**MANAGEMENT,      AUDIT, FINANCE AND RISK COMMITTEE, AND      AUDITOR LETTERS**

**MANAGEMENT’S      RESPONSIBILITY FOR THE FINANCIAL STATEMENTS**

| Ron                A. Brenneman                      | E.                F. H. Roberts                                     |
|------------------------------------------------------|---------------------------------------------------------------------|
| President                and Chief Executive Officer | Executive                Vice President and Chief Financial Officer |
| February                9, 2006                      |                                                                |

**AUDIT,      FINANCE AND RISK COMMITTEE OF THE BOARD OF DIRECTORS**

----

**REPORT**
**      OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**

*To      the Shareholders of Petro-Canada:*

----

**CONSOLIDATED      STATEMENT OF EARNINGS**

*(stated      in millions of Canadian dollars, except per share amounts)*

***For      the years ended December 31,***

|                                                                                                        |   | **2005** |       | 2004                      |   | 2003                      |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|------------|---------------------------|--------|---------------------------|--------|
|                                                                                                        |   |     |       | *(Note                3)* |   | *(Note                3)* |   |
| **Revenue**                                                                                                 |   |     |       |                      |   |                      |   |   |   |   |
| Operating                                                                                                   |   | **$**    | **17,585** |                      | $      | 14,270                    |   | $ | 12,392 |   |
| Investment                and other income (Note 5)                                                         |   |     | **(806**   | **)**                     |   | (312                      | )      |   | 16 |   |
|                                                                                                        |   |     | **16,779** |                      |   | 13,958                    |   |   | 12,408 |   |
| **Expenses**                                                                                                |   |     |       |                      |   |                      |   |   |   |   |
| Crude                oil and product purchases                                                              |   |     | **8,846**  |                      |   | 6,740                     |   |   | 5,620 |   |
| Operating,                marketing and general (Note 6)                                                    |   |     | **2,962**  |                      |   | 2,572                     |   |   | 2,432 |   |
| Exploration                (Note 15)                                                                        |   |     | **271**    |                      |   | 235                       |   |   | 271 |   |
| Depreciation,                depletion and amortization (Notes 6 and 15)                                    |   |     | **1,222**  |                      |   | 1,256                     |   |   | 1,429 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |     | **(88**    | **)**                     |   | (77                       | )      |   | (251 | ) |
| Interest                                                                                                    |   |     | **164**    |                      |   | 142                       |   |   | 182 |   |
|                                                                                                        |   |     | **13,377** |                      |   | 10,868                    |   |   | 9,683 |   |
| **Earnings                from Continuing Operations Before Income Taxes**                                  |   |     | **3,402**  |                      |   | 3,090                     |   |   | 2,725 |   |
| **Provision                for Income Taxes**                (Note 7)                                       |   |     |       |                      |   |                      |   |   |   |   |
| Current                                                                                                     |   |     | **1,794**  |                      |   | 1,365                     |   |   | 1,127 |   |
| Future                                                                                                      |   |     | **(85**    | **)**                     |   | 27                        |   |   | 63 |   |
|                                                                                                        |   |     | **1,709**  |                      |   | 1,392                     |   |   | 1,190 |   |
| **Net                Earnings from Continuing Operations**                                                  |   |     | **1,693**  |                      |   | 1,698                     |   |   | 1,535 |   |
| **Net                Earnings from Discontinued Operations**(Note                3)                         |   |     | **98**     |                      |   | 59                        |   |   | 115 |   |
| **Net                Earnings**                                                                             |   | **$**    | **1,791**  |                      | $      | 1,757                     |   | $ | 1,650 |   |
| **Earnings                per Share from Continuing Operations**                (Notes 4 and 8)             |   |     |       |                      |   |                      |   |   |   |   |
| Basic                                                                                                       |   | **$**    | **3.27**   |                      | $      | 3.21                      |   | $ | 2.90 |   |
| Diluted                                                                                                     |   | **$**    | **3.22**   |                      | $      | 3.17                      |   | $ | 2.87 |   |
| **Earnings                per Share**(Notes                4 and 8)                                         |   |     |       |                      |   |                      |   |   |   |   |
| Basic                                                                                                       |   | **$**    | **3.45**   |                      | $      | 3.32                      |   | $ | 3.11 |   |
| Diluted                                                                                                     |   | **$**    | **3.41**   |                      | $      | 3.28                      |   | $ | 3.08 |   |

**CONSOLIDATED      STATEMENT OF RETAINED EARNINGS**

*(stated      in millions of Canadian dollars)*

***For      the years ended December 31,***

|                                                      |   | **2005** |      | 2004   |   | 2003  |   |
|-----------------------------------------------------------|--------|----------|-----------|--------|--------|-------|--------|
| **Retained                Earnings at Beginning of Year** |   | **$**    | **5,408** |   | $      | 3,810 |   | $ | 2,266 |   |
| Net                earnings                               |   |     | **1,791** |   |   | 1,757 |   |   | 1,650 |   |
| Dividends                on common shares                 |   |     | **(181**  | **)**  |   | (159  | )      |   | (106 | ) |
| **Retained                Earnings at End of Year**       |   | **$**    | **7,018** |   | $      | 5,408 |   | $ | 3,810 |   |

----

**CONSOLIDATED      STATEMENT OF CASH FLOWS**

*(stated      in millions of Canadian dollars)*

***For      the years ended December 31,***

|                                                                                                                              |   | ***2005*** |       | *2004*                    |   | *2003*                    |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|---------------------------|--------|---------------------------|--------|
|                                                                                                                              |   |       |       | *(Note                3)* |   | *(Note                3)* |   |
| **Operating                Activities**                                                                                           |   |       |       |                      |   |                      |   |   |   |   |
| Net                earnings                                                                                                       |   | **$**      | **1,791**  |                      | $      | 1,757                     |   | $ | 1,650 |   |
| Less:                Net earnings from discontinued operations                                                                    |   |       | **98**     |                      |   | 59                        |   |   | 115 |   |
| Net                earnings from continuing operations                                                                            |   |       | **1,693**  |                      |   | 1,698                     |   |   | 1,535 |   |
| Items                not affecting cash flow from continuing operating                activities:                                 |   |       |       |                      |   |                      |   |   |   |   |
| Depreciation,                depletion and amortization                                                                           |   |       | **1,222**  |                      |   | 1,256                     |   |   | 1,429 |   |
| Future                income taxes                                                                                                |   |       | **(85**    | **)**                     |   | 27                        |   |   | 63 |   |
| Accretion                of asset retirement obligations                                                                          |   |       | **50**     |                      |   | 50                        |   |   | 64 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt                  |   |       | **(88**    | **)**                     |   | (77                       | )      |   | (251 | ) |
| Gain                on disposal of assets (Note 5)                                                                                |   |       | **(48**    | **)**                     |   | (12                       | )      |   | (42 | ) |
| Unrealized                loss associated with the Buzzard derivative contracts (Note                24)                          |   |       | **889**    |                      |   | 333                       |   |   | - |   |
| Other                                                                                                                             |   |       | **14**     |                      |   | 33                        |   |   | 56 |   |
| Exploration                expenses (Note 15)                                                                                     |   |       | **140**    |                      |   | 117                       |   |   | 188 |   |
| Proceeds                from sale of accounts receivable (Note 10)                                                                |   |       | **80**     |                      |   | 399                       |   |   | - |   |
| (Increase)                decrease in non-cash working capital related to continuing operating                activities (Note 9) |   |       | **(84**    | **)**                     |   | 104                       |   |   | (146 | ) |
| Cash                flow from continuing operating activities                                                                     |   |       | **3,783**  |                      |   | 3,928                     |   |   | 2,896 |   |
| Cash                flow from discontinued operating activities (Note 3)                                                          |   |       | **204**    |                      |   | 233                       |   |   | 229 |   |
| Cash                flow from operating activities                                                                                |   |       | **3,987**  |                      |   | 4,161                     |   |   | 3,125 |   |
| **Investing                Activities**                                                                                           |   |       |       |                      |   |                      |   |   |   |   |
| Expenditures                on property, plant and equipment and exploration                (Note 15)                        |   |       | **(3,606** | **)**                     |   | (3,955                    | )      |   | (2,232 | ) |
| Proceeds                from sale of assets                                                                                       |   |       | **81**     |                      |   | 44                        |   |   | 165 |   |
| Increase                in deferred charges and other assets                                                                      |   |       | **(70**    | **)**                     |   | (36                       | )      |   | (147 | ) |
| Acquisition                of Prima Energy Corporation (Note 12)                                                                  |   |       | **-**      |                      |   | (644                      | )      |   | - |   |
| Decrease                in non-cash working capital related to investing activities (Note                9)                       |   |       | **237**    |                      |   | 10                        |   |   | 94 |   |
|                                                                                                                              |   |       | **(3,358** | **)**                     |   | (4,581                    | )      |   | (2,120 | ) |
| **Financing                Activities**                                                                                           |   |       |       |                      |   |                      |   |   |   |   |
| Increase                (decrease) in short-term notes payable                                                                    |   |       | **(303**   | **)**                     |   | 314                       |   |   | - |   |
| Proceeds                from issue of long-term debt (Note 18)                                                                    |   |       | **762**    |                      |   | 533                       |   |   | 804 |   |
| Repayment                of long-term debt                                                                                        |   |       | **(6**     | **)**                     |   | (299                      | )      |   | (1,352 | ) |
| Proceeds                from issue of common shares (Note 21)                                                                     |   |       | **64**     |                      |   | 39                        |   |   | 50 |   |
| Purchase                of common shares (Note 21)                                                                                |   |       | **(346**   | **)**                     |   | (447                      | )      |   | - |   |
| Dividends                on common shares                                                                                         |   |       | **(181**   | **)**                     |   | (159                      | )      |   | (106 | ) |
| Increase                in non-cash working capital related to financing activities (Note                9)                       |   |       | **-**      |                      |   | (26                       | )      |   | - |   |
|                                                                                                                              |   |       | **(10**    | **)**                     |   | (45                       | )      |   | (604 | ) |
| **Increase                (Decrease) in Cash and Cash Equivalents**                                                               |   |       | **619**    |                      |   | (465                      | )      |   | 401 |   |
| **Cash                and Cash Equivalents at Beginning of Year**                                                                 |   |       | **170**    |                      |   | 635                       |   |   | 234 |   |
| **Cash                and Cash Equivalents at End of Year**                                                                       |   | **$**      | **789**    |                      | $      | 170                       |   | $ | 635 |   |
| **Cash                and Cash Equivalents - Discontinued Operations (Note                3)**                                    |   | **$**      | **68**     |                      | $      | 206                       |   | $ | 227 |   |
| **Cash                and Cash Equivalents - Continuing Operations**                                                              |   | **$**      | **721**    |                      | $      | (36                       | )      | $ | 408 |   |

----

**CONSOLIDATED      BALANCE SHEET**

*(stated      in millions of Canadian dollars)*

***As      at December 31,***

|                                                                               |   | ***2005*** |       | *2004*                    |   |
|------------------------------------------------------------------------------------|--------|------------|------------|---------------------------|--------|
|                                                                               |   |       |       | *(Note                3)* |   |
| **ASSETS**                                                                         |   |       |       |                      |   |   |   |
| **Current                Assets**                                                  |   |       |       |                      |   |   |   |
| Cash                and cash equivalents (Note 13)                                 |   | **$**      | **721**    |                      | $      | - |   |
| Accounts                receivable (Note 10)                                       |   |       | **1,617**  |                      |   | 1,086 |   |
| Inventories                (Note 14)                                               |   |       | **596**    |                      |   | 549 |   |
| Assets                of discontinued operations (Note 3)                          |   |       | **237**    |                      |   | 387 |   |
|                                                                               |   |       | **3,171**  |                      |   | 2,022 |   |
|                                                                               |   |       |       |                      |   |   |   |
| **Property,                Plant and Equipment, Net**                (Note 15)     |   |       | **15,921** |                      |   | 14,318 |   |
| **Goodwill**(Note                16)                                               |   |       | **737**    |                      |   | 853 |   |
| **Deferred                Charges and Other Assets**                (Note 17)      |   |       | **415**    |                      |   | 345 |   |
| **Assets                of Discontinued Operations**                (Note 3)       |   |       | **411**    |                      |   | 598 |   |
|                                                                               |   | **$**      | **20,655** |                      | $      | 18,136 |   |
|                                                                               |   |       |       |                      |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                            |   |       |       |                      |   |   |   |
| **Current                Liabilities**                                             |   |       |       |                      |   |   |   |
| Outstanding                cheques less cash and cash equivalents (Note 13)        |   | **$**      | -          |                      | $      | 36 |   |
| Accounts                payable and accrued liabilities                            |   |       | **2,854**  |                      |   | 2,188 |   |
| Income                taxes payable                                                |   |       | **82**     |                      |   | 272 |   |
| Liabilities                of discontinued operations (Note 3)                     |   |       | **102**    |                      |   | 133 |   |
| Short-term                notes payable                                            |   |       | **-**      |                      |   | 299 |   |
| Current                portion of long-term debt                                   |   |       | **7**      |                      |   | 6 |   |
|                                                                               |   |       | **3,045**  |                      |   | 2,934 |   |
|                                                                               |   |       |       |                      |   |   |   |
| **Long-Term                Debt**                (Note 18)                         |   |       | **2,906**  |                      |   | 2,275 |   |
| **Other                Liabilities**                (Note 19)                      |   |       | **1,888**  |                      |   | 646 |   |
| **Asset                Retirement Obligations**                (Note 20)           |   |       | **923**    |                      |   | 834 |   |
| **Future                Income Taxes**(Note                7)                      |   |       | **2,405**  |                      |   | 2,708 |   |
|                                                                               |   |       |       |                      |   |   |   |
| **Commitments                and Contingent Liabilities**                (Note 25) |   |       |       |                      |   |   |   |
|                                                                               |   |       |       |                      |   |   |   |
| **Shareholders'                Equity**                                            |   |       |       |                      |   |   |   |
| Common                shares (Note 21)                                             |   |       | **1,362**  |                      |   | 1,314 |   |
| Contributed                surplus (Note 21)                                       |   |       | **1,422**  |                      |   | 1,743 |   |
| Retained                earnings                                                   |   |       | **7,018**  |                      |   | 5,408 |   |
| Foreign                currency translation adjustment                             |   |       | **(314**   | **)**                     |   | 274 |   |
|                                                                               |   |       | **9,488**  |                      |   | 8,739 |   |
|                                                                               |   | **$**      | **20,655** |                      | $      | 18,136 |   |

----

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

| **(a)  ** | **Basis                of Presentation** |
|---------------------|------------------------------------------|

| **(b)  ** | **Revenue                Recognition** |
|---------------------|----------------------------------------|

----

**Note          1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES **
*(continued)*

|   | **(c)** | **Foreign                Currency Translation** |
|--------|---------|-------------------------------------------------|

|   | **(d)** | **Income                Taxes** |
|--------|---------|---------------------------------|

| **(e)  ** | **Earnings                Per Share** |
|---------------------|---------------------------------------|

|   | **(f)** | **Cash                and Cash Equivalents** |
|--------|---------|----------------------------------------------|

|   | **(g)** | **Sale                of Accounts Receivable** |
|--------|---------|------------------------------------------------|

----

**Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES        **
*(continued)*

|   | **(h)** | **Inventories** |
|--------|---------|-----------------|

|   | **(i)** | **Investments** |
|--------|---------|-----------------|

|   | **(j)** | **Property,                Plant and Equipment** |
|--------|---------|--------------------------------------------------|

|   | **(k)** | **Depreciation,                Depletion and Amortization** |
|--------|---------|-------------------------------------------------------------|

----

**Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES        **
*(continued)*

|   | **(l)** | **Asset                Retirement Obligations** |
|--------|---------|-------------------------------------------------|

|   | **(m)** | **Goodwill** |
|--------|---------|--------------|

|   | **(n)** | **Stock-Based                Compensation** |
|--------|---------|---------------------------------------------|

----

**Note      1 - SUMMARY OF SIGNIFICANT ACCOUNTING      POLICIES **
*(continued)*

|   | **(o)** | **Employee                Future Benefits** |
|--------|---------|---------------------------------------------|

|   | **(p)** | **Hedging                and Derivative Financial                Instruments** |
|--------|---------|--------------------------------------------------------------------------------|

----

**Note      2 - SEGMENTED INFORMATION FROM CONTINUING OPERATIONS**

*in      situ*

|                                                                                                        |   | *Upstream*                                  |       |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                                                        |   | *North                American Natural Gas* |       | *East                Coast Oil* |   |
|                                                                                                        |   |                                        | ***2005*** |   | *2004* |   | *2003* |   |  ***2005*** |   | *2004* |   | *2003* |   |
| **Revenue**1                                                                                                |   |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                to customers                                                                           |   |                                        | **$**      | **2,073** |   | $ | 1,770 |   | $ | 1,705 |   | **$** | **1,284** |   | $ | 914 |   | $ | 818 |   |
| Investment                and other income 2                                                                |   |                                        |       | **21** |   |   | 3 |   |   | 51 |   |   | **(2** | **)** |   | (3 | ) |   | (1 | ) |
| Inter-segment                sales                                                                          |   |                                        |       | **345** |   |   | 215 |   |   | 190 |   |   | **346** |   |   | 527 |   |   | 482 |   |
| Segmented                revenue                                                                            |   |                                        |       | **2,439** |   |   | 1,988 |   |   | 1,946 |   |   | **1,628** |   |   | 1,438 |   |   | 1,299 |   |
| **Expenses**                                                                                                |   |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |                                        |       | **466** |   |   | 359 |   |   | 366 |   |   | **48** |   |   | - |   |   | - |   |
| Inter-segment                transactions                                                                   |   |                                        |       | **7** |   |   | 9 |   |   | 7 |   |   | **6** |   |   | 5 |   |   | - |   |
| Operating,                marketing and general                                                             |   |                                        |       | **426** |   |   | 379 |   |   | 330 |   |   | **158** |   |   | 120 |   |   | 121 |   |
| Exploration                                                                                                 |   |                                        |       | **118** |   |   | 119 |   |   | 146 |   |   | **4** |   |   | 2 |   |   | 47 |   |
| Depreciation,                depletion and amortization                                                     |   |                                        |       | **364** |   |   | 321 |   |   | 269 |   |   | **259** |   |   | 268 |   |   | 267 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |                                        |       | **-** |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
| Interest                                                                                                    |   |                                        |       | **-** |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
|                                                                                                        |   |                                        |       | **1,381** |   |   | 1,187 |   |   | 1,118 |   |   | **475** |   |   | 395 |   |   | 435 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |                                        |       | **1,058** |   |   | 801 |   |   | 828 |   |   | **1,153** |   |   | 1,043 |   |   | 864 |   |
| **Provision                for income taxes**                                                               |   |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                                                                     |   |                                        |       | **311** |   |   | 330 |   |   | 227 |   |   | **361** |   |   | 323 |   |   | 313 |   |
| Future                                                                                                      |   |                                        |       | **73** |   |   | (29 | ) |   | 109 |   |   | **17** |   |   | 9 |   |   | (46 | ) |
|                                                                                                        |   |                                        |       | **384** |   |   | 301 |   |   | 336 |   |   | **378** |   |   | 332 |   |   | 267 |   |
| **Net                earnings (loss) from continuing operations**                                           |   |                                        | **$**      | **674** |   | $ | 500 |   | $ | 492 |   | **$** | **775** |   | $ | 711 |   | $ | 597 |   |
| **Capital                and exploration expenditures from continuing                operations**           |   |                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   |                                        | **$**      | **713** |   | $ | 666 |   | $ | 517 |   | **$** | **314** |   | $ | 275 |   | $ | 344 |   |
| Deferred                charges and other assets                                                            |   |                                        |       | **7** |   |   | 6 |   |   | 4 |   |   | **1** |   |   | 1 |   |   | 4 |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |                                        |       | - |   |   | 644 |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
|                                                                                                        |   |                                        | **$**      | **720** |   | $ | 1,316 |   | $ | 521 |   | **$** | **315** |   | $ | 276 |   | $ | 348 |   |
| **Cash                flow from continuing operating activities**                                           |   |                                        | **$**      | **1,219** |   | $ | 899 |   | $ | 1,019 |   | **$** | **1,002** |   | $ | 1,018 |   | $ | 788 |   |
| **Total                assets from continuing operations**                                                  |   |                                        | **$**      | **3,763** |   | $ | 3,477 |   | $ | 2,341 |   | **$** | **2,442** |   | $ | 2,265 |   | $ | 2,288 |   |

|                                                                                                        |   | *Upstream*                 |            |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------------|
|                                                                                                        |   | *Oil                Sands* | *International* |   |
|                                                                                                        |   |                       | ***2005***      |   | *2004* |   | *2003* |   |  ***2005*** |   | *2004* |   | *2003* |   |
|                                                                                                        |   |                       |            |   |   |   |   |   |   |   |   |   |   |   |   | *(Note              3)*  |   |   | *(Note                3)* |   |
| **Revenue**1                                                                                                |   |                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                to customers                                                                           |   |                       | **$**           | **749** |   | $ | 412 |   | $ | 233 |   | **$** | **2,183** |   | $ | 1,767 |   | $ | 1,492 |   |
| Investment                and other income 2                                                                |   |                       |            | **4** |   |   | - |   |   | 2 |   |   | **(851** | **)** |   | (335 | ) |   | (38 | ) |
| Inter-segment                sales                                                                          |   |                       |            | **660** |   |   | 548 |   |   | 391 |   |   | **-** |   |   | - |   |   | - |   |
| Segmented                revenue                                                                            |   |                       |            | **1,413** |   |   | 960 |   |   | 626 |   |   | **1,332** |   |   | 1,432 |   |   | 1,454 |   |
| **Expenses**                                                                                                |   |                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |                       |            | **571** |   |   | 291 |   |   | 156 |   |   | **-** |   |   | - |   |   | - |   |
| Inter-segment                transactions                                                                   |   |                       |            | **80** |   |   | 49 |   |   | 36 |   |   | **-** |   |   | - |   |   | - |   |
| Operating,                marketing and general                                                             |   |                       |            | **423** |   |   | 362 |   |   | 332 |   |   | **364** |   |   | 319 |   |   | 282 |   |
| Exploration                                                                                                 |   |                       |            | **32** |   |   | 16 |   |   | 23 |   |   | **117** |   |   | 98 |   |   | 55 |   |
| Depreciation,                depletion and amortization                                                     |   |                       |            | **133** |   |   | 69 |   |   | 179 |   |   | **249** |   |   | 320 |   |   | 313 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |                       |            | **-** |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
| Interest                                                                                                    |   |                       |            | **-** |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
|                                                                                                        |   |                       |            | **1,239** |   |   | 787 |   |   | 726 |   |   | **730** |   |   | 737 |   |   | 650 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |                       |            | **174** |   |   | 173 |   |   | (100 | ) |   | **602** |   |   | 695 |   |   | 804 |   |
| **Provision                for income taxes**                                                               |   |                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                                                                     |   |                       |            | **(45** | **)** |   | (71 | ) |   | (20 | ) |   | **1,015** |   |   | 631 |   |   | 524 |   |
| Future                                                                                                      |   |                       |            | **104** |   |   | 124 |   |   | (28 | ) |   | **(304** | **)** |   | (52 | ) |   | 88 |   |
|                                                                                                        |   |                       |            | **59** |   |   | 53 |   |   | (48 | ) |   | **711** |   |   | 579 |   |   | 612 |   |
| **Net                earnings (loss) from continuing operations**                                           |   |                       | **$**           | **115** |   | $ | 120 |   | $ | (52 | ) | **$** | **(109** | **)** | $ | 116 |   | $ | 192 |   |
| **Capital                and exploration expenditures from continuing                operations**           |   |                       |            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   |                       | **$**           | **772** | ** ** | $ | 397 |   | $ | 443 |   | **$** | **696** |   | $ | 1,707 |   | $ | 400 |   |
| Deferred                charges and other assets                                                            |   |                       |            | **1** |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |                       |            | **-** |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
|                                                                                                        |   |                       | **$**           | **773** | ** ** | $ | 397 |   | $ | 443 |   | **$** | **696** |   | $ | 1,707 |   | $ | 400 |   |
| **Cash                flow from continuing operating activities**                                           |   |                       | **$**           | **340** |   | $ | 384 |   | $ | 65 |   | **$** | **722** |   | $ | 789 |   | $ | 613 |   |
| **Total                assets from continuing operations**                                                  |   |                       | **$**           | **2,623** |   | $ | 1,883 |   | $ | 1,770 |   | **$** | **4,856** |   | $ | 4,969 |   | $ | 2,842 |   |

| 1 | There                were no customers that represented 10% or more of the Company’s                consolidated revenues for the periods                presented. |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Investment                and other income for the International segment includes $889 million                (2004 - $333 million; 2003 - nil) of unrealized losses relating to                the                Buzzard derivative contracts (Note 24). |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      2 - **
**SEGMENTED      INFORMATION FROM CONTINUING OPERATIONS **
*(continued)*

|                                                                                                        |   | *Downstream* | *Shared                Services* |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------|----------------------------------|--------|
|                                                                                                        |   | ***2005***   |                             | *2004* |   | *2003* |   |  ***2005*** |   | *2004* |   | *2003* |   |
| **Revenue**1                                                                                                |   |         |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                to customers                                                                           |   | **$**        | **11,296**                       |   | $ | 9,407 |   | $ | 8,144 |   | **$** | **-** |   | $ | - |   | $ | - |   |
| Investment                and other income 2                                                                |   |         | **43**                           |   |   | 13 |   |   | 1 |   |   | **(21** | **)** |   | 10 |   |   | 1 |   |
| Inter-segment                sales                                                                          |   |         | **13**                           |   |   | 14 |   |   | 7 |   |   | **-** |   |   | - |   |   | - |   |
| Segmented                revenue                                                                            |   |         | **11,352**                       |   |   | 9,434 |   |   | 8,152 |   |   | **(21** | **)** |   | 10 |   |   | 1 |   |
| **Expenses**                                                                                                |   |         |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |         | **7,762**                        |   |   | 6,093 |   |   | 5,099 |   |   | **(1** | **)** |   | (3 | ) |   | (1 | ) |
| Inter-segment                transactions                                                                   |   |         | **1,271**                        |   |   | 1,241 |   |   | 1,027 |   |   | **-** |   |   | - |   |   | - |   |
| Operating,                marketing and general                                                             |   |         | **1,436**                        |   |   | 1,328 |   |   | 1,293 |   |   | **155** |   |   | 64 |   |   | 74 |   |
| Exploration                                                                                                 |   |         | **-**                            |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
| Depreciation,                depletion and amortization                                                     |   |         | **216**                          |   |   | 277 |   |   | 400 |   |   | **1** |   |   | 1 |   |   | 1 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |         | **-**                            |   |   | - |   |   | - |   |   | **(88** | **)** |   | (77 | ) |   | (251 | ) |
| Interest                                                                                                    |   |         | **-**                            |   |   | - |   |   | - |   |   | **164** |   |   | 142 |   |   | 182 |   |
|                                                                                                        |   |         | **10,685**                       |   |   | 8,939 |   |   | 7,819 |   |   | **231** |   |   | 127 |   |   | 5 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |         | **667**                          |   |   | 495 |   |   | 333 |   |   | **(252** | **)** |   | (117 | ) |   | (4 | ) |
| **Provision                for income taxes**                                                               |   |         |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                                                                     |   |         | **264**                          |   |   | 226 |   |   | 204 |   |   | **(112** | **)** |   | (74 | ) |   | (121 | ) |
| Future                                                                                                      |   |         | **(12**                          | **)**  |   | (45 | ) |   | (119 | ) |   | **37** |   |   | 20 |   |   | 59 |   |
|                                                                                                        |   |         | **252**                          |   |   | 181 |   |   | 85 |   |   | **(75** | **)** |   | (54 | ) |   | (62 | ) |
| **Net                earnings (loss) from continuing operations**                                           |   | **$**        | **415**                          |   | $ | 314 |   | $ | 248 |   | **$** | **(177** | **)** | $ | (63 | ) | $ | 58 |   |
| **Capital                and exploration expenditures from continuing                operations**           |   |         |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   | **$**        | **1,053**                        |   | $ | 839 |   | $ | 424 |   | **$** | **12** |   | $ | 9 |   | $ | 14 |   |
| Deferred                charges and other assets                                                            |   |         | **33**                           |   |   | 26 |   |   | 53 |   |   | **28** |   |   | 3 |   |   | 86 |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |         | **-**                            |   |   | - |   |   | - |   |   | **-** |   |   | - |   |   | - |   |
|                                                                                                        |   | **$**        | **1,086**                        |   | $ | 865 |   | $ | 477 |   | **$** | **40** |   | $ | 12 |   | $ | 100 |   |
| **Cash                flow from continuing operating activities**                                           |   | **$**        | **663**                          |   | $ | 879 |   | $ | 548 |   | **$** | **(163** | **)** | $ | (41 | ) | $ | (137 | ) |
| **Total                assets from continuing operations**                                                  |   | **$**        | **5,609**                        |   | $ | 4,462 |   | $ | 3,827 |   | **$** | **714** |   | $ | 95 |   | $ | 575 |   |

|                                                                                                        |   | *Consolidated* |       |
|-------------------------------------------------------------------------------------------------------------|--------|----------------|------------|
|                                                                                                        |   | ***2005***     |       | *2004* |   | *2003* |   |
|                                                                                                        |   |           |       | *(Note                3)* |   | *(Note                3)* |   |
| **Revenue**1                                                                                                |   |           |       |   |   |   |   |   |   |   |
| Sales                to customers                                                                           |   | **$**          | **17,585** |   | $ | 14,270 |   | $ | 12,392 |   |
| Investment                and other income 2                                                                |   |           | **(806**   | **)** |   | (312 | ) |   | 16 |   |
| Inter-segment                sales                                                                          |   |           |       |   |   |   |   |   |   |   |
| Segmented                revenue                                                                            |   |           | **16,779** |   |   | 13,958 |   |   | 12,408 |   |
| **Expenses**                                                                                                |   |           |       |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |           | **8,846**  |   |   | 6,740 |   |   | 5,620 |   |
| Inter-segment                transactions                                                                   |   |           |       |   |   |   |   |   |   |   |
| Operating,                marketing and general                                                             |   |           | **2,962**  |   |   | 2,572 |   |   | 2,432 |   |
| Exploration                                                                                                 |   |           | **271**    |   |   | 235 |   |   | 271 |   |
| Depreciation,                depletion and amortization                                                     |   |           | **1,222**  |   |   | 1,256 |   |   | 1,429 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |           | **(88**    | **)** |   | (77 | ) |   | (251 | ) |
| Interest                                                                                                    |   |           | **164**    |   |   | 142 |   |   | 182 |   |
|                                                                                                        |   |           | **13,377** |   |   | 10,868 |   |   | 9,683 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |           | **3,402**  |   |   | 3,090 |   |   | 2,725 |   |
| **Provision                for income taxes**                                                               |   |           |       |   |   |   |   |   |   |   |
| Current                                                                                                     |   |           | **1,794**  |   |   | 1,365 |   |   | 1,127 |   |
| Future                                                                                                      |   |           | **(85**    | **)** |   | 27 |   |   | 63 |   |
|                                                                                                        |   |           | **1,709**  |   |   | 1,392 |   |   | 1,190 |   |
| **Net                earnings (loss) from continuing operations**                                           |   | **$**          | **1,693**  |   | $ | 1,698 |   | $ | 1,535 |   |
| **Capital                and exploration expenditures from continuing                operations**           |   |           |       |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   | **$**          | **3,560**  |   | $ | 3,893 |   | $ | 2,142 |   |
| Deferred                charges and other assets                                                            |   |           | **70**     |   |   | 36 |   |   | 147 |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |           | **-**      |   |   | 644 |   |   | - |   |
|                                                                                                        |   | **$**          | **3,630**  |   | $ | 4,573 |   | $ | 2,289 |   |
| **Cash                flow from continuing operating activities**                                           |   | **$**          | **3,783**  |   | $ | 3,928 |   | $ | 2,896 |   |
| **Total                assets from continuing operations**                                                  |   | **$**          | **20,007** |   | $ | 17,151 |   | $ | 13,643 |   |

| 1 | There                were no customers that represented 10% or more of the Company’s                consolidated revenues for the periods                presented. |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Investment                and other income for the International segment includes $889 million                (2004 - $333 million; 2003 - nil) of unrealized losses relating to                the                Buzzard derivative contracts (Note 24). |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      2 - SEGMENTED      INFORMATION FROM CONTINUING OPERATIONS **
*(continued)*

**Geographic      Information from Continuing Operations**

|                     |   | ***2005***     | *2004*     |                              | *2003* |             |
|--------------------------|--------|----------------|------------|-----------------------------------|--------|------------------|
|                     |   | ***Revenues*** |       | ***Total                Assets*** |   |  *Revenues* |   | *Total                Assets* |   |  *Revenues* |   | *Total                Assets* |   |
|                     |   |           |       |                              |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Canada                   |   | **$**          | **15,302** | ** **                        | **$**  | **14,261**       |   | $ | 12,472 |   | $ | 11,263 |   | $ | 10,954 |   | $ | 10,795 |   |
| Foreign                1 |   |           | **1,477**  |                              |   | **5,746**        |   |   | 1,486 |   |   | 5,888 |   |   | 1,454 |   |   | 2,848 |   |
|                     |   | **$**          | **16,779** | ** **                        | **$**  | **20,007**       |   | $ | 13,958 |   | $ | 17,151 |   | $ | 12,408 |   | $ | 13,643 |   |

|   | 1 | Foreign                total assets include $2,964 million relating to assets in the United                Kingdom (2004 - $1,022 million). |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------|

**Note      3 - DISCONTINUED OPERATIONS **

|                                                                     |   | ***2005*** |    | *2004* |   | *2003* |   |
|--------------------------------------------------------------------------|--------|------------|---------|--------|--------|--------|--------|
| Revenue                                                                  |   | **$**      | **464** |   | $      | 419    |   | $ | 491 |   |
| Expenses                                                                 |   |       |    |   |   |   |   |   |   |   |
| Operating,                marketing and general                          |   |       | **104** |   |   | 118    |   |   | 125 |   |
| Depreciation,                depletion and amortization                  |   |       | **145** |   |   | 146    |   |   | 131 |   |
|                                                                     |   |       | **249** |   |   | 264    |   |   | 256 |   |
|                                                                     |   |       |    |   |   |   |   |   |   |   |
| Earnings                from discontinued operations before income taxes |   |       | **215** |   |   | 155    |   |   | 235 |   |
| Provision                for income taxes                                |   |       | **117** |   |   | 96     |   |   | 120 |   |
| Net                earnings from discontinued operations                 |   | **$**      | **98**  |   | $      | 59     |   | $ | 115 |   |

|                                                 |   | ***2005*** |    | *2004* |   |
|------------------------------------------------------|--------|------------|---------|--------|--------|
| **Assets**                                           |   |       |    |   |   |   |   |
| Current                assets 1                      |   | **$**      | **237** |   | $      | 387 |   |
| Property,                plant and equipment, net    |   |       | **300** |   |   | 465 |   |
| Goodwill                                             |   |       | **111** |   |   | 133 |   |
| Total                assets                          |   | **$**      | **648** |   | $      | 985 |   |
|                                                 |   |       |    |   |   |   |   |
| **Liabilities**                                      |   |       |    |   |   |   |   |
| Current                liabilities                   |   | **$**      | **102** |   | $      | 133 |   |
| Net                assets of discontinued operations |   | **$**      | **546** |   | $      | 852 |   |

| 1   | Current                assets include cash and cash equivalents of $68 million as at December                31,                2005 (December 31, 2004 - $206                million). |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      4 - STOCK DIVIDEND**

**Note      5 - INVESTMENT AND OTHER INCOME**

**Note      6 - **
**ASSET      WRITE-DOWNS**

**Oakville      Refining Operations **

|                                                                                                                      |   | ** *2005*** | * * | * 2004*    | * * | * 2003* |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|------------------|----------|-----------------|----------|--------------|--------|
|                                                                                                                      |   | ***Pre-Tax***    |     | ***After-Tax*** |     | *Pre-Tax*    |   | *After-Tax* |   | *Pre-Tax* |   | *After-Tax* |   |
| Operating,                  marketing and general expenses (de-commissioning and employee related                  costs) |   |             | **$**    | **(4**          | **)**    | **$**        | **(2** | **)** | $ | 3 |   | $ | 2 |   | $ | 54 |   | $ | 32 |   |
| Depreciation                  and amortization expenses (asset write-downs and increased                  depreciation    |   |             |     | **1**           |     |         | **-**  |   |   | 71 |   |   | 44 |   |   | 196 |   |   | 119 |   |
|                                                                                                                      |   |             | **$**    | **(3**          | **)**    | **$**        | **(2** | **)** | $ | 74 |   | $ | 46 |   | $ | 250 |   | $ | 151 |   |

**Other**

**Note      7 - **
**INCOME      TAXES**

|                                                                                                                                           |   | ***2005*** |      | *2004* |   | *2003* |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|--------|--------|--------|--------|
| Earnings                from continuing operations before income taxes                                                                         |   | **$**      | **3,402** |   | $      | 3,090  |   | $ | 2,725 |   |
| Add                (deduct):                                                                                                                   |   |       |      |   |   |   |   |   |   |   |
| Non-deductible                royalties and other payments to provincial governments,                net                                       |   |       | **393**   |   |   | 352    |   |   | 392 |   |
| Resource                allowance                                                                                                              |   |       | **(413**  | **)**  |   | (512   | )      |   | (542 | ) |
| Non-taxable                foreign exchange                                                                                                    |   |       | **(45**   | **)**  |   | (40    | )      |   | (237 | ) |
| Other                                                                                                                                          |   |       | **5**     |   |   | (10    | )      |   | 17 |   |
| Earnings                from continuing operations as adjusted before income taxes                                                             |   | **$**      | **3,342** |   | $      | 2,880  |   | $ | 2,355 |   |
| Canadian                Federal income tax rate                                                                                                |   |       | **38.0**  | **%**  |   | 38.0   | %      |   | 38.0 | % |
| Income                tax on earnings from continuing operations as adjusted at Canadian                Federal                income tax rate |   | **$**      | **1,270** |   | $      | 1,094  |   | $ | 895 |   |
| Provincial                income taxes                                                                                                         |   |       | **325**   |   |   | 271    |   |   | 194 |   |
| Federal                - abatement and other credits                                                                                           |   |       | **(378**  | **)**  |   | (274   | )      |   | (167 | ) |
| Future                income taxes increase (decrease) due to federal and provincial rate                changes                               |   |       | **6**     |   |   | (13    | )      |   | (45 | ) |
| Higher                foreign income tax rates                                                                                                 |   |       | **482**   |   |   | 320    |   |   | 306 |   |
| Income                tax credits and other                                                                                                    |   |       | **4**     |   |   | (6     | )      |   | 7 |   |
| Provision                for income taxes                                                                                                      |   | **$**      | **1,709** |   | $      | 1,392  |   | $ | 1,190 |   |
| Effective                income tax rate on earnings from continuing operations before income                taxes                             |   |       | **50.2**  | **%**  |   | 45.0   | %      |   | 43.7 | % |

----

**Note 7 - **
**INCOME        TAXES **
*(continued)*

|                                                              |   | ***2005*** |      | *2004* |   |
|-------------------------------------------------------------------|--------|------------|-----------|--------|--------|
| Property,                plant and equipment                      |   | **$**      | **3,114** |   | $      | 2,961 |   |
| Partnership                income 1                               |   |       | **532**   |   |   | 404 |   |
| Inventories                                                       |   |       | **(230**  | **)**  |   | (184 | ) |
| Asset                retirement obligations and other liabilities |   |       | **(906**  | **)**  |   | (446 | ) |
| Deferred                charges and other assets                  |   |       | **58**    |   |   | 55 |   |
| Other                                                             |   |       | **(163**  | **)**  |   | (82 | ) |
|                                                              |   | **$**      | **2,405** |   | $      | 2,708 |   |

|   | 1 | Taxable                income for certain Canadian upstream activities are generated by                a                partnership and the related taxes will be included in current income                taxes                in the next year. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note      8 - **
**EARNINGS      PER SHARE**

| *(millions)*                                                                                 |   | ***2005*** |      | *2004* |   | *2003* |   |
|----------------------------------------------------------------------------------------------|--------|------------|-----------|--------|--------|--------|--------|
| Weighted-average                number of common shares outstanding -                basic   |   |       | **518.4** |   |   | 529.3  |   |   | 529.9 |   |
| Effect                of dilutive stock options                                              |   |       | **7.0**   |   |   | 6.9    |   |   | 5.8 |   |
| Weighted-average                number of common shares outstanding -                diluted |   |       | **525.4** |   |   | 536.2  |   |   | 535.7 |   |

----

**Note      9 - CASH FLOW INFORMATION**

**Changes      in Non-Cash Working Capital**

|                                                               |   | ***2005*** |     | *2004* |   | *2003* |   |
|--------------------------------------------------------------------|--------|------------|----------|--------|--------|--------|--------|
| **Operating                activities from continuing operations** |   |       |     |   |   |   |   |   |   |   |
| Accounts                receivable                                 |   | **$**      | **(563** | **)**  | $      | (131   | )      | $ | (11 | ) |
| Inventories                                                        |   |       | **(18**  | **)**  |   | 4      |   |   | 34 |   |
| Accounts                payable and accrued liabilities            |   |       | **656**  |   |   | 249    |   |   | (157 | ) |
| Income                taxes payable                                |   |       | **(190** | **)**  |   | 96     |   |   | 59 |   |
| Current                portion of long-term liabilities and other  |   |       | **31**   |   |   | (114   | )      |   | (71 | ) |
|                                                               |   | **$**      | **(84**  | **)**  | $      | 104    |   | $ | (146 | ) |
| **Investing                activities**                            |   |       |     |   |   |   |   |   |   |   |
| Accounts                payable and accrued liabilities            |   | **$**      | **(12**  | **)**  | $      | 10     |   | $ | 94 |   |
| Other                liabilities                                   |   |       | **249**  |   |   | -      |   |   | - |   |
|                                                               |   | **$**      | **237**  |   | $      | 10     |   | $ | 94 |   |
| **Financing                activities**                            |   |       |     |   |   |   |   |   |   |   |
| Accounts                payable and accrued liabilities            |   | **$**      | -        |   | $      | (26    | )      | $ | - |   |

**Cash      Payments**

|                        |   | ***2005*** |      | *2004* |   | *2003* |   |
|-----------------------------|--------|------------|-----------|--------|--------|--------|--------|
| Interest                    |   | **$**      | **186**   |   | $      | 165    |   | $ | 156 |   |
| Income                taxes |   | **$**      | **1,972** |   | $      | 1,353  |   | $ | 1,096 |   |

**Note      10 - SECURITIZATION PROGRAM**

**Note      11 - FORT HILLS OIL SANDS MINING PROJECT**

----

**Note      12 - ACQUISITION OF PRIMA ENERGY CORPORATION **

| Property,                plant and equipment                      |   | $      | 688 |   |
|-------------------------------------------------------------------|--------|--------|-----|--------|
| Goodwill                                                          |   |   | 193 |   |
| Current                assets, excluding cash of $74 million      |   |   | 36  |   |
| Deferred                charges and other assets                  |   |   | 2   |   |
| Total                assets acquired                              |   |   | 919 |   |
| Current                liabilities                                |   |   | 41  |   |
| Future                income taxes                                |   |   | 217 |   |
| Asset                retirement obligations and other liabilities |   |   | 17  |   |
| Total                liabilities assumed                          |   |   | 275 |   |
| Net                assets acquired                                |   | $      | 644 |   |

**Note      13 - CASH AND CASH EQUIVALENTS**

|                                                  |   | ***2005*** |    | *2004* |   |
|-------------------------------------------------------|--------|------------|---------|--------|--------|
| Cash                                                  |   | **$**      | **91**  |   | $      | 169 |   |
| Less:                outstanding cheques              |   |       | **(43** | **)**  |   | (65 | ) |
|                                                  |   |       | **48**  |   |   | 104 |   |
| Short-term                investments                 |   |       | **741** |   |   | 66 |   |
|                                                  |   |       | **789** |   |   | 170 |   |
| Less:                discontinued operations (Note 3) |   |       | **68**  |   |   | 206 |   |
|                                                  |   | **$**      | **721** |   | $      | (36 | ) |

**Note      14 - INVENTORIES**

|                                                       |   | ***2005*** |    | *2004* |   |
|------------------------------------------------------------|--------|------------|---------|--------|--------|
| Crude                oil, refined products and merchandise |   | **$**      | **431** |   | $      | 383 |   |
| Materials                and supplies                      |   |       | **165** |   |   | 166 |   |
|                                                       |   | **$**      | **596** |   | $      | 549 |   |

----

**Note      15 - **
**PROPERTY,      PLANT AND EQUIPMENT**

|                                                     |   |            | ***2005*** |                                                                                       | *2004*     |      | ***2005*** |   | *2004*     |                                                                       |
|----------------------------------------------------------|--------|------------|------------|--------------------------------------------------------------------------------------------|------------|-----------|------------|--------|------------|----------------------------------------------------------------------------|
|                                                     |   | ***Cost*** | ** ** | ***Accumulated******Depreciation,******Depletion                  and******Amortization*** | ** ** | ***Net*** |            | *Cost* |       | *Accumulated**Depreciation,**Depletion                  and**Amortization* |   | *Net* |   | *Expenditures                  on Property, Plant and Equipment**1                  2 3* |   |
| **Upstream**                                             |   |       |       |                                                                                       |       |      |       |   |       |                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| North                  American Natural Gas              |   | **$**      | **6,161**  |                                                                                       | **$**      | **2,828** |       | **$**  | **3,333**  |                                                                       | $ | 5,521 |   | $ | 2,491 |   | $ | 3,030 |   | **$** | **635** |   | $ | 605 |   |
| East                  Coast Oil                          |   |       | **3,577**  |                                                                                       |       | **1,359** |       |   | **2,218**  |                                                                       |   | 3,274 |   |   | 1,094 |   |   | 2,180 |   |   | **310** |   |   | 276 |   |
| Oil                  Sands                               |   |       | **3,217**  |                                                                                       |       | **759**   |       |   | **2,458**  |                                                                       |   | 2,417 |   |   | 628 |   |   | 1,789 |   |   | **745** |   |   | 383 |   |
| International                                            |   |       | **4,245**  |                                                                                       |       | **469**   |       |   | **3,776**  |                                                                       |   | 4,624 |   |   | 629 |   |   | 3,995 |   |   | **665** |   |   | 1,664 |   |
|                                                     |   |       | **17,200** |                                                                                       |       | **5,415** |       |   | **11,785** |                                                                       |   | 15,836 |   |   | 4,842 |   |   | 10,994 |   |   | **2,355** |   |   | 2,928 |   |
| **Downstream**                                           |   |       |       |                                                                                       |       |      |       |   |       |                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Refining                                                 |   |       | **4,254**  |                                                                                       |       | **1,318** |       |   | **2,936**  |                                                                       |   | 3,372 |   |   | 1,220 |   |   | 2,152 |   |   | **936** |   |   | 662 |   |
| Marketing                  and other                     |   |       | **2,419**  |                                                                                       |       | **1,252** |       |   | **1,167**  |                                                                       |   | 2,358 |   |   | 1,218 |   |   | 1,140 |   |   | **117** |   |   | 177 |   |
|                                                     |   |       | **6,673**  |                                                                                       |       | **2,570** |       |   | **4,103**  |                                                                       |   | 5,730 |   |   | 2,438 |   |   | 3,292 |   |   | **1,053** |   |   | 839 |   |
| **Other                  property, plant and equipment** |   |       | **470**    |                                                                                       |       | **437**   |       |   | **33**     |                                                                       |   | 458 |   |   | 426 |   |   | 32 |   |   | **12** |   |   | 9 |   |
|                                                     |   | **$**      | **24,343** | ** **                                                                                 | **$**      | **8,422** | ** ** | **$**  | **15,921** | ** **                                                                 | $ | 22,024 |   | $ | 7,706 |   | $ | 14,318 |   | **$** | **3,420** |   | $ | 3,776 |   |

|   | 1 | Expenditures                are from continuing operations and exclude $46 million (2004 - $62                million) relating to discontinued operations (Note 3). |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2 | Exploration                expenses, excluding general and administrative and geological and                geophysical expenses, of $140 million (2004 - $117 million; 2003 -                $188 million) are reclassified from operating activities and included                with                expenditures on property, plant and equipment and exploration under                investing activities in the Consolidated Statement of Cash Flows. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3 | Expenditures                on property, plant and equipment and exploration for the year ended                December 31, 2004 include the Company’s purchase of a 29.9% interest in                the Buzzard field and nearby exploration blocks in the U.K. sector                of the                North Sea for $1,218 million. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note      16 - G**
**OODWILL**

|                                                   |   | ***2005***                                      | *2004*  |                |
|--------------------------------------------------------|--------|-------------------------------------------------|---------|---------------------|
|                                                   |   | ***North                American Natural Gas*** |    | ***International*** |   | ***Total*** |   | *North                American Natural Gas* |   | *International* |   | *Total* |   |
| Goodwill                at beginning of year           |   | **$**                                           | **175** | ** **          | **$** | **811** | ** ** | **$** | **986** |   | $ | - |   | $ | 810 |   | $ | 810 |   |
| Acquisition                of Prima Energy Corporation |   |                                            | **-**   |                |   | **-** |   |   | **-** |   |   | 193 |   |   | - |   |   | 193 |   |
| Foreign                exchange                        |   |                                            | **(5**  | **)**               |   | **(133** | **)** |   | **(138** | **)** |   | (18 | ) |   | 1 |   |   | (17 | ) |
| Goodwill                at end of year                 |   |                                            | **170** |                |   | **678** |   |   | **848** |   |   | 175 |   |   | 811 |   |   | 986 |   |
| Less:                discontinued operations (Note 3)  |   |                                            | **-**   |                |   | **111** |   |   | **111** |   |   | - |   |   | 133 |   |   | 133 |   |
|                                                   |   | **$**                                           | **170** | ** **          | **$** | **567** | ** ** | **$** | **737** |   | $ | 175 |   | $ | 678 |   | $ | 853 |   |

----

**Note      17 - DEFERRED CHARGES AND OTHER ASSETS**

|                                    |   | ***2005*** |    | *2004* |   |
|-----------------------------------------|--------|------------|---------|--------|--------|
| Investments                             |   | **$**      | **87**  |   | $      | 78 |   |
| Deferred                pension funding |   |       | **105** |   |   | 71 |   |
| Deferred                financing costs |   |       | **108** |   |   | 98 |   |
| Other                long-term assets   |   |       | **115** |   |   | 98 |   |
|                                    |   | **$**      | **415** |   | $      | 345 |   |

**Note      18 - **
**LONG-TERM      DEBT**

|                                                                 |   | *Maturity* |      | ***2005*** |   | *2004*    |   |
|----------------------------------------------------------------------|--------|------------|-----------|------------|--------|-----------|--------|
| Debentures                and notes                                  |   |       |      |       |   |      |   |   |   |   |
| 5.95%                unsecured senior notes ($600 million US) 1 |   |       | 2035      |       | **$**  | **700**   |   | $ | - |   |
| 5.35%                unsecured senior notes ($300 million US) 2 |   |       | 2033      |       |   | **350**   |   |   | 361 |   |
| 7.00%                unsecured debentures ($250 million US)          |   |       | 2028      |       |   | **292**   |   |   | 301 |   |
| 7.875%                unsecured debentures ($275 million US)         |   |       | 2026      |       |   | **321**   |   |   | 331 |   |
| 9.25%                unsecured debentures ($300 million US)          |   |       | 2021      |       |   | **350**   |   |   | 361 |   |
| 5.00%                unsecured senior notes ($400 million US) 3      |   |       | 2014      |       |   | **466**   |   |   | 481 |   |
| 4.00%                unsecured senior notes ($300 million US) 2      |   |       | 2013      |       |   | **350**   |   |   | 361 |   |
| Capital                leases (Note 15) 4                            |   |       | 2007-2017 |       |   | **77**    |   |   | 85 |   |
| Retail                licensee trust loans                           |   |       | 2012-2014 |       |   | **7**     |   |   | - |   |
|                                                                 |   |       |      |       |   | **2,913** |   |   | 2,281 |   |
| Current                portion                                       |   |       |      |       |   | **(7**    | **)**  |   | (6 | ) |
|                                                                 |   |       |      |       | **$**  | **2,906** |   | $ | 2,275 |   |

|   | 1 | In                May 2005, the Company issued $600 million US 5.95% notes due May                15, 2035.                The proceeds were used primarily to repay existing short-term notes                payable. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2 | In                anticipation of issuing these senior notes, the Company entered into                interest rate derivatives which resulted in effective interest rates                of                6.073% for the 5.35% notes due in 2033 and 4.838% for the 4.00% notes                due                in 2013. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3 | The                Company established a $400 million US underwritten credit facility                to                partially fund the acquisition of Prima Energy Corporation (Note                12). On                November 8, 2004, the Company issued these senior notes, the proceeds                of                which were used to repay the credit                facility. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4 | The                Company is party to a transportation agreement to transport bitumen                from                the MacKay River production facilities to the Athabasca Pipeline                Terminal.                The agreement is for an initial term of 15 years ending in 2017 and                is                extendable at the Company's option for an additional 10 years. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Note      19 - **
**OTHER      LIABILITIES**

|                                                                     |   | ***2005*** |      | *2004* |   |
|--------------------------------------------------------------------------|--------|------------|-----------|--------|--------|
| Post-retirement                benefits                                  |   | **$**      | **173**   |   | $      | 164 |   |
| Unrealized                loss on Buzzard derivative contracts (Note 24) |   |       | **1,222** |   |   | 333 |   |
| Fort                Hills purchase obligation (Note 11)                  |   |       | **247**   |   |   | - |   |
| Other                long-term liabilities                               |   |       | **246**   |   |   | 149 |   |
|                                                                     |   | **$**      | **1,888** |   | $      | 646 |   |

**Note      20 - ASSET RETIREMENT OBLIGATIONS**

|                                                             |   | ***2005*** |    | *2004* |   |
|------------------------------------------------------------------|--------|------------|---------|--------|--------|
| Asset                retirement obligations at beginning of year |   | **$**      | **834** |   | $      | 773 |   |
| Obligations                incurred                              |   |       | **92**  |   |   | 67 |   |
| Changes                in estimates                              |   |       | **104** |   |   | - |   |
| Abandonment                expenditures                          |   |       | **(98** | **)**  |   | (44 | ) |
| Accretion                expense                                 |   |       | **50**  |   |   | 50 |   |
| Foreign                exchange and other                        |   |       | **(59** | **)**  |   | (12 | ) |
| Asset                retirement obligations at end of year       |   | **$**      | **923** |   | $      | 834 |   |

**Note      21 - **
**SHAREHOLDERS'      EQUITY**

|   | (a) | Preferred                shares issuable in series designated as Senior Preferred                Shares. |
|--------|-----|----------------------------------------------------------------------------------------------------------|

|   | (b) | Preferred                shares issuable in series designated as Junior Preferred                Shares. |
|--------|-----|----------------------------------------------------------------------------------------------------------|

|   | (c) | Common                shares. |
|--------|-----|-------------------------------|

|                                                                         |   | ***2005***   |            | *2004*       |   |
|------------------------------------------------------------------------------|--------|--------------|-----------------|--------------|--------|
|                                                                         |   | ***Shares*** |            | ***Amount*** |   | ***Contributed                  Surplus*** |   | *Shares* |   | *Amount* |   | *Contributed                  Surplus* |   |
| Balance                  at beginning of year                                |   |         | **519,928,022** |         | **$**  | **1,314** | ** ** | **$** | **1,743** |   |   | 531,172,186 |   | $ | 1,308 |   | $ | 2,147 |   |
| Issued                  under employee stock option and share purchase plans |   |         | **3,544,282**   |         |   | **64** |   |   | **-** |   |   | 2,492,000 |   |   | 39 |   |   | - |   |
| Repurchased                  under normal course issuer bid                  |   |         | **(8,333,400**  | **)**        |   | **(22** | **)** |   | **(324** | **)** |   | (13,736,164 | ) |   | (34 | ) |   | (413 | ) |
| Stock-based                  compensation                                    |   |         | **-**           |         |   | **6** |   |   | **3** |   |   | - |   |   | 1 |   |   | 9 |   |
| Balance                  at end of year                                      |   |         | **515,138,904** |         |   | **1,362** |   |   | **1,422** |   |   | 519,928,022 |   |   | 1,314 |   |   | 1,743 |   |

----

**Note 21 - **
**SHAREHOLDERS'        EQUITY**
*(continued)*

**Note      22 - STOCK-BASED COMPENSATION**

**Stock      Options**

|                                        |       | ***2005***   |           |
|---------------------------------------------|------------|--------------|----------------|
|                                        |       | ***Number*** | ** **     | ***Weighted-Average******Exercise                Price*** |   |
|                                        |       |         |           | ***(dollars)*** |   |
| Balance                at beginning of year |       |         | **18,074,698** | ** ** | **$** | **21** |   |
| Granted                                     |       |         | **4,185,800**  | ** ** | ** ** | **35** | ** ** |
| Exercised                                   | ** ** | ** **   | **(3,544,282** | **)** | ** ** | **18** | ** ** |
| Cancelled                                   | ** ** | ** **   | **(354,599**   | **)** | ** ** | **29** | ** ** |
| Balance                at end of year       | ** ** | ** **   | **18,361,617** | ** ** | **$** | **24** | ** ** |

|                                        |   | *2004*   |       | *2003*                                           |   |
|---------------------------------------------|--------|----------|------------|--------------------------------------------------|--------|
|                                        |   | *Number* |       | *Weighted-Average                Exercise Price* |   | *Number* |   | *Weighted-Average                Exercise Price* |   |
|                                        |   |     |       | *(dollars)*                                      |   |   |   | *(dollars)* |   |
| Balance                at beginning of year |   |     | 17,241,186 |                                             | $      | 19 |   |   | 16,451,968 |   | $ | 15 |   |
| Granted                                     |   |     | 3,673,400  |                                             |   | 29 |   |   | 4,962,000 |   |   | 26 |   |
| Exercised                                   |   |     | (2,492,000 | )                                                |   | 16 |   |   | (3,982,232 | ) |   | 13 |   |
| Cancelled                                   |   |     | (347,888   | )                                                |   | 22 |   |   | (190,550 | ) |   | 20 |   |
| Balance                at end of year       |   |     | 18,074,698 |                                             | $      | 21 |   |   | 17,241,186 |   | $ | 19 |   |

| *Options                  Outstanding*  | *Options                  Exercisable*      |
|----------------------------------------------|---------------------------------------------|
|                                         | *Range                  of Exercise Prices* | *Number* | *Weighted-Average                  Life* |   | *Weighted-Average**Exercise                  Price* | *Number* |   | *Weighted-Average                  Exercise Price* |
|                                         | *(dollars)*                                 |   | *(years)* |   | *(dollars)* |   |   | *(dollars)* |
| $                                            | 8                  to 13                    | 1,954,009 | 2.3 | $ | 10 | 1,954,009 | $ | 10 |
|                                         | 14                  to 17                   | 2,635,875 | 6.0 |   | 17 | 2,561,759 |   | 17 |
|                                         | 18                  to 23                   | 2,659,795 | 5.3 |   | 19 | 2,645,091 |   | 19 |
|                                         | 24                  to 27                   | 3,743,733 | 7.1 |   | 26 | 2,807,800 |   | 26 |
|                                         | 28                  to 32                   | 3,291,205 | 5.2 |   | 29 | 2,583,867 |   | 29 |
|                                         | 33                  to 42                   | 4,077,000 | 6.2 |   | 35 | 2,029,037 |   | 34 |
| $                                            | 8                  to 42                    | 18,361,617 | 5.6 | $ | 24 | 14,581,563 | $ | 23 |

----

**Note 22 - STOCK-BASED COMPENSATION **
*(continued)*

|                                      |                              | **Earnings                  per Share** |            | Earnings                  per Share |        | Earnings                  per Share |
|-------------------------------------------|-----------------------------------|-----------------------------------------|-----------------|-------------------------------------|-------------|-------------------------------------|
|                                      | **2005**                          | **Basic**                               | **Diluted**     | 2004                                | Basic       | Diluted                             | 2003 | Basic | Diluted |
|                                      | **Net                  Earnings** | ***(dollars)***                         | ***(dollars)*** | Net                  Earnings       | *(dollars)* | *(dollars)*                         | Net                  Earnings | *(dollars)* | *(dollars)* |
| Net                  earnings as reported | **$**                             | **1,791**                               | **$**           | **3.45**                            | **$**       | **3.41**                            | $ | 1,757 | $ | 3.32 | $ | 3.28 | $ | 1,650 | $ | 3.11 | $ | 3.08 |
| Pro                  forma adjustment     |                              | **8**                                   |            | **0.01**                            |        | **0.02**                            |   | 9 |   | 0.02 |   | 0.02 |   | 8 |   | 0.01 |   | 0.01 |
| Pro                  forma net earnings   | **$**                             | **1,783**                               | **$**           | **3.44**                            | **$**       | **3.39**                            | $ | 1,748 | $ | 3.30 | $ | 3.26 | $ | 1,642 | $ | 3.10 | $ | 3.07 |

| Risk-free                interest rate                         | 4.4%                   |
|----------------------------------------------------------------|------------------------|
| Expected                hold period to exercise                | 6                years |
| Volatility                in the market price of common shares | 32%                    |
| Estimated                annual dividend                       | 1.4%                   |

**Note      22 - **
**STOCK-BASED      COMPENSATION **
*(*
*continued*
*)*

**Performance      Share Units**

|                                        |   | ***2005                Number*** |          | *2004                Number* |   |
|---------------------------------------------|--------|----------------------------------|---------------|------------------------------|--------|
| Balance                at beginning of year |   |                             | **565,860**   |                         |   | - |   |
| Granted                                     |   |                             | **642,940**   |                         |   | 569,760 |   |
| Expired                                     |   |                             | **-**         |                         |   | - |   |
| Cancelled                                   |   |                             | **(49,833**   | **)**                        |   | (3,900 | ) |
| Balance                at end of year       |   |                             | **1,158,967** |                         |   | 565,860 |   |

**Deferred      Share Units**

----

**Note      23 - **
**EMPLOYEE      FUTURE BENEFITS **

|                                                                                                                                                                                       |   | *Pension                Plans* |     | *Other                Post-Retirement Plans* |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|----------|----------------------------------------------|--------|
| **Benefit              Plan Expense**                                                                                                                                                      |   | ***2005***                     |     | *2004*                                       |   | *2003* |   |  ***2005*** |   | *2004* |   | *2003* |   |
| (a) Defined                benefit plans                                                                                                                                              |   |                           |     |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Employer                current service cost                                                                                                                                               |   | **$**                          | **36**   |                                         | $      | 31 |   | $ | 27 |   | **$** | **4** |   | $ | 4 |   | $ | 4 |   |
| Interest                cost                                                                                                                                                               |   |                           | **86**   |                                         |   | 81 |   |   | 78 |   |   | **12** |   |   | 13 |   |   | 12 |   |
| Actual                return on plan assets                                                                                                                                                |   |                           | **(133** | **)**                                        |   | (91 | ) |   | (115 | ) |   | **-** |   |   | - |   |   | - |   |
| Actuarial                losses (gains)                                                                                                                                                    |   |                           | **155**  |                                         |   | 97 |   |   | 99 |   |   | **19** |   |   | (15 | ) |   | 17 |   |
| Elements                of employee future benefit plan expense before adjustments to recognize                the long-term nature of employee future benefit plan                expense |   |                           | **144**  |                                         |   | 118 |   |   | 89 |   |   | **35** |   |   | 2 |   |   | 33 |   |
| Difference                between actual and expected return on plan assets                                                                                                                |   |                           | **45**   |                                         |   | 12 |   |   | 50 |   |   | **-** |   |   | - |   |   | - |   |
| Difference                between actual and recognized actuarial losses in year                                                                                                           |   |                           | **(121** | **)**                                        |   | (67 | ) |   | (73 | ) |   | **(19** | **)** |   | 16 |   |   | (17 | ) |
| Amortization                of transitional (asset) obligation                                                                                                                             |   |                           | **(6**   | **)**                                        |   | (5 | ) |   | (5 | ) |   | **2** |   |   | 2 |   |   | 2 |   |
|                                                                                                                                                                                       |   |                           | **62**   |                                         |   | 58 |   |   | 61 |   |   | **18** |   |   | 20 |   |   | 18 |   |
| (b) Defined                contribution plans                                                                                                                                         |   |                           | **16**   |                                         |   | 13 |   |   | 11 |   |   |   |   |   |   |   |   |   |   |
| Total                expense                                                                                                                                                               |   | **$**                          | **78**   |                                         | $      | 71 |   | $ | 72 |   | **$** | **18** |   | $ | 20 |   | $ | 18 |   |
| **Benefit                Plan Funding**                                                                                                                                                    |   |                           |     |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Defined                contribution                                                                                                                                                        |   | **$**                          | **16**   |                                         | $      | 13 |   | $ | 11 |   |   |   |   |   |   |   |   |   |   |
| Defined                benefit                                                                                                                                                             |   | **$**                          | **96**   |                                         | $      | 80 |   | $ | 75 |   | **$** | **9** |   | $ | 9 |   | $ | 8 |   |

----

**Note      23 - EMPLOYEE      FUTURE BENEFITS **
*(continued)*

|                                                              |   | *Pension                  Plans* |   | *Other                  Post-Retirement Plans* |   |
|-------------------------------------------------------------------|--------|----------------------------------|--------|------------------------------------------------|--------|
| **Financial                  Status of Defined Benefit Plans**    |   | ***2005***                       |   | *2004*                                         |   | ***2005*** |   | *2004* |   |
| Fair                  value of plan assets                        |   |                             | **$**  | **1,303**                                      |   |   | $ | 1,157 |   | **$** | **-** |   |   | $ | - |   |
| Accrued                  benefit obligation                       |   |                             |   | **1,681**                                      |   |   |   | 1,487 |   |   | **230** |   |   |   | 204 |   |
| Funded                  status - plan deficit 1                   |   |                             |   | **(378**                                       | **)**  |   |   | (330 | ) |   | **(230** | **)** |   |   | (204 | ) |
| Unamortized                  transitional (asset) obligation      |   |                             |   | **(23**                                        | **)**  |   |   | (29 | ) |   | **15** |   |   |   | 17 |   |
| Unamortized                  net actuarial losses                 |   |                             |   | **506**                                        |   |   |   | 430 |   |   | **42** |   |   |   | 23 |   |
| Accrued                  benefit asset (liability)                |   |                             | **$**  | **105**                                        |   |   | $ | 71 |   | **$** | **(173** | **)** |   | $ | (164 | ) |
|                                                              |   |                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| **Reconciliation                  of Plan Assets**                |   |                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair                  value of plan assets at beginning of year   |   |                             | **$**  | **1,157**                                      |   |   | $ | 1,052 |   | **$** | **-** |   |   | $ | - |   |
| Contributions                                                     |   |                             |   | **96**                                         |   |   |   | 80 |   |   | **9** |   |   |   | 9 |   |
| Benefits                  paid                                    |   |                             |   | **(83**                                        | **)**  |   |   | (67 | ) |   | **(9** | **)** |   |   | (9 | ) |
| Actual                  gain (loss) on plan assets                |   |                             |   | **133**                                        |   |   |   | 91 |   |   | **-** |   |   |   | - |   |
| Other                                                             |   |                             |   | **-**                                          |   |   |   | 1 |   |   | **-** |   |   |   | - |   |
| Fair                  value of plan assets at end of year         |   |                             | **$**  | **1,303**                                      |   |   | $ | 1,157 |   | **$** | **-** |   |   | $ | - |   |
|                                                              |   |                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| **Reconciliation                  of Accrued Benefit Obligation** |   |                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Accrued                  benefit obligation at beginning of year  |   |                             | **$**  | **1,487**                                      |   |   | $ | 1,344 |   | **$** | **204** |   |   | $ | 211 |   |
| Current                  service cost                             |   |                             |   | **36**                                         |   |   |   | 31 |   |   | **4** |   |   |   | 4 |   |
| Interest                  cost                                    |   |                             |   | **86**                                         |   |   |   | 81 |   |   | **12** |   |   |   | 13 |   |
| Benefits                  paid                                    |   |                             |   | **(83**                                        | **)**  |   |   | (67 | ) |   | **(9** | **)** |   |   | (9 | ) |
| Actuarial                  losses (gains)                         |   |                             |   | **155**                                        |   |   |   | 97 |   |   | **19** |   |   |   | (15 | ) |
| Other                                                             |   |                             |   | **-**                                          |   |   |   | 1 |   |   | **-** |   |   |   | - |   |
| Accrued                  benefit obligation at end of year        |   |                             | **$**  | **1,681**                                      |   |   | $ | 1,487 |   | **$** | **230** |   |   | $ | 204 |   |

|   | 1 | The                pension and other post-retirement plans included in the financial                status                information are not fully funded. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Defined      Benefit and Other Post-Retirement Plans Assumptions**

|                                                                    |   | ***2005*** |    | *2004* |   | *2003* |   |
|-------------------------------------------------------------------------|--------|------------|---------|--------|--------|--------|--------|
| Year-end                obligation discount rate                1       |   |       | **5.0** | **%**  |   | 5.7    | %      |   | 6.0 | % |
| Accrued                benefit obligation discount rate 1               |   |       | **5.7** | **%**  |   | 6.0    | %      |   | 6.5 | % |
| Long-term                rate of return on plan assets                  |   |       | **7.5** | **%**  |   | 7.5    | %      |   | 7.5 | % |
| Rate                of compensation increase, excluding merit increases |   |       | **3.1** | **%**  |   | 3.0    | %      |   | 3.0 | % |

**Assumed      Health and Dental Care Cost Trend Rates at December 31 are as      follows**

|                                                                                                                                  |   | ***2005*** |     | *2004* |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|------------|----------|--------|--------|
| Dental                care cost trend rate                1                                                                           |   |       | **3.5**  | **%**  |   | 3.5 | % |
| Health                care cost trend rate                                                                                            |   |       | **8.5**  | **%**  |   | 8.5 | % |
| Health                care cost trend rate declines to                                                                                |   |       | **4.5**  | **%**  |   | 4.5 | % |
| Year                that health care cost trend rate reaches the rate which it is expected                to                remain at |   |       | **2014** |   |   | 2014 |   |

|   | 1 | Dental                care cost trend rate assumed to remain                constant. |
|--------|---|---------------------------------------------------------------------------------------|

----

**Note      23 - EMPLOYEE      FUTURE BENEFITS **
*(continued)*

**Sensitivity      Analysis**

|                                              |   | *Increase* |   | *Decrease* |   |
|---------------------------------------------------|--------|------------|--------|------------|--------|
| Total                of service and interest cost |   | $          | 2      |       | $      | (2 | ) |
| Accrued                benefit obligation         |   | $          | 27     |       | $      | (26 | ) |

**The      Plan Assets consist of**

|                            |   | *Percentage                of Plan Assets at December 31,* |    |
|---------------------------------|--------|------------------------------------------------------------|---------|
| *Asset                Category* |   | ***2005***                                                 |    | *2004* |   |
|                            |   |                                                       |    |   |   |   |   |
| Equity                          |   |                                                       | **61**  | **%** |   | 62 | % |
| Bonds                      |   |                                                       | **39**  | **%** |   | 38 | % |
|                            |   |                                                       | **100** | **%** |   | 100 | % |

**Note      24 - FINANCIAL**
**      INSTRUMENTS AND DERIVATIVES**

**Crude      Oil and Products**

** **

|                                                     |   | ***December                31,******2005*** |   | *December                31,**2004* |   |
|----------------------------------------------------------|--------|---------------------------------------------|--------|-------------------------------------|--------|
|                                                     |   |                                        |   |                                |   |   |   |   |   |
| Accounts                receivable                       |   |                                        | **$**  | **5**                               |   |   | $ | 5 |   |
| Accounts                payables and accrued liabilities |   |                                        |   | **1**                               |   |   |   | 1 |   |
| Other                liabilities                         |   |                                        |   | **1,222**                           |   |   |   | 333 |   |

|                                                                                |   | *Quantity* |   | *Maturity* |   | *Average                  Price* |      | *Fair                  Value* |   |
|-------------------------------------------------------------------------------------|--------|------------|--------|------------|--------|----------------------------------|-----------|-------------------------------|--------|
|                                                                                |   |       |   |       |   |                             | *US$/bbl* |                          |   |   |   |
| **Crude                  Oil and Products***(millions                  of barrels)* |   |       |   |       |   |                             |      |                          |   |   |   |   |   |   |   |
| Crude                  oil purchases/sales                                          |   |       | 1.0    |       |   | 2006                             |      |                          | $      | 58.70 |   |   | $ | 4 |   |
| Buzzard                  crude oil sales                                            |   |       | 35.8   |       |   | 2007-2010                        |      |                          | $      | 25.98 |   |   | $ | (1,222 | ) |
|                                                                                |   |       |   |       |   |                             |      |                          |   |   |   |   | $ | (1,218 | ) |

----

**Note        24 - FINANCIAL        INSTRUMENTS AND DERIVATIVES **
*(*

*continued*

*)*

|                                                                                                                                                         |   | ***2005***                             |                           | *2004*                            |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------------------------------|-----------------------------------|-------------|
|                                                                                                                                                         |   | ***Carrying                  Amount*** |                           | ***Fair                  Value*** |        |  *Carrying                Amount* | *Fair                  Value* |   |
| Financial                  instruments included in current assets and current liabilities                  related to                  continuing operations |   |  **$**                            | ** (516**                 | **)**                             | ** $** | ** **** ****(516** | **)** |  $ | (1,437 | ) | $ |  (1,437 | ) |
| Long-term                  debt                                                                                                                              |   |  **$**                            | ** **** ****(2,913** | **)**                             | ** $** | ** **** ****(3,134** | **)** | $ | (2,281 | ) | $ |  (2,538 | ) |

**Note      25 - **
**COMMITMENTS      AND CONTINGENT LIABILITIES**

**Commitments**

|                                        |   | *2006* |   | *2007* |   | *2008* |   | *2009* |   | *2010* |   | *Thereafter* |   | *Total* |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------------|--------|---------|--------|
| Transportation                agreements    |   | $      | 200    |   | $      | 158    |   | $      | 161    |   | $      | 140          |   | $       | 117    |   | $ | 943 |   | $ | 1,719 |   |
| Product                purchases            |   |   | 115    |   |   | 114    |   |   | 131    |   |   | 131          |   |    | 118    |   |   | 1,494 |   |   | 2,103 |   |
| Exploration                work commitments |   |   | 52     |   |   | 47     |   |   | 2      |   |   | 54           |   |    | 6      |   |   | 1 |   |   | 162 |   |
| Operating                leases             |   |   | 137    |   |   | 111    |   |   | 90     |   |   | 79           |   |    | 65     |   |   | 196 |   |   | 678 |   |
|                                        |   | $      | 504    |   | $      | 430    |   | $      | 384    |   | $      | 404          |   | $       | 306    |   | $ | 2,634 |   | $ | 4,662 |   |

**Contingent      Liabilities**

**Note      26 - VARIABLE INTEREST ENTITIES**

*Consolidation      of Variable Interest Entities*

----

**Note      27 - **
**GENERALLY      ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES**

| **(a)  ** | **Income                Taxes** |
|---------------------|---------------------------------|

| **(b)  ** | **Interest                Capitalization** |
|---------------------|--------------------------------------------|

| **(c)  ** | **Contributed                Surplus** |
|---------------------|----------------------------------------|

| **(d)  ** | **Derivative                Instruments and Hedging** |
|---------------------|-------------------------------------------------------|

| **(e)  ** | **Minimum                Pension Liability** |
|---------------------|----------------------------------------------|

| **(f)  ** | **Comprehensive                Income** |
|---------------------|-----------------------------------------|

| **(g)  ** | **Asset                Retirement Obligations** |
|---------------------|-------------------------------------------------|

----

**Note      27 - **
**GENERALLY      ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES **
*(continued)*

|                                                                                                                                                            |   | ***2005*** |      | *2004* |   | *2003* |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|--------|--------|--------|--------|
| Net                earnings from continuing operations, as reported in the Consolidated                Statement of Earnings                                    |   | **$**      | **1,693** |   | $      | 1,698  |   | $ | 1,535 |   |
| Adjustments,                before income taxes                                                                                                                 |   |       |      |   |   |   |   |   |   |   |
| Capitalization                of interest and related amortization                                                                                              |   |       | **46**    |   |   | 8      |   |   | 21 |   |
| Accounting                for income taxes                                                                                                                      |   |       | **117**   |   |   | (27    | )      |   | (9 | ) |
| Other                                                                                                                                                           |   |       | **1**     |   |   | 1      |   |   | - |   |
| Income                taxes on above items                                                                                                                      |   |       | **(15**   | **)**  |   | 9      |   |   | 13 |   |
| Net                earnings from continuing operations, as adjusted before cumulative                effect                of change in accounting policy       |   |       | **1,842** |   |   | 1,689  |   |   | 1,560 |   |
| Net                earnings from discontinued operations, before cumulative effect of                change in accounting policy                           |   |       | **98**    |   |   | 59     |   |   | 115 |   |
| Net                earnings, as adjusted before cumulative effect of change in accounting                policy                                                 |   |       | **1,940** |   |   | 1,748  |   |   | 1,675 |   |
| Cumulative                effect of change in accounting policy, net of income taxes                                                                            |   |       | **-**     |   |   | -      |   |   | (114 | ) |
| Net                earnings, as adjusted                                                                                                                        |   | **$**      | **1,940** |   | $      | 1,748  |   | $ | 1,561 |   |
|                                                                                                                                                            |   |       |      |   |   |   |   |   |   |   |
| Earnings                from continuing operations, as adjusted before cumulative effect                of change                in accounting policy per share |   |       |      |   |   |   |   |   |   |   |
| Basic                                                                                                                                                           |   | **$**      | **3.55**  |   | $      | 3.19   |   | $ | 2.94 |   |
| Diluted                                                                                                                                                         |   | **$**      | **3.51**  |   | $      | 3.15   |   | $ | 2.91 |   |
| Earnings,                as adjusted before cumulative effect of change in accounting policy                per                share                            |   |       |      |   |   |   |   |   |   |   |
| Basic                                                                                                                                                           |   | **$**      | **3.74**  |   | $      | 3.30   |   | $ | 3.16 |   |
| Diluted                                                                                                                                                         |   | **$**      | **3.69**  |   | $      | 3.26   |   | $ | 3.13 |   |
| Earnings,                as adjusted per share                                                                                                                  |   |       |      |   |   |   |   |   |   |   |
| Basic                                                                                                                                                           |   | **$**      | **3.74**  |   | $      | 3.30   |   | $ | 2.95 |   |
| Diluted                                                                                                                                                         |   | **$**      | **3.69**  |   | $      | 3.26   |   | $ | 2.91 |   |
| Comprehensive                income                                                                                                                             |   |       |      |   |   |   |   |   |   |   |
| Net                earnings, as adjusted                                                                                                                        |   | **$**      | **1,940** |   | $      | 1,748  |   | $ | 1,561 |   |
| Unrealized                gain (loss) on financial derivatives                                                                                                  |   |       | **-**     |   |   | (5     | )      |   | 8 |   |
| Minimum                pension liability                                                                                                                        |   |       | **(65**   | **)**  |   | (36    | )      |   | (11 | ) |
| Foreign                currency translation adjustment                                                                                                          |   |       | **(588**  | **)**  |   | (49    | )      |   | 323 |   |
|                                                                                                                                                            |   | **$**      | **1,287** |   | $      | 1,658  |   | $ | 1,881 |   |

----

**Note      27 - **
**GENERALLY      ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES **
*(continued)*

|                                                         |   | ***December                31, 2005*** |                                    | *December                31, 2004* |
|--------------------------------------------------------------|--------|----------------------------------------|-----------------------------------------|------------------------------------|
|                                                         |   | ***As                Reported***       | ***United                States GAAP*** |                               | *As                Reported* |   | *United                States GAAP* |   |
|                                                         |   |                                   |                                    |                               | ** ** | *** (Note                  3)*** |   | *(Note                3)* |   |
| Current                assets                                |   | **$**                                  | **2,934**                               | ** **                         | **$** | **2,934** |   | $ | 1,635 |   | $ | 1,635 |   |
| Current                assets - discontinued operations      |   |                                   | **237**                                 |                               |   | **237** |   |   | 387 |   |   | 387 |   |
| Property,                plant and equipment, net            |   |                                   | **15,921**                              |                               |   | **16,513** |   |   | 14,318 |   |   | 14,872 |   |
| Goodwill                                                     |   |                                   | **737**                                 |                               |   | **716** |   |   | 853 |   |   | 832 |   |
| Deferred                charges and other assets             |   |                                   | **415**                                 |                               |   | **415** |   |   | 345 |   |   | 344 |   |
| Assets                of discontinued operations             |   |                                   | **411**                                 |                               |   | **411** |   |   | 598 |   |   | 598 |   |
| Current                liabilities                           |   |                                   | **2,943**                               |                               |   | **2,943** |   |   | 2,801 |   |   | 2,801 |   |
| Current                liabilities - discontinued operations |   |                                   | **102**                                 |                               |   | **102** |   |   | 133 |   |   | 133 |   |
| Long-term                debt                                |   |                                   | **2,906**                               |                               |   | **2,906** |   |   | 2,275 |   |   | 2,275 |   |
| Other                liabilities                             |   |                                   | **1,888**                               |                               |   | **2,229** |   |   | 646 |   |   | 910 |   |
| Asset                retirement obligations                  |   |                                   | **923**                                 |                               |   | **923** |   |   | 834 |   |   | 834 |   |
| Future                income taxes                           |   |                                   | **2,405**                               |                               |   | **2,469** |   |   | 2,708 |   |   | 2,894 |   |
| Common                shares                                 |   |                                   | **1,362**                               |                               |   | **1,362** |   |   | 1,314 |   |   | 1,314 |   |
| Contributed                surplus                           |   |                                   | **1,422**                               |                               |   | **2,544** |   |   | 1,743 |   |   | 2,865 |   |
| Retained                earnings                             |   |                                   | **7,018**                               |                               |   | **6,285** |   |   | 5,408 |   |   | 4,526 |   |
| Foreign                currency translation adjustment       |   |                                   | **(314**                                | **)**                              |   | **-** |   |   | 274 |   |   | - |   |
| Accumulated                other comprehensive income (loss) |   | **$**                                  | **-**                                   | ** **                         | **$** | **(537** | **)** | $ | - |   | $ | 116 |   |

**Note      28 - RECENT ACCOUNTING PRONOUNCEMENTS**

**Canadian**

*Non-Monetary      Transactions*

*Non-Monetary      Transactions*
*Exchanges      of Non-Monetary Assets,*

*Financial      Instruments, Comprehensive Income, and Hedges*

*      Financial Instruments *
*      Recognition and Measurement*

*Hedges*
*Hedging      Relationships*
*Foreign      Currency Translation*

*Comprehensive      Income*

----

**Note      28 - RECENT ACCOUNTING PRONOUNCEMENTS**

*Consideration      Given by a Vendor to a Customer*

*Accounting      for Consideration Given by a Vendor to a Customer (Including a Reseller of      the      Vendor’s Products)*
*.*
*Consideration      Given by a Vendor to a Customer,*

*Implicit      Variable Interests*

*Implicit      Variable Interests, *
*Implicit      Variable Interests*

*Conditional      Asset Retirement Obligations*

*      Accounting for Conditional Asset Retirement Obligations.*
*Accounting      for Conditional Asset Retirement Obligations,*

**United      States**

*Share-Based      Payment*

*Share-Based      Payment*
*Accounting      for Stock-Based Compensation *
*Accounting      for Stock Issued to Employees*

----

**Note      28 - RECENT ACCOUNTING PRONOUNCEMENTS **

*Inventory      Costs*

*Inventory      Costs*

*Accounting      for Changes and Error Corrections*

*Accounting      Changes and Error Corrections*
*Accounting      Changes*
*Reporting      Accounting Changes in Interim Financial Statements*

*Purchase      and Sales of Inventory with the Same Counterparty*

*Accounting      for Purchases and Sales of Inventory with the Same Counterparty*
** **

*Stripping      Costs Incurred During Production*

*Accounting      for Stripping Costs Incurred During Production in the Mining      Industry*

----