CNW.ca: Shell Canada Announces Earnings of $1.7 Billion

Attention Business/Financial Editors: 

    CALGARY, Jan. 24 /CNW/ – Shell Canada Limited announces annual earnings
of $1,738 million or $2.11 per common share in 2006 compared with
$2,001 million or $2.43 per common share in 2005(1). The decrease was largely
due to the first major scheduled turnaround of the Athabasca Oil Sands
Project, together with lower natural gas prices.

    Fourth-quarter earnings were $223 million compared with $611 million for
the same period in 2005(1). The decrease was mainly due to lower commodity
prices and a charge for the Long Term Incentive Plan.
    Cash flow from operations was $2,614 million in 2006, down $422 million
from 2005(1), due to the same factors that impacted full year earnings.
    Capital and predevelopment expenditures amounted to $2,426 million in
2006, excluding the acquisition of BlackRock Ventures Inc. (BlackRock),
compared with $1,715 million in 2005. The difference was due to increased
investment in growth activities in unconventional oil and gas.
    “Strong production from our oil sands operations following the scheduled
turnarounds, and record earnings in Oil Products, underpinned our 2006
results,” said Clive Mather, President and Chief Executive Officer, Shell
Canada Limited. “Expansions of our mining, in situ and unconventional gas
businesses are now all in full swing. With the acquisition of BlackRock and
other strategic land positions, we have built a strong platform for future
growth.”

    < <     Earnings(footnote 1) ($ millions)       Q1 05    Q2 05    Q3 05    Q4 05    Q1 06    Q2 06    Q3 06    Q4 06        416      524      450      611      451      476      588      223     Cash Flow(footnote 1) ($ millions)       Q1 05    Q2 05    Q3 05    Q4 05    Q1 06    Q2 06    Q3 06    Q4 06        635      799      676      926      729      530      917      438     Capital Expenditures(footnote 2) ($ millions)       Q1 05    Q2 05    Q3 05    Q4 05    Q1 06    Q2 06    Q3 06    Q4 06        269      327      410      709      404      492      592      938     (1) Prior periods restated     (2) Excludes BlackRock purchase price                             SHELL CANADA LIMITED                     MANAGEMENT'S DISCUSSION AND ANALYSIS     Total Company     Shell Canada Limited earnings in 2006 were $1,738 million, down from $2,001 million(1) in 2005. Earnings were lower in 2006 due to the first major scheduled turnaround of the Athabasca Oil Sands Project (AOSP), which resulted in higher maintenance costs and lower production, together with lower natural gas prices. These were offset by higher oil prices and refining light oil margins, and a favourable adjustment in the second quarter of $222 million resulting from changes to federal and Alberta corporate tax rates. Total Long Term Incentive Plan (LTIP) charges were $44 million in 2006 compared to $186 million in 2005. Earnings in 2005 also included a favourable adjustment of $164 million related to the use of non-capital losses resulting from the acquisition of an affiliated company, Coral Resources Canada ULC.     Earnings for the fourth quarter of 2006 were $223 million compared with $611 million for the corresponding period in 2005. The decrease was mainly due to significantly lower natural gas prices, a $135 million charge for the LTIP compared with a charge of $30 million for the same period in 2005, and the turnaround at the Sarnia Refinery. Earnings in the fourth quarter of 2005 included a favourable adjustment of $65 million related to the use of non- capital losses from the acquisition of an affiliated company.     Total production for 2006 was 214,900 barrels of oil equivalent per day (BOE/d), down from 228,700 BOE/d in 2005. The decrease was mainly due to a belt tear at the mine in the first quarter and the scheduled turnaround at the mine and upgrader at mid year, as well as lower natural gas liquids (NGL) production. Total hydrocarbon production for the fourth quarter was a record 244,900 BOE/d.     (1) Prior periods restated as required by Shell Canada's adoption of         Emerging Issues Committee (EIC) Abstract 162 "Stock Based         Compensation For Employees Eligible to Retire Before The Vesting         Date" (See Note 2 to the Consolidated Financial Statements).     >>

    Exploration & Production

    Exploration & Production (E&P) delivered earnings of $499 million in 2006
compared with $665 million in 2005. Lower natural gas prices and NGL
production due to natural field decline were offset by lower LTIP charges and
a positive tax gain of $47 million from changes to federal and Alberta
corporate tax rates. Total LTIP charges were $12 million in 2006 compared to
$54 million in 2005. Effective January 1, 2006, the Peace River business was
transferred from E&P to the Oil Sands business unit. Prior period E&P earnings
have been adjusted to exclude Peace River operations.
    E&P earnings in the fourth quarter of 2006 were $53 million compared with
earnings of $263 million for the same period in 2005. The decrease in earnings
was predominately due to significantly lower prices, in addition to lower NGL
volumes, higher dry hole write-off expenses, and an LTIP charge of $35
million.
    Total natural gas production in 2006 increased to 523 million cubic feet
per day (mmcf/d) from 512 mmcf/d in 2005, with increases from the Foothills
and basin-centred gas (BCG) businesses.
    During the quarter, the Company received Alberta Energy and Utilities
Board approval for a downspacing application in the Chinook Ridge region in
the BCG business. Approval for downspacing will allow the Company to drill
four wells per section and utilize a pad drilling program to reduce costs and
environmental impacts. The first four wells on Shell Canada’s pad drilling
program have been successfully drilled. The BCG program produced natural gas
volumes of 23 mmcf/d for the fourth quarter of 2006, up from 8 mmcf/d for the
same period in 2005. The BCG program remains on target to deliver production
of 100 mmcf/d by the end of 2007.
    The Sable Offshore Energy Project compression platform commenced
operations in the fourth quarter. Natural gas production capacity is expected
to increase over the next several weeks and the project will help to offset
natural decline rates from the producing fields over the longer term.
    The Great Barasway deepwater exploration well in the Orphan Basin
offshore Newfoundland continued drilling in the fourth quarter. Drilling is
taking longer than anticipated and is now expected to conclude during the
first quarter of 2007.
    The Mackenzie Gas Project is experiencing upward cost pressure,
influenced by regional and global energy industry activity. In addition, a
recent Federal Court decision regarding Aboriginal consultation by the federal
government on the proposed Mackenzie Valley pipeline has resulted in further
uncertainty regarding the regulatory process for the project. The project
proponents expect to file an updated cost estimate and schedule with
regulators later in the first quarter of 2007.
    Within the Foothills business, construction is progressing on the
northeast British Columbia gas gathering system and dehydration facility,
which is designed to connect several existing gas discoveries and increase
production in 2007 from the Monkman Pass region. Two wells – a development
well and an exploration well – were drilled in 2006 in the same area as the
initial Tay River discovery. Neither well was successful in the main target
zone.

    Oil Sands

    Oil Sands earnings in 2006 were $718 million compared with $783 million
in 2005. Higher oil prices were offset by lower production due to the belt
tear at the mine in the first quarter of 2006 and a major scheduled turnaround
of both the mine and upgrader at mid year. The 2006 results included a
favourable tax adjustment of $144 million resulting from changes to federal
and Alberta corporate tax rates. Total LTIP charges were $8 million in 2006
compared to $30 million in 2005.
    Oil Sands earnings in the fourth quarter of 2006 were $221 million, up
from $193 million for the corresponding period in 2005. Increased in situ
production, lower heavy oil differentials and an improved AOSP synthetic
product mix were offset by lower crude prices in the quarter. Earnings for the
quarter also included $21 million from AOSP Expansion 1 payments received from
the other joint venture owners and an insurance settlement of $15 million from
the June 30, 2006 fire at the BlackRock Seal battery. These earnings were
offset by an LTIP charge of $29 million.
    The Company’s share of AOSP bitumen production in 2006 averaged 82,500
barrels per day (bbls/d), down from the average of 95,900 bbls/d achieved in
2005. The lower production was due to the belt tear at the mine in the first
quarter of 2006 and a major scheduled turnaround of both the mine and upgrader
at mid year. In the fourth quarter of 2006, average bitumen production was
106,600 bbls/d compared with 106,800 bbls/d for the same period in 2005.
    Unit cash operating costs for the AOSP averaged $28.73 per barrel in
2006, an increase of $5.51 per barrel compared to 2005. The increase was
largely due to the first major scheduled turnaround of the AOSP, which
resulted in higher maintenance costs and lower production. Unit cash operating
costs in the fourth quarter of 2006 were $24.26 per barrel compared with
$23.88 for the same period in 2005. The Company realized an average synthetic
crude price of $55.56 for the quarter.
    During the quarter, the Company received Alberta Energy and Utilities
Board approval for the Muskeg River Mine Expansion, an integral part of AOSP
Expansion 1, a 100,000 bbls/d expansion of oil sands mining and upgrading
facilities. Construction is well underway on both the upstream and downstream
components of Expansion 1, and the project now employs 2,400 people.
    Total average in situ production for the full year was 12,400 bbls/d
compared to 8,900 bbls/d in 2005. In situ production for the fourth quarter
was 20,400 bbls/d, up significantly from 8,900 bbls/d in the fourth quarter of
2005 due to new thermal production at Peace River and new volumes associated
with the purchase of BlackRock Ventures Inc. (BlackRock). Year-end capacity
was 30,000 bbls/d although, as previously disclosed, production volumes at
Peace River continue to be reduced due to the apportionment on the Rainbow
Pipeline.
    Construction of the 10,000 bbls/d Orion steam-assisted gravity drainage
(SAGD) project near Cold Lake is on track with a target start up in mid 2007.
During the quarter, the Company filed its regulatory application for the in
situ growth plan for a 100,000 bbls/d Peace River development.

    Reserves

    In 2006, gross proved natural gas reserves were 1,400 billion cubic feet
(bcf) compared with 1,592 bcf for 2005, after production of 191 bcf. Natural
gas reserve additions from extensions and discoveries of 133 bcf, including
95 bcf from continued drilling success in the BCG region, were offset by
downward technical and economic revisions.
    Gross proved natural gas liquids reserves decreased to 61 million barrels
in 2006 after production of 12 million barrels and a small offset from net
positive technical and economic revisions.
    The Company’s gross proved in situ bitumen reserves increased from
28 million barrels in 2005 to 96 million barrels in 2006, due mainly to the
acquisition of BlackRock. Reserves additions resulting from infill drilling in
the Peace River field were offset by production of 5 million barrels and minor
technical revisions.
    In accordance with U.S. SEC regulations, the Company booked proved
reserves of 34 million barrels for Orion, reflecting only the approved first
phase of the project. Reserves for the future phases of Orion will be booked
upon final investment decision. Proved reserves for Orion of 95 million
barrels previously reported by BlackRock were prepared according to Canadian
reserve reporting regulations.
    The Company’s gross proved minable bitumen reserves increased by 60 per
cent in 2006 to 1,292 million barrels from 808 million barrels in 2005.
Following the final investment decision for AOSP Expansion 1, the Company
booked 497 million barrels on a gross basis to reflect the project’s full
economic life of 38 years. Core-hole drilling activity at the Muskeg River
Mine resulted in the reclassification of 17 million barrels from the probable
to proved category. The additions were partially offset by production of
30 million barrels in 2006. Total gross proved and probable minable bitumen
reserves increased from 936 million barrels in 2005 to 1,695 million barrels
for 2006.
    Shell Canada’s 2006 Annual Report will provide full gross and net
reserves information.

    Oil Products

    Oil Products 2006 annual earnings were a record $584 million, up
significantly from earnings of $434 million for 2005. Stronger refining
margins and a favourable second quarter adjustment of $43 million resulting
from changes to federal and Alberta corporate tax rates were partially offset
by lower refinery yield. Planned turnarounds at both the Montreal East and
Sarnia refineries in 2006, as well as feedstock limitations at both the
Scotford and Montreal East refineries, impacted refinery yield. Total LTIP
charges were $13 million in 2006 compared with $56 million in 2005.
    Oil Products earnings in the fourth quarter of 2006 were $22 million
compared with $106 million for the same period in 2005. The decrease was
mainly due to higher operating expenses, which included an LTIP charge of
$36 million, lower refining and marketing margins, and lower refinery yield.
The total impact of the planned turnaround at the Sarnia Refinery was $44
million. Refinery yield was also lower in the fourth quarter of 2006 due to
feedstock limitations at Montreal East Refinery and lower benzene sales from
Scotford.
    In the fourth quarter, work progressed on designs for a new heavy oil
refinery near Sarnia, Ontario. The team has begun to advance environmental
impact assessments and ongoing discussions with various regulatory and
community stakeholder groups.
    Oil Products has planned a major turnaround for the Montreal East
Refinery in the second quarter of 2007. The turnaround will impact a number of
process units for approximately one month.

    Corporate

    Corporate incurred a loss of $63 million in 2006 compared with earnings
of $119 million in 2005. Higher interest charges were offset by lower LTIP
charges in 2006. Prior year earnings included a favourable adjustment of
$164 million related to the use of non-capital losses available to the Company
resulting from the acquisition of an affiliated company, Coral Resources
Canada ULC. Total LTIP charges in 2006 were $12 million compared to
$46 million in 2005.
    Corporate incurred a loss of $73 million in the fourth quarter of 2006
compared with earnings of $49 million for the corresponding period in 2005.
The change was mainly due to higher operating expenses, which included a
$35 million LTIP charge, higher interest charges in 2006, and a favourable
adjustment of $65 million in 2005 related to the use of non-capital losses
available to the Company resulting from the acquisition of an affiliated
company, Coral Resources Canada ULC.

    Cash Flow and Financing

    In 2006, cash flow from operations was $2,614 million, down from
$3,036 million in 2005. The decrease is largely due to lower bitumen and NGL
volumes, lower natural gas prices and higher expenses. These were partially
offset by higher oil prices and refining light oil margins, and a favourable
adjustment resulting from changes to federal and Alberta corporate tax rates.
Cash flow from operations for the fourth quarter of 2006 was $438 million,
down from $926 million for the same period in 2005. The decrease was mainly
due to lower natural gas prices, higher LTIP charges and the turnaround at the
Sarnia Refinery.
    Capital and predevelopment expenditures amounted to $2,426 million for
2006 (excluding the BlackRock purchase price of $2.4 billion net of cash
acquired) and $938 million for the fourth quarter, compared with
$1,715 million and $709 million respectively for 2005. The difference was due
to increased investment in growth activities in unconventional oil and gas.
    Total debt outstanding at the end of 2006 was $1,435 million, which
includes $1,036 million of commercial paper issued under the Company’s
$1.5 billion program, borrowings of $199 million against a $1-billion
syndicated facility established in the second quarter of this year and
$200 million for a mobile equipment lease. This compares with debt on the
December 31, 2005 balance sheet of $211 million, mainly due to the mobile
equipment lease. The Company also held $1,083 million in cash on December 31,
2005.
    Dividends paid in the fourth quarter of 2006 were $0.11 per common share,
totalling $91 million. This same level of dividend was paid in the third
quarter of 2006 and the fourth quarter of 2005.

    Share Information

    At January 15, 2007, the Company had 825,662,514 common shares
outstanding (October 15, 2006 – 825,541,514 common shares) with
21,365,238 employee stock options outstanding, of which 10,360,457 were
exercisable or could be surrendered to exercise an attached share appreciation
right (October 15, 2006 – 22,333,630 outstanding and 11,256,400 exercisable).

    < <     -------------------------------------------------------------------------     Stock Trading Information                                                              Fourth Quarter                                                            2006         2005     -------------------------------------------------------------------------     Share Prices (dollars)(1)  - High                     43.85        42.35                                - Low                      28.90        32.45                                - Close (end of period)    43.51        42.05     Shares traded (thousands)(1)                         85,578       23,719     -------------------------------------------------------------------------     (1) Toronto Stock Exchange quotations     -------------------------------------------------------------------------     >>

    Additional Information

    Additional information relating to Shell Canada Limited filed with
Canadian and U.S. securities regulatory authorities, including the Annual
Information Form and Form 40-F, can be found online under the Company’s
profile at www.sedar.com and www.sec.gov.

    Cautionary Note

    This document contains “forward-looking statements” based upon
management’s assessment of the Company’s future plans and operations. These
forward-looking statements include references to the Company’s plans for
growth, future capital and other expenditures, drilling, development,
construction and expansion plans, maintenance activities and schedules,
resources and reserves estimates, future production of resources and reserves,
the submission and receipt of regulatory applications, project costs and
schedules, the impact of compression projects, the apportionment of pipeline
capacity and oil and gas production levels.
    Readers are cautioned not to place undue reliance on forward-looking
statements. Although the Company believes that the expectations represented by
such forward-looking statements are reasonable based on the information
available to it on the date of this document, there can be no assurance that
such expectations will prove to be correct. Forward-looking statements involve
numerous known and unknown risks and uncertainties that could cause actual
results to differ materially from those anticipated by the Company. These
risks and uncertainties include, but are not limited to, the risks of the oil
and gas industry (including operating conditions and costs), market
competition, demand for oil, gas and related products, disruptions in supply,
project start-up, schedules and execution, labour availability, material and
equipment shortages, constraints on infrastructure, the uncertainties
involving geology of oil and gas deposits and reserves estimates, including
the assumption that the quantities estimated can be found and profitably
produced in the future, the receipt of regulatory approvals, stakeholder
engagement, fluctuations in oil and gas prices and foreign currency exchange
rates, general economic conditions, changes in law or government policy, and
other factors, many of which are beyond the control of the Company.
    The forward-looking statements contained in this document are made as of
the date of this document and the Company does not undertake any obligation to
update publicly or revise any of the forward-looking statements contained in
this document, whether as a result of new information, future events or
otherwise, except as required by law. The forward-looking statements contained
in this document are expressly qualified by this cautionary note.
    Certain financial measures are not prescribed by Canadian generally
accepted accounting principles (GAAP). These non-GAAP financial measures do
not have any standardized meaning and, therefore, may not be comparable with
the calculation of similar measures of other companies. The Company includes
as non-GAAP measures return on average capital employed (ROACE), cash flow
from operations and unit cash operating cost because they are key internal and
external financial measures used to evaluate the performance of the Company.
    The Company’s reserves disclosure and related information are prepared in
reliance on a decision of the applicable Canadian securities regulatory
authorities under National Instrument 51-101 – Standards of Disclosure for Oil
and Gas Activities (NI 51-101), which permits the Company to present its
reserves disclosure and related information in accordance with the applicable
requirements of the United States Financial Accounting Standards Board and the
United States Securities and Exchange Commission. This disclosure differs from
the corresponding information required by NI 51-101.
    For 2006, reserves estimates associated with the BlackRock properties
were prepared by an independent qualified reserves evaluator. Otherwise, the
Company’s reserves estimates are prepared by internal qualified reserves
evaluators. With the exception of the BlackRock properties, no independent
qualified reserves evaluator or auditor was involved in the preparation of the
Company’s reserves data.
    Certain volumes have been converted to barrels of oil equivalent (BOE).
BOEs may be misleading, particularly if used in isolation. A conversion of six
thousand cubic feet of natural gas to one barrel of oil, as used in this
document, is based on the energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.

    < <     SHELL CANADA LIMITED     Financial Highlights     ($ millions, except as noted)     (unaudited)                                          Fourth Quarter       Total year                                           2006      2005      2006      2005     -------------------------------------------------------------------------                                                (restated)          (restated)     Earnings                               223       611     1 738     2 001     Revenues                             3 581     4 043    14 806    14 394     Cash flow from operations(1)           438       926     2 614     3 036     Return on average common      shareholders' equity (%)                -         -      19.6      27.2     Per common share (dollars)      (Note 7)       Earnings - basic                    0.27      0.74      2.11      2.43       Earnings - diluted                  0.27      0.73      2.09      2.40       Dividends paid                     0.110     0.110     0.440     0.367     Results by Segment (Note 3)     Earnings       Exploration & Production              53       263       499       665       Oil Sands                            221       193       718       783       Oil Products                          22       106       584       434       Corporate                            (73)       49       (63)      119     -------------------------------------------------------------------------     Total                                  223       611     1 738     2 001     -------------------------------------------------------------------------     Revenues       Exploration & Production             531       814     2 200     2 554       Oil Sands                          1 024       909     3 363     3 356       Oil Products                       2 641     2 985    11 367    10 779       Corporate                              4         2        78        63       Inter-segment sales                 (619)     (667)   (2 202)   (2 358)     -------------------------------------------------------------------------     Total                                3 581     4 043    14 806    14 394     -------------------------------------------------------------------------     Cash flow from operations(1)       Exploration & Production             215       360       990     1 024       Oil Sands                            239       363       843     1 411       Oil Products                          78       216       831       527       Corporate                            (94)      (13)      (50)       74     -------------------------------------------------------------------------     Total                                  438       926     2 614     3 036     -------------------------------------------------------------------------     Capital and predevelopment      expenditures       Exploration & Production             270       319       828       796       Oil Sands                            473       190     1 150       420       Oil Products                         186       192       402       484       Corporate                              9         8        46        15     -------------------------------------------------------------------------     Total                                  938       709     2 426     1 715     -------------------------------------------------------------------------     Return on average capital      employed (%)(2)       Exploration & Production               -         -      23.9      40.3       Oil Sands                              -         -      16.6      27.8       Oil Products                           -         -      24.0      19.8     -------------------------------------------------------------------------     Total                                    -         -      18.2      26.7     -------------------------------------------------------------------------       SHELL CANADA LIMITED     Operating Highlights     (unaudited)                                           Fourth Quarter       Total year                                           2006      2005      2006      2005     -------------------------------------------------------------------------                                                (restated)          (restated)     EXPLORATION & PRODUCTION (Note 3)     Production     Natural gas (mmcf/d)       Western Canada natural gas           415       407       416       393       Sable natural gas                    105       121       107       119                                        --------------------------------------     Total natural gas - gross              520       528       523       512                       - net                431       428       425       413     Ethane, propane and      butane (bbls/d) - gross            18 600    23 600    19 800    23 300                      - net              14 800    18 600    15 900    18 600     Condensate (bbls/d) - gross         12 600    15 600    13 000    15 300                         - net            9 600    12 000    10 100    11 800     Sulphur (tons/d) - gross             4 700     5 600     5 200     5 300                      - net               4 700     5 000     5 000     4 800     Sales(3) - gross     Natural gas (mmcf/d)                   507       520       514       510     Ethane, propane and      butane (bbls/d)                    35 800    41 400    34 100    38 200     Condensate (bbls/d)                 20 200    23 600    20 600    18 100     Sulphur (tons/d)                    13 300    12 300    11 900    11 700     -------------------------------------------------------------------------     OIL SANDS (Note 3)     Production     Bitumen (bbls/d) - gross       Minable                          106 600   106 800    82 500    95 900       In situ                           20 400     8 900    12 400     8 900                                        --------------------------------------     Total                              127 000   115 700    94 900   104 800     Bitumen (bbls/d) - net       Minable                          105 600   105 700    81 700    95 000       In situ                           20 100     8 600    12 000     8 700                                        --------------------------------------     Total                              125 700   114 300    93 700   103 700     Sales(3)       Synthetic crude sales excluding        blend stocks (bbls/d)           113 100   112 300    85 900    99 400       Purchased upgrader blend        stocks (bbls/d)                  39 300    42 900    35 400    37 100                                        --------------------------------------     Total synthetic crude      sales (bbls/d)                    152 400   155 200   121 300   136 500       Bitumen product excluding        diluent (bbls/d)                 22 500    10 200    13 100     9 900       Purchased diluent (bbls/d)         6 100     2 100     3 000     1 900                                        --------------------------------------     Total bitumen products (bbls/d)     28 600    12 300    16 100    11 800     In situ condensate (bbls/d)          3 200     3 100     2 700     2 400     Unit Costs(4)     Mining and upgrading operations       Cash operating cost        - excluding natural          gas ($/bbl)                     19.42     16.73     23.49     17.14        - natural gas ($/bbl)              4.84      7.15      5.24      6.08                                        --------------------------------------     Total cash operating cost ($/bbl)    24.26     23.88     28.73     23.22       Depreciation, depletion        and amortization ($/bbl)           4.84      5.14      5.53      5.77                                        --------------------------------------     Total unit cost ($/bbl)              29.10     29.02     34.26     28.99     Unit Costs(4)     In situ operations       Cash operating cost        - excluding natural gas ($/bbl)   11.87     12.04     14.02     13.65        - natural gas ($/bbl)              2.90      5.71      5.85      9.56                                        --------------------------------------     Total cash operating cost ($/bbl)    14.77     17.75     19.87     23.21       Depreciation, depletion        and amortization ($/bbl)           7.61      6.45      7.85      5.11                                        --------------------------------------     Total unit cost ($/bbl)              22.38     24.20     27.72     28.32     -------------------------------------------------------------------------     OIL PRODUCTS     Sales(3)       Gasolines (m3/d)                  20 800    20 900    20 800    21 000       Middle distillates (m3/d)         20 200    22 900    20 000    21 000       Other products (m3/d)              6 400     7 300     6 500     7 100                                        --------------------------------------     Total Oil Products sales (m3/d)     47 400    51 100    47 300    49 100     Crude oil processed by      Shell refineries (m3/d)(5)         44 200    41 500    44 600    44 900     Refinery utilization (per cent)(6)      84        80        86        87     Earnings per litre (cents)(7)          0.5       2.3       3.4       2.4     -------------------------------------------------------------------------     Prices     Natural gas average plant      gate netback price ($/mcf)           6.51     11.53      6.79      8.23     Ethane, propane and butane      average field gate price ($/bbl)    30.56     44.41     33.94     34.79     Condensate average field      gate price ($/bbl)                  63.93     68.30     71.63     66.76     Synthetic crude average plant      gate price ($/bbl)                  55.56     56.99     61.32     57.55     -------------------------------------------------------------------------       (Financial Charts)     -------------------------------------------------------------------------             Natural Gas    Ethane, Propane  Condensate Avg.  Synthetic Crude             Avg. Price       and Butane         Price          Avg. Price            (Plant Gate       Avg. Price      (Field Gate)     (Plant Gate)              Netback)       (Field Gate)       ($/bbl)          ($/bbl)              ($/mcf)           ($/bbl)     -------------------------------------------------------------------------     Q4 05     11.53             44.41             68.30             56.99     -------------------------------------------------------------------------     Q1 06      8.29             38.04             72.30             57.04     -------------------------------------------------------------------------     Q2 06      6.53             31.84             76.78             67.72     -------------------------------------------------------------------------     Q3 06      5.81             34.79             76.69             68.37     -------------------------------------------------------------------------     Q4 06      6.51             30.56             63.93             55.56     -------------------------------------------------------------------------       SHELL CANADA LIMITED     Financial and Operating Highlights     (unaudited)     Non-GAAP Measures     Certain financial measures are not prescribed by Canadian generally     accepted accounting principles (GAAP). These non-GAAP financial measures     do not have any standardized meaning and, therefore, may not be     comparable with the calculation of similar measures for other companies.     The Corporation includes as non-GAAP measures return on average capital     employed (ROACE), cash flow from operations and unit cash operating cost     because they are key internal and external financial measures used to     evaluate the performance of the Corporation.     Definitions     (1) Cash flow from operations is a non-GAAP measure and is defined as         cash flow from operating activities before movement in working         capital and operating activities.     (2) ROACE is a non-GAAP measure and is defined as earnings plus after-tax         interest expense on debt divided by the average of opening and         closing common shareholders' equity plus preference shares,         long-term debt and short-term borrowings.     (3) Exploration & Production and Oil Products sales volumes include sales         to third parties only. Oil Sands sales volumes include third-party         and inter-segment sales.     (4) Total unit cost for Oil Sands, including unit cash operating and unit         depreciation, depletion and amortization (DD&A) costs, is a non-GAAP         measure. Unit cash operating cost for Oil Sands mining and upgrading         is defined as: operating, selling and general expenses plus cash cost         items included in cost of goods sold (COGS), divided by synthetic         crude sales excluding blend stocks. Operating, selling and general         expenses associated with mining and upgrading were $725 million in         the year of 2006 and $199 million in the fourth quarter of 2006. Cash         cost items included in COGS were $176 million in the year of 2006 and         $53 million in the fourth quarter of 2006.         Unit cash operating cost for in situ operations is defined as:         operating, selling and general expenses plus inter-segment purchases         of natural gas, divided by bitumen product sales excluding diluent.         Operating, selling and general expenses associated with in situ         operations were $67 million in the year of 2006 and $24 million in         the fourth quarter of 2006. Inter-segment purchases of natural gas         were $28 million in the year of 2006 and $6 million in the fourth         quarter of 2006.         Unit DD&A cost for Oil Sands mining and upgrading is defined as: DD&A         cost divided by synthetic crude sales excluding blend stocks. Unit         DD&A cost includes preproduction costs, which were written off over         the first three years of the project life (2003-2005).         Unit DD&A cost for in situ operations is defined as: DD&A cost         divided by bitumen product sales excluding diluent.         Total mining unit cost includes long-term incentive plan (LTIP) costs         totalling $0.42/bbl in the year of 2006 (2005 - $1.32/bbl) and         $3.82/bbl for the fourth quarter of 2006 (2005 - $0.57/bbl).         Total in-situ unit cost includes LTIP costs totalling $0.47/bbl in         the year of 2006 (2005 - $2.25/bbl) and $2.14/bbl for the fourth         quarter of 2006 (2005 - $1.21/bbl).     (5) Crude oil processed by Shell refineries includes upgrader feedstock         supplied to Scotford Refinery.     (6) Refinery utilization equals crude oil processed by Shell refineries         divided by total capacity of Shell refineries, including capacity         uplifts at Scotford Refinery due to processing of various streams         from the upgrader.     (7) Oil Products earnings per litre equals Oil Products earnings         after-tax divided by total Oil Products sales volumes.       SHELL CANADA LIMITED     Consolidated Statement of Earnings and Retained Earnings     ($ millions, except as noted)     (unaudited)                                          Fourth Quarter       Total year                                           2006      2005      2006      2005     -------------------------------------------------------------------------                                                (restated)          (restated)     Revenues     Sales and other operating      revenues                            3 506     4 025    14 651    14 171     Dividends, interest and      other income                           75        18       155       223     -------------------------------------------------------------------------     Total revenues                       3 581     4 043    14 806    14 394     -------------------------------------------------------------------------     Expenses     Cost of goods sold                   1 970     2 197     8 627     7 900     Operating, selling and      general (Note 2)                      880       648     2 494     2 419     Transportation                          85        84       306       331     Exploration                             45        22       131       120     Predevelopment                          49        15       149        64     Depreciation, depletion,      amortization and retirements          232       216       822       782     Interest on long-term debt               3         2        10         8     Other interest and      financing charges                      15         -        32         3     -------------------------------------------------------------------------     Total expenses                       3 279     3 184    12 571    11 627     -------------------------------------------------------------------------     Earnings     Earnings before income tax             302       859     2 235     2 767     -------------------------------------------------------------------------     Current income tax                      88       161       518       602     Future income tax                       (9)       87       (21)      164     -------------------------------------------------------------------------     Total income tax                        79       248       497       766     -------------------------------------------------------------------------     Earnings                               223       611     1 738     2 001     -------------------------------------------------------------------------     Per common share      (dollars) (Note 7)       Earnings - basic                    0.27      0.74      2.11      2.43       Earnings - diluted                  0.27      0.73      2.09      2.40     Common shares outstanding      (millions - weighted average)         826       825       825       825     -------------------------------------------------------------------------     Retained Earnings     Balance at beginning of period       8 918     7 155     7 675     6 009     Earnings                               223       611     1 738     2 001     -------------------------------------------------------------------------                                          9 141     7 766     9 413     8 010     Common shares buy-back                   -         -         -        33     Dividends                               91        91       363       302     -------------------------------------------------------------------------     Balance at end of period             9 050     7 675     9 050     7 675     -------------------------------------------------------------------------       SHELL CANADA LIMITED     Consolidated Statement of Cash Flows     ($ millions)     (unaudited)                                          Fourth Quarter       Total year                                           2006      2005      2006      2005     -------------------------------------------------------------------------                                                (restated)          (restated)     Cash from Operating Activities     Earnings                               223       611     1 738     2 001     Exploration and predevelopment          31        19       111        99     Non-cash items       Depreciation, depletion,        amortization and retirements        232       216       822       782       Future income tax                     (9)       87       (21)      164       Other items                          (39)       (7)      (36)      (10)     -------------------------------------------------------------------------     Cash flow from operations              438       926     2 614     3 036     Movement in working capital      and operating activities       Accounts receivable        securitization program                -         -         -      (150)       Other working capital        and operating items (Note 2)        347       419      (117)      175     -------------------------------------------------------------------------                                            785     1 345     2 497     3 061     -------------------------------------------------------------------------     Cash Invested     Capital and predevelopment      expenditures                         (938)     (709)   (2 426)   (1 715)     Acquisition of BlackRock      Ventures Inc. (Note 4)                  -         -    (2 428)        -     Movement in working capital      from investing activities             148        53       309        69     -------------------------------------------------------------------------     Capital expenditures and      movement in working capital          (790)     (656)   (4 545)   (1 646)     Proceeds on disposal of      properties, plant and equipment       105         1       106         6     Investments and other                    7         -       (19)        -     -------------------------------------------------------------------------                                           (678)     (655)   (4 458)   (1 640)     -------------------------------------------------------------------------     Cash from Financing Activities     Common shares buy-back                   -         -         -       (34)     Proceeds from exercise of      common share stock options              2         -         7         6     Redemption of preference      shares (Note 9)                         -         -        (1)        -     Dividends paid                         (91)      (91)     (363)     (302)     Long-term debt and other                 -         -         -      (135)     Short-term financing                   (18)        -     1 235         -     -------------------------------------------------------------------------                                           (107)      (91)      878      (465)     -------------------------------------------------------------------------     (Decrease) Increase in cash              -       599    (1 083)      956     Cash at beginning of period              -       484     1 083       127     -------------------------------------------------------------------------     Cash at December 31(1)                   -     1 083         -     1 083     -------------------------------------------------------------------------     Supplemental disclosure of      cash flow information       Dividends received                     4         5        13        15       Interest received                      4         8        57        42       Interest paid                         16         2        42        12       Income tax paid                      142       123       743       683     (1) Cash comprises cash and highly liquid short-term investments.       SHELL CANADA LIMITED     Consolidated Balance Sheet     ($ millions)     (unaudited)                                                            Dec. 31,  Dec. 31,                                                               2006      2005     -------------------------------------------------------------------------                                                                    (restated)     Assets     Current assets       Cash and short-term investments                            -     1 083       Accounts receivable                                    1 940     1 821       Inventories         Crude oil, products and merchandise                    523       535         Materials and supplies                                 100        92       Prepaid expenses                                          50        71       Future income tax                                        299       327     -------------------------------------------------------------------------                                                              2 912     3 929     Investments, long-term receivables and other               741       671     Properties, plant and equipment                         13 669     9 066     Goodwill (Notes 4 and 5)                                   234         -     -------------------------------------------------------------------------     Total assets                                            17 556    13 666     -------------------------------------------------------------------------     Liabilities     Current liabilities       Short-term borrowings (Note 6)                         1 235         -       Accounts payable, accrued liabilities        and other (Note 2)                                    2 752     2 272       Income and other taxes payable                           535       687       Current portion of asset retirement and        other long-term obligations                             101        26       Current portion of long-term debt                          3        11     -------------------------------------------------------------------------                                                              4 626     2 996     Asset retirement and other long-term obligations           611       538     Long-term debt                                             197       200     Future income tax                                        2 542     1 733     -------------------------------------------------------------------------     Total liabilities                                        7 976     5 467     -------------------------------------------------------------------------     Shareholders' Equity     Capital stock       100 4% preference shares  (Note 9)                         -         1       825 662 514 common shares (2005 -  825 102 612)          530       523     Retained earnings                                        9 050     7 675     -------------------------------------------------------------------------     Total shareholders' equity                               9 580     8 199     -------------------------------------------------------------------------     Total liabilities and shareholders' equity              17 556    13 666     -------------------------------------------------------------------------       SHELL CANADA LIMITED     Segmented Information     ($ millions)     (unaudited)                                             Fourth Quarter                                               Exploration                                Total          & Production       Oil Sands                            2006     2005     2006     2005     2006     2005     -------------------------------------------------------------------------                                (restated)        (restated)        (restated)                                                (Note 3)          (Note 3)     Revenues     Sales and other      operating revenues   3 506    4 025      459      740      545      435     Inter-segment sales       -        -       70       73      428      474     Dividends, interest      and other income        75       18        2        1       51        -     -------------------------------------------------------------------------     Total revenues        3 581    4 043      531      814    1 024      909     -------------------------------------------------------------------------     Expenses     Cost of goods sold    1 970    2 197        -        -      267      243     Inter-segment      purchases                -        -       46       62      120      116     Operating, selling      and general            880      648      171      128      223      191     Transportation           85       84       85       84        -        -     Exploration              45       22       45       22        -        -     Predevelopment           49       15        7        8       32        7     Depreciation,      depletion,      amortization and      retirements            232      216      107       93       66       59     Interest on      long-term debt           3        2        -        -        -        -     Other interest and      financing charges       15        -        -        -        -        -     -------------------------------------------------------------------------     Total expenses        3 279    3 184      461      397      708      616     -------------------------------------------------------------------------     Earnings (loss)     Earnings (loss)      before income tax      302      859       70      417      316      293     -------------------------------------------------------------------------     Current income tax       88      161       (5)     163      112       (4)     Future income tax        (9)      87       22       (9)     (17)     104     -------------------------------------------------------------------------     Total income tax         79      248       17      154       95      100     -------------------------------------------------------------------------     Earnings (loss)         223      611       53      263      221      193     -------------------------------------------------------------------------     -------------------------------------------------------------------------                                     Fourth Quarter                             Oil Products       Corporate                            2006     2005     2006     2005     -------------------------------------------------------                                (restated)        (restated)     Revenues     Sales and other      operating revenues   2 502    2 857        -       (7)     Inter-segment sales     121      120        -        -     Dividends, interest      and other income        18        8        4        9     -------------------------------------------------------     Total revenues        2 641    2 985        4        2     -------------------------------------------------------     Expenses     Cost of goods sold    1 706    1 957       (3)      (3)     Inter-segment      purchases              453      489        -        -     Operating, selling      and general            391      305       95       24     Transportation            -        -        -        -     Exploration               -        -        -        -     Predevelopment           10        -        -        -     Depreciation,      depletion,      amortization and      retirements             58       63        1        1     Interest on      long-term debt           -        -        3        2     Other interest and      financing charges        -        -       15        -     -------------------------------------------------------     Total expenses        2 618    2 814      111       24     -------------------------------------------------------     Earnings (loss)     Earnings (loss)      before income tax       23      171     (107)     (22)     -------------------------------------------------------     Current income tax       (6)      11      (13)      (9)     Future income tax         7       54      (21)     (62)     -------------------------------------------------------     Total income tax          1       65      (34)     (71)     -------------------------------------------------------     Earnings (loss)          22      106      (73)      49     -------------------------------------------------------     -------------------------------------------------------                                                 Total Year                                               Exploration                                Total          & Production       Oil Sands                            2006     2005     2006     2005     2006     2005     -------------------------------------------------------------------------                                (restated)        (restated)        (restated)                                                (Note 3)          (Note 3)     Revenues     Sales and other      operating revenues  14 651   14 171    1 977    2 253    1 782    1 553     Inter-segment sales       -        -      216      275    1 524    1 671     Dividends, interest      and other income       155      223        7       26       57      132     -------------------------------------------------------------------------     Total revenues       14 806   14 394    2 200    2 554    3 363    3 356     -------------------------------------------------------------------------     Expenses     Cost of goods sold    8 627    7 900        -        -    1 024      790     Inter-segment      purchases                -        -      221      241      417      416     Operating, selling      and general          2 494    2 419      446      467      792      692     Transportation          306      331      306      331        -        -     Exploration             131      120      131      120        -        -     Predevelopment          149       64       36       38       92       26     Depreciation,      depletion,      amortization and      retirements            822      782      378      348      211      228     Interest on      long-term debt          10        8        -        -        -        -     Other interest and      financing charges       32        3        -        -        -        -     -------------------------------------------------------------------------     Total expenses       12 571   11 627    1 518    1 545    2 536    2 152     -------------------------------------------------------------------------     Earnings (loss)     Earnings (loss)      before income tax    2 235    2 767      682    1 009      827    1 204     -------------------------------------------------------------------------     Current income tax      518      602      153      411      195       41     Future income tax       (21)     164       30      (67)     (86)     380     -------------------------------------------------------------------------     Total income tax        497      766      183      344      109      421     -------------------------------------------------------------------------     Earnings (loss)       1 738    2 001      499      665      718      783     -------------------------------------------------------------------------     -------------------------------------------------------------------------     Total assets         17 556   13 666    3 585    3 261    8 886    4 274     Capital employed(1)  11 015    8 410    2 292    1 884    5 982    2 680                                          Total Year                             Oil Products       Corporate                            2006     2005     2006     2005     -------------------------------------------------------                                (restated)        (restated)     Revenues     Sales and other      operating revenues  10 870   10 343       22       22     Inter-segment sales     462      412        -        -     Dividends, interest      and other income        35       24       56       41     -------------------------------------------------------     Total revenues       11 367   10 779       78       63     -------------------------------------------------------     Expenses     Cost of goods sold    7 599    7 108        4        2     Inter-segment      purchases            1 564    1 701        -        -     Operating, selling      and general          1 153    1 139      103      121     Transportation            -        -        -        -     Exploration               -        -        -        -     Predevelopment           21        -        -        -     Depreciation,      depletion,      amortization and      retirements            229      204        4        2     Interest on      long-term debt           -        -       10        8     Other interest and      financing charges        -        -       32        3     -------------------------------------------------------     Total expenses       10 566   10 152      153      136     -------------------------------------------------------     Earnings (loss)     Earnings (loss)      before income tax      801      627      (75)     (73)     -------------------------------------------------------     Current income tax      190      296      (20)    (146)     Future income tax        27     (103)       8      (46)     -------------------------------------------------------     Total income tax        217      193      (12)    (192)     -------------------------------------------------------     Earnings (loss)         584      434      (63)     119     -------------------------------------------------------     -------------------------------------------------------     Total assets          4 846    4 688      239    1 443     Capital employed(1)   2 599    2 275      142    1 571     (1) Capital employed is the total of equity, long-term debt and         short-term borrowings.       SHELL CANADA LIMITED     Notes to Consolidated Financial Statements     (unaudited)     1.  Accounting Policies     These financial statements follow the same accounting policies and     methods of computation as, and should be read in conjunction with, the     Consolidated Financial Statements for the year ended December 31, 2005,     except as described in notes 2, 3 and 4.     Certain other information provided for prior periods has been     reclassified to conform to the current presentation.     2.  Change in Accounting Policy     Shell Canada adopted Emerging Issues Committee (EIC) Abstract 162     "Stock Based Compensation For Employees Eligible to Retire Before The     Vesting Date" with prior period restatement as required. The EIC mandates     that employees who are eligible to retire at the grant date, or will     become eligible to retire during the vesting period, should have their     stock-based compensation awards recognized at the earliest eligible     retirement date.     The impact of this change resulted in a long-term incentive plan (LTIP)     reduction in expense of $10 million for the year ended December 31, 2006     (2005 - $13 million increase in expense). These changes will also result     in corresponding increases/decreases to the Cash from Operating     Activities section of the Consolidated Statement of Cash Flows. Earnings     per common share are increased by 0.01 for the period ended     December 31, 2006 (2005 -0.01 decrease). On a diluted basis, earnings per     common share are increased by 0.02 (2005  -0.01 decrease).     3.  Segmented Information     Effective January 1, 2006, the Peace River business was transferred from     Exploration & Production to the Oil Sands business unit. Segmented     information for the relevant business units has been reclassified for the     prior periods.     4.  Acquisition of BlackRock Ventures Inc.     On June 21, 2006, the Corporation acquired more than 92 per cent of the     outstanding common shares of BlackRock Ventures Inc. (BlackRock). The     original offer was extended to June 27, 2006, and again to July 10, 2006,     and additional common shares were acquired. The Corporation completed its     acquisition of BlackRock and acquired all of the remaining common shares     by way of compulsory acquisition on July 11, 2006. BlackRock was engaged     in the development and production of heavy oil in Western Canada.     The Corporation's total consideration for the transaction was     $2,570 million ($2,428 million net of cash acquired) including     acquisition costs of $12 million and working capital of $108 million. Of     the consideration paid, $3,092 million was allocated to oil and natural     gas properties and $234 million was allocated to goodwill.     The acquisition was accounted for based on the purchase method and the     allocation was supported by a third-party valuation. A summary of the     purchase equation is presented as follows:     Net assets acquired ($ millions)            Oil and natural gas properties       3 092            Goodwill(1)                            234            Working capital(2)                     108            Other assets                             1            Asset retirement obligations           (11)            Future income tax liability           (854)                                              -----------                                                 2 570                                              -----------                                              -----------     (1) The $234 million of goodwill has no tax basis and was allocated to         the Oil Sands business unit.     (2) Working capital acquired includes cash of $142 million.     5.  Goodwill     The goodwill is entirely due to the timing difference created between the     tax basis of the assets compared to the fair value. Goodwill is not     subject to amortization, but is tested for impairment on an annual basis,     or more frequently if events occur that could result in impairment, by     applying a fair value-based test.     6.  Short-term borrowings     The Corporation entered into a $1 billion revolving credit facility ("the     facility") during the second quarter of 2006. The facility was arranged     with a syndicate of banks and matures on June 15, 2008.     This facility, along with the already established $1.5 billion commercial     paper program, provided the Corporation with $2.5 billion of borrowing     capacity. At December 31, 2006, the outstanding balance on the revolving     credit facility was $199 million in the form of short-term borrowings     that had an effective interest rate of 4.44 per cent. At December 31,     2006, the outstanding balance on the commercial paper program was     $1,036 million at an effective interest rate of 4.39 per cent.     7.  Earnings Per Share                                           Fourth Quarter        Total Year                                           2006      2005      2006      2005     -------------------------------------------------------------------------                                                (restated)          (restated)     Earnings ($ millions)                  223       611     1 738     2 001     Weighted average number of common      shares (millions)                     826       825       825       825     Dilutive securities (millions)       Options under Long Term Incentive        Plan                                  9        10         8         9     Basic earnings per share      ($ per share)                        0.27      0.74      2.11      2.43     Diluted earnings per share      ($ per share)                        0.27      0.73      2.09      2.40     8.  Employee Future Benefits     The Corporation's pension plans are described in the notes to the     Consolidated Financial Statements for the year ended December 31, 2005.     The components of the pension expense in the Consolidated Statement of     Earnings are as follows:                                                     Fourth Quarter     ($ millions)                        Pension Benefits      Other Benefits                                           2006      2005      2006      2005     -------------------------------------------------------------------------     Current service cost                    12        10         -         -     Employee contributions                   -         -         -         -     Interest cost                           32        31         3         3     Expected return on plan assets         (37)      (35)        -         -     Amortization of transitional      (asset) obligation                     (9)       (9)        1         1     Amortization of net actuarial      loss                                   22        17         -         -     -------------------------------------------------------------------------     Net expense                             20        14         4         4     Defined contribution segment             5         5         -         -     -------------------------------------------------------------------------     Total                                   25        19         4         4     -------------------------------------------------------------------------     -------------------------------------------------------------------------                                                         Total Year     ($ millions)                        Pension Benefits      Other Benefits                                           2006      2005      2006      2005     -------------------------------------------------------------------------     Current service cost                    46        37         2         2     Employee contributions                  (3)       (3)        -         -     Interest cost                          128       127        11        10     Expected return on plan assets        (147)     (137)        -         -     Amortization of transitional      (asset) obligation                    (36)      (36)        2         2     Amortization of net actuarial      loss                                   88        71         3         -     -------------------------------------------------------------------------     Net expense                             76        59        18        14     Defined contribution segment            25        15         -         -     -------------------------------------------------------------------------     Total                                  101        74        18        14     -------------------------------------------------------------------------     -------------------------------------------------------------------------     9.  Redemption of Preference Shares     Effective September 30, 2006, the Corporation redeemed the previously     outstanding 100 preference shares for cash consideration in accordance     with their terms. For further information: Investor Inquiries: Ken Lawrence, Investor Relations, (403) 691-2175; Media Inquiries: Jan Rowley, Public Affairs, (403) 691-3899; Visit Shell Canada's Internet website: www.shell.ca

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