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Stage 3 Upgrader Expansion Project

The Stage 3 expansion project reached 98 per cent completion by year-end 2005. Following a scheduled phase-in and start-up, all Stage 3 processing units are expected to be on line in the second quarter of 2006. Stage 3 will ultimately raise Syncrude’s production capacity to 128 million barrels per year (350,000 barrels per day) of Syncrude Sweet Premium, a premium light synthetic crude oil. This new and cleaner burning crude oil product is expected to be in high demand by refineries throughout North America. A major environmental benefit of the Stage 3 investment will be a reduction in total sulphur dioxide emissions of about 20 per cent from current levels, despite a 50 per cent increase in plant capacity.

As the Stage 3 expansion nears completion, many of the units associated with this project are being commissioned and handed over to operations. The ready-foroperations team, which is responsible for this process, was increased in 2005 to handle the increased volume of start-up activity and this resulted in higher non-production costs compared to 2004. Non-production costs consist primarily of development expenditures relating to capital programs, which are expensed, and include commissioning costs, pre-feasibility engineering, technical and support services, research and development, and regulatory and stakeholder consultation expenditures.

Tire Shortage

Syncrude has taken internal action to mitigate the shortage of off-road tires for large heavy equipment caused by robust activity in global resource industries. Tire suppliers have been unable to keep pace with demand and, as a result, Syncrude’s tire allocation for 2006 could be less than required. Syncrude also continues to work closely with our tire suppliers, with whom we have an excellent relationship, in an effort to ensure the shortage does not negatively impact our production.

Marketing Syncrude Sweet Blend

Syncrude does not directly market Syncrude Sweet Blend. Each joint venture participant is responsible for independently marketing its own share of Syncrude product and associated byproducts such as sulphur. To ensure compatibility with customer needs, joint venture participants engage in ongoing consultation with refi nery customers. This communication ensures crude oil product quality evolves to meet changing needs and expectations. Our new Syncrude Sweet Premium, a cleaner burning product to be introduced in 2006, will help North American refi ners meet new environmental requirements.