11.42% 19.65% 17.72% 22.43% 13.11% 11.69% 8.61% 11.27% S&P 500 (Cdn $) -0.23% -0.23% 11.03% 10.57% 9.19% 5.49% 9.06% -0.38% -0.16% -2.43% 6.19% MSCI EAFE (Cdn $) 3.18% 3.18% 18.78% 18.90% 19.47% 14.87% 20.80% 8.97% 5.92% 1.85% 6.51%