Letter from Syncrude’s Leaders

While our company represents many different things depending on your perspective, the values expressed by our people are perhaps the best reflection of what Syncrude stands for.

Clearly, they believe the best success is that which is shared with our many stakeholders. We couldn’t agree more, and that is how Syncrude came to have a banner year on many fronts.

For starters, there was continuing excellence in safety performance. Syncrude’s employees and contractors engaged in our maintenance and expansion projects together achieved a lost-time injury frequency of just 0.11 per hundred person years worked despite the increased risk posed by the extensive construction activity underway on our site.

Shipments of 87.2 million barrels of Syncrude Sweet Blend set a new record for crude oil production, up 12.8 per cent over 2003 as the plant experienced steady, reliable operations.

This production translated into a record $4.57 billion in pro-forma revenue, in part due to higher crude oil prices. Operating costs, at $18.61 per barrel, reflected a reduction of more than 10 per cent in costs versus 2003. Conversely, pro-forma operating netbacks of $33.23 per barrel were up more than 50 per cent over the prior year.

Syncrude’s Stage 3 Upgrader expansion project made substantial progress and was 75 per cent complete at year-end. The South West Quadrant Mine Replacement project was close to 50 per cent complete.

Syncrude’s contribution to the provincial and national economies rose markedly to $4.45 billion, the bulk of which supported the procurement of goods and services, including a record $107 million in procurement from Aboriginal firms in the Wood Buffalo region.

The latter achievement was one reason the Aboriginal community of Fort McKay cited Syncrude in 2004 for having best practices in Aboriginal business development and employment. This honour is one outcome among many that demonstrated Syncrude’s commitment to sharing the benefits of our success.

This commitment also is evident in our community investment activities, which saw major donations to community groups that are working to enhance the quality of life among our region’s residents. Syncrude provided support for the new Syncrude Sport and Wellness Centre, a new Child Development Centre and for the purchase of medical equipment needed by the local Health Region.

Elsewhere in the community, Syncrude continued to provide both financial resources and professional expertise to the regional multi-stakeholder groups that are striving to monitor and manage the social and environmental effects of oil sands development. A major concern lies in the fact that expansion of our operations and those of other companies is leading to community growth that is exceeding earlier expectations; meanwhile, development of needed infrastructure has not kept pace. Syncrude and other stakeholders are seeking a holistic solution to this issue and are working to make representations to provincial and federal governments for increased and accelerated infrastructure funding.

In 2004, Syncrude continued efforts to develop a new generation of oil sands workers. Indeed, our work with educational institutions to develop and sustain education and training programs at the secondary and post-secondary levels is providing significant career opportunity to local area residents; they comprised two-thirds of all new employees hired last year.

Another challenge we face is the need for a growing, skilled workforce in a competitive market in our region. We are developing a number of workforce development and renewal initiatives within the company and externally.

Syncrude’s success in attracting new entrants to our workplace is influenced by the experience of our more seasoned employees, as nearly three-quarters of the latter have expressed a high level of satisfaction with Syncrude as an employer. Still, we continue to seek input on improvements that will keep Syncrude a workplace of choice and we appreciate the many suggestions employees made toward this goal in our biennial employee survey. These suggestions are being addressed and employees are being kept informed as to their progress.

Our employees also indicated high regard for Syncrude’s commitment to workplace safety, which was strengthened during the year with the implementation of a new standard for worker drug and alcohol screening. In our view, the presence and use of alcohol and drugs in the workplace is a significant safety risk that we must guard against. For this reason, Syncrude is taking a leadership position on this issue.

Similarly, risk mitigation is a central theme in Syncrude’s efforts to continuously improve our management systems.

The information we provide to stakeholders is increasingly subject to either Syncrude’s own rigorous controls, internal audit, or reviewed by external parties, or subject to regulatory review. We are working on our verification systems to give all stakeholders confidence in the veracity of our reporting.

Syncrude’s path to the future, including our strategies to responsibly manage growth, is another subject shaped by our stakeholders. Along with substantial growth in our production of crude oil and an upgrade in crude oil product quality to meet market demand, this path will usher in an era of marked improvement in our environmental performance. Many of these positive outcomes will be realized when our Upgrader Expansion project becomes fully operational in mid-2006. But we still face further challenges. Reducing sulphur dioxide emissions is one of these. Initiatives such as the Syncrude Emission Reduction Project, currently in early stage engineering and scheduled for start-up in 2009, will keep Syncrude moving forward on its sustainability journey.

Growth in production will increase land disturbance, and we will need to continue our long-term efforts in land reclamation. Energy is another challenge, in terms of improving our energy efficiency to lower costs and to reduce our greenhouse gas emissions intensity. While we did not meet our efficiency improvement target in 2004 for a number of production related reasons, we continue to reduce our energy intensity while expanding our production. However, because we are significantly increasing our production as well as the quality and environmental attributes of our crude oil product, total emissions of greenhouse gases will increase.

Balancing various stakeholder interests is an ongoing challenge, but we continue to make progress. In this report, you will see significant evidence of actions we have taken as a result of our proactive stakeholder engagement processes; these actions are indicated by the symbol.

We will continue to seek your feedback and guidance on matters of mutual importance, and will work to earn your respect by doing the right thing. Our plant operations will be safe, reliable and profitable, our research and development program will foster continuous improvement, our communities will prosper socially and economically, and our people will embody the many positive attributes of leadership that all of us have come to expect and appreciate.

Toward these outcomes, we will be guided, as always, by Syncrude’s Vision and Values because they strike at the very heart of what sustainability is all about.

We invite readers to peruse this report for more information on our sustainability progress in 2004, and for the many indications of how we are striving to lead by example.

Marcel Coutu Chairman	Charles Ruigrok Chief Executive Officer	Jim Carter President and Chief Operating Officer