3 Industry Overview Largest industry in the world Oil & gas trade surplus accounts 57% of Canada’s merchandise trade balance in 20033.5 per cent share of the world market, since 1998Employment near 500,000 in CanadaInvest close to $24 billion
4 Overview…continuedPayments to governments have averaged close to $8.5 billion per year over the last 10 yearsIn 2003, the oil and gas industry contributed an estimated $16 billion to government revenues in the form of royalty payments, bonus payments and income taxes. We produce more than 20% of North America’s crude oil and natural gas but account for only 10% of its consumptionCapital Spending 2003: Conventional $23.8 billion Oil Sands $5.0 billion Total $28.8 billion
5 Origins and HistoryMost crude oil and natural gas originate from plant and animal life millions of years ago: swamps and oceans.Heat and pressure transformed the soft parts of the plants and animals into solid, liquid or gaseous hydrocarbons known as fossil fuels - coal, crude oil or natural gasLocated in sand oils and oil fieldsFound by drilling and creating wells
7 Sectors of the Industry Petroleum Exploration and ProductionUpstreamRefiningMidstreamDistribution and Retail SalesDownstream
8 Types and Uses Crude Oil and Natural Gas Uses: Mobility, heat and cool our homes and provide electricityProducts:plastics, life-saving medications, clothing, cosmetics, and many other items you may use dailyBarrel – a unit of measure for oil and petroleum products that is equivalent to 42 U.S. gallons
9 Canadian Economy Canada's GDP 2003 grew 1.7%., 2002 it grew 2.2% Slowdown of Canada’s economy:weak U.S. economic growth for most of the year;a strong appreciation of the Canadian dollar;the SARS outbreak in Toronto;restrictions on exports of softwood lumber and beef (due to mad cow disease).Recovery of the U.S. economy, high oil and natural gas prices, and continued spending from the Canadian government are expected to boost Canada’s economy in 2004.The Canadian economy is forecast to grow 3.6% in 2004
10 Situational Analysis Demand is increasing Oil and Natural Gas together provide the largest source of energy (64%) in CanadaNatural gas 39% and Oil 25%Hydro 20%Coal 11%Nuclear 5%Prices have become volatile on the marketEnergy shares make up 17 percent of the value of the S&P/TSX, the second-largest group in the index
11 Crude Oil in Canada Highlights Ninth-largest producer of crude oil in the worldPrior to 2002, Canada did not even rank in the top 20 of countries with the most proven crude oil reserves. Alberta's oil sands, which stood at billion barrels as of January 2004Saudi Arabia holds most crude oil reserves in the world
12 Crude Oil…continued Reserves: 178.9 billion barrels (2nd) World Reserves
13 Crude Oil…continuedProduction:3.1 million barrels per day (bbl/d) for 2003, an increase of 7% over 2002Oil sands production is expected to increase significantly and to offset the decline in conventional crude oil production, becoming Canada's major source of oil supplyWestern Canada Sedimentary Basin (WCSB), underlying most Alberta and parts of British Columbia, Saskatchewan, Manitoba and the Northwest Territories main source of oil
15 Crude Oil Continued… Wells Drilled: 4,845 Exports US: 1.4 million barrels per day3rd largest exporter of crude oil tothe USCanada makes up 15% of total US oil importsCanada supplies 9% of US oil consumptionImports912,000 barrels per day
17 Crude Oil ForecastSignificant potential for new crude oil production planned to come on stream over the next ten yearsCanada’s crude oil production growth is driven by the development of oil sands in Alberta and to a lesser degree by offshore projects in eastern Canada
18 Crude Oil Prospects Maturing basin being extended by technology Horizontal drilling3D SeismicNew drilling/recovery technologyEmerging basinsOil SandsNorthern CanadaOffshore East CoastTechnology is keyTotal Canadian production is projected to increase from the current 2.6 million barrels per day to reach 3.6 million barrels per day (b/d) by 2015.
21 Natural Gas Highlights Canada is the third-largest producer of natural gasProduction:16.9 billion cubic feet per dayReserves:59.1 Tcf (Jan. 2004)Wells Drilled in 2003: 12,951Exports:2nd largest exporter in worldto US: 3.8 trillion cubic feet per yearLargest exporter of natural gas to the USCanada makes up 94% of total US gas importsCanada supplies 17% of US gas consumptionNo imports listed
23 Natural Gas OutlookShort-term outlook, natural gas production is expected to decline 3%, from 16.3 Bcf/d at the end of 2002, to 15.8 Bcf/d in 2005new fields coming onstream are small and quickly depletedIf prices stay high, incentive to exploit the many small natural gas pools in the WCSB, as well as coalbead methane, of which the region holds considerable reserves
25 Prospects of Natural Gas Natural gas demand keeps growing– Supply running hard to catch growing demand– New sources of supply coming onGas from tight sands is promising resourceArctic gas from the Mackenzie Delta to be piped to Canadian and U.S. network of pipesAs demand for gas grows, Canada’s resources will combine with Liquid Natural Gas (LNG) imports as important sources of this cleaner-burning fuel of choice in an increasingly environmentally conscious North America
26 Natural Gas Prospects… Significant untapped potential remainingSufficient pipeline capacity New supplies:Northern gasEast Coast offshoreCoal-bed methane
29 Strengths Size and number oil sands in Alberta Potential of Eastern and Northern Canadahigh-tech explorationcold-climate and offshore operationsconstruction and operations of pipelinesspecialized controls and computer applicationsenvironmental protection technology and safety traininginnovative products and services that meet customer needsrefining processes that produce quality petroleum-based products while minimizing the impact on the environment.
30 Weaknesses Limited natural gas reserves Capacity for natural gas is forecasted to decreaseCanada is one of the high-cost places in the world to find and produce oil and gasDeep gas, natural gas from coal and developments offshore, in the oil sands and the North are large, complex and expensive and have long lead times before they turn a profitChallenges in meeting North America’s energy needs
31 Opportunities Exporting to the US Oils Sands Exploration of Northern and Eastern CanadaWorld population is currently around 6 billion people, but is expected to grow to approximately 7.6 billion by a huge increase in the demand for transportation fuels, electricity, and many other consumer products made from oil and natural gas.
33 Threats Price volatility High Development costs Environmental Issue Especially Marine LifeSubstitutesAlternatives to oil and gasSolar Power, Coal, Wind, Hydro, and Nuclear Power
34 Competitive RivalryTop Companies in Oil and Gas Producers (Selected by Assets)EnCana Corp.Canadian Natural ResourcesNexenPenn West PetroleumWestern Oil Sands IncParamount ResourcesCompton PetroleumBonavista Energy TrustPetroKazakhstan Inc.
42 Current EventsDespite high oil and gas prices, anticipated market volatility is preventing energy companies from increasing their rate of investmentNov. 8 (Bloomberg)Canadian Stocks Fall as Oil Prices Slip; Suncor, Talisman Drop-- Canadian stocks fell, led by oil and gas producers such as Suncor Energy Inc., after crude oil prices declined. A rise in the Canadian dollar to 84 U.S. cents for the first time in more than 12 years weighed on the benchmark index.``Oil and gas stocks in Canada are very sensitive to falling oil prices because of how high'' crude prices areTuesday, November 09, 2004Crude oil futures tumbled below $48 (U.S.) a barrel Tuesday, closing at their lowest level in seven weeks, on rising expectations that the U.S. supply of transport and home-heating fuels will be adequate this winter.
44 Company OverviewSuncor Energy Inc. is an integrated energy company strategically focused on developing one of the world’s largest petroleum resource basins – Canada’s Athabasca oil sands.Strong focus on technology37 years of oil sands experience
45 Company Overview Became a publicly traded company in 1992 Total returns to shareholders have averaged more than 25% per year.
46 Corporate Committee Richard George – President & CEO since 1991 Kenneth Alley – Senior VP & CFO since 2003, with Suncor since 1984Mike Ashar – Executive VP, Refining and Marketing since 2003, with Suncore since 1987David Byler – Executive VP, Natural Gas & Renewable Energy since 2000, with Suncore since 1979Terrence Hopwood – Senior VP & General Council since 2002, with Suncore since 1988Sue Lee – Senior VP, HR & Communications since 1996Kevin Nabholz – Senior VP, Major projects since 2002, with Suncore since 1986Thomas Ryley – Executive VP, Energy Marketing & Refining, with Suncore since 1983Steven Williams – Executive VP Oil Sands since 2003, with Suncore since years of energy industry experience.
48 Businesses Oil Sands Natural Gas and Renewable Energy Located near Fort McMurray, AlbertaThe foundation of Suncor’s assets and is the center of their growth strategy.Natural Gas and Renewable EnergyBased in Calgary, AlbertaProduce natural gas in Western CanadaProvides a price hedge against internal consumption at oil sands and refining operations.
49 Businesses Refining, Marketing and Retail Canada Refinery feedstock and natural gas production are marketed to commercial and industrial consumers.Products from the Sarnia refinery are sold to customers in Ontario, Quebec, and the Northeastern US, and to retail customers through approximately 500 Suncor-owned(Sunoco) and joint venture service stations in Ontario.
50 Businesses United States In August 2003, acquired a Denver, Colorado refinery along with 43 Phillips 66 retail stations.Expansion into the rocky Mountain States allows easier movement of crude oil products to US markets.
51 Business Strategy - growth Develop multiple sources of supply from the oil sands resource baseUpgrade technology to increase productionUse increase production to feed growing North American energy marketHow to improve current model: make it bigger.
53 Short term GoalsIncrease crude oil production to more than barrels per day by from current level of bpd.Reduce costs of productionProvide superior shareholder returns while providing social and economic benefits to stakeholders.Reduce environmental impact of operations
54 Crude Oil ProductionPlanned expansion is designed to leverage economies of scale to keep costs per barrel among the lowest in the industry.
58 Oil Sands Suncor’s future is built on Canada’s oil sands An estimated 175 billion barrels of crude oil reservesFirst company to develop oil sandsLeases contain an estimated 12 billion barrels of bitumen reserves (heavy oil)
59 Oil SandsWith known resource base, Suncor doesn’t have risk and cost associated with conventional exploration.12000 million barrels = (12000/0.5)1/365 = 65+ years of resources.In the process of acquiring further leases
60 Supply of BitumenMining – Surface mines supply majority of current production, plans to extend current mines with new operations planned to begin in 2010In-situ – Firebag development uses steam assisted gravity drainage (SAGD) to heat the underground reservoir, allowing the bitumen to be pumped to the surface. Expected to be at full production in 2005.Third Party Agreements – plan on providing a fee-for-service agreement to process barrels per day of 3rd party butimen (2008).
62 MarketsRefining and marketing strategy builds on connections between the Oil sands production base and North American refiners and consumers.This is the largest crude oil and refined product market in the world.
63 Markets - continuedDon’t just supply the market, also participate in it through short and long-term marketing contracts as well as through retail distribution (Sunoco).
64 Markets - continued Retail operates nearly 300 Sunoco-branded retail stations in Ontario and supplies to over 200 other stations through joint venture operations.In 2003, purchased 43 Phillips 66 retail stations in Colorado and long-term supply contracts with nearly 150 more retailers.
66 InvestmentsCurrently producing hydrocarbon fuels to meet today’s needsInvesting to supply new markets with renewable energy.In 2003, they began the wind power project in southern Alberta, with partner EHN Wind Power Canada, Inc.
67 Stock Info. Price as of Nov. 10, 2004: $40.46 52 week low: $27.00 52 week high: $44.49Average Daily Volume 1,500,000Number of Shares Outstanding: 453,421,000
76 Recent NewsOct 18:Suncor CEO Richard George told the downtown Toronto business audience:American consumption of oil and gas is expected to increase almost 50 per cent by 2025,Domestic production is projected to remain flat.The United States is looking north to close the gap, and this represents a big opportunity for Canada's energy industry."The bottom line for Canada is that energy is not an obstacle to economic growth. It's a key driver of economic growth," said George."This is not just an opportunity for Western Canada. Our energy industry is about Canada's opportunity, Canada's prosperity, and our role globally."
77 More news Suncor profit climbs, but oil hedges limit gain Suncor, known for its huge oil sands mining and synthetic crude operations, would have earned 25 percent more if over a third of its output not been sold forward at $22.50 a barrel. Oil averaged nearly $44 a barrel in the quarter.
78 What the Brokers sayStrong Buy5Buy8Hold6Sell2Strong Sell
79 Value Drivers Production of crude oil Since they are essentially price takers, the more they produce, the more revenues increaseThe price of oilThis is the price of their product, and if price increases, earnings increase.To a lesser extent the success of downstream operations
80 Recommendation BUY Pros: Cons: Sound business plan Product is in constant demandNear unlimited resources, just a matter of extracting themContinuous growth in revenue and earningsCons:Stock price has surged over last year, and stock is expensive compared to 1 year ago
82 Talisman’s Background Large independent oil and gas producer with global operationsfocused mainly on exploration and development Created in 1992 – Formally British Petroleum CanadaStarted out with operations solely in CanadaMarket Capitalization approximately $500millionProduced 51,00 boe/d
83 Talisman’s Background Through corporate and asset acquisitions , operations were quickly established in the North Sea, North Africa, and Southeast AsiaToday – 11 billion dollar company with global operations2003 – production was 437,000 boe/d60% of reserves are natural gas, 40% crude oil and natural gas liquids
84 Mission Statement“To create value for its shareholders in the upstream oil and gas business”
85 GoalCommitted to continuing production per share growth of at least 5-10% per annum for the next three years (2004, 2005, 2006)Most transparent measure of value creationContinue to grow its large North American natural gas reserves while pursuing world scale international opportunities
86 Management Team James W. Buckee, President & CEO British Petroleum Canada, 1991 appointed Chief operating officer of Talisman, 1993 became CEO of TalismanRon J. Eckhardt, Executive Vice President, North America1986 – Joined Talisman (then British Petroleum Canada)T.N.D. Hares, Executive Vice-President, Frontier & International Op.– Worked for British Petroleum, 1994 joined TalismanJoseph Horler, Executive VP, Marketing1987 – Joined Talisman (BP Canada)Michael D. McDonald, E.V.P. Finance and CFO1982 – Joined BP CanadaRobert M. Redgate, E.V.P., Corporate Services1978 – Joined Talisman (BP Canada)Jacqueline Sheppard, E.V.P., Corporate and Legal1993 – Joined Talisman, prior to this she was a partner in a law firmJohn ‘t Hart, E.V.P., Exploration
87 Competitors EnCana Penn West Petroleum Compton Petroleum Canadian Natural ResourcesWestern Oil Sands IncBonavista Energy TrustNexenParamount ResourcesPetroKazakhstan Inc
88 Areas of Operation North America – 50% of company’s production (2003) International – 50% of company’s production (2003)
89 North America (Canada and US) Mainly Natural Gas, but also oil and liquidsFocuses mainly on natural gas in Rocky mountain foothills in AlbertaNew core gas area in upstate New York
90 North Sea (United Kingdom and Norway) Represented 2/3 of international production in 2003Mainly oil and liquidsIn UK central North Sea - Established a number of commercial hubsNorwegian sector of North Sea– building a new core areaLarge drilling program underway designed to increase liquid and oil production by 5-10% in 2005
91 Malaysia/Vietnam (Malaysia, Vietnam, Indonesia) Talisman completed a $1billion oil and gas development project on time and on budget
92 Southeast Asia Large gas reserves in Indonesia Negotiating new gas sales and transportation agreements
93 Caribbean and Latin America (Columbia, Trinidad and Tobago) Working in a number of high exploration areas.Trinidad – development of the Greater Angostura oil and gas project is underwayColumbia and Trinidad – exploration drilling programs
94 Africa and Middle East (Algeria, and Qatar) March 2003 – completed sale of its indirectly held interest in the Greater Nile Oil project in Sudan$1.1 billion, gain of $296 millionProduction and development interests in Algeria and exploration acreage in Qatar
95 Stock Information Share Price – $30.85 CAD (November 8, 2004) Listed – Toronto and New York Stock exchangesTicker Symbol – TLMShares Outstanding – 384,105,983 (November 8, 2004)Market Capitalization – $11,849,669, (384,105,983* $30.85) 52 Week low and High – $ $ Dividends - June 30, $.15 and Dec 31, $.15
104 2004 - YTD Sept. 30/04 – Production up 11% over last year Net Income Sept 30, $542m ($1.39/share)Sept 30, $904m ($2.29/share)Income down this year because of the sale of the Sudan in 2003Talisman lost $103 million due to hedges to sell at below below market prices
105 Breaking News – Nov. 9/04Supply cushion – only about 1% of the 82.4 million barrels consumed dailyTwo key exporters might be vulnerable to disruptions in the near futureIraq – US military have vowed to disrupt the country’s oil exports, and a northern pipeline has been knocked out by saboteurs lowering supplyNigeria – Oil workers are planning a general strike aimed at halting the country’s exports –Nigeria is America’s fifth largest source of crude oil
109 Corporate ProfileImperial Oil Limited has been a leading member of the Canadian energy industry for more than 120 yearsOne of the largest producers of crude oil and natural gas liquids in Canada and a major producer of natural gasCanada’s largest refiner and marketer of petroleum products – sold primarily under the Esso brand nameMajor producer of petrochemicals
110 Management TeamImperial's 2003 Board of Directors (left to right) P. Des Marais II, B.J. Fischer, T.J. Hearn, R. Phillips, J.F. Shepard, P.A. Smith, S.D. Whittaker, K.C. Williams, V.L. YoungMajority of management team are from within Imperial Oil or Exxon/Mobil(Exxon has a 69.59% interest in Imperial)
111 Management TeamT.J. (Tim) Hearn has been a director of Imperial Oil since January 1, 2002.With the company since 1967He is currently Imperial's chairman, president and CEOP.A. (Paul) Smith Mr. Smith has been a director of Imperial Oil since February 1, 2002.He is currently controller and senior vice-president, finance and administration.Joined Imperial Oil in 1980
112 Management cont…B.J. (Brian) Fischer Mr. Fischer has been a director of Imperial since Sept. 1, 1992.He is currently senior vice-president of Imperial's products and chemicals divisionJoined Imperial Oil in 1968J. M. (Mike) Yeager Mr. Yeager has been a director of Imperial Oil since August 1, 2004.He is currently senior vice-president, resources division, and president and chief executive officer of Imperial Oil ResourcesHe joined the company from Mobil
113 Business SegmentsNatural ResourcesPetroleum ProductsChemicals
114 Natural Resources Segment CRUDE OILWholly owned Cold Lake operation in Northern Alberta25 percent ownership position in Syncrude.NATURAL GASWizard LakeSable Offshore Energy ProjectGwillim Field
115 Crude Oil – Cold Lake This is a long-life asset Net proved reserves were 760 MB at year-end 2003Additional untapped resource
116 - Received regulatory approval for further development in March 2004
117 Crude Oil - Syncrude World's largest mineable oil sands operation. Syncrude is the single largest crude oil producer in Canada with net reserves of about 3 billion barrels and production of over 200 kbd in 2003.Imperial was a founding member of Syncrude and has a 25 percent interest
118 Crude Oil – Syncrude (cont…) Syncrude is currently progressing a major expansion for the operation -- one that will increase production by 50 percent and improve the quality and the sales price of the entire sales stream.Total expected cost of $7.8 billionDisappointing cost and schedule performance to date
119 Natural GasFull production from the natural gas cap at Imperial’s Wizard Lake oil field in Alberta began in July 2003.Production rates of about 180 million cubic feet a day will be achieved in 2004 once gas plant capacity is available and are expected to continue through 2006.In November, the first natural gas was produced from the Gwillim field in northeastern BC. Additional development of this field is planned.Natural gas production from 9% interest in the Sable offshore energy project averaged 40 million cubic feet a day before royalties.production began from a fourth Sable field, Alma, and construction was started on facilities for a fifth field, South Venture.Funding was also approved for a natural gas compression facility that will service production from all Sable fields by late 2006.
120 Natural Resources - Potential Kearl Oil Sands (200k barrels/day)Mackenzie Gas Projectregulatory review process to take about 2 yearsdesign and construction should take 3-4 yearspotential for Mackenzie gas production by the end of the decadeCree exploration well abandoned in the third quarterAcquired 25% interest in Orphan Basin (Natural Gas)
124 Petroleum Products Segment 787 company-owned sitesAverage productivity per site for 2003 was 5.2 million litres a year, up six percent from 2002.650 Esso convenience stores across Canada, including On the Run and Tiger Express, was the second largest in Canada.Convenience-store sales rose by about nine percent in 2003, well above the industry average.400 sites with car-wash facilities is the largest in the industry.Esso retail sites providing Tim Hortons food and refreshments had increased to more than 300 from 270 in 2002
125 Petroleum Products cont… Points-Exchange alliancesMarket leader in finished lubricantsExclusive Canadian marketer of Mobil productsQuadrupled average productivity per site
126 Petroleum Products cont… Focus on reducing working capitalDecreased days inventory by 4% vs. 2002Freed up more than $35 million in cashOver the last 10 years, this has been reduced by about 25 percent.
127 Petroleum Products cont… Capital Expenditures of $478 million in 2003Allowed them to meet specifications of 2004 model-year automobile technologyRefineries have improved energy efficiency by more than 40 percent over last 30 years
128 Chemicals Segment Earnings of $37 million Cash flow from earnings of $66 millionSales of petrochemical products were 3,300 tonnes a day, down slightly from 2002.N.A. demand was low in 2003, with high feedstock costs and soft sales volumes.
129 Chemicals cont… One of Canada’s leading producers of chemical products Largest market share in North America for polyethyleneLargest share of the Canadian market for solventsAnnual capacity of 450,000 tonnes
130 Chemicals cont…$41 million in Capital Expenditures aimed at reducing net costs of ethylene production by 10 percent.
133 Valuation Ratios Measures Industry 2003 2002 2001 2000 1999 P/E 21.9 12.7313.9213.8811.6921.30Price to Book:3.703.713.274.033.923.09Price to Sales0.91.111.001.010.911.04Price to CF11.39.7613.0111.2911.5016.89EPS$4.3$4.52$3.23$3.19$3.38$1.46Dividend Yield1.90%1.51%1.87%1.98%2.42%
134 Ratios cont… Financial Strength Company Industry Quick Ratio 0.775 0.87Debt to Equity0.240.86Interest Coverage57.27.39ProfitabilityGross Margin60.2856.90Net Profit Margin8.7614.94ManagementROA19.46.47ROE29.116.51Inventory Turnover28.4518.43*Due to repayment of LT Debt
135 Growth Measures Revenue growth of 49.44% from 1999 S/H Equity growth of 33.53% from 1999:Increased due to increasing net earningsPartly offset by Share Repurchase Program
140 Stock Information Ticker Symbols: Market Capitalization (IMO-T) on TSX (IMO-A) on AmexMarket Capitalization(IMO-T) Billion(IMO-A) Billion
141 Stock Information 2003 2002 2001 2000 1999 Dividend 0.87 0.84 0.83 As of 10/11/04TickerCloseOpenChangeVolume52-Week High52-Week LowIMO-T$70.15$68.90$1.25340,600$73.17$51.12IMO-A$58.56*$57.40$1.1035,000$59.75$38.84* Prices in U.S. Dollars20032002200120001999Dividend0.870.840.830.780.75
145 Recommendation: BUY Strong sales and EPS growth High profitability compared to industry and S&P 500High return ratios (ROE, ROA, ROI)Steady return potential for capital investmentsStrong dividend record and repurchase recordBUY