Market Diversification & Infrastructure

Oilmen’s Executive Business Forum –

Banff, August 21, 2012 Dave Collyer, CAPP

The Canadian Oil and Natural Gas Industry - A Key Driving Force in the Canadian Economy

● Investing $55 billion in Canada in 2012 ● $21 billion to governments in 2011 ● 20-25% of the value on Toronto Stock Exchange ● Approx. 18% of Canada’s exports ● Employs more than 550,000 people in Canada

Upstream Oil & Gas

Auto Manufacturing

Forestry & Logging

Wheat & Barley

Uranium

North American Natural Gas – Supply Outlook

• Shale gas supply a game-changer

• Technology breakthroughs

• New producing regions

• Shifting S/D dynamic

• Emerging stakeholder environmental concerns (footprint, water – use & quality, seismicity)

N.A. Natural Gas Pipelines & 2011 Cdn. Exports to U.S. (Bcf/d)

TransCanada Transmission Mainline

TQ&M

Westcoast

Kern River

Northwest Northern Border

TransCanada Alberta (NGTL)

NGPL

ANR

ANR El Paso SoCal

PGT

Texas Eastern

Panhandle

Algonquin

Transcontinental

NGPL

Northwest Foothills

El Paso

Transwestern

Trailblazer

M&NE

CNG

Iroquois PNGTS Lakes Great West

2.4 bcf/d Mid West 5.1 bcf/d

East 1.4 bcf/d

Alliance

ANG/ Foothills

PG&E

Proposed Kitimat LNG

Projects

• Existing infrastructure serves N.A. markets.

• Changing S/D dynamics necessitate market growth:

• N.A. (transportation, power)

• Exports (LNG for price & takeaway)

4

Projected Net Natural Gas Imports (Bcf/d)

Source: EIA 2011 International Energy Outlook

Global Natural Gas Prices

0.002.004.006.008.00

10.0012.0014.0016.0018.00

North America Europe Japan

$US/

MM

btu

Source: World Bank

Potential West Coast LNG Terminals

Canadian LNG Export Project Development Activity Companies Location Capacity Est. Status

• Apache / EOG / Encana Bish Cove, Kitimat, BC 1.4 Bcf/d 2017 Awaiting Investment Decision

• BC LNG Export Cooperative Kitimat, BC 0.25 Bcf/d 2013 Permits received

• Shell /China National / Korea Gas Kitimat, BC 1.8 Bcf/d 2020 Final stages of discussion

• Progress / Petronas Prince Rupert 1.0 Bcf/d 2018 Conducting feasibility

• Nexen / Inpex TBD Conducting feasibility

Ports of Kitimat and Prince Rupert are closer to Asia than any other North American port:

8 sailing days to Japan 9 sailing days to Korea 11 sailing days to China

2011 Canada and U.S. Demand for Crude Oil by Source (Thousand Barrels per Day)

Net Oil Imports (IEA New Policies Scenario)

Changing Oil Import Projections

0

2

4

6

8

10

12

14

China India European Union

United States

Japan

mb/

d

2000

2010

2035

Source: IEA World Energy Outlook 2011, EIA

Korea

Western Canadian and Bakken Crude Pipeline Routes to U.S., Canada and Offshore

Bakken

Utica Niobrara

Eagle Ford

10

Existing infrastructure primarily devoted to N.A. markets.

Strong Canadian production growth requires diversification to new markets:

Price

Takeaway

International Markets: WTI vs. Brent Prices

-40

-20

0

20

40

60

80

100

120

140

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Differential WTI Brent

• Brent: Benchmark used to price 65% of world’s oil.

• WTI is lighter than Brent, and has historically traded at a premium.

• Growing disconnect between landlocked crude and globally traded crude such as Brent.

• For most of 2011 and 2012 to date, WTI has traded at a discount to Brent.

• Discount has narrowed slightly since beginning of year.

• July 1-10 average discount ~US$13.50/bbl

US$/bbl Daily

11

North American Market: WTI vs. Edmonton Par Light

0

20

40

60

80

100

120

140

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

WTI @ Cushing

Edm Par

• Both price benchmarks have been volatile recently.

• Edmonton par discount to WTI narrowed to ~$3.45/bbl in June, but started to widen again to ~$12/bbl as of early July.

• Tight pipeline capacity amplifies volatility.

70

80

90

100

110

120

3-Ja

n17

-Jan

31-J

an14

-Feb

28-F

eb13

-Mar

27-M

ar10

-Apr

24-A

pr8-

May

22-M

ay5-

Jun

19-J

un3-

Jul

US$/bbl Monthly

Daily

12

Canadian Market: Light/Heavy Differential

-40

-20

0

20

40

60

80

100

120

Jan-

09

Jul-09

Jan-

10

Jul-10

Jan-

11

Jul-11

Jan-

12

Jul-12

Cdn Light/Heavy DiffWCS @ HardistyMSW @ Edm

• Light/heavy differential has widened slightly since Jan / 12.

• June 2012 average heavy discount ~ Cdn. $13.00/bbl.

Cdn$/bbl

13

Canadian Oil Sands & Conventional Production (Risked)

WCSB Pipeline Takeaway Capacity vs. Supply

15

Industry Objective – West Coast Access

● Objective: Industry seeks timely expansion of crude oil and natural gas export

infrastructure from Canada’s west coast aligned with production growth. Drivers are fundamentally:

• Securing market outlets

• Securing global prices

● What is needed to achieve this objective: Economically viable projects supported by markets and suppliers. Support from governments (federal and provincial) – policy and project

approvals. Regulatory approvals (necessary, but not sufficient). Social license to build and operate.

Social License Framework

Social License = Performance + Communication ● Performance: Continuous environmental & social performance improvement across the value

chain (production, p/l and rail transportation, marine). Resolution of Aboriginal consultation & economic benefits / opportunities. Line of sight to jobs and economic growth / value creation. Solutions-oriented advocacy for balanced policy and regulation. Technology & innovation and industry collaboration are key levers.

● Communications & Outreach: Sustained & substantive commitment to communications:

• Messaging - balanced “3E” focus, targeted, fact-based, solutions – oriented, “high road”, direct, respectful……..not apologetic or defensive.

• Delivery – diversity of mediums, approaches, spokespersons.

• Grounded in performance improvement.

Strong focus on outreach – local / regional / national / international.