Heavy Oil
Approximately 45% of our Canadian conventional production is heavy oil. Heavy oil is characterized by high specific gravity or weight and high viscosity or resistance to flow. Therefore, heavy oil is more difficult and expensive to extract, transport and refine than other types of oil. Heavy oil also receives a lower price than light oil, as more expensive and complex refineries are required to refine heavy crude into higher-value petroleum products. To maximize heavy oil returns, it is important to manage capital and operating costs. Our large production base and existing infrastructure are advantageous in managing these costs. In 2008, we plan to continue exploiting our existing fields through drilling and optimizing operations.

Enhanced Oil Recovery (EOR)
Heavy oil reservoirs typically have lower recovery factors than conventional oil reservoirs, leaving substantial amounts of oil in the ground. This creates an opportunity to increase recovery factors by applying new technology. We are continuing to research various technologies to increase our heavy oil recoveries with several ongoing pilot projects in west-central Saskatchewan.

Natural Gas
Approximately 40% of our Canadian production is natural gas extracted primarily from shallow sweet reservoirs in southern Alberta and Saskatchewan and from sour gas reservoirs near Calgary. In general, shallower gas targets are cheaper to drill and develop, but have relatively smaller reserves and lower productivity per well. Sour gas is natural gas that contains hydrogen sulfide. Our Balzac field, northeast of Calgary, has been producing sour natural gas since 1961. This sour gas is processed through our operated Balzac plant.