Committed. Clear. Capable. Committed. PETRO-CANADA S REPORT TO THE COMMUNITY

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1 Committed Clear. Capable. Committed. PETRO-CANADA S REPORT TO THE COMMUNITY

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3 At Petro-Canada, we know we have to earn the support from the communities and people affected by our operations today and in the future. That is why we are committed to investing and operating in a way that is ethically, socially and environmentally responsible. Clear. Capable. Committed. Petro-Canada is one of Canada s largest oil and gas companies. The Company creates value by responsibly developing energy resources and providing world class petroleum products and services. TABLE OF CONTENTS 2 Priorities and Performance Overview 3 Message from the President 6 Our Businesses 8 Our Performance Scorecard 11 Business Conduct 13 Community 14 Feature Story: Strong Relationships Drive Home Corporate Values 19 Environment 23 Working Conditions and Human Rights 24 Economic Contributions to Communities and How to Contact Us Please refer to the forward-looking information statements and a description of financial data that does not conform with Canadian generally accepted accounting principles (GAAP) on the inside back cover of this document.

4 < Our priorities are to: operate with the highest safety standards reduce the environmental impacts of our operations retain and attract employees who will support our business plans engage those affected by our operations to ensure understanding and shared benefits Change from PERFORMANCE OVERVIEW 2005 to Financial and operating performance Operating earnings from continuing operations ($ millions) 1 1,802 2,148 1,829 Operating return on capital employed (%) Total upstream production from continuing operations before royalties (barrels of oil equivalent per day boe/d) 3, 4 345, , ,000 Refined petroleum product sales (cubic metres per day m 3 /d) < 53,000 53,000 57,000 Number of employees (at year end) 5,156 4,816 4,795 Environment, health and safety performance Greenhouse gas (GHG) emissions 5 (kilotonnes of carbon dioxide equivalent) 7,389 7,359 7,624 Primary air pollutant emissions (kilotonnes) 6, Production carbon intensity (tonnes of carbon dioxide equivalent per m 3 of oil equivalent) Upstream Downstream Environmental costs ($ millions, operating expense and capital) Upstream Downstream Total recordable injury frequency (number per 100 workers on site) Corporate donations ($ millions, cash and in-kind contributions) Represents net earnings, excluding gains and losses on foreign currency and on disposal of assets, and unrealized gains or losses associated with the Buzzard derivative contracts. 2 Includes results from discontinued operations. 3 Before royalties. Production from discontinued operations was 79 thousand barrels of oil equivalent per day (Mboe/d) in 2004, 70 Mboe/d in 2005 and 6 Mboe/d in Where the term barrels of oil equivalent (boe) is used in this document, it may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (Mcf): one barrel (bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 5 A wide variety of gases that include carbon dioxide, methane and nitrous oxide, and that are believed to trap heat near the Earth s surface. Petro-Canada s GHG emissions are primarily the result of fossil fuel combustion. Total includes direct and indirect emissions. 6 A group of common air pollutants that are regulated by most jurisdictions in which Petro-Canada operates. The five primary air pollutants are total volatile compounds (VOCs), carbon monoxide (CO), nitrogen oxide (NOX), sulphur dioxide (SO2) and total particulate matter (TPM) under 100 microns (µm). 7 The 2005 primary air pollutant data has been restated in this report. As the environmental information management system is modified, the environmental information presented in this report may change and be restated in future reports. 8 The sum of work-related fatalities, permanent total disabilities, disabling injury cases, cases involving restriction of work or motion, and medical treatment or loss of consciousness cases. Companies calculate total recordable injury frequency from the total number of injuries and the size of the workforce. The number represents how many injuries would be in a workforce of 100. A frequency of 1.0 means, for every 100 workers on site, one person is injured per year. < < < < < < < < < < < < 2 petro-canada CONTINUOUS IMPROVEMENT IN SUSTAINABLE REPORTING Petro-Canada continues to improve the accuracy and completeness of its reporting of sustainability performance to stakeholders. In 2006, we engaged independent consultants to review the methodology and calculations for our reporting of releases and transfers of Canadian primary air pollutants and GHG emissions. We also asked PricewaterhouseCoopers LLP (PwC) to consider the consistency of select sustainability information contained in this Report to the Community in relation to other information provided to them, and to provide feedback to management. PwC s services did not constitute an audit, and PwC does not express an opinion or any other form of assurance on the reported information.

5 Message from the President Ron Brenneman, President and Chief Executive Officer The theme of our annual report this year is clear, capable and committed. When we refer to the word clear, we mean that our priorities for the future are clear. In the short term, we intend to increase our 2007 upstream production by 15% compared with In the long term, we have plans to develop five major projects over the next several years. 6,000 4,000 2, Total Number of Petro-Canada Employees 4,795 4,816 5, Petro-Canada New Hires By Year The second word capable refers to our ability to get the job done. We have a good track record. From a financial perspective, in 2006, our operating earnings from continuing operations were $1.8 billion and we generated $3.7 billion in cash flow. We also strive to be an efficient and reliable operator. Last year, most of our operated facilities ran at reliability rates of more than 90%. Of course, getting the job done relies on people. We have more than 5,000 employees and many more contractors and service providers working on our behalf around the world. While we re in the business of finding, developing and marketing oil, gas and refined petroleum products, the hottest of all commodities nowadays is people. In Canada, there is a shortage of the kind of people we need, primarily geologists, engineers, tradespeople and business people. At the same time, a sizable portion of Petro-Canada s workforce is ready to retire. Our challenge, is not only to replace those moving on to the next phase of their lives, but, also, to build an even bigger workforce to get our projects across the finish line. We anticipated this challenge, so we reorganized our human resources department to meet the challenge head-on. So far, the results have been promising. In 2006, more than 650 people joined Petro-Canada and, as at May 30, 2007, another 350 had entered the fold. But this is only half of the equation. We must also work to make sure our existing employees are learning and have a safe and productive work environment. This is important to the employees and the Company, and it is also ranked among the top societal expectations that companies treat their employees well. Once again, our statistics are strong, with a turnover rate of 5% compared with an industry average of around 8%. So why do employees join us and why do they stay? When we ask, we re told that Petro-Canada is a place where there is opportunity to learn and make a difference, and where an open, ethical culture is encouraged. There is a tremendous amount of variety in the work we do, given the diversity of our operations. We also have a culture that welcomes new employees and contractors. As we grow, I m often asked by long-time employees, How will we make sure our ethical culture is preserved? My answer is that we need to keep each other accountable, which naturally brings me to the third word and the focus of this report, which is committed. petro-canada 3

6 Message from the President continued We know there is growing concern about the impact the energy sector has on the environment and that is why we continue to look for ways to reduce the impact we have on land, water and air. Ron Brenneman presents a $1 million cheque to the University of Alberta as part of the Company s Emerging Leaders Awards Program, which provides scholarship, mentoring and job opportunities for students in engineering, geology, geophysics, environmental earth sciences, business, and trades and technology. We can have a clear direction for the future and a capable organization, but all of that is meaningless without a commitment to do the right thing. As indicated in our page 2 priorities, at Petro-Canada, being committed means operating with the highest standards of safety, reducing the environmental impacts of our operations, retaining and attracting employees, and engaging those affected by our operations to ensure understanding and shared benefits. It s not by chance that safety is our number 1 priority because, in my opinion, no work is worth doing if it can t be done safely. Some years back, we developed what we call the Zero-Harm program: we don t accept the idea that any injuries to employees or contractors on the job are acceptable. Based on this attitude, our injury frequency in the last year went from average to being among the best in our industry. But we must remain vigilant, as was reinforced by a fatality at our Montreal refinery in April of this year. This event shook our whole organization and we are conducting a thorough investigation to see what led to this tragic outcome, and to incorporate what we learn into the organization. Another key area at Petro-Canada is the environment. We know there is growing concern about the impact the energy sector has on the environment and that is why we continue to look for ways to reduce the effect we have on land, water and air. In Canada, governments have introduced legislation and plans to reduce GHGs and air pollutants. We want to be part of the solution, so we are currently working to better understand how the legislation will be translated into regulations. With this added clarity, we will be able to advance a more holistic climate change strategy, leveraging technology as a key way to find solutions. While we are committed to the process, we re cognizant that reducing our emissions will be challenging given our business growth. Equally, if not more important, is our use of water. We have had some great successes to date. These include work to connect and adapt the Gold Bar waste water treatment facility to reduce the amount of fresh water we draw from the North Saskatchewan River for our Edmonton refinery operations, using 90% recycled water at our MacKay River in situ plant, and building the first reverse osmosis plant for coal bed methane in the U.S. Rockies. We know we have to do more, so we re working on a set of corporate principles that will guide the acquisition, use and disposal of water in our operations. We will also develop water indicators so we can encourage innovation at other Petro-Canada projects and businesses. 4 petro-canada

7 More than 2,000 employees and contractors working on the oil sands Edmonton Diesel Desulphurization Project / Edmonton Refinery Conversion Project celebrate winning the 2006 President s Award for Safety. The other winner of the President s Safety Award in 2006 was the Hanze offshore platform team in the Netherlands. Along with our efforts to reduce the effect we have on the environment, we are committed to making a positive difference in communities. In 2006, we restructured our community partnership program around the areas of education, environment, local community support and the Olympics and Paralympics. The first program out of the gate was the Emerging Leaders Awards Program. We have already invested more than $3 million into scholarship and mentoring programs at McGill University, the University of Waterloo, the University of Alberta and the Northern Alberta Institute of Technology. The second program we introduced is Petro-Cares, through which employees and retirees volunteering in the community can receive grants and matching donations from Petro-Canada. We are also proud to be a National Partner to the Vancouver 2010 Olympic and Paralympic Winter Games. We ve supported Canadian athletes and coaches for 19 years. We have a new program called Fuelling Athletes and Coaching Excellence, where 50 pairs of Olympic and Paralympic athletes and their coaches receive funding to continue training and further develop their coaching skills. As we advance major projects, it will be even more important that our engagement with those affected by our operations is respectful. On page 14 of this report, you can read more about how we work with stakeholders. This is a critical area to our business success, so we are taking steps to preserve what is working and to build on it, as well as making sure stakeholder engagement is consistent throughout the Company by implementing formalized policies and better tools and training. As I look at areas like climate change, water use and working with landowners around our operations, I am reminded of a quote from the 19 th century intellectual Thomas Huxley: It is not who is right, but what is right, that is of importance. It is that kind of thinking that has guided us to where we are today, and it is that kind of thinking that will ensure mutual and continued success in the future. Ron Brenneman President and Chief Executive Officer petro-canada 5

8 Our Businesses Cash Flow From Continuing Operating Activities Before Changes In Non-Cash Working Capital 1 For the year ended December 31, 2006 (%) Total: $3,687 million 18% 20% 19% 30% We believe our integrated portfolio gives us strength. Our diverse businesses provide more stability in changing environments, allow us greater access to growth opportunities and create value through the integration between businesses. 13% North American Natural Gas East Coast Oil Oil Sands International Downstream 1 Does not include negative cash flow of $218 million for Shared Services. In 2006, just less than half of our cash flow came from our well-established North American Natural Gas and East Coast Oil businesses. In the future, as our Downstream, International, and Oil Sands businesses continue to grow, it is expected they will contribute greater cash flow. UPSTREAM In 2006, we had four upstream businesses: North American Natural Gas, East Coast Oil, Oil Sands, and International. Each has a different area of focus from the resources they develop to the processes they use and the locations in which they operate. In 2006, these businesses produced 345,000 boe/d net from continuing operations. In 2007, we expect a 15% increase in production, with a forecast in the range of 390,000 boe/d to 420,000 boe/d net. In 2007, we consolidated East Coast Oil and the International businesses to become one International and Offshore business. The purpose is to leverage and grow the capabilities of these similar operations. Alaska Mackenzie Delta/Corridor U.S.A. Green River Basin Uinta Basin Northeast British Columbia Alberta Foothills West Central Alberta CANADA Southeast Alberta Southwest Saskatchewan Powder River Basin Denver- Julesburg Basin In our North American Natural Gas business, we explore for and produce natural gas, crude oil, and natural gas liquids (NGL) in Western Canada and the United States (U.S.) Rockies. In 2006, we produced 616 million cubic feet per day of natural gas (MMcf/d) (102,700 boe/d) net and 14,200 barrels per day (b/d) net of crude oil and NGL. As conventional production in the Western Canada Sedimentary Basin matures, our focus is shifting to unconventional production and long-term supply opportunities in Alaska and the Mackenzie Delta/Corridor, as well as liquefied natural gas (LNG) projects. 6 petro-canada

9 The International and Offshore business includes our International operations and interests off the East Coast of Canada. Outside of Canada, we have operations in the North Sea, North Africa/Near East and Northern Latin America. This business is growing by optimizing existing assets, implementing a balanced exploration program and pursuing business development opportunities. In the North Sea, we produced 43,700 boe/d net in 2006 and growth is expected in 2007 as the Buzzard field (in which we have a 29.9% interest) ramps up. In the North Africa/Near East region (Libya), we produced 49,400 boe/d net from continuing operations in In Northern Latin America, a 17.3% interest in a natural gas development in Trinidad and Tobago produced 63 MMcf/d (10,500 boe/d net) in Our exploration program spans all three regions. In East Coast Canada, our participation in major offshore projects contributed production of 72,700 boe/d net in This production came from Terra Nova, (operator and 34% interest), Hibernia (20% interest) and White Rose (27.5% interest). At Terra Nova and White Rose, the oil flows from wells on the seabed into Floating Production Storage and Offloading (FPSO) vessels. Hibernia produces oil from a concrete gravity base structure. Our goal for East Coast Canada is to sustain profitable production by extending existing reservoirs and tying in satellite fields. Port of Spain Petro-Canada assets Petro-Canada International offices LABRADOR Stavanger St. Petersburg Aberdeen Moscow London The Hague Essen Algiers Tripoli NEWFOUNDLAND Damascus White Rose Hibernia Terra Nova Hebron/ Ben Nevis Operated Non-operated Proposed/non-operated In our Oil Sands business, we have both mining and in situ assets. In mining, our 12% interest in Syncrude delivered 31,000 b/d in As a 55% owner and operator of the proposed Fort Hills oil sands mining project, we have regulatory approval to produce up to 190,000 b/d of bitumen, with initial production expected in We plan to build an upgrader near Edmonton to process the bitumen. Our 100% owned and operated in situ MacKay River project produced 21,200 b/d in 2006 and we have plans to add another 40,000 b/d of capacity by the end of the decade. ALBERTA Edmonton MacKay River Fort Hills Fort McKay Syncrude Lewis Fort McMurray Meadow Creek Calgary Directly operated Non-operated DOWNSTREAM Petro-Canada is Canada s second largest downstream company based on sales of refined petroleum products. Our refineries in Edmonton, Alberta and Montreal, Quebec accounted for 13% of Canada s refining capacity in We are currently converting our Edmonton refinery to process 100% bitumen-based feedstock and are considering the potential for a new coker at the Montreal refinery. We are known as Canada s Gas Station, selling approximately 16% of all petroleum products sold in Canada in At our Mississauga, Ontario lubricants plant, where we produce pure lubricating oil-based stocks and other specialized products, we increased capacity by 25% in Edmonton, Alberta CANADA Petro-Canada refinery Petro-Canada lubricants plant Mississauga, Ontario Montreal, Quebec petro-canada 7

10 Our Performance Scorecard Five years ago, we wrote our own Principles for Responsible Investment and Operations (Principles) based on the International Code of Ethics for Canadian Business. These Principles continue to guide our decision-making and actions, and provide the framework for tracking our performance. An Executive Corporate Responsibility Steering Committee (ECRSC), made up of senior executives from across the Company, provides direction on how to integrate commitments made in our Principles into operations and how to allocate the needed resources. Business Conduct Community PRINCIPLES comply with applicable laws and regulations apply our Code of Business Conduct wherever we operate not make illegal or improper payments or bribes not participate in any corrupt business practices be sensitive to the cultures and expectations of our host countries and communities seek contractors, suppliers and agents whose practices are consistent with our principles strive within our sphere of influence to ensure a fair share of benefits to stakeholders impacted by our activities seek to conduct meaningful and transparent consultation with all stakeholders endeavour to integrate our activities with, and participate in, local communities as good corporate citizens 2006 GOALS conduct additional business integrity training related to anticorruption, antitrust and privacy laws, as well as our Code of Business Conduct strengthen employee, contractor and supplier understanding of Code of Business Conduct expectations conduct third-party review of the Total Loss Management (TLM) audit program and continue TLM audits advance stakeholder engagement processes and capabilities across the organization continue to implement strategies to develop marketable skills among Aboriginal communities and find opportunities for employment complete a strategic review of our community partnership program for greater focus and impact Environment Working Conditions and Human Rights conduct our activities with sound environmental management and conservation practices strive to minimize the environmental impact of our operations work diligently to prevent any risk to community health and safety from our operations or our products seek opportunities to transfer expertise in environmental protection to host communities provide a healthy, safe and secure work environment honour internationally accepted labour standards prohibiting child labour, forced labour and discrimination in employment respect freedom of association and expression in the workplace not be complicit in human rights abuses support and respect the protection of human rights within our sphere of influence strengthen internal controls and data management practices for GHG emissions and primary air pollutants begin to develop an environmental information management strategy broaden the application of Life-Cycle Value Assessment (LCVA) tools develop a corporate water strategy conduct an environmental and social impact assessment in support of the Fort Hills upgrader and drilling programs in Trinidad and Tobago maintain our focus on injury reduction implement recommendations from our partnership forum with contractors to improve safety performance develop new TLM performance indicators strengthen processes to transfer and implement lessons learned from environment, health and safety events implement a President s Award to recognize outstanding safety performance adapt business continuity plans to respond to a pandemic influenza scenario improve workforce planning, build recruiting capabilities and retain existing employees 8 petro-canada

11 Cash and In-Kind Contributions of $20.2 Million in 2006 to Non-Profit Organizations (% Contribution in North America unless otherwise stated, unaudited) 7% 53% 3% 31% 6% Local Community Support United Way Olympic/Paralympic Education Environment Total Recordable Injury Frequency (TRIF) and Total Disabling Injury Frequency 1 (TDIF) for Employees and Contractors Total Recordable Injury Frequency Total Disabling Injury Frequency 1 The sum of permanent total disabilities and disabling injury cases. Companies calculate TDIF from the total number of disabling injuries and the size of the workforce. The number represents how many disabling injuries there would be if a workforce was 100 people in total. A frequency of 1.0 means, for every 100 workers on site, one person becomes disabled due to injury per year. GHG Emissions from Petro-Canada Operated Facilities (kilotonnes of carbon dioxide equivalent) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Non-Canadian Operations Oil Sands East Coast Oil (now East Coast Canada) North American Natural Gas Downstream 2006 RESULTS 2007 GOALS provided training to 120 employees and contractors on U.S. anticorruption laws and more than 1,200 employees on compliance with antitrust laws formalized processes to communicate, train, and steward performance to our Code of Business Conduct strengthened auditing aspects of the TLM system improve training for our Code of Business Conduct and Privacy Policies strengthen leaders understanding of their role in sustaining a culture of integrity through training improve pre-selection and communication of Code of Conduct expectations with contractors received feedback from more than 100 external stakeholders, who identified areas to build on regarding our recognized capability in stakeholder engagement strengthened Aboriginal recruitment strategy and practices, including adding recruitment staff focused solely on Aboriginal hiring restructured the community partnerships program, targeting education, environment, local community support and Olympics/Paralympics began developing an environmental information management system, with initial focus on GHGs and primary air pollutants held 10 Life-Cycle Value Assessment training sessions initiated water strategy project, with more work required in 2007 reduced environmental exceedances by more than 20%, while not increasing the number of spills in 2006, compared with 2005 submitted environmental and social impact assessments for the Fort Hills upgrader, the MacKay River expansion, the Saxon project in the North Sea and for seismic and drilling in Syria achieved TRIF of 0.85, breaking the 1.0 barrier and becoming among the best safety performers in our industry held safety learning forums with senior leaders, front-line management and contractors influenced safety standard improvements among contractors participating in Terra Nova turnaround piloted project to develop standardized criteria for pre-qualifying contractors based on safety announced annual President s Award to recognize safety drafted and tested a pandemic response plan restructured human resources department with a focus on recruiting and hired more than 650 employees saw employee turnover rate of 5%, compared with 8% in the industry develop Stakeholder Engagement Policy and improve training and capability development increase Aboriginal community participation in business opportunities to provide goods and services better measure the socio-economic impact on the communities in which we operate assess the effectiveness of key community partnership initiatives strengthen environmental stewardship by developing specific commitments and indicators for air, land and water management complete first phase of the environmental information management system to steward performance against principles and indicators improve method to capture and report environmental expenditures submit environmental assessment to support drilling programs in Trinidad and Tobago and the Alberta Foothills, seismic programs and well site surveys in Newfoundland and Labrador, as well as additional information for the MacKay River expansion continue to focus on employee retention and attraction sustain and further improve safety performance finalize and implement consistent contractor safety pre-qualification standards for use across Petro-Canada strengthen sharing of what is learned from events develop health performance metrics to address and mitigate the impact of employee illness enhance the social risk impact assessment process in the project management model finalize pandemic plan based on learnings from 2006 and 2007 emergency response exercises petro-canada 9

12 GASOLINE PRICING 80 Crude Oil Price Indicators (averages per bbl for years indicated) 2006 Canadian Average Pump Price Data Source: MJ Ervin & Associates Petro-Canada Refining & Marketing Profit % 15% % 48% Dated Brent at Sullom Voe (US$) West Texas Intermediate at Cushing (US$) Edmonton Light (Cdn$) Crude Costs Taxes Profit Refining and Marketing Costs We know customers are concerned with the price of gasoline and the volatility of gasoline pricing. Excluding taxes, approximately two-thirds of the price of gasoline is driven by the price of crude oil, which has risen and been volatile due to a tight supply/demand balance in the world. Our core business is supplying energy products to meet increasing demand. This is why a significant portion of our cash flow goes toward bringing on additional energy supply. As well, the world s crude oil supply is becoming less pure (heavier), which requires more refining. We are addressing this by investing into the conversion of our Edmonton refinery to process bitumen-based feedstock and considering a new coker at our Montreal refinery. Over and above crude oil prices, gasoline prices are affected by seasonal supply and demand for gasoline itself, changes in fuel specifications, taxes and transportation costs. In addition, gasoline is a commodity, so the price tends to move to a level at which transportation costs balance other factors. The mobility of refined products between geographical markets keeps prices competitive, but creates price volatility that cannot be easily explained. From a retail perspective, competition at the pump remains fierce. Our profits on gasoline sales were around 3% in 2006 despite having the leading share in major urban markets. Our preferred approach is to be as transparent as possible and try to demystify this complex issue. In 2006, we produced videos to explain gasoline pricing in easy terms. While everyone might not agree, we think the discussion was helpful in furthering understanding. As well, when a competitor had a supply disruption impacting gasoline supply, we worked hard to help alleviate the supply situation and were the first to provide, via our website, public information on what was happening. More information on gasoline pricing can be found at under Pump Talk. 10 petro-canada

13 Business Conduct There is no finish line when it comes to having an ethical culture. The effort requires policies and management systems fit for purpose, and a culture that encourages open and honest discussion of ethical issues. For more information, go to our website to learn more about: Our Executive Corporate Responsibility Steering Committee Code of Business Conduct compliance Chief Compliance Officer Training programs Confidential ethics hotline Total Loss Management (TLM) framework Last year, we formalized processes to communicate our Code of Business Conduct (the Code) and introduced a web-based, interactive way for employees to acknowledge they had read and understood the Code. We also used web-based interactive training courses to inform employees and contractors of their obligations under anticorruption legislation (such as the U.S. Foreign Corrupt Practices Act and similar international laws), as well as about rules against antitrust and uncompetitive practices. We re broadening application of web-based training to our Privacy Policy, too. For higher risk roles, we provide training workshops that permit more detailed understanding and open discussion. Employees with business conduct concerns can place a confidential call to our Ethics Hotline. Since this service started in 2005, the volume of calls has been relatively low, but we couldn t tell if this was because employees didn t know about the line or were hesitant to use it. To be certain, we ramped up communication and internal awareness of this service in Contractors represent a significant portion of our workforce, so it s important they also understand our policies. In 2006, we piloted a process to pre-approve contractors based on safety criteria. In 2007, we are looking to strengthen communication to our contractors about our Code expectations. Beyond the day-to-day behaviours that drive a culture, Petro-Canada also has a Total Loss Management (TLM) framework, which is a systematic way to manage risks to the environment, health and safety, security, stakeholder engagement and asset integrity. In 2006, a third party assessed our TLM audit program, resulting in the hiring of a lead auditor and a number of improvements to that program. This will help assure us that risks are being managed appropriately. Web-based training is being developed to help everyone understand and apply our TLM standards in their individual work. Petro-Canada is committed to helping consumers understand gasoline pricing. In 2006, we produced videos for the YouTube site, where they received more than 30,000 viewings. This is a screen shot of one of the videos. Peter Hutcheson, senior legal counsel, helps train International and Offshore employees and contractors on Petro-Canada s Code of Business Conduct. In 2006, Petro-Canada conducted six TLM audits, including one at our Burrard Terminal in Port Moody, British Columbia. The audit determined that the terminal continues to have strong loss control performance; however, as the workforce ages, knowledge needs to be transferred. We are committed to excellent customer service. Among more than 500,000 Canadian retail service station customers surveyed in 2006, 81% said they would recommend our service stations to their family and friends. petro-canada 11

14 GIVING TO COMMUNITIES Cash and In-Kind Contributions of More Than $20 Million in (% Contribution in North America unless otherwise stated, unaudited) Years ended December 31 ($ millions Cdn) Local community support United Way Olympic/Paralympic Games Education Environment 1 The total includes community partnership funding, as well as other community support in the form of equipment, property and cash donations from various operating budgets. In 2006, we completed a review of our community partnership program that led us to four focus areas: education, environment, local community support, and the Olympics and Paralympics. Our education initiative was the first out of the gate, which was important given Canada s growing skills shortage and our need for more people to support our growth plans. We launched our new Emerging Leaders Awards Program, which provides scholarships and mentorship in areas most related to our business. We ve already invested more than $3 million in scholarships at McGill University, the University of Alberta, the University of Waterloo and the Northern Alberta Institute of Technology. In 2007, we will create some significant partnerships with our environment and local community partners. As Vancouver s 2010 exclusive national oil and gas partner, we proudly support the Canadian Olympic and Paralympic teams in Beijing 2008, Vancouver 2010 and London We work with several organizations, including the Canadian Olympic Committee, the Canadian Paralympic Committee, Vancouver 2010 and the Coaching Association of Canada. We continue our 19-year legacy of supporting athletes and coaches at a grassroots level and we are eagerly gearing up to make sure Vancouver 2010 makes Canadians proud. 12 petro-canada

15 Community We work with a wide variety of communities, from landowners near our facilities to customers at our service stations from Indigenous people preserving their culture to international organizations trying to make the world a better place. More information about our community initiatives is available on our website under: Community partnerships program Stakeholder and community engagement Commitment to Aboriginal Peoples While different in scope and issues, our approach is the same: act in a constructive, consistent and principled manner, be transparent, actively listen to stakeholders and be open to incorporating their ideas. These same concepts are outlined in our new Stakeholder and Community Engagement Policy, as well as the United Nations Global Compact and the Universal Declaration of Human Rights to which we subscribe. The licence to operate that we are provided by our stakeholders and communities is not something we take for granted at Petro-Canada. In 2006, we conducted a major survey of our stakeholders to learn how we can improve our relationship with them. The results indicated we operated with integrity but could improve the consistency in which we apply our policies and procedures. With business growth and many of our stakeholder engagement practitioners retiring, we also need to transfer knowledge through formal guidelines, processes, tools and training. Since we know we don t have all the answers, we belong to a number of key organizations, such as the World Business Council for Sustainable Development, Canadian Business for Social Responsibility and the Boston College Center for Corporate Citizenship. We also join our peers in industry associations so we can work on key issues with our stakeholders. In 2007, we participated in the Canadian Roundtables on Corporate Social Responsibility, which resulted in a proposal outlining ways Canadian companies operating in developing countries could further strengthen practices. Petro-Canada is an ongoing supporter of Canada s Paralympic athletes and a national partner for the 2010 Paralympic Winter Games in Whistler, B.C. In partnership with the Canadian Paralympic Committee, we support athletes and coaches, school programs and an equipment fund. Over the past three years, Petro-Canada has sponsored the Fort McKay Dancers and Drummers program in northern Alberta. Petro-Canada has three exploration licences in Trinidad and Tobago where fishing is important to the local community. Petro-Canada helped provide safety training including how to use global positioning systems (GPS) for fishermen on a peninsula at the southwest end of Trinidad. In 2006, Petro-Canada joined forces with Habitat for Humanity to help build houses for needy families. In Calgary, Vancouver and Edmonton, the Company provided money and one or two days of employee volunteer work. In 2007, Petro-Canada volunteers plan to join Keyano College to sponsor a home in Fort McMurray. petro-canada 13

16 Strong Relationships Drive Home Corporate Values How Petro-Canada places stakeholder and community engagement at the forefront of its corporate success. Taking to the sea off Tobago in a 20-foot long, open pirogue 1 can be a daunting experience, with fast currents and a swell that can easily rise to two or three metres. However, these are good fishing grounds and the catches often make the trips worthwhile. Bert Harris recently started using a hand-held GPS receiving unit, which is making his life at sea safer and more productive. Voldis Peters (left) and Bert Harris (right), are shown fishing with a Petro-Canada issued GPS unit. Bert is just one member of the Tobago fishing community who has benefited from Petro-Canada s program to improve the safety of this key stakeholder group. During November and December 2006, Bert, along with more than 100 other fishermen attended Safety at Sea training courses funded by Petro-Canada. The training included basic boat and engine maintenance, use of safety equipment and survival techniques. The courses were organized with the support of the Tobago House of Assembly Fisheries Department and, upon graduation, attendees were given radar reflectors and the hand-held GPS units. The GPS unit not only helps me navigate the open sea where there are no landmarks, but also helps me record the exact location of a good catch so I can go back and make sure I m in the same place, says Bert. This makes fishing more productive and reduces the amount of fuel I need to use each trip. They are also great for fisher folk 1 A long narrow canoe made from a single tree trunk. who use FADs (fish attracting devices), because they know exactly where their FADs are. Today, Petro-Canada s relationship with the fishing community of Tobago is even stronger than before and locals, like Bert, are benefiting directly from the investments being made to improve local infrastructure. Bert is a good example of someone who has benefited from the combination of training and new equipment, says Rosemary Drummond, senior communications advisor, International and Offshore. The training significantly improves the safety of the fishing community and the GPS has improved productivity. If we see the demand, we would certainly consider running further courses for those unable to attend the first time around. We need to build trust between Petro-Canada and the fishing community and this is a tangible way of doing so. Petro-Canada s commitment to stakeholders, like Bert, has long been entrenched in the Company s core values and business operating practices. To be successful as a business, we have to invest in stakeholder engagement, says David Stuart, senior director, Environment, Safety and Social Responsibility. That was one of the primary drivers behind the decision that, as a company, we wanted to evaluate and formalize our stakeholder framework. Many refer to Stuart as the principle architect behind formalizing Petro-Canada s stakeholder engagement process. A man who has spent more than 25 years fostering relationships on behalf of Petro-Canada, Stuart is often seen as the driving force behind an already strong stakeholder engagement reputation. With a booming economic climate, more companies are finding that stakeholder engagement is becoming critical not only to their corporate reputation, but to their bottom line. Stakeholder engagement is fast becoming an integral component of doing business. 14 petro-canada

17 More than 1,200 people attended open houses at the Montreal refinery in June The open house included tours of the facilities and sessions on the Company s plans to add a new coker at the refinery. Regulatory reforms in Canada, the U.S. and abroad all envision a much greater reliance on stakeholder input into the decision-making process. Stakeholders themselves have higher expectations of companies with whom they enter into a relationship. People can read you if you re not being transparent with them the recognition of the stakeholders importance must be part of the Company s principles and core value system, says Stuart. New technology and improved access to information are also increasing expectations for corporations to raise the bar in the way they work with stakeholders. While stakeholder engagement was already ingrained within Petro-Canada s corporate culture, stakeholder veterans such as Stuart and John Kerkhoven, team leader Stakeholder Engagement, began to see some major challenges on the horizon the most immediate being demographic. Kerkhoven is worried that a number of experienced stakeholder relations practitioners will soon be eligible for retirement. People who have been doing this for a long time are going to be retiring within the next three to five years, so that strength and experience is not going to be with us much longer. It s important to put a framework in place right now. Unlike a core competency such as engineering, people undertaking stakeholder engagement don t come from the same educational stream. While Kerkhoven says this isn t necessarily a bad thing, it means, people may have come from a production point of view or operations and they just started doing stakeholder relations. It simply became what they did. There was no formal training route to get there. By putting a framework in place, Kerkhoven and Stuart hope to have a standardized process with uniform goals to train the next generation of leaders. Another challenge, which is not unique to Petro-Canada, is business growth, particularly in Oil Sands, the Far North and internationally. The successful evolution of an energy company depends on renewing access to resources, which, in turn, depends on the approval of stakeholders. This is what Petro-Canada refers to as its licence to operate. Kathy Sendall, senior vice-president, North American Natural Gas, explains, The truth is that a company can have all the licences in the world, but if you can t attract and retain good people, or if there are picketers at your annual general meeting protesting your operating practices, those licences really aren t worth the paper they re printed on. That s why we all need to pay attention to good stakeholder engagement. The need to create a stakeholder engagement framework became evident in 2001 while the Company was working with local Aboriginal communities. A number of people realized that Aboriginal Affairs was an unintended sub-component of land acquisition and stakeholder engagement and not clarified as unique unto itself, says Stuart. While creating a specific Aboriginal framework, Stuart realized the same needed to be done more As a company, we have standards and expectations of ourselves; we were not going to be the kind of company that is at logger heads with communities. That s not who we are we re not going there. Chequebook diplomacy is not our game. JOHN KERKHOVEN, TEAM LEADER STAKEHOLDER ENGAGEMENT broadly for stakeholder engagement. And so began an extensive surveying process in April The Company asked vice-presidents, managers and more than 100 stakeholders about Petro-Canada s stakeholder engagement performance. The news was good. Petro-Canada was building its framework on a solid reputation of principles and transparency. petro-canada 15

18 Strong Relationships Drive Home Corporate Values continued The recognition of the stakeholders importance must be part of the Company s principles and core value system. DAVID STUART SENIOR DIRECTOR, ENVIRONMENT, SAFETY AND SOCIAL RESPONSIBILITY Nevertheless, stakeholders did flag some specific areas for improvement, particularly the need for a more consistent approach throughout business units. The strategy then revolved around formalizing that consistency through systems, tools and training. The idea, says Kerkhoven, was not to be too prescriptive. People were already doing a great job and the Company simply wanted to give them the tools and broad-based standards to work within. After all, each situation and individual stakeholder has completely differing needs and relationships. As Stuart Insch of the International and Offshore business unit describes, The key is balancing the needs of international stakeholders with the principles of Petro-Canada each one is different. I see stakeholder engagement as a value-based licence to operate where our Company standards are reflected consistently, throughout differing cultures, no matter where we operate. In the end, David Stuart and his team developed a stakeholder framework with three overarching goals: meeting corporate expectations, implementing consistent standards and achieving effective stakeholder engagement. As Stuart explains, The framework begins by setting out Petro-Canada s values and moves to outlining clear and consistent expectations connected to stakeholder engagement. Applying the framework in day-to-day business is done through tools that have been developed specifically for the team. One tool that has generated a lot of excitement is the new stakeholder issues management system (SIMS). As Kerkhoven puts it, It s a great web-based issues management system that we can use to keep track of issues and plan online properly with our teams. Within SIMS, the team can track consultations with individual stakeholder groups so that all project groups have access to the same information in a consistent form. SIMS was the result of the stakeholder and information systems teams working together to support the call for consistency of communications. The creation took over a year and a half and was rolled out to the Company in June The scope and consultation of the stakeholder framework would imply that the implementation process was quite an undertaking. Not so, says John Young, manager of Aboriginal Affairs. From his perspective, it s all about continuing an already strong record of relationship building. In Aboriginal communities, a consistent relationship is paramount; however, in business, typically the deal is paramount, says Young. That is where we become a bit of an interpreter, building and maintaining strong connections to communities and not just going in when we want something. Aboriginal communities are an integral part of Petro-Canada s business and are viewed as partners. However, the process can be confusing at times 46 different bands in just Alberta and, on Petro-Canada s side, many different project teams working on various initiatives. Once again, consistent relationships are paramount. As Young explains, In Alberta alone, there are three major treaties that cross political borders; therefore, you re dealing with different provinces, one territorial government and the federal government. So, if we re not co-ordinated and consistent in our approaches, we could have unintended consequences across business units. For example, Treaty 8 impacts three different Petro-Canada business units: North American Natural Gas, Oil Sands and Downstream. If Oil Sands did something within its own business Petro-Canada teamed up with the Fort McKay First Nation in a community-based program to create new training opportunities. Here, students are advised of the Fort McKay Wood Cutting Project. unit that is inconsistent to what others are doing, it could have unforeseen consequences that project managers might not even be aware of until it s too late. It s Young s job to promote accountability and alignment throughout the Company. Young is deservedly proud of all that his team has achieved in the last five years to earn the respect and trust of Aboriginal chiefs and their bands. Young has even been awarded the highest honour, by receiving a sacred pipe from the Tsuu T ina Nation. Chief Liz Logan of the Fort Nelson First Nation also has high praise for our stakeholder process. 16 petro-canada

19 A BROAD APPROACH TO STAKEHOLDER ENGAGEMENT ON CANADA S EAST COAST As the Company is engaged in every major oil project off Canada s East Coast, relationships with multiple stakeholders are paramount to Petro-Canada s success in the region. A Petro-Canada employee explains the Company s energy efficiency programs to residents near the Ferrier gas plant by Rocky Mountain House, Alberta. Petro-Canada has always been one of the top performers in the area of communication and relationship building. They were the first to sign off on a Co-operation Protocol document with the Fort Nelson First Nation laying out a framework for how we are going to work together and co-operate for the benefit of both parties. However, it s important to remember that stakeholder engagement, like all relationships, is not positive all the time. People do not like being told something that s a fait accompli, says Kerkhoven. Stakeholders must be involved in a project from the front end. If not, you then face a struggle getting people from if to how. One such project Kerkhoven remembers was a critical sour gas well development in the Drayton Valley in the late 1990s. We had 120 residents impacted and it initially started off as being very confrontational. Recognizing the fact that, as a Company, we have standards and expectations of ourselves, we were not going to be the kind of company that is at loggerheads with communities. That s not who we are we re not going there. Chequebook diplomacy is not our game. Kerkhoven and his team stepped back and evaluated where they were going, not only with the proposal, but, also, with the relationship. We took the high road and engaged the community in a collaborative process that took about 18 months, and came out with a result that was acceptable to both parties. So what will it take for the next generation of leaders to continue to build a strong Company reputation? If Stuart has anything to say about it, new employees will be doing a lot of homework. Before you go out and talk to a community, do your homework, says Stuart. Some companies simply hire a consultant to go out and talk to stakeholders and when people start asking questions, they either get a blank stare, a I ll get back to you, or they just wing it. You have to be credible in the eyes of your stakeholders. If you know what you re talking about, you ve probably done your homework that s very important. What will Stuart miss about his role when he soon retires? Working with stakeholders has meant that I ve been able to develop incredibly rewarding relationships, internally and externally, that I never would have had otherwise. One can only benefit from their stakeholder expertise and experience. Undoubtedly, Bert would agree. Regulators and other stakeholders play a vital role in a project s future, and East Coast Canada is proud that it has an open and effective dialogue with regulators, such as the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB). Petro-Canada also sits on the board of One Ocean, an industry group that facilitates communication between the fishing and petroleum industries. The Company works closely with the Canadian Wildlife Service, which has taken advantage of Petro-Canada s state-of-the-art equipment and trained staff at its Seabird Rehabilitation Centre in St. John s, Newfoundland and Labrador. As well, Petro-Canada is proud to contribute to local communities. The Petro-Canada Hall at Memorial University of Newfoundland is one of the most technologically advanced performance facilities in the province, supporting both the arts and education. In 2007, Petro-Canada sponsored the Canadian Olympic Committee s popular Community Outreach Program, pairing prominent Olympic athletes with schools in Halifax for a series of inspirational sessions. Petro-Canada operates the Seabird Rehabilitation Centre in St. John's, Newfoundland and Labrador. The Centre rehabilitates marine birds like this loon that are cleaned by volunteers and then transferred to the Newfoundland and Labrador Environmental Association's Rehabilitation Centre for further recovery and waterproofing before being released back into the wild. petro-canada 17

20 OUR APPROACH TO EMISSIONS Production Carbon Intensity (tonnes of carbon dioxide equivalent CO2e per cubic metre of oil equivalent) Upstream Downstream Production carbon intensity (PCI) is a measure of the amount of GHGs emitted (usually in tonnes) or CO2e per unit of production. This measure is consistent with the intensity targets being proposed in Canadian legislation. Petro-Canada reports the unit of production in cubic metres of oil equivalent and includes indirect emissions, which are those emissions that result from power that is purchased from a third party, typically electrical power. Overall, our carbon intensity increased in 2006 compared with Upward pressure on PCI in the upstream was mainly a result of the startup at Terra Nova after an extended turnaround. In the Downstream, emissions rose primarily due to the startup of refineries after work to reduce sulphur content in on-road diesel fuel and the ongoing increase in refinery emissions caused by more processing to remove sulphur content. In Europe, there has been some certainty around GHG thresholds and penalties/credits for some time, so we have a clear understanding of the impact on our European operations. As a matter of fact, both our offshore Hanze and De Ruyter platforms in the North Sea are best in class and in a credit position. In Canada, provincial and federal governments are positioning themselves to manage climate change with legislation that was released in the spring of We are currently working to understand the impact of this legislation, since we have a mix of new facilities, older operations and proposed projects. With this added clarity, we have a platform to begin developing longerterm plans. The strategy includes developing a consistent approach to model the cost of carbon regulation into all project and business unit plans. This will allow us to identify further economic energy efficiency projects, test the carbon cost risks associated with each new project and investigate longer term mitigation opportunities. Along with implementing internal reduction opportunities, we will evaluate and build a portfolio of external mitigation opportunities. While we believe in energy efficiency and want to be part of the solution, we re also realistic. Reducing absolute emissions will be challenging given growth in Oil Sands and the need for more gas compression at maturing conventional oil and gas operations. Nevertheless, we re committed to developing a strategy to manage and mitigate GHGs over the long term, fully leveraging technology as a key way to find solutions. 18 petro-canada

21 Environment Reducing the impact of our operations on the environment is a priority for us. With the Earth s resources limited and ecosystems interdependent, we recognize the need to holistically manage our environmental footprint. For more information on the environment, go to our website and read about: Air Water Waste management Project environmental assessments Life-Cycle Value Assessments Regional ecosystem initiatives Environmental protection Environmentally responsible products From our perspective, we have a bank account with the environment. We rent or borrow from the environment to produce oil and gas and to develop refined products that we can then market. This includes physical space on the land for development activities, water we use in our processes, emissions into the atmosphere, and flora and fauna that may be temporarily or permanently displaced by our activities. Many of our environmental initiatives pay back into that account, including habitat compensation projects like the no net loss lake in our Fort Hills oil sands project or the development of scallop habitat off Newfoundland and Labrador. We have learned much from applying Life-Cycle Value Assessment to our projects and activities. We realize, however, that we could take a more strategic and holistic approach to offset our impact. Through our participation in the World Business Council for Sustainable Development, we are learning how to integrate our ecosystem thinking and develop metrics and indicators that will help us make better decisions toward our goal of minimizing our environmental footprint. Petro-Canada worked with staff from the Grizzly Bear Research Program (part of the Foothills Model Forest conservation group) to help to mitigate the impact of proposed development on the grizzly bear population. In northeast British Columbia, natural gas pumps like this one at Jedney are solar powered. Fifteen pumps and 60 retrofits replaced traditional pneumatic pumps, resulting in a zero-emission option. Petro-Canada is transplanting a number of plants in the Fort Hills mine area to the eastern part of the McLelland Lake wetland, which is protected. We have committed to more than 100 environmental compliance conditions set forth by regulators for the Fort Hills project. In 2006, the Company successfully removed marine growth from the hull of the Terra Nova FPSO vessel. To capture any oil that might be released during the operation, the best available equipment was deployed, along with a team of highly skilled personnel. petro-canada 19

22 Environment continued AIR QUALITY Petro-Canada ensures its facilities meet stringent air quality and emissions regulations and implements best practice industry standards. We continue to apply emission reduction strategies and adhere to established codes of practice. We report pollutants and GHG emissions to local, provincial/state and national governments. Petro-Canada reports the quantity of releases of identified substances. We refer to these as primary air pollutants (PAPs) and they include total volatile organic compounds, carbon monoxide (CO), nitrogen oxides, sulphur dioxide and total particulate matter (TPM) under 100 microns (µm). The numbers in this report represent total emissions for Petro-Canada operations and not just those amounts that are reportable under regulatory requirements. As such, the numbers here may not coincide with the total of all of our reportable emissions. While the releases of these pollutants are reported for air, land and water, approximately 95% of our pollutant releases are those made into the air. In 2006, the total volume of the five PAPs emissions was 46.6 kilotonnes, compared with a total volume of 53.8 kilotonnes in The net decrease in PAP emissions for 2006 can be attributed to a reduction in flaring at the Hanlan Robb gas plant after the Total Primary Air Pollutant Emissions (kilotonnes) Upstream (does not include International non-canadian TPM or CO) Downstream 2006 Primary Air Pollutants: Emissions by Type (does not include TPM or CO emissions from International non-canadian operations) Sulphur dioxide Nitrogen oxides Volatile organic compounds Carbon monoxide Total particulate matter installation of a flash vapour recovery system and the extended maintenance turnaround at Terra Nova. As well, 2006 marked the first complete year that the Oakville refinery was shut down, which accounted for a further reduction in PAP emissions. FLARING Natural gas is sometimes burned or flared as an important safety procedure to prevent the accumulation of gases, especially at facilities that handle sour gas. Flaring is done in compliance with government air quality standards. Petro-Canada is committed to reducing flaring, as it wastes a valuable resource and emits GHGs. In 2006, flaring was reduced by 21% compared with This overall reduction can be largely attributed to the shutdown for the period of the Terra Nova FPSO maintenance turnaround. However, our North American Natural Gas business also made significant progress toward reducing flaring, both during the well testing process and generally across most of its gas plants. Stable and reliable operations at our North Sea platforms also contributed to lower flaring. WATER Access to fresh water and the responsible management and disposal of water used or produced in our operations affects Petro-Canada around the world. Development of a corporate water strategy in 2006 has evolved to creating corporate water principles. The intent of these principles is to provide our businesses with guidance on how to manage water-related challenges and opportunities consistent with our corporate priorities and responsibility strategies. The principles are scheduled to be reviewed by Petro-Canada s executive in Following their implementation, each business will develop specific strategies to manage acquisition, use and disposal of water % % 2% % % Petro-Canada tests the quality of water coming from a creek near Gillette, Wyoming in the U.S. Rockies. The patterned fen at Fort Hills consists of unusual peat-forming wetlands. Petro-Canada, as part of its regulatory compliance, must protect and maintain the characteristics of the unmined portion of the fen and McLelland Lake wetland. 20 petro-canada

23 SPILLS Petro-Canada works diligently to foster a culture where nothing hits the ground or water. This philosophy is applied to more than just spills of oil products. We believe that any liquids whether they are chemicals, produced water, crude or oil products, among others must be contained or discharged in accordance with regulatory requirements. Our goal is that any release is reported, captured in our event database and investigated. We re working toward this zero threshold for reporting because it provides us with a more accurate picture of how well our management systems are working to control potential environmental events. We re also working toward capturing and stewarding total spills, regardless of whether they are contained on site, as another indicator of how well we manage liquids. In 2006, spills exceeding 1 m 3 were 100, compared with 99 in ENVIRONMENTAL IMPACT ASSESSMENTS We do environmental impact assessments (EIAs) on all our major projects and as required by legislation. The process helps us reach collaborative solutions with stakeholders to minimize our environmental impact. When an EIA is completed, we translate the requirements into ongoing plans, such as environmental or waste management plans. These plans are in place for the life cycle of a project or facility. In 2006, we submitted environmental and social impact assessments for the Fort Hills upgrader, the MacKay River expansion, the Saxon project in the North Sea and seismic and drilling in Syria. In 2007, we are going to submit environmental assessments in support of our drilling programs in Trinidad and Tobago, and the Alberta Foothills, as well as provide additional information for our MacKay River expansion. Petro-Canada supports the Mackenzie Delta Spill Response Corporation, which protects the environment by providing spill preparedness and safe, effective response services. Here, a crew assists a boat in positioning a secondary boom during a training exercise. Petro-Canada Spills by Type (2006) Storm and sewer water 46.4% Refined product 6.3% Plant effluent 0.7% Produced water 31.4% Hydrocarbon historical 0.6% Oil, crude and condensate 12.2% Steam condensate 0.5% Chemicals 1.4% Bitumen 0.3% Drilling fluids 0.2% Petro-Canada Spills of Greater Than 1 m 3 by Business North American Natural Gas 39 Downstream 31 Oil Sands 26 East Coast Canada 4 International 0 0.6% 12.2% 31.4% % 0.3% 0.5% 0.2% 6.3% 0.7% % 39 ENVIRONMENTAL EXCEEDANCES Petro-Canada carefully tracks operational upsets that may lead to environmental licence or permit exceedances. In 2006, we had 22 environmental exceedances, a 21% decrease compared with the 28 exceedances in This reduction was due to careful management of our emissions in our North American Natural Gas business, which experienced a 44% reduction, and our Downstream business, which had a 17% reduction. Our Oil Sands business had three exceedances in 2006, the first since operations started in When an event occurs, we immediately report the incident to the proper government agency and proactively seek to remedy the situation and implement actions to prevent further occurrences. As reported last year, in 2006, Petro-Canada entered a guilty plea to the improper discharge of oil from the Terra Nova FPSO in Before conducting an exploration program in Trinidad and Tobago, Petro-Canada must prepare and submit an environmental impact assessment to regulators. Part of the process includes environmental consultants and surveyors working together to collect seabed sediment and water column samples. Petro-Canada employees teamed up with Trout Unlimited Canada (TUC) on an ongoing Nose Creek rehabilitation project near Airdrie, Alberta. Since 1994, Petro-Canada has supported TUC s efforts to conserve, protect and restore Canada s freshwater ecosystems. petro-canada 21

24 SAFETY IN THE WORKPLACE Recordable Injuries by Year (the number of employees and contractors injured on the job per 100 people) Contractor Recordable Injury Frequency Total Recordable Injury Frequency Employee Recordable Injury Frequency We have a Zero-Harm philosophy: the belief that work-related injuries and illnesses are foreseeable and preventable. Petro-Canada s total recordable injury frequency (TRIF) of 0.85 in 2006 was 25% lower than in Over the past six years, a commitment to improve our safety performance has moved us from an average rating to having among the best safety performances in our sector. We will continue to work hard toward our Zero-Harm goal. A part of safety is reinforcement. Last year, a President s Award for Safety was introduced within Petro-Canada. Eleven strong submissions were received, each of which had to qualify by having achieved 250,000 person hours without a recordable contractor or employee injury. The winners are chosen based on innovation, training, use of technology and culture. There were two winners in The first was the Oil Sands project team working on the desulphurization and conversion projects at the Edmonton refinery. This project achieved the threshold (250,000 hours without a recordable injury) five times in 2006 for a total of 2.4 million recordable injury-free hours. The other winner was our offshore team at the Hanze platform in the North Sea, which achieved more than 473,000 hours without a recordable injury from 2003 through to petro-canada

25 Working Conditions and Human Rights We have a challenge. We need more than 4,500 new employees to help us bring on growth projects and to replace those leaving due to retirement and forecasted attrition. This equates to hiring an average of 900 people annually for the next five years. For more information on working conditions and human rights, go to our website to read about: Employee relations Emergency preparedness Human rights Health, safety and security in the workplace At the same time, there is a skills shortage in Canada in the areas where we need people. We anticipated this so we reorganized our human resources group to have a recruiting and retention focus. In 2006, we hired more than 650 employees and, so far this year, another 350 have joined Petro-Canada. Our efforts will only escalate from here. Training employees and contractors to efficiently and quickly become meaningful contributors with Petro-Canada values is critical. We ve introduced new orientation sessions so this step isn t missed. We also need to retain existing employees and contractors. Our retention numbers of around 95% are good, but we need to keep on it. We re recognized for valuing work/life balance and diversity. The Company has expanded parental leave, job sharing and flexible work hours, and has an on-site daycare at its Calgary headquarters. We also know an employee s relationship with his or her supervisor is important to job satisfaction. We are identifying areas where supervisors can improve and developing a plan to close the gaps. We also continue to look for opportunities where people can be promoted or can move across businesses. In 2006, we reviewed our business development and project delivery model to identify ways to better assess and manage social risks, and applied a more robust approach to assess non-financial risks. We must also continue to understand the social context in which we operate. As we develop our Syrian natural gas production facility, we will pilot a broader social impact assessment tool. As part of Earth Day activities in 2007, employees at Petro-Canada s lubricants plant pick up garbage on the shore of Lake Ontario. Petro-Canada executives host town hall meetings to share business strategy and progress with employees, and answer questions. Nearly 1,000 employees attended a spring 2007 meeting hosted by CEO Ron Brenneman. Petro-Canada conducts safety standdowns, like this one at Ferrier, Alberta. A safety standdown is when senior management attends field sites and facilities to talk with employees about health, safety and wellness issues. Petro-Canada conducts emergency response exercises and drills to test capabilities. In 2006, we staged one Company-wide exercise, six regional exercises, numerous local exercises and five pandemic planning exercises. petro-canada 23