Cooperation Conference - Asia Pacific Foundation of Canada

`Canada – Asia Energy Cooperation ConferenceA Review of Asian Investment in Canada’s E&P Sector:Economic Drivers and Current ChallengesSeptember 8, 2011Robert J. MasonManaging DirectorHead of Oil Sands, Investment BankingTD Securities Inc.Tel: (403) 292-1282

Economic Drivers & CurrentChallenges For New Investment

Asian Oil Sands AcquisitionsAcquirerDateInterestJV or 100%ValueEstimatedRecoverableResources1978Farm-in on Nexen, Imperial & Petro-CanadaJV / 100%($mm)n/a(mmbbl)~2,00019925% in Syncrude from Petro-CanadaJVn/a5152005~17% of MEGn/a$77958ײ40% in Northern Lights from Synenco JV$1054402006100% of Blackgold from Newmont100%$308353200710% in Joslyn from TotalJVn/a210200910% in Northern Lights from TotalJVn/a110ײ60% in MacKay and Dover from Athabasca JV$1,9003,06020109% in Syncrude from ConocoPhillipsJV$4,657930ײ45% in Peace River from Penn West JV$702900ײ40% in KKD from Statoil JV$2,3001,2402011Corporate acquisition of OPTI (35% Long Lake)JV$1,9971,829Source: Company Reports, TD Securities4

Other Asian Canadian E&P AcquisitionsAcquirerDateInterestJV or100%ValueConventionalOil & GasUnconvent.Gas1987Corporate acquisition of Husky($mm)100%$8552000Corporate acquisition of Renaissance100%$2,6082009Corporate acquisition of Harvest Energy100%$4,148201050% of Cutbank / Horn River from EncanaJV$533ײ50% of shale gas & other assets from Penn West JV$428ײHunt’s Canadian assets 100%$521201150% of Montney assets from ProgressJV$1,096Source: Company Reports, TD Securities5

Pace of Oil Sands M&A Activity2011 YTD Has Been SlowOil Sands M&A TransactionsTransaction Value ($ millions)$16,000$14,000$12,000$10,000$8,000$6,000$4,000$2,000$0In-SituMining# of Deals(# of Asian)Asian Acquirer %2 0 1 1215(2)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20101.2011 2011 YTD7(1)8(1)54(2)13(3)2(1)100.0%• Direct investment by Asian companies in the oil sands had been negligible until 2008; sincethen their share of total activity has been very significant• In the past 6 months there has been only 1 deal announced, CNOOC’s US$2.1 billionacquisition of OPTI Canada- Transaction notable as it represents the first corporate acquisition of a Canadian companywith domestic energy assets (oil sands or otherwise) by a state-controlled Chinese entity87.5%75.0%62.5%50.0%37.5%25.0%12.5%0.0%Asian Acquirer % (By Value)Source: Company Reports, TD SecuritiesNote: While Petro-Canada owned a number of oil sands assets, its sale to Suncor in 2009 is not classified as “oil sands” in the chart aboveas only a small proportion of its total production, reserves, cash flow and/or its overall value was “oil sands”1. Includes Total / Suncor asset swap; transaction value based on $1.75B in cash paid by Total and the implied value of 36.75% of theJoslyn project determined using $1.17 EV / Recoverable Resource paid by Total for UTS in July 20106

Asian Buyers Increasingly Involvedin Canadian E&P M&ACanadian E&P M&A TransactionsTransaction Value ($ millions)$50,000$40,000$30,000$20,000$10,00022Conventional / Unconventional GasOil SandsAsian Acquirer %# of Deals(# of Asian)3817264263(2)63(1)63 (1)4947(3)71(6)18(2)100%90%80%70%60%50%40%30%20%10%Asian Acquirer % (By Value)$0Oil Sands as %of Asian Deals2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1. 2011 2011 YTD0%0% 0% 0% 0% 100% 100% 0% 0% 37% 84% 66%• The trend of Asian involvement is similar for all Canadian E&P M&A, with a significant pick up inactivity starting in 2009- Asian acquirers as a % of total Canadian E&P activity is materially lower than for oil sands (~15%- 40% in last 3 years)• In terms of % of total Asian E&P acquisitions represented by oil sands, it has ranged from ~37% to84% in the last 3 yearsSource: Company Reports, Herold, TD SecuritiesNote: While Petro-Canada owned a number of oil sands assets, its sale to Suncor in 2009 is not classified as “oil sands” in the chart above as only asmall proportion of its total production, reserves, cash flow and/or its overall value was “oil sands”1. Includes Total / Suncor asset swap; transaction value based on $1.75B in cash paid by Total and the implied value of 36.75% of the Joslyn projectdetermined using $1.17 EV / Recoverable Resource paid by Total for UTS in July 20100%1.7

Asian (bbls):Asian (%):Japan33%Asian Oil SandsOwnership is DiversifyingDiversification of Asian Ownership in the Oil Sands2000 Ownership 2006 OwnershipCurrent Ownership7.7 Bbbls4.3%China –Husky *67%Japan27%Korea4%China –Other14%9.4 Bbbls5.4%China –Husky *55%Thailand8%China –Husky *16%15.4 Bbbls9.0%• Asian ownership has steadily increased over the past decade- Chinese ownership of the oil sands (excluding that held by Husky) has increased by thelargest margin, with the most recent acquisition that of OPTI by CNOOC- Japanese ownership started in 1978 and remains relatively unchanged in terms of barrels- Since 2006 both Korea and Thailand have entered the oil sands with investments in in-situprojects- India still noticeably absentKorea2%Japan18%China –Other56%Source: Based on 170 billion bbls of reserves per the ERCB’s Alberta’s Energy Reserves 2010 and Supply / Demand Outlook / OverviewReport. Breakdown includes direct holdings and indirect pro-rata interests held by CNOOC in MEG and CIC in Teck.* Husky’s is 70.7% owned by Hutchison Whampoa / Li Ka-shing8

Economic Drivers For Increased Investmentin Canada Oil Sands by Asian Companies1. Friendly investment environment in Canada2. Oil sands represent ~50% of the “accessible” oil reserves in the world3. Higher sustained oil prices starting in 2004-20054. Significant technological advances – both mining and SAGD – whichhave materially lowered the cost structure5. High capital intensities / minimum project sizes better suited for lowercost of capital NOCs & IOCs6. Long-term, non-declining nature of the resource, competitive fiscal(both tax & royalty) regime, etc.9

Economic Drivers For Increased Investment inUnconventional Gas Resources by Asian Companies1. Huge amounts of undeveloped unconventional gas in Western Canada(shale and other)2. Long-term LNG prices in Asia expected to be $12-$16/Mcf3. North American, and Canadian, natural gas price outlook quite muted− Forward NYMEX curve below $6/mmbtu – Canadian AECO evenlower4. Very healthy potential profit margin with expected costs to process andtransport gas to Asia estimated at $2-$3/Mcf10

Major Challenges Investing in Oil Sands& Canada’s Unconventional Gas PlaysOil Sands1. Lack of pipeline export capacity out of Cushing area to Gulf Coastdepressing prices of Canadian light & heavy crudes vs. their internationalpeers− Situation expected to be corrected in next few years once new capacitybuilt (either Keystone XL or other proposed projects)2. Limited export capacity to US Gulf & Canadian West Coast− Proposed Keystone XL and Northern Gateway pipelines facingconsiderable regulatory, environmentalist and First Nations groupheadwinds3. Pace of development, and expected cost escalation, picking up again− Increasing concerns regarding availability of skilled labourUnconventional Gas1. Potential regulatory delays & opposition by environmental and FirstNations groups11