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1 1 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Second Quarter Update July 8, 2008 Conference Call KPMG LLP

2 2 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Agenda Canadian Internal Control Over Financial Reporting– Murray Suey IFRS Developments – John Gordon Tax Issues for IFRS – Jodi Roworth Budget Update – Chris Post International Tax Developments – Jim Samuel Merger & Acquisition Environment – Rhys Renouf SEC Update –Wayne Chodzicki

3 3 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Canadian Internal Control Over Financial Reporting Murray Suey Partner, Audit

4 4 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Canadian Internal Control Over Financial Reporting Currently certified as to design of internal controls only Proposal certify as to effectiveness of internal controls

5 5 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Highlights of Proposed NI Certify on effectiveness of internal control over financial reporting (ICFR) for periods ending after December 15, 2008 Significant documentation requirements Much closer to current SEC guidance top-down, risk-based approach definition of material weakness scope exemptions (i.e. business acquisition – 365 days) requires use of a control framework, (i.e., COSO) Recommends disclosure of significant weaknesses in disclosure controls and procedures (DC&P) a material weakness in ICFR often means ineffective DC&P Venture issuers are exempt from DC&P and ICFR certifications

6 6 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Summary of Responsibilities under Proposed NI CEO and CFO Certify design and effectiveness of DC&P and ICFR and report conclusions in MD&A Maintain documentary evidence to support the certification Audit Committee and Board of Directors BOD to approve the issuers annual MD&A, including disclosures concerning DC&P and ICFR Understand the basis for conclusions regarding material weaknesses

7 7 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Summary of Responsibilities under Proposed NI cont'd KPMG Under our professional standards, we will read MD&A and assess any inconsistencies with our knowledge and any apparent material misstatement of fact or misrepresentation. We will also communicate any failure to meet the requirements of securities legislation of which we are aware We are not required to search out securities violations and are not required to read managements documentation and evaluation of DC&P and ICFR

8 8 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. How KPMG can Help To assist management and/or the audit committee with respect to their responsibilities, KPMG can perform a number of services. We can: Perform a more thorough readiness assessment to assist management and the Audit Committee in understanding the degree to which management is progressing in preparing for the ultimate certification requirements of proposed NI Provide observations and recommendations based on a detailed review of managements documentation as it is developed to meet the provisions of NI Assist in documenting controls including entity-level controls, period-end financial reporting workflows and controls, process level workflows and controls, information technology general controls and IT application controls

9 9 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. How KPMG can Help cont'd Carry out procedures of an audit nature, including testing, upon which we have agreed in advance, and report the findings Provide an audit of internal control over financial reporting that is integrated with an audit of financial statements. We may perform audit engagements regarding aspects of an entity's internal control over financial reporting including a particular process, subsidiary or the entity as a whole

10 10 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IFRS Developments John Gordon Partner

11 11 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Update IFRS go-live Jan 1/07 Jan 1/09 Jan 1/10Jan 1/11 Jan 1/08 Calendar year periods AcSBs progress review completed! IFRS Comparative figures IFRS Opening Balance Sheet Developments: IASB: IFRS 1 proposed exemption for oil and gas industry (Q3 2009?) CSA: MD&A disclosures CSA: Update on Tentative Conclusions Disclosure convergence plan per Q Last reporting under Canadian GAAP CSA (revised) tentative conclusions Changeover date AcSB/IASB IFRS 1 submission IASB to finalize O&G IFRS 1 exemption?

12 12 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IFRS 1 – First-time Adoption of IFRS Break for O&G Industry IASB meeting March 2008: CAPP's submission regarding proposed IFRS 1 amendments: IFRS 1 be amended to permit an allocation in the opening IFRS balance sheet of the full cost pool to individual assets, with each asset being subject to an impairment test at that date. AcSB instructed to work with IASB staff to create proposal and develop a more comprehensive description of issue

13 13 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IFRS 1 – First-time Adoption of IFRS Break for O&G Industry cont'd IASB meeting May 2008: AcSB's presented IFRS 1 proposal: IASB approved AcSB's suggested disclosure requirements re IFRS 1 proposed exemption Suggested disclosure requirement was presented and stated: "Paragraph XX provides an exemption for oil and gas assets. If an entity uses that exemption, it shall disclose that fact and the basis on which carrying amounts under previous GAAP were allocated." AcSB will draft ED: will receive a 120 day comment period Final IFRS 1 amendment not expected before Q3 2009

14 14 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice IFRS Disclosure May 9, 2008 CSA Notice , Disclosure of Expected Changes in Accounting Policies relating to Changeover to IFRS Changeover IFRS = changes due to new accounting standards CSA: within scope of current MD&A form requirements that apply to annual and interim MD&A filed in compliance with National Instrument , Continuous Disclosure Obligations, as well as MD&A included in a prospectus Requirements in other securities legislation might also require disclosure of specific information about broader implications of changeover to IFRS

15 15 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice IFRS Disclosure Disclosure relating to each financial reporting period in the three years before the first year (2011) financial statements prepared in accordance with IFRS Disclosure begins as early as Q MD&A (for companies that have developed IFRS changeover plans) and no later than the annual 2008 MD&A

16 16 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice IFRS Disclosure CSA staff desire an incremental approach to disclosure Level of detail and amount of quantified information increases as move closer to 2011 Key elements of a changeover plan may address impact on: accounting policies, including choices among policies permitted under IFRS, and implementation decisions such as whether certain changes will be applied on a retrospective or a prospective basis information technology and data systems internal controls over financial reporting disclosure controls and procedures, including investor relations and external communications plans sufficiency of financial reporting expertise, including training requirements business activities that may be influenced by GAAP measures such as foreign currency, hedging, debt covenants, capital requirements and compensation arrangements.

17 17 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice IFRS Disclosure Communication annual and interim MD&A disclosure (3 years to changeover) Interim MD&A Developed IFRS changeover plan? Discuss key elements and timing Well advanced in IFRS project? Discuss impact of IFRS changeover on financial reporting Annual MD&A No later than three years before changeover date Discuss status key elements and timing plan Well advanced in IFRS project? Discuss impact of IFRS changeover on financial reporting

18 18 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice IFRS Disclosure Communication annual and interim MD&A disclosure (2 years to changeover) Interim MD&A Provide update progress on IFRS plan and changes Annual MD&A Discuss preparations for changeover to IFRS, building on aspects discussed in 2008 and interim 2009 MD&A To allow investors to understand the key elements of the financial statements that will be affected, narrative description of major identified differences between current accounting policies and those required / expect to apply in preparing IFRS financial statements, including assumptions about future changes to IFRS

19 19 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice IFRS Disclosure Communication annual and interim MD&A disclosure (1 year to changeover) Interim and Annual MD&A Provide updated discussion of preparations, building on aspects discussed in 2008, 2009, and interim 2010 MD&A Discuss in more detail key decisions and changes (to be) made relating to changeover, including decisions about accounting policy choices under IFRS 1 and other relevant individual IFRS standards When preparing interim and annual MD&A, if have available quantified information on impact of IFRS on key line items in financial statements, included in MD&A

20 20 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice Update Staff Concept Paper re IFRS

21 21 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice Update Staff Concept Paper June 27, 2008 CSA Notice , Early Adoption IFRS, Use of US GAAP and Reference to IASB-IFRS Notice updated issues addressed in CSA Concept Paper on "Possible changes to securities rules related to IFRS (the concept paper or tentative conclusions) 42 comment letters: CSA Staff further developed their views Staff now propose that for Canadian domestic issuers, who are also SEC registrants, the existing option in NI would be retained, and US GAAP could be used limited to Canadian SEC registrant companies

22 22 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CSA Notice Update Staff Concept Paper Staff continue to propose that IFRS could be early adopted: Exemptive relief on case-by-case basis Assess readiness staff, Board, AC, auditor, investors Consider implications on obligations under securities legislation including CEO/CFO certifications, BARs, offering documents, previously released material forward-looking information If choose to early adopt and previously filed interim reports under old GAAP in first year proposing to adopt IFRS: Revise interim financial statements Revise MD&A Issue new certificates

23 23 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IFRS & Tax: Why us Tax Geeks should care? Jodi L. Roworth Senior Principal, Tax

24 24 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Why move to International Financial Reporting Standards (IFRS)? What are they? Single set of globally-accepted, high-quality accounting standards Used in 100+ countries, including five G8 countries Rationale for Canadas move to IFRS: Provide better access to global capital markets Move to principles-based standards and away from rule-based U.S. standards (costly / difficult to apply) More cost effective than maintaining Canadian GAAP U.S GAAP & IFRS – likely more aligned over time

25 25 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Timeline for Canadas adoption of IFRS Group 2: IFRS under development at change-over date e.g. leases, revenues, employee benefits Group 4: IFRS with no Canadian GAAP equivalent: Adopt at change-over date e.g. provisions, biological assets Group 1: Converge prior to change-over date e.g. inventories, business combinations, income taxes, earnings per share Group 3: Canadian GAAP replaced at change-over date e.g. impairment, securitizations, financial instruments Group 5: Cdn standards – no IFRS equivalent Expected to be discontinued e.g. AcG 16 – full cost, rate regd accg

26 26 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IAS 12 – Income Taxes IAS 12 Income Taxes – October 1996 Paragraphs 1-91 All paragraphs have equal authority Fundamental Principle It is inherent in the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probably that recovery or settlement of that carrying amount will make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences, this Standard requires an entity to recognize a deferred tax liability (deferred tax asset), with certain limited exceptions.

27 27 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Scope The scope of IAS 12 includes: All domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such as withholding taxes, which are payable by subsidiary, associate or joint venture entities on distributions to the parent entity. Taxes that are not based on taxable profits are not within the scope of IAS 12 (i.e., payroll taxes and value added taxes) Excludes accounting for government grants or investment tax credits; however, does account for temporary differences that may arise from such grants or ITCs Income Taxes Current TaxesDeferred Taxes =+

28 28 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Tax Convergence Project – Group 1 IASB and FASB – objective to reduce the differences between IAS 12 and FAS109 Exposure Drafts expected to be published in 2008/final standard in 2009 Both based on the balance sheet liability approach whereby an entity recognizes DITA/DITL for TD and loss carryforwards Differences arise because both standards have numerous exceptions to the basic principle Approach to convergence is to eliminate exceptions, not to reconsider the underlying approach Added to the Boards agenda in September 2002 (not a short project) AcSB has indicated that it is their intent to adopt revised IAS 12 without modification. IASB/FASB Convergence

29 29 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Comparison (IAS 12/CICA 3465/FAS109) Exceptions – Goodwill & Initial Recognition Investments in Subs/Joint Ventures – Outside Basis Enacted vs. Substantive enactment Business Combination – previously unrecognized tax asset Compound Financial Instruments Tax Credits & ITCs – not part of IAS12 Presentation – Current vs. Long-Term Allocation within consolidated group Intra-period Allocations – Equity vs. Income Interim Period Taxes Disclosure Uncertain Tax Positions

30 30 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Other IFRS Differences Provisions, Cont liabilities/assets ( IAS 37) Property, Plant & Equipment (IAS 16) Financial Instruments (IAS 39) Intangible Assets and Goodwill (IAS 38) Investment Property (IAS 40) Impairment (IAS 36) Revenue Recognition (IAS 11 & 18) Government Grants (IAS 20) Related Parties (IAS 24) Leases (IAS 17) Debt vs. Equity Classification (IAS 32) Derivatives and hedging (IAS 39) Pensions and post-retirement benefits (IAS 19) Consolidations, equity method and joint ventures (IAS 27, 28, 31) Rate Regulated Share based payments (IAS 2) Events After the Balance Sheet date (IAS 10) First Time Adoption (IAS 1)

31 31 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Oil and Gas Industry: Where are we after May announcement? Expected 2011 change-over date – to be finalized in early 2008 AcSB not expected to keep AcG-16 AcSB not expected to delay implementation AcSB not expected to allow exceptions to IFRS AcSB not expected to modify IFRS 1 transition standard IFRS Extractive Industries project not complete by 2011 AcSB not expected to wait for project completion as project not likely to completed before 2012

32 32 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IFRS Impact on Tax Reporting and Tax Filings Income Tax Act of Canada (ITA) – no requirement directing the use of one particular accounting methodology when preparing tax filings – therefore IFRS/CDN GAAP both acceptable Management will need to assess what, if any, adjustments to accounting profit are required to arrive at taxable profit per the ITA IFRS impact on the balance sheet may also impact a companys tax on capital CRA has not issued any formal statement or guidance on the effects of the transition to IFRS

33 33 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. IFRS Impact on Tax Reporting and Tax Filings Understand differences in reported balances under IFRS for both first-time adoption and on ongoing basis Determine proper treatment on the companys tax returns Changing the accounting treatment under IFRS will raise several questions: Is there a financial conformity rule that needs to be followed under the tax law? Can the historical tax method be continued? Does the company have the information to compute and schedule new TD?

34 34 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Income Tax vs. Royalty IAS 12 For the purposes of this standard, income taxes include all domestic and foreign taxes which are based on taxable profits. Taxable profit (tax loss) is the profit(loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable)

35 35 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Income Tax vs. Royalty AAcSB – Australian Accounting Standards Board Australian Petroleum Resource Rent Tax Canadian/World-Wide Issues Oilsands Royalty Ontario Mining Tax Potash Production Tax Foreign Profit based royalties Licence agreements

36 36 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. KPMG IFRS Publications External Canadian IFRS Website KPMGs IFRS publications posted on Publications include IFRS compared to Canadian GAAP: An overview (Fall 2007) Managing the Transition to IFRS: The Journey to 2011 IFRS: An Overview – An executive summary of the key requirements of IFRS Illustrative Financial Statements First-time adopters Different industries The Transition to IFRS: Implications for the Audit Committee (06/2007)

37 37 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. The Alberta Budget Chris Post Partner

38 38 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. The Alberta Budget – 2008 SR&ED Tax Incentive Introduced for corporations Refundable Tax Credit 10% of qualified expenditures in Alberta Expenditures incurred after December 31, 2008 Annual maximums: Expenditures in Alberta of $4,000,000 Refundable tax credit $400,000 Same rules and benefits apply to CCPCs, public corporations, non- resident corporations with a branch in Alberta Alberta ITCs will grind the federal SR&ED base for federal ITCs No technical details published yet

39 39 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. The Alberta Budget – 2008 IMPACT ON LARGE CORPORATIONS:BeforeAfter Annual SR&ED Expenditures, say$10,000 Federal ITC(2,000)(1,800) Alberta ITC-(1,000) Tax saving, deduction of SR&ED costs(2,900) Tax cost of all SR&ED ITCs After-tax cost of SR&ED in Alberta$5,680$5,112 Improvement$568

40 40 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. The Alberta Budget – 2008 IMPACT ON CCPCs:BeforeAfter Annual SR&ED Expenditures, say$10,000 Federal ITC(3,500)(3,150) Alberta ITC-(1,000) Tax saving, deduction of SR&ED costs(1,400) Tax cost of all SR&ED ITCs After-tax cost of SR&ED in Alberta$5,590$5,031 Improvement$559

41 41 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. The Alberta Budget – 2008 Other Corporate Budget Measures Harmonisation with federal measures on: Capital cost allowance classes (if and when the feds enact!) Rental properties with M&P and other business tenants, computer equipment, etc. Establish $100 million Alberta Enterprise Corporation to improve access to capital for early-stage knowledge-based companies No changes to: corporate tax rate small business tax rate small business limits

42 42 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. The Alberta Budget – 2008 Other Personal Budget Measures Lower non-eligible dividend threshold from $460,000 (Alberta small business limit) to $400,000 (federal small business limit) eliminate over-integration on dividends paid on $60,000 income eligible for Alberta small business limit in excess of federal limit Technical details not released yet Harmonisation with federal measures on: Tax-Free Savings Accounts (TFSAs) - $5,000 annual contribution starting in 2009 Health Care insurance premiums eliminated after 2008 Annual Alberta Caregiver and Disability Tax Credits, and Income Thresholds, all increased by $5,000 over inflation indexing for 2008 Alberta Family Employment Tax Credit increases 10%, July 1, 2008

43 43 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Other Alberta Tax Developments Previously-scheduled Alberta small business limit changes: From $430,000 to $460,000 effective April 1, 2008 Scheduled to go to $500,000 effective April 1, 2009 Personal tax credit indexing for % increase over 2007 amounts

44 44 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. June Federal Developments 1.Bill C-50 containing most of the tax measures of the 2008 federal budget substantively enacted in June for both Canadian and US GAAP 2. Deadline for filing election to report for tax purposes in functional currency deferred to October 31, 2008 from June Deadline for filing election on application of Foreign Affiliate amendments deferred by 18 months For a December 31, 2007 year-end – from June 30, 2008 to December 31, 2009

45 45 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. International Tax Jim Samuel Partner, Tax

46 46 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. International Tax International Tax Advisory Panel Protocol – U.S. – Canada Tax Treaty Foreign Affiliate Elections

47 47 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Merger & Acquisition Environment Rhys Renouf Partner, Advisory Services

48 48 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. E & P and Energy Services Industry Overview What a difference a year makes Much more optimistic outlook today compared to 2007 Key factors driving optimism include high commodities prices, emerging resource plays (Bakken, Montney, Horn River, Utica) and strong cash flows for producers Record cash flows are expected to drive increased capital expenditure budgets and drilling activity in H and into 2009 High commodity prices have mitigated the impact of Alberta royalty structure Current pricing environment should allow companies to strengthen balance sheets and reduce debt levels Energy services companies stand to benefit from higher capex budgets Demand for directional drilling and pressure pumping is especially strong Migration of rigs from Canada to the U.S. is coming to a halt Pricing power expected to return for service providers in late 2008 or 2009 Labour continues to be the limiting factor

49 49 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Public Equity Valuations Publicly traded energy companies have underperformed relative to commodity prices Significant changes in the underlying fundamentals (i.e. commodity prices) have not been fully reflected in valuations YTD returns for producers and service providers are highly correlated Sources: Bloomberg, Google Finance 27% 49% 91% 26% 5%

50 50 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Mergers & Acquisitions Environment Producers Commodities prices have solved most of the debt issues that were present in 2007 Liquidity is creating a positive setting for M & A activity Look for larger premiums as valuations increase, especially in emerging resource play areas Strong cash flows are increasing cash reserves or reducing debt, paving the way for strong asset and corporate M & A activity Energy Services Geographic diversification and operational focus are the driving force Large Canadian firms are actively pursuing geographic diversification, particularly in the U.S. – acquisitions are a vital part of this effort Unlike producers, several distressed situations exist on the services side Look for more share-for-share exchanges such as Builders/Essential Divestitures of non-core divisions in order to maintain operational focus are likely to continue (i.e. Essential divests its transport division to focus on downhole services) Sources: Scotia Capital, Tristone Capital

51 51 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. SEC Update Wayne Chodzicki Partner

52 52 © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. DISCLAIMER The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. © 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. kpmg.ca


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