Strategy
Our oil sands strategy is to economically develop our bitumen resource in phases to provide low-risk, stable, future growth. Our strategy involves integrating steam-assisted-gravity-drainage (SAGD) bitumen production with field upgrading technology to produce a premium synthetic crude oil that significantly reduces our need to purchase natural gas a key cost driver in competing technologies. As a result, we have a significant cost advantage. Our oil sands strategy also includes our 7.23% investment in the Syncrude oil sands mining operation.

Phased Development
We currently have 240,000 net acres of bitumen-prone lands in the Athasbasca region, and we plan to continue acquiring more acreage. In 2004, we sanctioned commercial development of Phase 1, at Long Lake, which is expected to develop approximately 10% of our oilsands inventory.

In 2005, we announced our plan to duplicate Long Lake by developing Phase 2. While we are planning on sanctioning this project in late 2008, the ultimate timing depends on achieving sufficient production history from Phase 1 and receiving clarity on fiscal and regulatory policies related to oil sands development and climate change. We plan to sequentially develop our resource with additional 60,000 bbls/d (30,000 bbls/d net) phases using the same technology and design as Long Lake and to increase synthetic crude oil production to 240,000 bbls/d (120,000 bbls/d net) over the next decade.

Fiscal Terms
We will pay royalties based on bitumen production, which includes a 1% royalty on gross revenue until all costs have been recovered at which time the royalty changes to 25% on net revenue. With the combination of low royalties, our expected operating cost advantage and a premium product, our oil sands financial returns are expected to be attractive relative to other oil sands projects.