,0 Securing Canada's Energy Future 7?3?0303?2 Climate Change Voluntary Challenge Program Action Plan and Annual Progress Report for the Project October 1998 UCR (Lowe). ucr? mvr?ca) Table of Contents Corporate Pro?le Chairman's Message Summary Graph Energy Use Graph Production and C02 Emissions Basis for Reporting Greenhouse Gas Emissions Carbon Dioxide Other Greenhouse Gases Emissions Baseline Innovation in Energy: Our Record to Date Performance Highlights Continuous Improvement and Capital Investment Achievements Innovation in Energy: 1998 - 2008 Reduction Strategies Performance Highlights Continuous Improvement and Capital Investment Strategies Managing to Make a Difference Leadership and Organization Research and Development Capital Investment Operational Excellence Business Plan Internal Incentives Education and Training Working with the Community Information and Contact 01-h 11 13 16 23 Corporate Profile Located at Mildred Lake, 40 kilometers north of Fort McMurray, Alberta, in the Regional Municipality of Wood Buffalo, is the largest operator in the Alberta oil sands. We operate an oil sand mine, utilities plant, bitumen extraction facility, and upgrader that processes bitumen and produces a (value-added) high quality, light, sweet crude oil. This product, which is low in sulfur and contains no residue, is called Sweet Blend. To produce Sweet Blend, bitumen is extracted from the oil sands in our mine using steam and hot water. This bitumen is then upgraded into Sweet Blend using ?uid coking, hydroprocessing, hydrotreating and by naphtha, light gas and heavy gas oil streams of the high quality product. The final product is delivered to three Edmonton refineries and to two pipeline terminals which ship it to refineries in eastern Canada and the United States. In 1997, we produced 75.7 million barrels of crude oil, meeting about 12 percent of Canada's annual petroleum requirements. This makes the nation's second largest single source of crude oil. The Project is a joint venture which is operated by Canada Ltd. on behalf of the following 10 Participants: AEC Oil Sands L.P., AEC Oil Sands Limited Partnership, Athabasca Oil Sands Investments Inc., Canadian Occidental Petroleum Ltd., Canadian Oil Sands Investments Inc., Gulf Canada Resources Ltd., Imperial Oil Resources, Mocal Energy Limited, Murphy Oil Company Ltd. and Petro?Canada. Chairman's Messaqe I am pleased to present fourth annual submission to the Voluntary Challenge and Registry on climate change. While the debate continues on whether human activities have in?uenced the natural progression of climate change during the last century, one thing is certain is committed to addressing this issue through actions to increase our energy efficiency and reduce our greenhouse gas emissions per unit of production. To us, the key concept is risk management; a principle subscribed to by in every aSpect of our organization. For us, the issue is not whether climate change is occurring. The issue is that Canadians across the country have expressed concern about human influences on the world climate. And they want action. In response, Canada has made a target to reduce greenhouse gas emissions to six percent below 1990 levels for the 2008 to 2012 period. Although we believe further work on the science of climate change and related issues is required, continuing analysis must not halt immediate action. And this is what our submission is all about. First, is committed to reducing C02 emissions per unit of production by one?third over the period 1990 to 2008. Towards this, we will achieve an average 1.6 percent energy efficiency gain per year. These commitments are made possible through capital stock turnover during our $6 billion 21 expansion. It heralds a new era of business for and incorporates over $1 billion in capital investments that will significantly improve our environmental performance. New technologies include a low energy hydrotransport/extraction process at the Aurora Mine which uses 40 percent less energy than our current process. As well, we will replace our dragline and bucketwheel mining processes with energy efficient trucks and Shovels. We are also taking action to engage our stakeholders in the issues that concern them. This includes our participation in industry associations and multi-party forums that will make a positive contribution to the development of rules and mechanisms for action on climate change. We are making progress through significant investments in science and technology. operates one of the largest research facilities in Western Canada. We invest over $30 million annually in research and development programs in which energy efficiency and pollution prevention are key objectives. Many of these successes are outlined in this report. I am particularly proud of the actions taken by every employee within our company. At we like to say we have over 3,500 environmental managers and their efforts, no matter how small, indicate a genuine concern for improving the safety and reliability of our operation. Indeed, all our achievements and strategies are rooted in the ideas of our people. At we are dedicated to not only doing better, but to also doing what?s right. Eric P. Newell Chairman and CEO Summary objectives with respect to energy and emissions are: 0 to continuously reduce energy consumption and C02 emissions on a per barrel of production basis; 0 to ensure the security of our energy supplies and systems; and to improve the overall competitiveness of our operation and the oil sands industry. Specific to the Voluntary Challenge and Registry Program, our objectives are: to respond to the voluntary challenge through operational excellence and technological innovation; 0 to improve energy use and reduce emissions on a per unit of production basis; 0 to target an average improvement of at least one percent per year in energy use on a per unit of production basis; and to report progress annually to the Climate Change Voluntary Challenge and Registry Program. This plan outlines Canada?s ongoing commitment to energy efficiency. We recognize the VCR program focuses on the time frame from 1990 to 2000. But to keep our plan in line with our current cycle of technology improvements and energy efficiency expenditure programs, we have included information for the full twenty?year period from 1988 to 2008. As shown by year in Graph has a long-established track record of continuous improvement in energy use. From 1988 to 1997, we reduced the energy used to produce a barrel of crude oil by 12 percent. We are pursuing further progress which, when compared to 1988 figures, will reduce the amount of energy used to produce a barrel of oil by one-third by 2008. This constitutes an average improvement in energy intensity of 1.6 percent per year over two decades. GRAPH #1 ENERGY USE 2.2 2- 1.8? 1'5 Energy Use (M BTU per Bbl) 1.4' 1.2? 1 1982 1983 1984 1985 1986 1987 1988 Energy Use (MBTU peerl) 2.08 1.63 1.76 1.5 1.48 1.48 1.47 Energy Use (GJ per m3) 9.78 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1.44 1.41 1.36 1.36 1.41 1.39 1.36 1.39 1.29 1.27 9.37 8.55 8.40 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1.03 1.06 1.08 1.07 1.07 1.02 1.01 0.97 0.98 6.81 7.05 7.14 7.08 7.10 6.77 6.61 6.69 6.46 6.53 These improvements in energy use, as well as the effects of a changing fuels balance, will substantially reduce the carbon dioxide emissions associated with production of a barrel of consistently high quality Sweet Blend crude oil. From 1988 to 2008, this translates into a 45 percent reduction in C02 emissions per barrel, an average improvement of 2.2 percent per year over two decades. In the decade from 1988 to 1997, C02 emissions per barrel were reduced by 24 percent. This improvement is shown by year on Graph GRAPH #2 C02 EMISSIONS AND CRUDE OIL PRODUCTION 180 0.16 160 -- 0.15 0.14 140 0.Production 0-12 (M Bbls/yr) 100 - 0.11 Emissions (tonnes/bbl) 0.1 80 0.09 60 - .- - -- 0.1988 1989 1990 1991 1992 1993 1994 Production (M Bbls/yr) 54.9 54.3 57.1 60.9 65.7 67.6 70.3 C02 Emissions (tonnes/bbl) 0.147 0.138 0.126 0.12 0.114 0.116 0.116 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 74.6 73.8 76.2 78.2 83.3 92.7 98.2 95.2 105.0 129.0 0.116 0.115 0.112 0.113 0.103 0.09 0.092 0.079 0.088 0.087 2005 2006 2007 2008 130.4 141.2 156.8 154.3 0.84 0.082 0.080 0.082 Total equivalent emissions from C02 and (reported from 1998 on) methane are: Equivalent emissions 1988 1990 1995 1997 2000 2008 Million tonnes of C02 8.1 7.2 8.7 8.5 8.3 12.8 Million tonnes of C02 equivalent 8.1 7.2 8.7 8.5 9.0 13.5 Our actions also translate into a significant reduction in total C02 emissions when compared to the amount of emissions we would produce without our pursuit of continuous technological and operational improvement. In 2008, total C02 emissions will be 10 million tonnes lower than ?business as usual? by using new technologies and practices rather than those used in 1988; 7 million tonnes lower relative to a 1990 technology and performance datum. Due to a 39 percent increase in crude oil production between 1988 and 1997, there was a net increase of six percent in total C02 emissions. However, 1997 emissions would have been over two?and?a-half million tonnes higher without our energy and emission management efforts, i.e. a potential increase of 30 percent in total C02 emissions was eliminated. Projected C02 emissions by the year 2000 are within 2% of those in the 1988 Base year, a difference that is very small given the nature of measurement methods. The plan for energy efficiency and emissions management is a major component of our annual corporate Business Plan. The actions we identify in this VCR Action Plan and the results projected are not hypothetical; they are real and are integral to our overall corporate plans and performance. The 1998 Business Plan is based on 21 which is an umbrella program covering four stages of capital investments. The first stage covers the new North Mine and several Debottleneck projects in the Upgrader. These facilities are now in operation. Stage 2 of 2] covering the first train of the new Aurora Mine and further debottlenecking of the bitumen processing units, was approved in June, 1998 and operation is expected to begin in July, 2000. Stage 3 of the program consists of a major expansion to the Mildred Lake plant, along with a second Aurora mine train. The second Aurora mine train will be a near duplicate of the first train, with truck and shovel mining and hydrotransport, and incorporating low energy extraction. Currently the first upgrader expansion is nearing completion of the conceptual design. It will consist of a full bitumen processing train, including a large new ?uid coker and a large light gas oil hydroprocessing unit, scheduled to commence production in 2003. This Stage will result in an improvement of the product quality thereby reducing emissions. The data in this Action Plan has not been normalized for the product quality improvements as compared to the Base year 1988. Thus actual full cycle C02 emissions per barrel reduction is actually better than presented in this report. The fourth and final stage of the 2 I program consists of a third Aurora Mine train and a further stage of expansion and debottlenecking to the Mildred Lake Plant. Final conceptual details of this stage have yet to be completed. Our ability to implement the energy efficiency and emissions management components of our business plan is rooted in the full integration of these activities into our core management work. will achieve energy efficiency through our proven capabilities in the areas of managerial leadership, research and development, capital investment, operations excellence, employee commitment, education and training, and our partnerships with the community. Basis for Reportinq Greenhouse Gas Emissions Carbon Dioxide At the operation, carbon dioxide is the most prevalent greenhouse gas. It is emitted from a number of sources, including process furnaces, boilers, gas turbines, hydrogen plants, mining equipment and motor vehicles. The main sources of C02 are: 0 coke burnt in the coker burner - refinery fuel gas produced by the Upgrading process units and consumed in Upgrading furnaces and the Utility boilers, and the emission of C02 as a byproduct of hydrogen production from natural gas. Accounting for each point source accurately requires accurate ?ow measurement and information on fuel composition and heat load. Estimating accuracy is also dependent on the ability to forecast our operation's energy requirements into the future as equipment and production rates change. Factors must be applied to account for meter error and leakage. believes this method is weak, bound to yield inaccurate results and inherently biased to underestimation through overlooking items. Therefore, determines C02 emissions by using an overall carbon balancefor the total operation, in which the carbon in all energy and process feed stocks is compared with the carbon that leaves the plant in all products and by-prodacts. The net carbon is assumed to be fully combusted. This carbon balance method is the best tool available for estimating future emissions and we are confident in the consistency and reliability of the data.. We have cross?checked this method with actual point?by?point emission calculations and are satisfied that the carbon balance is correct. The carbon balance is directly (electronically) linked to our energy balance and Production Plan. Diesel and gasoline for trucks, propane, and even jet fuel for a company owned aircraft, are also included in our inventory as well as indirect C02 emissions attributed to imported electrical power. Other Greenhouse Gases Other greenhouse gases, including methane, CFCs, and N20, are also relevant. emissions of these gases are relatively minor as compared to C02, but are still part of our overall greenhouse gas measurement and management plans. Methane was recently measured in a detailed emission inventory. The estimated methane release from the site from all known sources is 35 tonnes per year (a C02 10 equivalent of about 733 ktpy). 75% of the estimated methane release is as fugitive emissions from the ponds (26 ktpy) and 16% is as fugitive emissions from the various mining areas (5 ktpy). The original, natural, wetlands and boreal forest emissions have not been subtracted from these gross site estimates. Methane releases from point sources due to the inefficiency of burners, is estimated at less than 0.1% of the total methane release reported (main stack, diverter stacks, flare stacks, furnace and boiler burners). We are reducing methane emissions through several programs, including naphtha recovery from tailings, vapour recovery system enhancements, and aggressive leak detection and repair programs throughout the operation. has effectively eliminated CFC emissions on its site. conducts all refrigeration and air conditioning equipment servicing in accordance with Environment Canada Codes of Practice, and all personnel who service equipment containing ozone depleting substances are trained appropriately. voluntarily removed all Halon? 1211 portable fire extinguishers from service in the early 1990s. The Halon was reclaimed in a ULC-approved facility. Similarly, over 5600 of Halon-1301 were reclaimed from large cylinders, as the installations of Halon-1301 total ?ooding fire control systems have been reduced to critical control rooms only. All releases of ozone depleting substances over 10 kg are reported immediately, each incident is thoroughly investigated, and steps are taken to ensure future releases do not occur. N20 emissions are less understood than other greenhouse gas emissions. In detailed surveys no N20 has been detected. We plan further monitoring and inventory development in the years ahead. N20 emissions are products of combustion, and therefore emission reduction benefits will accrue from all the measures has taken, and will continue to take, to improve energy efficiency in our operations. continually works to optimize burner operation to achieve fuel efficiency and reduced emissions (recognizing that emissions tend to increase with improved fuel efficiency). In addition, emissions are reduced through ongoing installation of improved combustion equipment, including low NOX burners and improved mobile equipment engines, as replacement cycles permit. Emissions Baseline The improvements in energy use and emissionsfrom oil sands plant are the results of technological innovation and operational excellence. The lead times for developing and installing new processes and equipment and enhanced operational procedures are considerable. completed a cycle of technology improvements, the Capacity Addition Project, in the 1983 to 1988 time frame. Therefore the year 1988 has been used as the Baseline year. Comparisons versus 1990 are also provided. 11 The next series of major plant improvements, under the 2] program, are being constructed between 1997 and 2008. Each major step in technological innovation and investment is followed by improvements from operational excellence applied to the new technology. It is therefore appropriate that evaluation of performance be based on the effects of the complete major technological improvement cycle from 1988 to 2008. Therefore the year 2008 has been taken as the last year for this 1998 Action Plan. Our energy use and emission Baseline is our 1988 performance: 0 an energy consumption of 1.47 million BTU per barrel (9.78 or 2717 kWh/m3) of crude oil produced; a C02 emissions of 0.147 tonnes per barrel of crude oil produced; and - total C02 emissions of 8.05 million tonnes. For reference purposes, the equivalent data for 1990 is: 0 an energy consumption of 1.41 million BTU per barrel (9.32 or 2603 kWh/m3) of crude oil produced; 0 C02 emissions of 0.126 tonnes per barrel of crude oil produced; and 0 total C02 emissions of 7.22 million tonnes. Total equivalent emissions from C02 and (reported from 1998 on) methane are: Equivalent emissions 1988 1990 1995 1997 2000 2008 Million tonnes of C02 8.1 7.2 8.7 8.5 8.3 12.8 Million tonnes of C02 equivalent 8.1 7.2 8.7 8.5 9.0 13.5 12 Innovation in Enerqv: Our Record to Date Performance Hithiqhts Between 1988 and 1997, our energy use improved by 12 percent. Over the same period, we decreased C02 emissions per barrel by 24 percent. This is an average improvement of 2.7 per year. Energy use per barrel of product in 1997 was 7% lower than in 1996. C02 emissions per barrel in 1997 were improved by 3% as compared to 1996. Due to a 39 percent increase in crude oil production between 1988 and 1997, there was a net increase of six percent in total C02 emissions. However, 1997 emissions would have been 2.6 million tonnes higher without our energy and emission management efforts, i.e. a potential increase of 30 percent in total C02 emissions was eliminated. Energy Use 1988 1990 1997 2000 Millions of BTU per barrel of SSB 1.47 1.41 1.29 1.06 per m3 of SSB 9.78 9.37 8.55 7.05 Continuous Improvement and Capital Investment Achievements At we have worked to minimize our releases through equipment modifications and replacement, as well as improved operating procedures. Our improvement in C02 emissions per barrel between 1988 and 1997 is directly attributed to investments totaling over $100 million, plus the energy efficiency benefits of many other productivity and capacity investments. Among the many changes made in the operation, certain examples stand out. In each case, the emission reductions are relative to producing 1997 volumes using 1988 practices. Increased Waste Heat Recovery The plant was constructed with a comprehensive set of energy management systems, including recovery of waste heat from the bitumen upgrading process units for use in the extraction plant. Diligent process controls maximize heat recovery. During the 1988 to 1997 period, continuous improvement in the operation of this system led to a reduction in C02 emissions of about 70,000 tonnes per year. Reduced Steam Requirements Extraction plant energy requirements are fulfilled partially by live steam supplied to large tumblers. These machines mix the oil sand with water to form a slurry and wash the oil from the sand. Careful control of process conditions has reduced steam usage by an amount equivalent to 40,000 tonnes of C02 emissions per year. l3 Larger Mining Haul Trucks The heavy hauler (mine truck) operating on the site today can move a tonne of material using less diesel fuel than eight years ago. The reasons for this improvement in energy efficiency include improved engine performance due to larger, more efficient engines and better maintenance programs, lower vehicle weight?to?payload ratio with the newer trucks, and higher road construction standards and better road maintenance which results in lower rolling resistance. Improved Yield Yield improvements (increases in the amount of crude oil produced from each barrel of bitumen) collectively resulted in lowering C02 emissions by about 800,000 tonnes per year. There are two main explanations. First, higher yield means less tonnes of oil sand mined and less overburden handled for each barrel produced. Second, operational changes reduced coke combustion through increased gas combustion, resulting in increased liquid yield (and simultaneously reduced 80;; emissions). Energy Efficient Electric Drive Systems Variable Frequency Drives (VFDs) are used by to replace conventional, less efficient methods of load control. In applications where load on electric motors can vary significantly, VFDs use the minimum energy required by ensuring the motor always operates at peak efficiency. VFDs also permit accurate control of the process conditions. Hydrogen Recovery New equipment has been installed to recover hydrogen from the hydrotreater purge gas streams. This decreases the requirement for additional hydrogen production, and will reduce C02 emissions by an estimated 40,000 tonnes per year. Waste Heat Recovery We have installed waste heat recovery steam generators on our gas turbine generators, reducing C02 emissions by an estimated 150,000 tonnes per year 14 Innovation in Enerqv: 1998 - 2008 Reduction Strategies Performance Hithights will increase annual crude oil production by hundred million barrels (almost tripling the 1988 production) over the 1988 to 2008 period. Because of significant technology and operational enhancements, we have targeted a one third (33 percent) total improvement in energy use as compared to the 1988 base year. This will translate into a 45 percent reduction in C02 emissions per barrel. The reduction compared to 1990 is 35%. As production increases, so will our material handling requirements. To offset this increase, we will implement innovative, less energy-intensive mining and extraction methods. Within ten years, we will have replaced our existing mining and extraction systems with new equipment and processes. The bitumen upgrading part of the operation will contribute to this trend through process improvements which will reduce the amount of bitumen burnt as fuel. Graph 3 on page 15 summarizes the effects of the major project groupings. As a result of our aggressive energy efficiency actions, we will eliminate by 2008 over ten million tonnes of C02 emissions that would otherwise be produced using 1988 practices; as compared to using 1990 practices, the C02 emission reduction is seven million tonnes. Continuous Improvement and Capital Investment Strateqies Over the next six to 10 years, plans to invest over $6 billion on the development of two mine sites, the introduction of new mining and extraction technologies at our existing operations, and increasing the production capacity of bitumen upgrading facilities. At least $1 billion will be invested to implement innovative technologies and processes which have both environmental and economic benefits. We will change over from dragline/bucketwheel/conveyor mining to the more energy efficient shovel/truck/hydrotransport mining. Two of our four Mildred Lake production systems have been replaced between 1996 and 1998, and the first train of our new Aurora Mine will replace a third existing system when it goes into operation in 2000. 15 Extraction Improvements Existing extraction process equipment will be replaced over a ten?year period. Construction started in 1996 on the first production train using hydrotransport of oil sand slurry. This technology is key to extracting bitumen from the oil sand at reduced process temperatures. The first two replacement systems, operate at a slurry temperature of 50 C, down from the current 80 OC. As a result of continued research and deveIOpment, the first Aurora Mine system, to be installed in 2000, will operate at 25 OC essentially room temperature. The second train will start up in the 2003?2004 timeframe. This new technology will reduce C02 emissions by an estimated 400,000 tonnes per year for each of the four production systems. Extraction Recovery and Upgrading Yield We will make major capital investments in new equipment and implement improvements to our process under the 21 program. As a result, we will improve bitumen recovery from the oil sand and increase upgrading processing yields (barrels of crude oil produced for a barrel of bitumen). We estimate this will reduce C02 emissions by more than five million tonnes per year by 2008, as compared to ?business as usual? (using previous technology and practices). Reliability Improvements Numerous smaller projects throughout the operation will improve reliability, which in turn will improve energy efficiency and reduce C02 emissions. Examples of these projects are: 0 upsizing the coker butanizer bypass which reduces C02 by 16,000 tonnes per year; 0 raising the temperature of the LC Finer resid to the cokers, reducing C02 by 5,000 tonnes per year; 0 heat recovery of the stack gas which reduces C02 by 47,000 tonnes per year; - optimization of the hydrogen system, reducing C02 by 30?60,000 tonnes per year; and 0 installing a turbo-expander on the natural gas letdown, reducing C02 by 20,000 tonnes per year. This list has highlighted only some activities of the next few years. By encouraging new ideas and continued innovation from all our 3,500 employees, we at are confident we will meet our greenhouse gas emissions targets and maintain our position as a responsible producer of crude oil from the oil sands throughout the years ahead. The following list provides a reconciliation of projections by major project grouping. l6 GRAPH #3 C02 EMISSION PROJECTIONS BY MAJOR PROJECT GROUPING PROD. EMISSIONS MBPY TONNES SSB IDAY BBL 1. 1997 ACTUAL 76.2 23,400 0.112 2. CHANGES TO BASE PLANT OPERATION a) Allowance for decreasing ore grades, increasing 800 overburden, longer distances, etc. b) Benefits of Coker Reactor Stretch 400 c) Heat Recovery - 400 d) Furnace efficiency improvement - 200 e) Miscellaneous improvements - 100 3. N. MINE HYDROTRANSPORT DEBOTTLEN. I a) Increased production to DB1 0.112 tonnes/bbl 2200 b) Reduction due to hydrotransport techn. (2 trains) 1530 0) Reduction due to hydrogen recovery - 100 (1) Miscellaneous improvements 1999 PROJECTION 83.3 23,500 0.103 4. AURORA TRAIN I AND DEBOTTLENECK II a) Increased production to DBII 0.103 tonnes/bb] 4200 b) Allowance for good Aurora ore body - 500 c) Reductions due to hydrotransport technology - 1000 (1) Benefits of Vacuum Topping technology 200 e) Coker Reactor stretch, yields and service improv. - 1200 Miscellaneous improvements 2001 PROJECTION 98.2 24,650 0.092 S. AURORA TRAIN II AND EXPANSION I a) Increased production to 0.092 tonnes/bbl 7750 b) Allowance for good Aurora ore body 500 c) Reductions due to hydrotransport technology - l000 d) Allowance for improved product quality (not normaliz. 1000 e) Benefits of improved fluid coker technology - 1000 f) Miscellaneous energy efficiency improvements 2004 PROJECTION 129 30,600 0.087 6. AURORA TRAIN AND EXPANSION 11 a) Increased production to UE2 0.087 tonnes/bbl 6000 b) All projected energy efficiency improvements - 1850 2008 PROJECTION 154.3 34,750 0.082 l7 Manaqinq to Make a Difference At we are managing our business with initiatives that will improve our energy efficiency and environmental performance. The goal of our Loss Management program is to eliminate incidents and reduce risks to people, production, equipment and the environment. We have integrated loss management principles into all our core activities, from organizational structures to research and development. Environmental responsibilities form part of every task, for every employee, every day. The result is continuous improvement in environmental performance, from a host of advances both big and small. We are focused on pollution prevention through doing the right things, at every step of the management chain. This ensures energy is used efficiently and emissions are minimized. Leadership and Orqanigation Loss Management Policy puts into action the company?s environment, health and safety philosophy. This policy is incorporated into business ethics and observed by all employees throughout the operations. It reads: ALL EMPLOYEES OF CANADA LTD. are fully committed to excellence in environment, health and safety performance in the conduct of business and in support of a safe, reliable and profitable operation. WE believe our success in meeting our business objectives is highly dependent upon our ability to avoid loss and we will strive to ensure all our stakeholders share this understanding and commitment. WE will comply with all governing legislation and regulations. WE will provide safe and healthy working conditions and demonstrate continuous improvement towards eliminating incidents and reducing the risk to people, environment, production, and our facilities. WE will achieve performance excellence through the systematic application of loss management practices and the active participation of all employees and contractors. Energy Emission Management Program is one of the ways the Loss Management Policy is brought into action. The program optimizes energy use and helps to minimize the environmental impact of our oil sands operation. This program was developed by and communicated to all those employees in leadership positions regarding the use of energy and control of emissions. Because the organization is l8 comprised of mostly self?managing teams, a large number of people at all levels in the organization are directly involved in the program's ongoing development and implementation. Leadership is provided by the senior levels of the management structure. This includes: 0 the Board of Directors Environment Health and Safety Committee; a the Corporate Loss Management Committee, consisting of senior executives plus senior environment, health and safety staff; a the Senior Loss Management Committee, chaired by the Chief Operating Officer and consisting of the heads of major operations and technical departments as well as senior environment, health and safety staff; and - Departmental Loss Management Committees, consisting of managers, supervisors and front-line employees. Each of these committees includes stewardship to energy efficiency and emission performance as a component of its work. has an Energy Management Steering Committee which provides leadership and organizational support to projects which improve energy efficiency and reduce emissions. Comprised of senior management from across the organization, the committee approves projects based on specific criteria. This criteria requires projects to: 1) improve plant energy and commodity integration, 2) lower energy consumption and C02 emissions, 3) support the production plan and plant reliability, and 4) provide a return to cover the cost of capital. In addition, dedicated energy efficiency specialists assist operating staff in the technical development of projects, the planning of production configurations, and daily energy and emissions optimization. engineering criteria use a cost-of- capital-only requirement for energy conservation equipment in project design. Research and Development invests around $30 million annually in research and development activities. Our research centre in Edmonton houses one of the largest industrial research groups in Western Canada. Here, our scientists study and develop new technologies and processes. We place a major emphasis on energy efficiency and pollution prevention in conjunction with production and cost advances. Research and development achieves progress of two kinds. One is continuous improvement through incremental enhancements to existing equipment and processes. The other is the establishment of fundamentally new and better technology 'platforms' on which to build into the future. has had considerable success in both respects, including higher waste heat recovery, reduced steam requirements and increased yields 19 Continuous improvement has been the dominant driver for the progress achieved in the 1988 to 1997 time period. This will continue. In addition, during the 1998 to 2008 time period, we will integrate entirely new technologies into our operations, providing an advanced platform on which we will continue to build our business a platform which is significantly more energy efficient. To achieve the performance improvements outlined in this action plan, we will implement several significant changes to the oil sands mining and bitumen extraction processes. These changes are direct results of our research and deve10pment program and include mining with large-scale shovels and trucks, hydrotransport of oil sand slurry, a low energy extraction process, and froth pipelining. Collaboration has been, and will continue to be, key to research and development success. is one of the founding members of the Canadian Oil Sands Network for Research and Development (CONRAD), which was founded in 1994. This organization pools the resources of industry, governments, research organizations and universities on projects to improve the performance of the oil sands industry and to develop technology that will boost environmental performance. CONRAD has completed over $3 million in environmental research and has over $2 million in projects under way. Currently, CONRAD is developing a strategy for air quality research, with a specific focus on and diesel engine emissions. also participates in the C02 Synergies consortium promoting technology research application. Capital Investment Capital investment is critical to energy efficiency. The best opportunity to increase energy efficiency is to take advantage of the normal cycle of replacing capital equipment. This offers the opportunity to install new equipment with more energy efficient design. In case, this is complemented by the availability of new production processes resulting from our research and development programs processes which use significantly less energy per unit of production. Over the next 10 years, will invest over $6 billion in new equipment, of which at least $1 billion will be invested on new production processes yielding major energy efficiency benefits. Over that period, will replace existing mining and extraction systems with radically different and improved technologies. When we develop the Aurora Mine, for example, we will replace existing bitumen extraction systems with systems requiring 60 percent less process energy. 20 Operational Excellence personnel are committed to operating process equipment knowledgeany and to achieving continuous improvement in energy efficiency. This is accomplished through a wide variety of activities including careful analysis and tuning of process conditions, the ongoing evolution of enhanced computer control applications, preventative maintenance to ensure steady operation, and thorough training of staff. Environmental considerations are built into all activities. One example is task analysis. All critical tasks are analyzed and procedures are developed to achieve those tasks. The task analysis process is designed such that consideration of environmental and energy efficiency aspects are integral to the activity, and cannot be overlooked. Business Plan The energy efficiency and emission projections outlined in this document are included in corporate Business Plan. The Business Plan outlines short and long?term goals pertaining to production, capital investment, Operational excellence and environmental performance. This plan is used by senior management to develop and implement strategies which will achieve the company?s growth and development goals. It is also made available to employees on the company?s computer network and discussed at team meetings at every level. The Business Plan establishes numerical targets for energy use. Those targets are articulated by each department and, in some cases, by division. They are built into management objectives and stewardship for individual managers, as well as the performance expectations and stewardship of many personnel. Internal Incentives management programs provide internal incentives to encourage all employees to work towards energy efficiency. For example, has designed its basic pay system to compensate employees for acquiring new skills and knowledge. Throughout the company, the skills requirements in top pay categories for operators and maintenance personnel have been deliberately broadened to include knowledge important to a progressive business, including energy and environmental aspects. We also have a gainsharing program, called IMPACT 21, that financially rewards employees for improvements in unit costs, profitability and capital management. For example, employees are rewarded for gains in unit cost of production that are better than that achieved in the previous best year and when overall business performance reaches certain target levels for return on capital invested. Because energy is 21 a major component of costs, employees have an important incentive to achieve energy efficiency. Education and Traininq invests above average expenditures of over seven percent of total equivalent payroll costs to employee education, training and on?the?job development. Environmental knowledge, in the context of due diligence, figures prominently in this. Training packages covering general environmental matters are delivered to all new employees and made available to all teams. As well, Environmental Standards Manual, which defines the company?s environmental responsibilities, is available to every employee through the internal computer network. Many departments have taken the initiative to deliver environmental training programs specific to their areas of responsibility. Teams are encouraged to discuss how their jobs impact the environment, what controls are in place in their area to protect the environment and what else can be done to improve environmental performance. Training which is specific to job requirements also incorporates environmental content where appropriate. Workinq with the Community activities do not stop at the plant gate. We are taking a leadership role in not only engaging our employees on the climate change issue, but the public as well. For example, we are a founding member of a collaborative effort by the larger organizations in our region to improve the energy efficiency of their buildings. Headed by building managers, the initiative's goal is to share experience and expertise on t0pics like energy efficient lighting systems and building heating and lighting controls. Other participants include the local school boards, health centre and the regional municipality. also actively participates in industry associations and multi-party forums with the goal to make a positive contribution to the development of rules and mechanisms for action on climate change. Particular emphasis is placed on analysis and economic modeling, credit for early action, promoting voluntary approaches, and public outreach and education. Associations in which we are involved include: the Business Council on National Issues (BCNI), Conference Board of Canada, Alberta Economic Development Authority (AEDA), Energy Council of Canada, Canadian Association of Petroleum Producers (CAPP), Canadian Petroleum Products Institute (CPPI), Canadian Chamber of Commerce, Mining Association of Canada (MAC), Alliance for Responsible Environmental Alternatives (AREA), Petroleum Communications Foundation, the Canadian Oil Sands Network for Research and Development (CONRAD). and the Athabasca Oil Sands Development Facilitation Committee. 22 has been providing leadership with respect to understanding of the climate change implications of the major economic growth opportunity presented by the Athabasca oil sands. The oil sands developers have worked together to provide governments and other interested parties with the most accurate understanding of the likely aggregate growth in this industry, and compiled a greenhouse gas emissions inventory. The intent is to ensure all parties have current, accurate and complete data in support of effective dialogue and planning. As an industry, current and projected production and emissions have been described. Context has been added through explaining the technology advances and investments leading to projected reductions in emissions per unit of production of over 40% over the 1990 through 2010 period. Additional data on the types of products and the break down between domestic and export markets for those products (and associated emissions) have been provided. is committed to continue to lead this industry-wide dialogue and to continue to provide pro-active support to climate change issue management. regularly funds public interest programs such as the local Environment Week committee and we helped deliver the Environmental Resources Centre's Destination Conservation Program into the Fort McMurray Public School System. In Spring 1997, we launched the Wood Buffalo Environmental Futures Fund which provides funding to assist local community groups implement educational initiatives that benefit the environment. This includes energy conservation and pollution reduction projects. One of the projects we are supporting through this fund is the development of a Grade Four oil sands curriculum. Although it is being piloted in Fort McMurray during the Fall 1998 semester, already interest is growing amongst teachers across Alberta. This curriculum covers a variety of topics, including the history of the oil sands, economics, petroleum utilization, air quality, reclamation, climate change and energy efficiency. We consult regularly with our stakeholders on issues pertaining to our ongoing operations and future activities. This includes: proactively interacting with interested parties in the Regional Municipality of Wood Buffalo through the Regional Oil Sands Stakeholders Committee; providing an extra level of consultation with the Aboriginal community of Fort McKay in recognition of its close proximity to current and future operations; maintaining open communication with other Aboriginal communities in the Wood Buffalo region on issues of interest to them; providing information to interested parties regionally, provincially or nationally, and responding to issues and requests for information in a timely and effective manner; and maintaining active and open communication with appropriate regional, provincial and federal government agencies. Over the past few years, we worked extensively with stakeholders on our Alberta Energy and Utilities Board application for development of the new Aurora Mine. As a result, in March 1998, we received formal approval without the need for regulatory hearings. We are also a member of the Wood Buffalo Environmental Association (WBEA), which monitors air quality in the region and studies related environmental impacts, and are an active participant in the Clean Air Strategic Alliance (CASA), a partnership of 23 stakeholders developing an air quality management system for the province. The regional air quality environmental effects monitoring program developed locally by and WBEA has become a component of the forest health?monitoring component of provincial ecological effects monitoring program. We also regularly release our Environment, Health and Safety Progress Review. This publication provides an overview of our performance in such areas as air emissions, land reclamation, safety and health. It is distributed to key stakeholders in the region and is also available to the general public. Emplovee Awareness and Communication Employees recognise the role energy efficiency and environmental excellence play in the safe and reliable operation of the plant. This is supported through employee performance reviews, group meetings, facility inspections, employee orientation, engineering design, communications programs, and numerous other activities which incorporate specific environmental content. For example, our Leak Detection and Repair (LDAR) Program is a pollution prevention initiative through which employees monitor and reduce emissions leaks, as well as improve equipment reliability in our refinery operation. Equipment or components monitored include control and pressure safety valves, and pump and compressor seals. All leaks identified as more than 10,000 are repaired within 15 working days unless a plan shutdown is required. Of the over 21,000 components monitored in 1997, only 362 leaks were identified. Employees have also established an electrical integrity team in the Extraction area of our operation. Electrical maintenance engineers and field specialists meet regularly to identify and address electrical reliability and safety, which helps to ensure energy efficiency. Furthermore, technicians in the Extraction and Utilities areas are spearheading an energy efficiency initiative to optimize steam production and use. As a result, steam can be transferred to heat exchangers which then reduces the load on the water treatment plant because more condensate is returned into the system. In addition, the initiative results in a better procedure to decrease the steam consumption during upset conditions.