DBRS Comments on Shell Canada Limited’s 2007 Capex Plan

Dominion Bond Rating Service (DBRS) comments on the $4 billion capital spending plan of Shell Canada Limited (the Company), which is approximately 50% higher than its 2006 plan, although it is within prior DBRS expectations. This higher level of capital spending is expected to persist over the next few years. The more aggressive capital program as outlined below brought on by the Company’s growth projects, particularly the Athabasca Oil Sands Project – Expansion 1 (Expansion 1), could have a significant impact on its credit profile, especially from 2008 to 2010, as previously noted by DBRS.

Balance sheet leverage and debt/cash flow could approach 25% to 30% and 1.50 times, respectively, within the next three years (13% and 0.51 times as of September 30, 2006) as estimated by DBRS. In its press release of November 1, 2006, DBRS expected that: “the Company would take steps to mitigate the potential business and financial risks associated with the higher capital spending in order to maintain its current rating categories.” DBRS also estimated that “crude oil pricing would have to remain at or above the US$50 per barrel level for the Company to maintain its credit metrics within historical levels based on the Company’s current cost structure.” DBRS will continue to monitor the developments, including the Company’s financing plans for the growth projects, updated cost estimates for Expansion 1, and steps undertaken to minimize the project risk and pricing volatility. The Company has no hedging arrangements in place.

The 2007 capital budget includes approximately $2.1 billion for oil-sands-related projects: (1) about $1.6 billion for Expansion 1 to add 100,000 b/d of production (the Company’s share of 60,000 b/d) by 2009–2010, which represents an approximately 65% increase from the current design capacity; (2) approximately $0.5 billion for in-situ developments to bring production to more than 50,000 b/d by 2008; (3) approximately $1.1 billion for other exploration and production activities, including $470 million for unconventional gas targeted to deliver 100 million cubic feet per day of natural gas by the end of 2007; and (4) $470 million for oil products, including $50 million allocated to assess the viability of a new 150,000 to 250,000 b/d heavy oil refinery near Sarnia, Ontario, in order to maximize the value of the Company’s growing oil sands production. A decision is expected within the next three years, subject to regulatory approval.

The Company’s AA (low) rating is Under Review – Developing, where it was placed on October 23, 2006, pursuant to the proposed purchase by Royal Dutch Shell plc (the Parent) of the remaining outstanding common shares (22%) of the Company it does not already own.

Note:
All figures in Canadian dollars unless otherwise noted.