Performance Overview

2010

• Shipments of 107 million barrels
• Operating expenditures of $37.74 per barrel
• Bitumen recovery at 90.7%
• Heat exchanger equipment strategy to improve reliability progressed

2011

• Shipments of 105.3 million barrels
• Operating expenditures of $35.65 per barrel
• Bitumen recovery improved to 91.7%
• Coker 8-2 maintenance turnaround successfully executed with best-ever turnaround safety performance (TRIR = 0.30)

Record Run for Coker 8-2

With an operating run that lasted 1,044 days (34 months) before it was brought down for a scheduled maintenance turnaround in September 2011, Coker 8-2 bested the previous Coker run length record by nearly six months. The feat was enabled by good decision-making among our Production, Maintenance and Technical teams over the life of the run – their focus was on ensuring reliability through stable operation.

Fossil Discovery One of the Best Yet

The discovery of a nearly intact long-necked plesiosaur in November 2011 brings the number of important prehistoric creatures recovered from Syncrude's mines to 10. The rare reptile once lived in an ancient Alberta sea, probably more than 100 million years ago. Experts from the Royal Tyrell Museum of Paleontology excavated the remains after they were discovered by an alert Syncrude shovel operator. The last such find at Syncrude was in 2000. Syncrude shovel operators are trained to stop work and notify a company geologist when they spot something unusual. Syncrude aims to be a responsible steward of its obligation to protect and preserve any fossils discovered during the earth-moving process.

Sulphur Management

Sulphur is a by-product of Syncrude's bitumen upgrading process and it is by law considered a natural resource that must be managed according to provincial guidelines. Syncrude's Joint Venture owners take their proportional share of all of Syncrude's daily liquid sulphur production and market it independently. Alternatively, suphur is stored in blocks on Syncrude's site. To reduce the liability associated with long-term sulphur storage, portions of the current stockpile may be made available to the market, by individual owners, as opportunities arise.

Supplier Program Improves On-Time Parts Delivery

A supplier relationship management program initiated in 2010 by Syncrude's procurement department succeeded in its goal of improving on-time parts delivery from vendors and reducing equipment downtime caused by late parts delivery. Research revealed that 20 percent of suppliers were responsible for 60 percent of late deliveries. By working with them to improve performance, on-time delivery by those firms increased from 75 percent on-time to 96 percent on-time, helping keep equipment maintenance jobs on schedule.

Future Development Plans

Syncrude is focused on improving capacity utilization for the next number of years. Our owners believe this approach is the best opportunity to add value in the near term. Preliminary plans had been to expand production capability by developing the Aurora South Mine leases, which will now likely remain undeveloped until the early 2020s.

Near-term capital spending through 2014 will focus on mine train relocations and replacements at both the Mildred Lake and Aurora North sites. These should position Syncrude for as many as 20 years of production at current rates. Significant investments will also be made in tailings management infrastructure, including a Composite Tailings plant at the Aurora North site and a Centrifuge plant at the Mildred Lake site.

Expansion projects require unanimous approval by the Syncrude Joint Venture participants. The most recent information about Syncrude's forward-looking plans is available from Canadian Oil Sands Limited.

Performance Overview

• Economic contribution of $6.4 billion in 2010 and $6.9 billion in 2011
• Purchased $3.9 billion in goods and services in 2010 and $4.1 billion in 2011
• Cumulative royalty payments now exceed $8.6 billion

Total Expenditures by Category

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Generate Economic Benefits

Syncrude recognizes that its procurement strategy must benefit all Canadians. While Alberta will remain Syncrude's primary supply hub, supply chain studies indicate substantial indirect flow-through to other provinces via subcontracting. The Canadian Energy Research Institute conducts occasional studies on the economic impacts of oil sands development. Visit their website for more information.

Annual Economic Contributions

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Annual Procurement of Goods and Services

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Geographic Distribution of Expenditures

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Agreement on Crown Royalties

The Syncrude Joint Venture owners and the Government of Alberta signed two agreements in November 2008 to amend the existing Crown Agreement and to transition the Syncrude Project to a new royalty framework based on the production of bitumen, not synthetic crude oil. For a detailed overview of these agreements and ongoing discussions with the Alberta government regarding bitumen valuation, please refer to the Canadian Oil Sands Annual Information Form available at www.cdnoilsands.com.

Syncrude Royalty Payments ($ millions)

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Syncrude has paid over $8.6 billion in royalties since the start of operations.

Aboriginal Business Expenditures

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Over $1.7 billion has been spent with Aboriginal companies since 1992.

Performance Overview

• Recognized as one of Canada's top spenders on R&D
• Cofounded Oil Sands Tailings Consortium to advance tailings management technologies
• Study to evaluate using coke to remediate tailings water approved for field pilot
• Two new research chairs sponsored at the University of Alberta

Innovation enabled by research and development is key to Syncrude's sustainability efforts. For 48 years, we have been a technology leader in the oil sands industry, developing and implementing many innovations that have established an operating platform, lowered costs, improved reliability and reduced environmental impact.

Syncrude operates the oil sands industry's only dedicated research and development centre, and invests more than $60 million per year to improve knowledge and develop better ways. We are among Canada's top 50 R&D spenders.

About 100 scientists and technologists work at the R&D Centre, including a growing team of experts dedicated to improving environmental performance; their efforts are supplemented by a rotating complement of more than 20 graduate students who become the next generation of oil sands scientists.

Research Chairs supported by Syncrude:

• University of Alberta/NSERC Chair in Oil Sands Engineering
• Alberta Chamber of Resources/University of Alberta Mining Industry Chair in Geo Statistics
• University of Alberta/NSERC Chair in Forest Reclamation
• University of Alberta Chair in Integrated Landscape Management
• University of Alberta/NSERC Chair in Pipeline Transport
• University of Alberta/NSERC Chair in Oil Sands Tailings Water Treatment
• University of Alberta/NSERC Chair in Control of Oil Sands Processes
• Canadian Centre for Welding and Joining

Syncrude Helps Found Tailings Research Consortium

Syncrude was among six companies joining forces in December 2010 to create the Oil Sands Tailings Consortium. Its mandate is to advance tailings management solutions through collaboration and sharing of intellectual property. Each company has pledged to share its existing tailings research and technology and to remove barriers to collaborating on future tailings R&D.

The group established a budget of $90 million for 2011 and mapped out the initial consortium field projects for that year. Syncrude took the lead on MFT Centrifuging and polymer mixing techniques (see Fluid Fine Tailings discussion). Other operators are focused on alternative polymers and the commercial feasibility of thin-lift drying.

The consortium also executed a $1.4 million tailings road map study to identify all possible and potential technologies to remediate oil sand tailings. Over 450 submissions were received, and 135 will be examined as potential solutions. The most promising of these will be further evaluated.

Filtration of Tailings Water Studied as Remediation Treatment

A multi-year Syncrude project to study the effectiveness of using petroleum coke, an oil sands by-product, to filter harmful substances, such as naphthenic acids, out of tailings water has proven sufficiently promising that a field pilot will be conducted in 2012. The pilot will aim to determine the field conditions needed to ensure the process is operated in the most efficient manner possible. The experiment is being led by two Syncrude researchers with a combined 30 years experience in water treatment. The technology has received patents in Canada and the United States.

Rough Mulching Aids Reclamation Efforts

Syncrude research to study the effects of using roughly mulched woody debris as a soil cover on reclamation landscapes has proven effective in improving plant growth and productivity on these sites. Syncrude has been using the debris on all of its reclamation sites since 2009. The material from tree tops and stumps was formerly considered as waste, and past practice was to burn it when land is being cleared for mining.

A 2009 directive from Alberta Sustainable Resource Development on the Management of Wood Chips on Public Land reaffirmed the benefits of using coarse woody debris over wood chips. Chips have the negative effect of interfering with plant growth and depleting soil nitrogen. A rougher mulch, which contains wood slivers and pieces as large as six feet long, acts differently and breaks down more slowly than wood chips, thereby mimicking natural processes. It also creates habitat for small animals, provides areas for water to collect, promotes growth of natural vegetation and minimizes soil erosion. Other resource developers are now incorporating rough mulch in their reclamation landscapes.

Pilot Plant Addresses Reliability Issues

An oil sand extraction froth treatment pilot plant, operating since 2009 at Syncrude's Edmonton R&D Centre, has helped reveal ways to remove chloride-laden water and clay solids from bitumen froth; both cause reliability problems in bitumen processing equipment. The pilot test also aims to improve environmental performance by reducing the amount of bitumen lost to tailings. A patent for the novel froth treatment process demonstrated at the pilot plant is underway and scale-up plans are being developed.

Support for University Research

Two new research chairs created at the University of Alberta in 2011 brought to nine the total number of chairs at the University supported by Syncrude. Dr. Mohamed Gamal El-Din is studying processes to clean oil sand tailings water so that it can be recycled or safely discharged into the environment. Dr. Biao Huang is studying technology-control methods used to monitor oil sand extraction and upgrading facilities. Syncrude is providing more than $6 million in total for research at the University, including the nine chairs, 14 joint industry research programs and directly-commissioned research involving 19 different projects. The research is expected to lead to ways to reduce environmental impacts, improve reliability and reduce costs.

Sulphur Effects in Reclaimed Landscapes Studied

Syncrude has commissioned scientists from McMaster University to study bacterial sulphur reactions occurring in a reclamation landscape where composite tailings have been used as a substrate. Composite tailings are a mix of fluid fine tailings and gypsum (calcium sulphate); the material is alkaline and saline, and has little organic matter. The area being studied is being reclaimed as a fen wetland and the research aims to determine if bacterial sulphur is having an effect, whether good or bad, on the fen's development. The $2.2 million project is supported by Syncrude along with the Natural Sciences and Engineering Research Council of Canada.

Reclamation Research

In 2011, Syncrude continued working with our CONRAD (Canadian Oilsands Network for Research and Development) partners to support a broad range of reclamation and environmental research. This research is summarized in the CONRAD ERRG (environmental & reclamation research group) Annual Update released each year and posted on their website. It provides a brief description of the objectives of each program, a brief summary of results to date and a list of the peer reviewed journal publications published that year. View the 2011 ERRG Update at: www.canadianoilsandsnetwork.ca.