1

THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

CALGARY LONDON HOUSTON

THE INSIGHT BEHIND ENERGY SUCCESS

T RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

The Energy Round Table 2006

Investment Drivers for Oil SandsTom Ebbern

Executive Managing Director Institutional Research

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Tristone Capital Inc.Full Service Global Energy Boutique

Globally Positioned For Success in Energy

Calgary

Houston

London

3 Countries 100 People

Tristone Capital has main offices in Calgary, Houston and London

Tristone Capital is a fully integrated investment dealer that actively combines three primary advisory services:

Capital MarketsInstitutional Research

Institutional Sales

Institutional Trading

Asset Management

Investment BankingMergers & Acquisitions

Strategic Advisory

Equity Underwriting

Fairness Opinions

Valuations

Property A&DNegotiated Sale

Mid-Value Negotiated

Land-Value Negotiated

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Drivers for Investors in Oil Sands

Long-term view for crude oil – fundamentals remain strong

Resource optionality

Increasing valuations and new players moving in (Total, Royal Dutch, Tech, China)

Competitive landscape for new projects – too much all at once?

Cost pressures have reduced or eliminated the benefit of higher prices

Synthetic or bitumen – where is the best return?

Growing differentiation of SCO

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Source: Tristone Capital Inc., Bloomberg,

Investment Returns in Oil Sands

An index of oil sands (COS, OPC, SU, SYN, UTS, WTO) has increased 900% in the last 7 years (40% CAGR)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Jan-0

0

May

-00

Sep-0

0

Jan-0

1

May

-01

Sep-0

1

Jan-0

2

May

-02

Sep-0

2

Jan-0

3

May

-03

Sep-0

3

Jan-0

4

May

-04

Sep-0

4

Jan-0

5

May

-05

Sep-0

5

Jan-0

6

May

-06

Sep-0

6

10.00

19.00

28.00

37.00

46.00

55.00

64.00

73.00

82.00

91.00

100.00

US$/

b

Oil Sands Index WTI Oil

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Global Excess Capacity vs. Oil Prices

With virtually no surplus global production capacity, oil prices are expected to remain in the $60 range for many years

0

1

2

3

4

5

6

7

8

9

10

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

E20

07E

mm

b/d

0

6

12

18

24

30

36

42

48

54

60

US$/

b

World Oil Excess Capacity WTI Oil Price

Source: Tristone Capital Inc., Bloomberg,, EIA, IMF

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Global Refining Capacity

Excess global refining capacity has finally been used up – it means more capital is required to go from a resource in the ground to the end product

Source: EIA, IEA, Oil & Gas Journal, Tristone Capital

40

50

60

70

80

90

100

1970 1975 1980 1985 1990 1995 2000 2005 2010E

mmb/

d

World Refining Capacity World Crude Consumption

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

World Proved Oil Reserves

Investors are attracted to the enormous resource potential of the oil sands

Source: Oil & Gas Journal Jan 1/06

0

50

100

150

200

250

300

SaudiArabia

Canada Iran Iraq Kuwait UAE VenezuelaRussia Libya Nigeria UnitedStates

Billio

n Bar

rels

Total Oil Canada Conventional Oil Canada Oil Sands

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Alberta Oil Sands Land Sales – Very Little is Left

Note: As of Aug 23 land saleSource: GeoScout

Recently Posted Oil Sands Leases>$1000/acre$100-$1000/acre<$100/acreOil Sands Leases

Oil Sands Land Sale Prices

Peace River

Athabasca South

Wabasca/ Grosmont

Athabasca

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Alberta Oil Sands Acquisition Prices

Source: Company Reports

Purchaser Seller Date InterestValue $mm

3P Resource (mmb) $/ boe

Petro-Canada UTS Mar-05 60% 300 1740 0.17CNOOC MEG Apr-05 17% 150 250 0.60Sinopec Synenco May-05 40% 105 502 0.21Total Deer Creek Aug-05 84% 1350 1594 0.85Teck Cominco UTS/ Petro-Canada Sep-05 15% 375 420 0.89Shell BlackRock May-06 100% 2400 604 3.97

The value of undeveloped oil sands resources has increased significantly

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Proposed Mining Projects

0

500

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016+

mb/

d

Voyageur Syncrude Muskeg River Horizon Kearl Northern Lights Fort Hills Joslyn Creek 2

Big growth plans – not likely to get done as currently planned

Source: Company Reports

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Forecast Labour Market in Western Canada

Source: Construction Owners Association of Alberta (COAA)

The system is already stressed at current levels of 15,000. How can we get to 30,000?

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Year over Year Forecast Labour Changes

Source: Construction Owners Association of Alberta (COAA)

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

Q1/

05Q

2/05

Q3/

05Q

4/05

Q1/

06Q

2/06

Q3/

06Q

4/06

Q1/

07Q

2/07

Q3/

07Q

4/07

Q1/

08Q

2/08

Q3/

08Q

4/08

Q1/

09Q

2/09

Q3/

09Q

4/09

Q1/

10Q

2/10

Q3/

10Q

4/10

Cons

tructi

on C

raft P

erso

nnel

The reality is that project timing will get pushed back – we are already seeing it happen

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Forecast Scorecard – 2002 to 2006

Source: Company Reports, Tristone Capital

The oil sand industry has a history of over-promising which will get worse as the landscape becomes busier.

0

500

1,000

1,500

2,000

2,500

2003

A

2004

A

2005

A

2006

E

2007

E

2008

E

2009

E

2010

E

2011

E

2012

E

mb/d

2006 Forecast 2002 Forecast(Suncor, Syncrude, AOSP, Petro-Canada, LongLake, Horizon)

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Proposed In-Situ Projects

Source: Company Reports

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016+

mb/

dJackfish/ Cottonwood OrionLeismer/ ThornburySurmont SouthJackfish CreekSunriseN.Christina LakeGreat DivideTuckerSurmontJoslyn CreekLong Lake/ KinosisHangingstoneGreater McKay RiverFirebagFoster/ Christina etc.PrimroseCold Lake

Impressive growth planned for thermal – with only two commercial SAGD projects currently running – we may see some surprises

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Cumulative Steam Oil Ratio Comparison

Source: GeoScout

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75Months on Production

Stea

m:O

il Ra

tio

MacKay RiverChristina LakeLong LakeFirebagAverageFoster Creek (Full)Foster Creek (Pilot)SurmontHangingstone

Mixed results from thermal projects are starting to add concern to investors

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Oil Sands Historical and Forecast Additions Cost

Source: Company Reports

Syncrude Stage 3

Long Lake

Horizon

HorizonSyncrude Stage 3

AOSP

AOSP

MilleniumFirebag

Mackay RiverMackay RiverFoster Creek

Tucker

Fort Hills

Northern Lights

Great Divide

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

1999 2001 2003 2005 2007 2009 2011 2013

Addi

tions

Cos

t ($/

b/d)

-102030405060708090100110120

Crud

e (U

S$/b

)

Integrated Non-Integrated Historical WTI NYMEX Strip Integrated (Prelim. Cost Est)

Costs have risen as fast as crude prices. Smaller projects (thermal without upgrading) have seen less cost pressure

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Mining & Upgrading Project Returns: Cost vs. Oil Prices (US$/b)

Source: Tristone Capital

0%

5%

10%

15%

20%

25%

20 30 40 50 60 70 80 90 100 110Flowing Barrel Capital ($ k/ b/ d)

IRR

$30 $40 $50 $60 $70

Costs have risen as fast as crude prices. Smaller projects (thermal without upgrading) have seen less cost pressure

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

SAGD Project Returns: Costs vs. Oil Prices

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

10 12 14 16 18 20 22Flowing Barrel Capital ($k/ b/ d)

IRR

$40 $50 $60 $70

Costs have risen as fast as crude prices. Smaller projects (thermal without upgrading) have seen less cost pressure

Source: Tristone Capital

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Value Erosion

Long term crude forecast has increased 175% in five years, but rising costs – both capital and operating have eliminated the benefit to investors.

AOSP Muskeg River Jan 2002 Sept 2006WTI US$/ b 20.00 55.00

Canadian Fx Rate US$/ C$ 0.65 0.86

Capital Costs $m/ b/ d 32 110

Operating Costs $/ b 11.75 18.00

Project IRR 14% 12%

Source: Tristone Capital

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THE INSIGHT BEHIND ENERGY SUCCESST RI ST O NEC A P I T A LT RI ST O NEC A P I T A L

Synthetic Crude Differentials to Edmonton Light

Source: Company Reports, Tristone Capital

-18.00

-16.00

-14.00

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

Q1/ 03A Q2/ 03A Q3/ 03A Q4/ 03A Q1/ 04E Q2/ 04E Q3/ 04E Q4/ 04E 1Q05E 2Q05E 3Q05E 4Q05E 1Q06E 2Q06E

SU Syncrude Albian Differences in SCO quality (API, Cetane, Smoke Point, Sulphur etc) are becoming more important as

SCO volumes increase.