Production and Unit Operating Costs ¹

	2004		2003		2002
(amounts in millions of barrels)	Bitumen	SSB	Bitumen	SSB	Bitumen	SSB
Production
Mildred Lake	53.3		63.4		71.7
Aurora	49.9		28.9		26.1
Total	103.2	87.2	92.3	77.3	97.8	83.8
	2004		2003		2002
(amounts in Cdn dollars)	$/Bbl Bitumen	$/Bbl SSB	$/Bbl Bitumen	$/Bbl SSB	$/Bbl Bitumen	$/Bbl SSB
Unit Operating Costs
Bitumen Production
Overburden Removal Costs	1.78		2.33		2.17
Production Costs 2	6.12		6.17		5.75
Purchased Energy	1.89		1.67		1.02
Total Bitumen Production	9.79	11.58	10.17	12.13	8.94	10.43
Upgrading
Turnarounds and Catalysts		0.71		1.86		1.19
Production Costs		3.27		3.82		3.24
Purchased Energy		2.00		2.45		1.19
Total Upgrading		5.98		8.13		5.62
Corporate Administration and R&D		1.05		0.81		1.00
Total Unit Costs		18.61		21.07		17.05
1 For description of cost categories, see Financial Performance. 2 Production costs in 2003 include Aurora Train 2 start-up costs: Based on total bitumen production, the start-up costs are $0.08/bbl of bitumen, $0.10/bbl of SSB.

Bitumen Production at Mildred Lake and Aurora comprises the direct and indirect costs of mining and extraction operations, including overburden removal, production and purchased energy. Bitumen Production costs are set out on a dollar per barrel of bitumen basis, and on a dollar per barrel of equivalent SSB basis. The higher unit cost per barrel of SSB results from the lower volumetric yield achieved when bitumen is upgraded into a barrel of SSB.

The direct and indirect costs of upgrading bitumen into SSB have been divided into the three main categories of turnaround and catalysts costs, production costs and purchased energy.

Upgrading of bitumen occurs in two stages. The initial stage of upgrading involves the conversion of bitumen into a stream of intermediate, sour products. The secondary or hydro-treating stage upgrades the intermediate sour products into light, sweet crude oil called Syncrude Sweet Blend. This stage is more energy intensive due to the addition of hydrogen, which Syncrude produces from imported natural gas.

Syncrude’s value-adding strategy to produce and upgrade bitumen into a light sweet crude oil generates superior netbacks and financial performance, and also reduces emissions from downstream refining.

Supplementary Unit Cost Information

Syncrude separates total unit operating costs into three broad categories - Bitumen Production, Upgrading, and Corporate Administration and R&D. Syncrude’s business objectives are to be the lowest cost producer of bitumen and the highest margin upgrader.

Total bitumen production costs decreased to $9.79 per barrel of bitumen ($11.58 per barrel of SSB) in 2004 from $10.17 per barrel ($12.13 per barrel of SSB) in 2003, as lower unit costs at the Aurora mine offset higher unit costs at the Mildred Lake mine.

In 2004, Aurora’s growing production of high-grade oil sand, and its lower waste-to-ore ratio, more than offset the high cost of declining lower grade production at the Mildred Lake mine. Aurora’s production and overburden removal costs decreased sharply to $6.34 per barrel from $8.49 in 2003.

Total upgrading costs in 2004 were $5.98 per barrel of SSB, a significant decrease from the $8.13 per barrel of SSB recorded in 2003. Higher SSB production, the absence of a major coker maintenance turnaround, lower energy costs, and other efficiencies were the main contributing factors to the improved performance. The operating cost of converting sour, intermediate product into Syncrude Sweet Blend product was more than offset by increased margins.

Corporate Administration and R&D costs increased by $0.24 to $1.05 per barrel in 2004, the result of higher costs and obligations associated with variable compensation programs.