**Legal        Notice - Forward-Looking Information**

*"plan*
*"*
*"anticipate*
*"*
*"forecast*
*"*
*"believe*
*"*
*"target*
*"*
*"intend*
*"*
*"expect*
*"*
*"estimate*
*"*
*"budget"*

|         o  business                  strategies and goals        o  outlook                  (including operational updates and strategic milestones)        o  future                  capital, exploration and other expenditures         o  future                  resource purchases and sales         o  construction                  and repair activities          o  refinery                  turnarounds         o  anticipated                  refining margins        o  future                  oil and gas production levels and the sources of their growth        o  project                  development and expansion schedules and results        o  future                  results of exploration activities and dates by which           certain  areas  may                  be developed or may                  come on-stream |         o  retail                  throughputs        o  pre-production                  and operating costs        o  reserves                  and resources estimates        o  royalties                  and taxes payable         o  production                  life-of-field estimates         o  natural                  gas export capacity         o  future                  financing and capital activities (including purchases of Petro-          Canada                  common                  shares under the Company's normal course issuer             bid  (NCIB)                  program)        o  contingent                  liabilities (including potential exposure to losses related             to retail                  licensee agreements)        o  environmental                  matters         o  future                  regulatory approvals |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|         o  industry                  capacity        o  imprecise                  reserves estimates of recoverable quantities of oil, natural             gas  and                  liquids from resource plays and other sources not             currently                  classified as                  reserves        o  the                  effects of weather and climate conditions         o  the                  results of exploration and development drilling and related             activities                        o  the                  ability of suppliers to meet commitments         o  decisions                  or approvals from administrative tribunals        o  risks                  attendant with domestic and international oil and gas             operations                          o  expected                  rates of return |         o  general                  economic, market and business conditions         o  competitive                  action by other companies         o  fluctuations                  in oil and gas prices        o  refining                  and marketing margins        o  the                  ability to produce and transport crude oil and natural gas to            markets                          o  fluctuations                  in interest rates and foreign currency exchange rates         o  actions                  by governmental authorities, including changes in taxes,             royalty                  rates                  and resource-use strategies        o  changes                  in environmental and other regulations        o  international                  political events |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Petro-Canada        disclosure of reserves **

*"probable,"        "possible," "recoverable," *
*"potential        reserves and resources"*

|  **Definitions                  Petro-Canada uses**                                                                    |  **Reference**                                                                                                                                                                         |
|-----------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Proved                  oil and gas reserves (includes both proved developed and proved                  undeveloped) |  U.S.                  SEC reserves definition (Accounting Rules Regulation S-X 210.4-10,                  FASB-69)                                                               |
|  Unproved                  reserves, probable and possible reserves                                               |  CIM                  (Petroleum Society) definitions (Canadian Oil and Gas Evaluation                  Handbook,                  Vol. 1 Section 5)                              |
|  Contingent                  and prospective resources                                                            |  Society                  of Petroleum Engineers, World Petroleum Congress and American Association                  of Petroleum Geologist definitions (approved February 2000)  |

*"total        resources*

**Management's**
**      Discussion and Analysis**

*This      Management's      Discussion and Analysis (MD&A), dated effective as of February 12, 2007,      should be read in conjunction with the audited Consolidated Financial Statements      and Notes for the year ended December 31, 2006, included in the 2006 Financial      Report and the 2006 Annual Information Form (AIF). Financial data has been      prepared in accordance with Canadian generally accepted accounting principles      (GAAP), unless otherwise specified. All dollar values are Canadian dollars,      unless otherwise indicated. All oil and natural gas production and reserves      volumes are stated before deduction of royalties, unless otherwise indicated.      Graphs accompanying the text identify the Company's "value drivers," the key      measures of performance in each segment of Petro-Canada's business. A glossary      of financial terms and ratios can be found on page 92 of this      report.*

**NON**
**-GAAP      MEASURES**

**Business      Environment**

**BUSINESS      ENVIRONMENT IN 200**
**6**

----

**Commodity      Price Indicators and Exchange Rates**

| *(averages                for the years indicated)*                                   |     | **2006**  | 2005   | 2004   |
|---------------------------------------------------------------------------------------|----------|-----------|--------|--------|
|                                                                                  |     |      |   |   |
| Crude                oil price indicators *(per                bbl)*                  |     |      |   |   |
| Dated                Brent at Sullom Voe                                              | **US$**  | **65.14** | 54.38  | 38.21  |
| West                Texas Intermediate (WTI) at Cushing                               | **US$**  | **66.22** | 56.56  | 41.40  |
| WTI/Dated                Brent price differential                                     | **US$**  | **1.08**  | 2.18   | 3.19   |
| Dated                Brent/Mexican Maya price differential                            | **US$**  | **13.94** | 13.52  | 8.20   |
| Edmonton                Light                                                         | **Cdn$** | **73.23** | 69.22  | 52.78  |
| Edmonton                Light/WCS (heavy) price differential                          | **Cdn$** | **22.40** | 25.27  | N/A    |
| Natural                gas price indicators                                           |     |      |   |   |
| Henry                Hub *(per                MMBtu)*                                 | **US$**  | **7.26**  | 8.55   | 6.09   |
| AECO-C                spot *(per                Mcf)*                                 | **Cdn$** | **7.28**  | 8.84   | 7.08   |
| Henry                Hub/AECO basis differential *(per                MMBtu)*         | **US$**  | **1.09**  | 1.53   | 0.87   |
| New                York Harbor 3-2-1 refinery crack spread *(per                bbl)* | **US$**  | **9.80**  | 9.47   | 7.02   |
| US$                per Cdn$ exchange rate                                             | **US$**  | **0.88**  | 0.83   | 0.77   |

**COMPETITIVE      CONDITIONS**

----

**OUTLOOK      FOR BUSINESS ENVIRONMENT IN 200**
**7**

**ECONOMIC      SENSITIVITIES**

**Sensitivities      affecting net earnings**

| Factor1,                2                                                                                                             |   |  Change                (+) |                       | Annual                NetEarningsImpact         |   | Annual                Net Earnings Impact |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|----------------------------|-------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                                                  |   |                            |                       | *(millions                of Canadian dollars)* |   |  *($/share)*3                        |   |
| **Upstream**                                                                                                                          |   |                            |                       |                                            |   |                                      |   |
| Price                received for crude oil and liquids4                                                                              |   | $                               | 1.00/bbl                   |                                            | $      | 39                                        |   | $ | 0.08 |   |
| Price                received for natural gas                                                                                         |   | $                               | 0.25/Mcf                   |                                            |   | 32                                        |   |   | 0.06 |   |
| Exchange                rate: Cdn$/US$ refers to impact on upstream operating earnings from                continuing operations5     |   | $                               | 0.01                       |                                            |   | (33                                       | )      |   | (0.07 | ) |
| Crude                oil and liquids production *(barrels                per day - b/d)*                                              |   |                            | 1,000                b/d   |                                            |   | 9                                         |   |   | 0.02 |   |
| Natural                gas production *(million                cubic feet per day - MMcf/d)*                                          |   |                            | 10                MMcf/d   |                                            |   | 9                                         |   |   | 0.02 |   |
| **Downstream**                                                                                                                        |   |                            |                       |                                            |   |                                      |   |   |   |   |
| New                York Harbor 3-2-1 crack spread                                                                                     |   | $                               | 0.10                US/bbl |                                            |   | 5                                         |   |   | 0.01 |   |
| Light/heavy                crude price differential                                                                                   |   | $                               | 1.00                US/bbl |                                            |   | 6                                         |   |   | 0.01 |   |
| **Corporate**                                                                                                                         |   |                            |                       |                                            |   |                                      |   |   |   |   |
| Exchange                rate: Cdn$/US$ refers to impact of the revaluation of U.S.                dollar-denominated, long-term debt6 |   | $                               | 0.01                       |                                            | $      | 14                                        |   | $ | 0.03 |   |

----

**Business      Strategy**

**VALUE      PROPOSITION AND STRATEGY**

| §   | improving                the profitability of the                base business |
|--------------------|--------------------------------------------------------------------------------|

| -  | selecting              the right assets to              develop and then driving for first quartile performance1 |
|---------|------------------------------------------------------------------------------------------------------------------|

| §   | taking              a disciplined approach to profitable              growth |
|--------------------|------------------------------------------------------------------------------|

| -   | leveraging              existing assets |
|---------------|-----------------------------------------|

| -   | accessing              new opportunities with a focus on long-life              assets |
|---------------|----------------------------------------------------------------------------------------|

| -   | building              a balanced exploration program |
|---------------|------------------------------------------------------|

**EXECUTION      OF THE STRATEGY IN 2006**

**IMPROVING      BASE BUSINESS PROFITABILITY**

| §   | In                East Coast Oil, the partner-operated                platforms at Hibernia and White Rose had solid operational performance                in                2006. Petro-Canada operated Terra Nova had a challenging year when                a                planned maintenance turnaround was advanced and the turnaround to                complete                regulatory inspections and reliability improvements was extended.                In                November, oil production from the Terra Nova field resumed and the                Company                is targeting to achieve reliability2                above 90% over time. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                North American Natural Gas, Western Canada natural gas processing                facilities operated at reliability rates greater than 98%. In 2006,                the                business continued to be faced with industry-wide cost                pressures. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                Oil Sands, the MacKay River *in                situ*                plant operated at more than 92% reliability. The independently operated                Syncrude facility had varying reliability performance through the                year,                experiencing some delays bringing on the Stage III expansion mid-year,                but                providing increased production for the last four months of the                year. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | The                International business unit's production from Northwest Europe exceeded                expectations, led by high reliability and the early ramp up to full                production of the De Ruyter field. This strong performance was partially                offset by lower reservoir performance in Libya and Train 4 startup                problems in Trinidad and Tobago. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                the Downstream, solid operations at the Edmonton and Montreal refineries                resulted in a combined reliability index of 95. The Company completed                its                ultra-low sulphur diesel projects at its Edmonton and Montreal refineries,                thereby providing cleaner burning fuels to consumers. A fire at the                lubricants plant early in the year was a setback; however, the facility                operated with solid reliability for the remainder of the                year. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | Corporate                wide, the Company views safety and environmental performance as an                indicator of operational excellence. In 2006, total recordable injury                frequency (TRIF) was reduced by 25% and environmental exceedances                were                lowered by more than 20%, compared with 2005. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**LONG**
**-TERM      PROFITABLE GROWTH**
** **

| §   | In                East Coast Oil, discoveries were made in the west                and southwest sections of the White Rose field in 2006. Petro-Canada                and                its partners suspended negotiations with the Government of Newfoundland                and Labrador on the Hebron development; however, Petro-Canada continues                to                consider Hebron a quality asset. At Hibernia, government approval                of the                development plans for the Southern Extension were not received in                2006,                limiting additional production in 2007. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                North American Natural Gas, the business continued to focus on optimizing                the Company's conventional assets and on the transition to unconventional                production in Western Canada and the U.S. Rockies. Water treatment                permits                for wells in the U.S. Rockies were approved, permitting the ramp                up of                coal de-watering. While the Company is optimistic about its coal                bed                methane (CBM) opportunities in the U.S. Rockies, it also plans to                bring on                additional tight gas in areas like the Denver-Julesberg Basin. Progress                was also made on the longer term strategy of accessing new supplies,                with                the addition of acreage in Alaska and advancement of the proposed                Gros-Cacouna re-gasification                project. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                Oil Sands, Petro-Canada advanced the Fort Hills project with the                filing of                a regulatory application to construct and operate the Sturgeon Upgrader                near Edmonton. MacKay River production capacity was increased with                the                addition of a third well pad. The Company also increased *in                situ*                oil sands landholdings with the purchase of additional leases adjacent                to                MacKay River. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                International, Petro-Canada completed the sale of the Company's mature,                high-decline producing assets in Syria. Later in the year, the Company                completed an agreement to purchase a 90% interest in the Ash Shaer                and                Cherrife natural gas fields in central Syria, with future plans to                build                and operate a long-life natural gas development. In the Netherlands                sector                of the North Sea, the Company-operated De Ruyter project achieved                first                oil in September, while L5b-C achieved first natural gas in November.                In                September 2006, the Company furthered its balanced exploration program                by                securing drilling rigs for its 2007 and 2008 well programs. As well,                exploration acreage was added in Libya and the North Sea in 2006.                In the                United Kingdom (U.K.) sector of the North Sea, the Buzzard project                achieved first oil in early 2007. The field is expected to ramp up                to full                production in mid-2007. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | In                the Downstream, capacity at the lubricants plant was expanded by                25% in                2006. Construction to convert the Edmonton refinery to process 100%                bitumen-based feedstock commenced and, by year end, 18% of the project                was                completed. The Downstream also furthered work to evaluate the feasibility                of adding a coker to the Montreal refinery. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**BUSINESS      STRATEGY LOOKING FORWARD**

----

**Risk      Management**

**PETRO-CANADA'**
**S      RISK PROFILE**

**BUSINESS      RISKS**
** **

**Counterparties**

**Environmental      Regulations**

**Government      Regulations**

----

**Licen**
**ce      to Operate**

**Non**
**-Operated      Interests**

**Project      Execution**

----

**Reserves      Estimates**

**Reserves      Replacement**
** **

**MARKET      RIS**
**KS**

**Commodity      Prices**

**Foreign      Exchange**

**Interest      Rates**

----

*Derivative      Instruments*

**OPERATIONAL      RISKS**

**FOREIGN      RISKS**

----

**Consolidated Financial      Results**

**ANALYSIS      OF CONSOLIDATED EARNINGS AND CASH FLOW**

**Consolidated      Financial Results**

| *(millions                of Canadian dollars, unless otherwise indicated)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **2006** |       | 2005   |   | 2004      |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|--------|--------|-----------|--------|
| **Net                earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | **$**    | **1,740**  |   | **$**  | **1,791** |   | **$** | **1,757** |   |
| Net                earnings from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     | **152**    |   |   | 98        |   |   | 59 |   |
| **Net                earnings from continuing operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **$**    | **1,588**  |   | **$**  | **1,693** |   | **$** | **1,698** |   |
| Gain                on foreign currency translation                1                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     | **1**      |   |   | 73        |   |   | 63 |   |
| Unrealized                loss on Buzzard derivative contracts                2                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |     | **(240**   | **)**  |   | (562      | )      |   | (205 | ) |
| Gain                on sale of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     | **25**     |   |   | 34        |   |   | 11 |   |
| **Operating                earnings from continuing operations**** **3,                4                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | **$**    | **1,802**  |   | **$**  | **2,148** |   | **$** | **1,829** |   |
| Stock-based                compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     | **(31**    | **)**  |   | (66       | )      |   | (11 | ) |
| Insurance                proceeds (surcharges)                5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |     | **8**      |   |   | (75       | )      |   | 31 |   |
| Income                tax adjustments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     | **(185**   | **)**  |   | 22        |   |   | 13 |   |
| Oakville                closure costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     | **-**      |   |   | 2         |   |   | (46 | ) |
| **Operating                earnings from continuing operations adjusted for unusual                items**                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **$**    | **2,010**  |   | **$**  | **2,265** |   | **$** | **1,842** |   |
| Earnings                per share from continuing operations *(dollars)*  -                basic                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **$**    | **3.15**   |   | $      | 3.27      |   | $ | 3.21 |   |
|                      - diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     | **3.11**   |   |   | 3.22      |   |   | 3.17 |   |
| Earnings                per share *(dollars)                                         *-                basic                                                                                                                                                                                                                        |   | **$**    | **3.45**   |   | $      | 3.45      |   | $ | 3.32 |   |
|                                                                                     -                diluted |   |     | **3.41**   |   |   | 3.41      |   |   | 3.28 |   |
| Cash                flow from continuing operating activities before changes in non-cash                working capital 4,                6                                                                                                                                                                                                                                                                                                                                                                                                      |   |     | **3,687**  |   |   | 3,787     |   |   | 3,425 |   |
| Cash                flow from continuing operating activities before changes in non-cash                working capital per share *(dollars)*                                                                                                                                                                                                                                                                                                                                                                                                    |   |     | **7.32**   |   |   | 7.31      |   |   | 6.47 |   |
| Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     | **2,894**  |   |   | 2,913     |   |   | 2,580 |   |
| Cash                and cash equivalents 7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |     | **499**    |   |   | 789       |   |   | 170 |   |
| Average                capital employed 7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | **$**    | **12,868** |   | $      | 11,860    |   | $ | 10,533 |   |
| Return                on capital employed *(%)*7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     | **14.3**   |   |   | 16.0      |   |   | 17.5 |   |
| Operating                return on capital employed *(%)*7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |     | **15.0**   |   |   | 19.8      |   |   | 18.8 |   |
| Return                on equity *(%)*7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     | **17.5**   |   |   | 19.7      |   |   | 21.5 |   |

----

**2006      COMPARED WITH 2005**

*Operating      earnings from continuing operations adjusted for unusual items decreased 11%      to      $2,010 million in 2006, compared with $2,265 million in 2005.Lower      upstream production, declining realized natural gas prices and higher operating      and exploration costs were partially offset by stronger realized crude oil      prices. *

**QUARTERLY      INFORMATION**

**Consolidated      Quarterly Financial Results**

|                                                                                                                    |   | **2006**                     |      | 2005                         |
|-------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|------------------------------|
| (millions                of Canadian dollars, unless otherwise indicated)                                               |   | **Quarter                1** |      | **Quarter                2** |   | **Quarter                3** |   | **Quarter                4** |   | Quarter                1 |   | Quarter                2 |   | Quarter                3 |   | Quarter                4 |
| Total                revenue from continuing operations                                                                 |   | **$**                        | **4,188** |                         | **$** | **4,730** |   | **$** | **5,201** |   | **$** | **4,550** |   | $ | 3,275 |   | $ | 3,945 |   | $ | 4,721 |   | $ | 4,838 |
| Operating                earnings from continuing operations                                                            |   |                         | **202**   |                         |   | **532** |   |   | **597** |   |   | **471** |   |   | 427 |   |   | 476 |   |   | 597 |   |   | 648 |
| Net                earnings from continuing operations                                                                  |   |                         | **54**    |                         |   | **472** |   |   | **678** |   |   | **384** |   |   | 110 |   |   | 322 |   |   | 593 |   |   | 668 |
| Cash                flow from continuing operating activities before changes in non-cash                working capital |   |                         | **857**   |                         |   | **754** |   |   | **1,085** |   |   | **991** |   |   | 801 |   |   | 869 |   |   | 1,001 |   |   | 1,116 |
| Earnings                per share from continuing operations *(dollars)*                                                |   |                         |      |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     -                basic                                                                          |   | **$**                        | **0.11**  |                         | **$** | **0.93** |   | **$** | **1.36** |   | **$** | **0.77** |   | $ | 0.21 |   | $ | 0.62 |   | $ | 1.14 |   | $ | 1.29 |
|     -                diluted                                                                        |   | **$**                        | **0.10**  |                         | **$** | **0.92** |   | **$** | **1.34** |   | **$** | **0.76** |   | $ | 0.21 |   | $ | 0.61 |   | $ | 1.13 |   | $ | 1.28 |
| Earnings                per share *(dollars)*                                                                           |   |                         |      |                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     -                basic                                                                          |   | **$**                        | **0.40**  |                         | **$** | **0.93** |   | **$** | **1.36** |   | **$** | **0.77** |   | $ | 0.23 |   | $ | 0.66 |   | $ | 1.19 |   | $ | 1.38 |
|     -                diluted                                                                        |   | **$**                        | **0.40**  |                         | **$** | **0.92** |   | **$** | **1.34** |   | **$** | **0.76** |   | $ | 0.22 |   | $ | 0.66 |   | $ | 1.17 |   | $ | 1.36 |

----

**Liquidity and      Capital Resources**

**Summary      of Cash Flows**

| *(millions                of Canadian dollars)*                                                                                    |   | **2006** |       | 2005   |   | 2004      |       |
|------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|--------|--------|-----------|------------|
| **Cash                flow from continuing operating activities**                                                                  |   | **$**    | **3,608**  |   | $      | **3,783** | ** ** | **$** | **3,928** |   |
| Increase                (decrease) in non-cash working capital related to continuing operating                activities and other |   |     | **79**     |   |   | 4         |       |   | (503 | ) |
| **Cash                flow from continuing operations**                                                                            |   | **$**    | **3,687**  |   | **$**  | **3,787** | ** ** | **$** | **3,425** |   |
| Cash                flow from discontinued operating activities                                                                    |   |     | **15**     |   |   | 204       |       |   | 233 |   |
| Increase                (decrease) in non-cash working capital related to discontinued operating                activities         |   |     | **2**      |   |   | 41        |       |   | (29 | ) |
| **Cash                flow**                                                                                                       |   |     | **3,704**  |   |   | **4,032** |       |   | **3,629** |   |
| Net                cash inflows (outflows) from:                                                                                   |   |     |       |   |   |      |       |   |   |   |
|     investing                activities before changes in non-cash working capital                             |   |     | **(2,797** | **)**  |   | (3,595    | )          |   | (4,591 | ) |
|     financing                activities before changes in non-cash working capital                             |   |     | **(1,175** | **)**  |   | (10       | )          |   | (19 | ) |
| (Increase)                decrease in non-cash working capital                                                                     |   |     | **(22**    | **)**  |   | 192       |       |   | 516 |   |
| Increase                (decrease) in cash and cash equivalents                                                                    |   | **$**    | **(290**   | **)**  | $      | 619       |       | $ | (465 | ) |
| **Cash                and cash equivalents at end of year**                                                                        |   | **$**    | **499**    |   | **$**  | **789**   | ** ** | **$** | **170** |   |
| **Cash                and cash equivalents - discontinued operations**                                                             |   | **$**    | **-**      |   | **$**  | **68**    | ** ** | **$** | **206** |   |

**Financial      Ratios**

|                                                                   | **2006** | 2005   | 2004   |
|------------------------------------------------------------------------|----------|--------|--------|
| Interest                coverage from continuing operations *(times)*1 |     |   |   |
| Net                earnings basis                                      | **19.2** | 17.9   | 20.0   |
| EBITDAX                basis                                           | **27.0** | 25.4   | 29.2   |
| Cash                flow basis                                         | **27.4** | 28.9   | 30.4   |
| Debt-to-cash                flow *(times)*2                            | **0.8**  | 0.8    | 0.8    |
| Debt-to-debt                plus equity *(%)*                          | **21.7** | 23.5   | 22.8   |

----

**OPERATING      ACTIVITIES**

**INVESTING      ACTIVITIES**

**Capital      and Exploration Expenditures**

| *(millions                of Canadian dollars)*                        |   | 2007                Outlook                1 |      | **2006**   |   | 2005      |       | 2004   |      |
|------------------------------------------------------------------------|--------|----------------------------------------------|-----------|------------|--------|-----------|------------|--------|-----------|
| **Upstream**                                                           |   |                                         |      |       |   |      |       |   |      |
| North                American Natural Gas                              |   | $                                            | 780       |       | **$**  | **788**   |       | $      | 713       |   | $ | 666 |   |
| East                Coast Oil                                          |   |                                         | 210       |       |   | **256**   |       |   | 314       |   |   | 275 |   |
| Oil                Sands                                               |   |                                         | 770       |       |   | **377**   |       |   | 772       |   |   | 397 |   |
| International                2                                         |   |                                         | 865       |       |   | **760**   |       |   | 696       |   |   | 1,707 |  3 |
|                                                                   |   | **$**                                        | **2,625** | ** ** | **$**  | **2,181** | ** ** | **$**  | **2,495** | ** ** | **$** | **3,045** |   |
| **Downstream**                                                         |   |                                         |      |       |   |      |       |   |      |   |   |   |   |
| Refining                and Supply                                     |   | $                                            | 1,215     |       | **$**  | **1,038** |       | $      | 883       |   | $ | 656 |   |
| Sales                and Marketing                                     |   |                                         | 150       |       |   | **142**   |       |   | 108       |   |   | 171 |   |
| Lubricants                                                             |   |                                         | 25        |       |   | **49**    |       |   | 62        |   |   | 12 |   |
|                                                                   |   | **$**                                        | **1,390** | ** ** | **$**  | **1,229** | ** ** | **$**  | **1,053** | ** ** | **$** | **839** |   |
| **Shared                Services**                                     |   | **$**                                        | **35**    | ** ** | **$**  | **24**    | ** ** | **$**  | **12**    | ** ** | **$** | **9** |   |
| **Total                property, plant and equipment and exploration** |   | **$**                                        | **4,050** | ** ** | **$**  | **3,434** | ** ** | **$**  | **3,560** | ** ** | **$** | **3,893** |   |
| Deferred                charges and other assets                       |   |                                         | 10        |       |   | **50**    |       |   | 70        |   |   | 36 |   |
| Acquisition                of Prima Energy Corporation                 |   |                                         | -         |       |   | **-**     |       |   | -         |   |   | 644 |   |
| **Total                continuing operations**                         |   | **$**                                        | **4,060** | ** ** | **$**  | **3,484** | ** ** | **$**  | **3,630** | ** ** | **$** | **4,573** |   |
| Discontinued                operations                                 |   | $                                            | -         |       | **$**  | **1**     |       | $      | 46        |   | $ | 62 |   |
| **Total**                                                              |   | **$**                                        | **4,060** | ** ** | **$**  | **3,485** | ** ** | **$**  | **3,676** | ** ** | **$** | **4,635** |   |

----

**FINANCING      ACTIVITIES AND DIVIDENDS**

**Sources      of Capital Employed**

| *(millions                of Canadian dollars)*          |   | **2006** |       | 2005   |   | 2004   |
|----------------------------------------------------------|--------|----------|------------|--------|--------|--------|
| Short-term                notes payable                  |   | **$**    | **-**      |   | $      | -      |   | $ | 299 |
| Long-term                debt, including current portion |   |     | **2,894**  |   |   | 2,913  |   |   | 2,281 |
| Shareholders'                equity                      |   |     | **10,441** |   |   | 9,488  |   |   | 8,739 |
| **Total**                                                |   | **$**    | **13,335** |   | $      | 12,401 |   | $ | 11,319 |

**2006      Financing Activities**

*Returning      Cash to Shareholders*

| **Period**               | **Shares                Repurchased** | **Average                Price** | **Total                Cost** |
|--------------------------|---------------------------------------|----------------------------------|-------------------------------|
|                     | **2006**                              | 2005                             | **2006**                      | 2005 | **2006** | 2005 |
| Full                year | **19,778,400**                        | 8,333,400                        | **$51.10**                    | $41.54 | **$1,011                million** | $346                million |

----

*Off      Balance Sheet*

*Pension      Plans*

**Contractual      Obligations - Summary**

|                                                                      |   |                                        |
|---------------------------------------------------------------------------|--------|---------------------------------------------|
|                                                                      |   | **PAYMENTS                  DUE BY PERIOD** |
| *(millions                  of Canadian dollars)*                         |   |                                        | **Total   ** |   | 2007    |   | 2008-2009    |   | 2010-2011    |   | 2012                  and thereafter |
| Unsecured                  debentures and senior notes                  1 |   | **$**                                       | **6,260** |   | $ | 175 |   | $ | 351 |   | $ | 351 |   | $ | 5,383 |
| Capital                  lease obligations                  1             |   |                                        | **142** |   |   | 15 |   |   | 21 |   |   | 21 |   |   | 85 |
| Operating                  leases                                         |   |                                        | **1,149** |   |   | 492 |   |   | 246 |   |   | 174 |   |   | 237 |
| Transportation                  agreements                                |   |                                        | **1,741** |   |   | 215 |   |   | 358 |   |   | 238 |   |   | 930 |
| Product                  purchase/delivery obligations                  2 |   |                                        | **2,539** |   |   | 280 |   |   | 375 |   |   | 275 |   |   | 1,609 |
| Exploration                  work commitments                  3          |   |                                        | **132** |   |   | 88 |   |   | 36 |   |   | 8 |   |   | **-** |
| Asset                  retirement obligations                             |   |                                        | **3,481** |   |   | 67 |   |   | 106 |   |   | 126 |   |   | 3,182 |
| Other                  long-term obligations                  4, 5        |   |                                        | **2,756** |   |   | 197 |   |   | 853 |   |   | 393 |   |   | 1,313 |
| Total                  contractual obligations                            |   | **$**                                       | **18,200** |   | $ | 1,529 |   | $ | 2,346 |   | $ | 1,586 |   | $ | 12,739 |

----

**Upstream**

**Petro-Canada's      upstream operations consisted of four business segments in 2006: North American      Natural Gas, with current production in Western Canada and the U.S. Rockies;      East Coast Oil, with three major developments offshore Newfoundland and      Labrador; Oil Sands operations in Northeast Alberta; and International, where      the Company is active in three core areas: Northwest Europe, North Africa/Near      East and Northern Latin America. **

**NORTH      AMERICAN NATURAL GAS**

**BUSINESS      SUMMARY AND STRATEGY**

| §   | targeting                75% to 80% reserves replacement |
|--------------------|----------------------------------------------------------|

| §   | transitioning                further into unconventional gas                plays |
|--------------------|-----------------------------------------------------------------------------------|

| §   | optimizing                core properties in Western Canada and developing CBM and tight gas                in the                U.S. Rockies |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| §   | increasing                the focus on exploration |
|--------------------|----------------------------------------------------|

| §   | developing                liquefied natural gas (LNG) import capacity at Gros-Cacouna,                Quebec |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| §   | building                the northern resource base for long-term                growth |
|--------------------|----------------------------------------------------------------------------------------|

**North      American Natural Gas Financial Results**

| *(millions                of Canadian dollars)*                                                              |   | **2006** |      | 2005       |   | 2004    |
|--------------------------------------------------------------------------------------------------------------|--------|----------|-----------|------------|--------|---------|
| **Net                earnings**                                                                              |   | **$**    | **405**   | ** ** | **$**  | **674** | ** ** | **$** | **500** |
| Gain                on sale of assets                                                                        |   |     | **3**     |       |   | 14      |   |   | - |
| **Operating                earnings**                                                                        |   | **$**    | **402**   | ** ** | **$**  | **660** | ** ** | **$** | **500** |
| Insurance                premium surcharges                                                                  |   |     | **(1**    | **)**      |   | (4      | ) |   | - |
| Income                tax adjustments                                                                        |   |     | **6**     |       |   | 28      |   |   | 7 |
| **Operating                earnings adjusted for unusual items**                                             |   | **$**    | **397**   | ** ** | **$**  | **636** | ** ** | **$** | **493** |
| Cash                flow from operating activities before changes in non-cash working                capital |   | **$**    | **739**   |       | $      | 1,193   |   | $ | 882 |
| Expenditures                on property, plant and equipment and exploration                                 |   | **$**    | **788**   |       | $      | 713     |   | $ | 666 |
| Total                assets                                                                                  |   | **$**    | **4,151** |       | $      | 3,763   |   | $ | 3,477 |

----

**2006      COMPARED WITH 2005**

*North      American Natural Gas contributed $397 million of operating earnings      adjusted for unusual items, down considerably from $636 million in 2005.      Weak natural gas prices, lower Western Canada production, increased operating      costs, higher exploration expenses and higher depreciation, depletion and      amortization were partially offset by higher U.S. Rockies      production.*

**2006      OPERATING REVIEW AND STRATEGIC INITIATIVES**

**2006      Operating Review**

|                                                                  |   | **2006** |     | 2005   |   | 2004   |   |
|-----------------------------------------------------------------------|--------|----------|----------|--------|--------|--------|--------|
| Production                net *(MMcfe/d)*                             |   |     |     |   |   |   |   |
|     Western                Canada                 |   |     | **646**  |   |   | 704    |   |   | 764 |   |
|     U.S.                Rockies                   |   |     | **55**   |   |   | 52     |   |   | 23 |  1 |
| Total                North American Natural Gas production net        |   |     | **701**  |   |   | 756    |   |   | 787 |   |
| Western                Canada realized natural gas price *($/Mcf)*    |   | **$**    | **6.88** |   | $      | 8.55   |   | $ | 6.73 |   |
| U.S.                Rockies realized natural gas price *($/Mcf)*      |   | **$**    | **6.36** |   | $      | 7.17   |   | $ | 6.30 |   |
| Western                Canada operating and overhead costs *($/Mcfe)* |   | **$**    | **1.31** |   | $      | 1.10   |   | $ | 0.92 |   |
| U.S.                Rockies operating and overhead costs (*$/Mcfe*)   |   | **$**    | **2.29** |   | $      | 1.84   |   | $ | 2.00 |   |

*Western      Canada*

*U.S.      Rockies*

----

**2006      Strategic Initiatives**

----

**OUTLOOK**

**Production      expectations in 2007**

| -   | production                is expected to average about 660 MMcfe/d net of natural gas, crude                oil and NGL |
|---------------|------------------------------------------------------------------------------------------------------------------------------|

| -   | unconventional                gas production is expected to be about 25% of                production |
|---------------|-------------------------------------------------------------------------------------------------------|

**Action      plans in 2007**

| -   | drill                approximately 360 gross wells in Western Canada and approximately                300 gross wells in the U.S.                Rockies |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | advance                long-term opportunities in Northern Canada and                Alaska |
|---------------|---------------------------------------------------------------------------------------------|

| -   | advance                the re-gasification project at Gros-Cacouna to a project decision                point |
|---------------|---------------------------------------------------------------------------------------------------------------|

**Capital      spending plans in 2007**

| -   | approximately                $400 million for replacing reserves in Western Canada core                areas |
|---------------|--------------------------------------------------------------------------------------------------------------|

| -   | approximately                $230 million directed to exploration in Western Canada, the U.S.                Rockies                and the Far North |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | approximately                $115 million for growth opportunities in the U.S.                Rockies |
|---------------|-------------------------------------------------------------------------------------------------------|

| -   | approximately                $45 million for maintenance |
|---------------|----------------------------------------------------------|

*Link      to Petro-Canada's Corporate and Strategic Priorities*

|                                                                                                      | **2006                RESULTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **2007                GOALS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Delivering                Profitable Growth with a Focus on Operated, Long-Life                Assets** | § drilled                393 gross wells in Western Canada, including 291 wells in the Western                Canada Medicine Hat region1§ drilled                more than 280 gross wells, added 50,000 net acres of tight gas prone                land                and continued to increase CBM well de-watering in the U.S.                Rockies§ completed                regulatory hearing for the LNG facility at Gros-Cacouna§ increased                land position in Alaska to 1.5 million net acres of leased and option                lands | § transition                further into unconventional gas plays§ optimize                opportunities around core assets § double                U.S. Rockies production to 100 MMcfe/d net by year-end                2007§ shift                focus from developing around existing production to exploring in                new                areas§ receive                regulatory decision for the LNG facility at Gros-Cacouna§ advance                exploration prospects in the Mackenzie Delta/Corridor and                Alaska |
| **Driving                for First Quartile Operation of Our Assets**                                     | § achieved                better than 98% reliability at Western Canada facilities§ successfully                conducted major turnaround at the Hanlan gas plant with no air licence                exceedances                                                                                                                                                                                                                                                                                                                                                                           | § sustain                reliability performance§ continue                to leverage costs through strategic alliances and preferred                suppliers                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Continuing                to Work at Being A Responsible Company**                                 | § achieved                record TRIF in Western Canada, a 40% decrease compared with                2005§ improved                employee and contractor safety culture through behaviour-based safety                programs§ proactively                remediated and reclaimed old sites§ achieved                record low regulatory compliance exceedances                                                                                                                                                                                                   | § continue                to focus on TRIF and maintain low regulatory exceedances§ complete                the roll out of behaviour-based safety for employees and                contractors§ drive                for continuous improvement in contractor safety performance§ proactively                remediate and reclaim old sites                                                                                                                                                                                                                                   |

----

**EAST      COAST OIL**

**BUSINESS      SUMMARY AND STRATEGY**

| §   | delivering                top quartile operating performance |
|--------------------|--------------------------------------------------------------|

| §   | sustaining                profitable production through reservoir extensions and add-ons |
|--------------------|------------------------------------------------------------------------------------------|

| §   | pursuing                high potential development projects |
|--------------------|-------------------------------------------------------------|

**East      Coast Oil Financial Results**

| *(millions                of Canadian dollars)*                                                              |   | **2006** |      | 2005       |   | 2004    |       |
|--------------------------------------------------------------------------------------------------------------|--------|----------|-----------|------------|--------|---------|------------|
| **Net                earnings and operating earnings**                                                       |   | **$**    | **934**   | ** ** | **$**  | **775** | ** ** | **$** | **711** |   |
| Insurance                premium surcharges                                                                  |   |     | **(9**    | **)**      |   | (25     | )          |   | - |   |
| Income                tax adjustments                                                                        |   |     | **37**    |       |   | (2      | )          |   | 3 |   |
| Terra                Nova insurance proceeds                                                                 |   |     | **22**    |       |   | 2       |       |   | 31 |   |
| **Operating                earnings adjusted for unusual items**                                             |   | **$**    | **884**   | ** ** | **$**  | **800** | ** ** | **$** | **677** |   |
| Cash                flow from operating activities before changes in non-cash working                capital |   | **$**    | **1,163** |       | $      | 1,062   |       | $ | 993 |   |
| Expenditures                on property, plant and equipment and exploration                                 |   | **$**    | **256**   |       | $      | 314     |       | $ | 275 |   |
| Total                assets                                                                                  |   | **$**    | **2,465** |       | $      | 2,442   |       | $ | 2,265 |   |

**2006      COMPARED WITH 2005**

*East      Coast Oil contributed $884 million of operating earnings adjusted for      unusual items, up 11% from $800 million in 2005. Strong realized prices      were partially offset by lower production and increased operating      expenses.*

**2006      OPERATING REVIEW AND STRATEGIC INITIATIVES**

**2006        Operating Review**

----

|                                                  |   | **2006** |       | 2005   |   | 2004   |
|-------------------------------------------------------|--------|----------|------------|--------|--------|--------|
| Production                net *(b/d)*                 |   |     |       |   |   |   |
|     Hibernia                      |   |     | **35,700** |   |   | 39,800 |   |   | 40,800 |
|     Terra                Nova     |   |     | **12,800** |   |   | 33,700 |   |   | 37,400 |
|     White                Rose     |   |     | **24,200** |   |   | 1,800  |   |   | - |
| Total                East Coast Oil production net    |   |     | **72,700** |   |   | 75,300 |   |   | 78,200 |
| Average                realized crude price *($/bbl)* |   | **$**    | **71.12**  |   | $      | 63.15  |   | $ | 48.39 |
| Operating                and overhead costs *($/bbl)* |   | **$**    | **7.71**   |   | $      | 4.52   |   | $ | 2.89 |

**2006      Strategic Initiatives**

----

**OUTLOOK**

**Production      expectations in 2007**

| -   | production                is expected to average 87,000 b/d net, reflecting a 30-day planned                turnaround at Hibernia and a 16-day planned turnaround at White                Rose |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Growth      plans**

| -   | achieve                90% operating performance at Terra                Nova |
|---------------|-------------------------------------------------------------------------------|

| -   | continue                delineation drilling of Terra Nova's Far East                Block |
|---------------|--------------------------------------------------------------------------------------------|

| -   | conduct                delineation drilling and preliminary analysis of development options                for                the West White Rose Block at the White Rose                field |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | advance                Hibernia Southern Extension development plan discussions with the                Government of Newfoundland and                Labrador |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | complete                FEED on the South White Rose Extension. Project sanction will be                subject                to regulatory approval |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | complete                FEED and submit development plan to the C-NLOPB on the North Amethyst                discovery at White Rose with project sanction, subject to regulatory                approval, by the end of 2007 |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Capital      spending plans in 2007**

| -   | approximately                $210 million is expected to be spent on drilling to replace reserves                at                Hibernia, Terra Nova and White Rose, and for delineation of Terra                Nova's                Far East Block |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Link      to Petro-Canada's Corporate and Strategic Priorities*

|                                                                                                              | **2006                  RESULTS**                                                                                                                                                                                                                                                                                                                                                                                                                                         | **2007                  GOALS**                                                                                                                                                                                                                                                                                                                                   |
|-------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Delivering                    Profitable Growth with a Focus on Operated, Long-Life                    Assets** | § ramped                  up White Rose production, averaging 88,000 b/d gross (24,200 b/d                  net)§ completed                  drilling the West White Rose O-28 and North Amethyst K-15 delineation                  wells at White Rose                                                                                                                                                                                               | § increase                  reliability at Terra Nova§ advance                  in-field Hibernia growth prospects§ delineate                  West White Rose§ advance                  development plans for South White Rose Extension, North Amethyst                  and West                  White Rose prospects |
| **Driving                    for First Quartile Operation of Our Assets**                                         | § completed                  Terra Nova turnaround for regulatory compliance and to improve                  reliability§ saw                  operating and overhead costs increase, reflecting turnaround costs                  at                  Terra Nova                                                                                                                                                                                     | § conduct                  a 30-day turnaround scheduled at Hibernia for regulatory                  compliance§ receive                  regulatory approval to increase annual production from SeaRose                  FPSO at                  White Rose§ complete                  16-day turnaround at White Rose            |
| **Continuing                    to Work at Being A Responsible Company**                                     | § saw                  28% decrease in TRIF, compared with 2005§ accepted                  responsibility for an improper discharge of oil from Terra Nova                  in 2004,                  contributing $220,000 of the $290,000 fine to positive environmental                  projects§ improved                  the produced water system on Terra Nova, resulting in no regulatory                  compliance exceedances | § further                  reduce TRIF§ apply                  lessons learned from oily water discharge to prevent future                  incidents§ maintain                  zero regulatory exceedances                                                                                                                        |

----

**OIL      SANDS**

**BUSINESS      SUMMARY AND STRATEGY**

*in      situ*
*in      situ*

| §   | phased                and integrated development of reserves to incorporate knowledge                gained |
|--------------------|-------------------------------------------------------------------------------------------------------------|

| §   | disciplined                capital investment to ensure long-life                projects create value |
|--------------------|--------------------------------------------------------------------------------------------------------|

| §   | a                staged approach to development of capital-intensive Oil Sands projects                to                allow rigorous cost management and the opportunity to benefit from                evolving technology |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Oil      Sands Financial Results**

| *(millions                of Canadian dollars)*                                                              |   | **2006** |      | 2005       |   | 2004    |
|--------------------------------------------------------------------------------------------------------------|--------|----------|-----------|------------|--------|---------|
| **Net                earnings**                                                                              |   | **$**    | **245**   | ** ** | **$**  | **115** | ** ** | **$** | **120** |
| Gain                on sale of assets                                                                        |   |     | **-**     |       |   | 3       |   |   | - |
| **Operating                earnings**                                                                        |   | **$**    | **245**   | ** ** | **$**  | **112** | ** ** | **$** | **120** |
| Insurance                premium surcharges                                                                  |   |     | **(3**    | **)**      |   | (7      | ) |   | - |
| Income                tax adjustments                                                                        |   |     | **44**    |       |   | -       |   |   | 2 |
| Syncrude                insurance proceeds                                                                   |   |     | **12**    |       |   | -       |   |   | - |
| **Operating                earnings adjusted for unusual items**                                             |   | **$**    | **192**   | ** ** | **$**  | **119** | ** ** | **$** | **118** |
| Cash                flow from operating activities before changes in non-cash working                capital |   | **$**    | **497**   |       | $      | 380     |   | $ | 332 |
| Expenditures                on property, plant and equipment and exploration                                 |   | **$**    | **377**   |       | $      | 772     |   | $ | 397 |
| Total                assets                                                                                  |   | **$**    | **2,885** |       | $      | 2,623   |   | $ | 1,883 |

**2006      COMPARED WITH 2005**

*Oil      Sands contributed $192 million of operating earnings adjusted for unusual items,      up 61% from $119 million in 2005. Higher realized prices and production were      partially offset by increased operating costs.*

**2006      OPERATING REVIEW AND STRATEGIC INITIATIVES**

----

**2006      Operating Review**

|                                                               |   | **2006** |       | 2005   |   | 2004   |
|--------------------------------------------------------------------|--------|----------|------------|--------|--------|--------|
| Production                net *(b/d)*                              |   |     |       |   |   |   |
| Syncrude                                                           |   |     | **31,000** |   |   | 25,700 |   |   | 28,600 |
| MacKay                River                                        |   |     | **21,200** |   |   | 21,300 |   |   | 16,600 |
| Total                Oil Sands production net                      |   |     | **52,200** |   |   | 47,000 |   |   | 45,200 |
| Syncrude                realized crude price *($/bbl)*             |   | **$**    | **72.13**  |   | $      | 70.41  |   | $ | 52.40 |
| MacKay                River realized bitumen price*($/bbl)*        |   | **$**    | **28.93**  |   | $      | 18.53  |   | $ | 18.37 |
| Syncrude                operating and overhead costs *($/bbl)*     |   | **$**    | **30.00**  |   | $      | 31.90  |   | $ | 21.13 |
| MacKay                River operating and overhead costs *($/bbl)* |   | **$**    | **17.83**  |   | $      | 17.06  |   | $ | 21.87 |

**2006      Strategic Initiatives**

*in      situ*

*in      situ*

*in      situ*

----

**OUTLOOK**

**Production      expectations in 2007**

| -   | Petro-Canada's                share of Syncrude production is expected to average 34,000 b/d                net |
|---------------|----------------------------------------------------------------------------------------------------------------------|

| -   | MacKay                River bitumen production is expected to average 24,000 b/d                net |
|---------------|----------------------------------------------------------------------------------------------------------|

**Growth      plans**

| -   | work                to improve reliability at Syncrude |
|---------------|--------------------------------------------------------|

| -   | increase                water handling capacity and bitumen production at MacKay                River |
|---------------|-------------------------------------------------------------------------------------------------------|

| -   | advance                the Fort Hills oil sands mining and upgrading                project |
|---------------|---------------------------------------------------------------------------------------------|

| -   | progress                SAGD technology through research and                development |
|---------------|-----------------------------------------------------------------------------------------|

**Capital      spending plans in 2007**

| -   | approximately                $550 million to advance the Fort Hills development and the MacKay                River                expansion |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| -   | approximately                $130 million to enhance existing operations at Syncrude and MacKay                River |
|---------------|----------------------------------------------------------------------------------------------------------------------|

| -   | approximately                $60 million to replace reserves through ongoing pad development at                MacKay                River |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| -   | approximately                $30 million to advance development of *in                situ*                oil sands leases |
|---------------|-----------------------------------------------------------------------------------------------------------------------------|

*Link      to Petro-Canada's Corporate and Strategic Priorities*

|                                                                                                                | **2006****RESULTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **2007                GOALS**                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Delivering                  Profitable Growth with a Focus on Operated, Long-Life                  Assets**  | § selected                Sturgeon County for Fort Hills upgrader location§ submitted                commercial application for Sturgeon Upgrader§ acquired                additional oil sands leases adjacent to MacKay River and the existing                Fort                Hills leases§ Syncrude                Stage III expansion came on-stream                                                                                                                                                                    | § complete                Fort Hills DBM and initial cost estimate, and initiate FEED§ receive                regulatory decision on MacKay River expansion project§ continue                ramp up of Syncrude Stage III expansion § complete                MacKay River water handling capacity upgrade and tie-in a fourth                well pad                so that production can increase in 2008 |
| **Driving                  for First Quartile Operation of Our Assets**                                        | § saw                Syncrude                non-fuel unit operating costs decrease by 5%, compared with                2005§ saw                MacKay River unit operating costs increase by 5%, compared with 2005,                reflecting Alberta business environment § saw                Syncrude enter into a Management Services agreement with Imperial                Oil                Resources for operational, technical and business services§ maintained                reliability at MacKay River at 92% | § decrease                MacKay River non-fuel unit operating costs by 10%, compared with                2006§ decrease                Syncrude non-fuel unit operating costs by 10%, compared with                2006§ sustain                MacKay River reliability at greater than 90%                                                                                                                            |
| **Continuing                  to Work at Being A Responsible Company**                                    | § TRIF                decreased by 46%, compared with 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | § maintain                focus on TLM and Zero-Harm§ ensure                regulators, First Nations and other key stakeholders affected by                major                projects are properly consulted and                engaged                                                                                                                                                                                        |

----

**INTERNATIONAL**

**BUSINESS      SUMMARY AND STRATEGY**

| §   | optimize                and leverage existing assets |
|--------------------|------------------------------------------------------|

| §   | seek                out new, long-life                opportunities |
|--------------------|---------------------------------------------------------------------|

| §   | execute                a substantial and balanced exploration                program |
|--------------------|--------------------------------------------------------------------------------------|

**International      Financial Results**

| *(millions                of Canadian dollars)*                                                                         |   | **2006** |      | 2005       |   | 2004     |       |
|-------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|------------|--------|----------|------------|
| **Net                earnings (loss) from continuing operations**                                                       |   | **$**    | **(206**  | **)**      | **$**  | **(109** | **)**      | **$** | **116** |   |
| Unrealized                loss on Buzzard derivative contracts                                                          |   |     | **(240**  | **)**      |   | (562     | )          |   | (205 | ) |
| Gain                on sale of assets                                                                                   |   |     | **12**    |       |   | -        |       |   | 8 |   |
| **Operating                earnings from continuing operations**                                                        |   | **$**    | **22**    | ** ** | **$**  | **453**  | ** ** | **$** | **313** |   |
| Insurance                premium surcharges                                                                             |   |     | **(8**    | **)**      |   | (18      | )          |   | - |   |
| Scott                insurance proceeds                                                                                 |   |     | **3**     |       |   | -        |       |   | - |   |
| Income                tax adjustments1                                                                                  |   |     | **(242**  | **)**      |   | 29       |       |   | - |   |
| **Operating                earnings from continuing operations adjusted for unusual                items**              |   | **$**    | **269**   | ** ** | **$**  | **442**  | ** ** | **$** | **313** |   |
| Cash                flow from continuing operating activities before changes in non-cash                working capital |   | **$**    | **716**   |       | $      | 770      |       | $ | 768 |   |
| Expenditures                on property, plant and equipment and exploration from continuing                operations  |   | **$**    | **760**   |       | $      | 696      |       | $ | 1,707 |   |
| Total                assets from continuing operations                                                                  |   | **$**    | **6,031** |       | $      | 4,856    |       | $ | 4,969 |   |

**2006      COMPARED WITH 2005**

*International      contributed $269 million of operating earnings from continuing operations      adjusted for unusual items, down 39% from $442 million in 2005. Lower      production, tax adjustments in Northwest Europe, higher exploration,      depreciation, depletion and amortization costs, and foreign exchange losses      were      partially offset by higher realized prices. In 2006, cash flow from continuing      operating activities before changes in non-cash working capital remained strong      at $716 million, compared with $770 million in 2005.*

----

**2006      OPERATING REVIEW AND STRATEGIC INITIATIVES**

**2006      Operating Review**

|                                                                                         |   | **2006**    |        | 2005   |    | 2004        |
|----------------------------------------------------------------------------------------------|--------|-------------|-------------|--------|---------|-------------|
| Production                from continuing operations net *(boe/d)*                           |   |        |        |   |    |        |
| Northwest                Europe                                                              |   |        | **43,700**  |   |    | 44,600      |   |   | 54,600 |
| North                Africa/Near East                                                        |   |        | **49,400**  |   |    | 49,800      |   |   | 50,900 |
| Northern                Latin America                                                        |   |        | **10,500**  |   |    | 11,900      |   |   | 11,900 |
| Total                International production net                                            |   |        | **103,600** |   |    | 106,300     |   |   | 117,400 |
| Average                realized crude oil and NGL price from continuing operations *($/bbl)* |   |  **$** | **72.69**   |   |  $ | 65.93  |   |  $ | 49.22  |
| Average                realized natural gas price from continuing operations *($/Mcf)*       |   | **$**       | **7.64**    |   | $       | 7.13        |   | $ | 5.42 |
| Operating                and overhead costs from continuing operations *($/boe)*             |   | **$**       | **7.61**    |   | $       | 7.60        |   | $ | 7.13 |

*Northwest      Europe*

----

*North      Africa/Near East*

----

*Northern      Latin America*

**OUTLOOK**

**Production      expectations in 2007**

| -   | North                Africa/Near East oil and gas production to average 49,000 boe/d                net |
|---------------|--------------------------------------------------------------------------------------------------------------|

| -   | Northwest                Europe oil and gas production to average 85,000 boe/d                net |
|---------------|--------------------------------------------------------------------------------------------------------|

| -   | Northern                Latin America natural gas production to average 66 MMcf/d                net |
|---------------|-----------------------------------------------------------------------------------------------------------|

**Growth      plans**

| -   | advance                Saxon development for 2007 startup |
|---------------|-----------------------------------------------------------|

| -   | execute                the exploration program in Northern Latin America, Northwest Europe                and                North Africa/Near East |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | advance                natural gas development in Syria |
|---------------|---------------------------------------------------------|

| -   | continue                to pursue new business opportunities in LNG |
|---------------|---------------------------------------------------------------------|

**Capital      spending plans in 2007**

| -   | approximately                $340 million for reserves replacement spending in core                areas |
|---------------|----------------------------------------------------------------------------------------------------------|

| -   | approximately                $275 million primarily for new growth projects in Syria and the North                Sea |
|---------------|-----------------------------------------------------------------------------------------------------------------------|

| -   | approximately                $250 million for exploration and new                ventures |
|---------------|-------------------------------------------------------------------------------------------|

----

*Link      to Petro-Canada's Corporate and Strategic Priorities*

|                                                                                                             | **2006                  RESULTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **2007                  GOALS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Delivering                  Profitable Growth****with                  a Focus on Operated, Long-Life Assets** | § achieved                  first production at De Ruyter and L5b-C § closed                  sale of mature Syrian producing assets§ acquired                  90% interest and became operator of the Ash Shaer and Cherrife                  gas project                  **§** secured                  drilling rigs for 2007 and 2008 exploration programs§ awarded                  Sirte licence in Libyan third round EPSA IV auction                                                                                                                                         | § ramp                  up Buzzard and L5b-C to full production§ achieve                  first production at Saxon in the U.K. sector of the North Sea by                  year end                  § participate                  in up to a 17-well exploration drilling program, (depending on                  rig arrival                  dates) with balanced risk profile over the next 18 months§ commence                  field appraisal and project design activities on Ash Shaer and                  Cherrife                  development§ establish                  a Libyan exploration program on the newly acquired Sirte exploration                  block§ actively                  pursue LNG supply opportunities |
| **Driving                  for First Quartile Operation of Our Assets**                                          | § achieved                  more than 95% uptime on Hanze platform § achieved                  full production capacity at De Ruyter platform ahead of schedule                  § seconded                  specialists to support Libyan operations § improved                  Scott platform reliability and uptime by 33%, compared with                  2005                                                                                                                                                                                                                         | § maintain                  excellent reliability at De Ruyter platform§ optimize                  production capacity on Triton area assets by implementing recommendations                  from de-bottlenecking study                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **Continuing                  to Work at Being A Responsible Company**                                      | § had                  nine recordable injuries in 2006, compared with 14 in 2005, but                  TRIF rose                  to 0.8 in 2006, compared with 0.62 in 2005, reflecting fewer person                  hours                  worked§ achieved                  five years of continuous operations on the Hanze platform without                  a                  lost-time incident§ provided                  safety training and equipment to fishermen in Trinidad and Tobago                  as part                  of community liaison activities during seismic operations | § maintain                  focus on TRIF and increase leadership visibility of Zero-Harm                  effort§ reduce                  oil in produced water at Triton§ collaborate                  with local stakeholders in Trinidad and Tobago to minimize impact                  of                  offshore drilling                                                                                                                                                                                                                                                                                                                                                                                                                                             |

*Discontinued      Operations*

----

**Discontinued      Financial Results**

| *(millions                of Canadian dollars, unless otherwise noted)*                                      |   | **2006** |      | 2005       |   | 2004    |
|--------------------------------------------------------------------------------------------------------------|--------|----------|-----------|------------|--------|---------|
| **Net                earnings from discontinued operations**                                                 |   | **$**    | **152**   | ** ** | **$**  | **98**  | ** ** | **$** | **59** |
| Gain                on sale of assets                                                                        |   |     | **134**   |       |   | -       |   |   | **-** |
| **Operating                earnings from discontinued operations**                                           |   | **$**    | **18**    | ** ** | **$**  | **98**  | ** ** | **$** | **59** |
| Insurance                premium surcharges                                                                  |   |     | **-**     |       |   | (2      | ) |   | **-** |
| **Operating                earnings from discontinued operations adjusted for unusual                items** |   | **$**    | **18**    | ** ** | **$**  | **100** | ** ** | **$** | **59** |
| Cash                flow from operating activities before changes in non-cash working                capital |   | **$**    | **17**    |       | $      | 245     |   | $ | 204 |
| Expenditures                on property, plant and equipment and exploration                                 |   | **$**    | **1**     |       | $      | 46      |   | $ | 62 |
| Total                assets                                                                                  |   | **$**    | **-**     |       | $      | 648     |   | $ | 985 |
| Total                volumes *(boe/d)*                                                                       |   |     |      |       |   |    |   |   |   |
| -                net before royalties                                                                        |   |     | **5,500** |       |   | 70,100  |   |   | 79,200 |
| -                net after royalties                                                                         |   |     | **1,400** |       |   | 21,000  |   |   | 24,200 |
| Average                realized crude oil and NGL price *($/bbl)*                                            |   | **$**    | **71.84** |       | $      | 61.82   |   | $ | 46.70 |
| Average                realized natural gas price *($/Mcf)*                                                  |   | **$**    | **7.94**  |       | $      | 6.43    |   | $ | 4.81 |

**UPSTREAM      PRODUCTION**

**2006      COMPARED WITH 2005**

*In      2006,Petro-Canada's      production from continuing operations of crude oil, NGL and natural gas averaged      345,400 boe/d net, down from 354,600 boe/d net in 2005.*

| **2006                Average Daily Production Volumes Net**                 | **North                American Natural Gas** | **East****Coast                Oil** | **Oil                Sands** | **International** | **Total**   |
|------------------------------------------------------------------------------|-----------------------------------------------|--------------------------------------|------------------------------|-------------------|-------------|
| **Crude                oil, NGL and bitumen** *(b/d)*                   |                                          |                                 |                         |              |        |
|     -                net                before royalties | **14,200**                                    | **72,700**                           | **21,200**                   | **82,600**        | **190,700** |
|     -                net                after royalties  | **10,800**                                    | **68,500**                           | **20,800**                   | **77,900**        | **178,000** |
| **Synthetic                crude oil***(b/d)*                                |                                          |                                 |                         |              |        |
|     -                net                before royalties | **-**                                         | **-**                                | **31,000**                   | **-**             | **31,000**  |
|     -                net                after royalties  | **-**                                         | **-**                                | **28,000**                   | **-**             | **28,000**  |
| **Natural                gas** *(MMcf/d)*                               |                                          |                                 |                         |              |        |
|     -                net                before royalties | **616**                                       | **-**                                | **-**                        | **126**           | **742**     |
|     -                net                after royalties  | **489**                                       | **-**                                | **-**                        | **95**            | **584**     |
| **Continuing                operations** *(boe/d)*                      |                                          |                                 |                         |              |        |
|     -                net                before royalties | **116,900**                                   | **72,700**                           | **52,200**                   | **103,600**       | **345,400** |
|     -                net                after royalties  | **92,300**                                    | **68,500**                           | **48,800**                   | **93,700**        | **303,300** |
| **Discontinued                operations** *(boe/d)*                    |                                          |                                 |                         |              |        |
|     -                net                before royalties | **-**                                         | **-**                                | **-**                        | **5,500**         | **5,500**   |
|     -                net                after royalties  | **-**                                         | **-**                                | **-**                        | **1,400**         | **1,400**   |
| **Total                volumes** *(boe/d)*                              |                                          |                                 |                         |              |        |
|     -                net                before royalties | **116,900**                                   | **72,700**                           | **52,200**                   | **109,100**       | **350,900** |
|     -                net                after royalties  | **92,300**                                    | **68,500**                           | **48,800**                   | **95,100**        | **304,700** |

----

| **2005                Average Daily Production Volumes Net**                 | **North                American Natural Gas** | **East****Coast                Oil** | **Oil                Sands** | **International** | **Total** |
|------------------------------------------------------------------------------|-----------------------------------------------|--------------------------------------|------------------------------|-------------------|-----------|
| **Crude                oil, NGL and bitumen** *(b/d)*                   |                                          |                                 |                         |              |      |
|     -                net                before royalties | 14,700                                        | 75,300                               | 21,300                       | 83,500            | 194,800   |
|     -                net                after royalties  | 11,200                                        | 69,600                               | 21,100                       | 77,700            | 179,600   |
| **Synthetic                crude oil***(b/d)*                                |                                          |                                 |                         |              |      |
|     -                net                before royalties | -                                             | -                                    | 25,700                       | -                 | 25,700    |
|     -                net                after royalties  | -                                             | -                                    | 25,400                       | -                 | 25,400    |
| **Natural                gas** *(MMcf/d)*                               |                                          |                                 |                         |              |      |
|     -                net                before royalties | 668                                           | -                                    | -                            | 138               | 806       |
|     -                net                after royalties  | 512                                           | -                                    | -                            | 95                | 607       |
| **Continuing                operations** *(boe/d)*                      |                                          |                                 |                         |              |      |
|     -                net                before royalties | 126,000                                       | 75,300                               | 47,000                       | 106,300           | 354,600   |
|     -                net                after royalties  | 96,500                                        | 69,600                               | 46,500                       | 93,500            | 306,100   |
| **Discontinued                operations** *(boe/d)*                    |                                          |                                 |                         |              |      |
|     -                net                before royalties | -                                             | -                                    | -                            | 70,100            | 70,100    |
|     -                net                after royalties  | -                                             | -                                    | -                            | 21,000            | 21,000    |
| **Total                volumes** *(boe/d)*                              |                                          |                                 |                         |              |      |
|     -                net                before royalties | 126,000                                       | 75,300                               | 47,000                       | 176,400           | 424,700   |
|     -                net                after royalties  | 96,500                                        | 69,600                               | 46,500                       | 114,500           | 327,100   |

**2007      Production Outlook**

**Consolidated        Production from Continuing Operations Net**

| *(thousands              of boe/d)*                                            | **2007                Outlook*****(+/-)*** |
|--------------------------------------------------------------------------------|--------------------------------------------|
| **North                American Natural Gas**                                  |                                       |
|     Natural                gas                             | **97**                                     |
|     Liquids                                                | **13**                                     |
| **East                Coast Oil**                                              | **87**                                     |
| **Oil                Sands**                                                   |                                       |
|     Syncrude                                               | **34**                                     |
|     MacKay                River                            | **24**                                     |
| **International**                                                              |                                       |
|     North                Africa/Near East                1 | **49**                                     |
|     Northwest                Europe                        | **85**                                     |
|     Northern                Latin                America   | **11**                                     |
| **Total                continuing operations**                                 | **390                - 420**               |

----

**Reserves**
**      Summary**

|                                                                          |   |                              |   |                                        |   |                                                  |   |                                              |   |                                                      |   |                                          |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------------------|--------|-------------------------------------------------------|--------|---------------------------------------------------|--------|-----------------------------------------------------------|--------|-----------------------------------------------|--------|
| **December                31, 2006****Consolidated                Reserves**1 |   | **Proved                Liquids** |   | **Proved                Gas**               |   | **Proved                Reserves Additions Liquids**3 |   | **Proved                Reserves Additions Gas**3 |   | **Proved**2                                               |   | **Proved                Reserves Additions**3 |   |
| *(working                interest before royalties)*                          |   | *(MMbbls)*                        |   | *(Billion                cubic feet - Bcf)* |   | *(MMbbls)*                                            |   | *(Bcf)*                                           |   | *(Million                bbls of oil equivalent - MMboe)* |   | *(MMboe)*                                     |   |
| North                American Natural Gas                                     |   |                              | 47     |                                        |   | 1,645                                                 |   |                                              | 3      |                                                      |   | 44                                            |   |   | 321 |   |   | 10 |   |
| East                Coast Oil                                                 |   |                              | 123    |                                        |   | -                                                     |   |                                              | 18     |                                                      |   | -                                             |   |   | 123 |   |   | 18 |   |
| Oil                Sands 4                                                    |   |                              | 502    |                                        |   | -                                                     |   |                                              | 179    |                                                      |   | -                                             |   |   | 502 |   |   | 179 |   |
| International                5                                                |   |                              | 278    |                                        |   | 300                                                   |   |                                              | (35    | )                                                         |   | (24                                           | )      |   | 328 |   |   | (39 | ) |
| Total                                                                         |   |                              | 950    |                                        |   | 1,945                                                 |   |                                              | 165    |                                                      |   | 20                                            |   |   | 1,274 |   |   | 168 |   |
| Production                net                                                 |   |                              | 81     |                                        |   | 270                                                   |   |                                              |   |                                                      |   |                                          |   |   |   |   |   | 126 |   |
| Proved                replacement ratio 6,                7                   |   |                              |   |                                        |   |                                                  |   |                                              |   |                                                      |   |                                          |   |   |   |   |   | 134 | % |

| **December                31, 2006**                            |     |   |
|-----------------------------------------------------------------|----------|--------|
| Five-year                proved plus probable replacement ratio | **175%** |   |
| Proved                plus probable reserves life index 8,9     | **17.3** |   |

----

**Downstream**

**BUSINESS      SUMMARY AND STRATEGY**

| §   | achieving                and maintaining first quartile operating performance in all                areas |
|--------------------|-----------------------------------------------------------------------------------------------------------|

| §   | advancing                Petro-Canada                as the "brand of choice" for Canadian gasoline                consumers |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| §   | increasing                sales of high margin specialty                lubricants |
|--------------------|------------------------------------------------------------------------------------|

----

**Downstream      Financial Results**

| *(millions                of Canadian dollars)*                                                              |   | **2006** |      | 2005       |   | 2004    |       |
|--------------------------------------------------------------------------------------------------------------|--------|----------|-----------|------------|--------|---------|------------|
| **Net                earnings**                                                                              |   | **$**    | **473**   | ** ** | **$**  | **415** | ** ** | **$** | **314** |   |
| Gain                on sale of assets                                                                        |   |     | **10**    |       |   | 17      |       |   | 4 |   |
| **Operating                earnings**                                                                        |   | **$**    | **463**   | ** ** | **$**  | **398** | ** ** | **$** | **310** |   |
| Insurance                premium surcharges                                                                  |   |     | **(8**    | **)**      |   | (23     | )          |   | - |   |
| Income                tax adjustments                                                                        |   |     | **41**    |       |   | (2      | )          |   | 2 |   |
| Oakville                closure costs                                                                        |   |     | **-**     |       |   | 2       |       |   | (46 | ) |
| **Operating                earnings adjusted for unusual items**                                             |   | **$**    | **430**   | ** ** | **$**  | **421** | ** ** | **$** | **354** |   |
| Cash                flow from operating activities before changes in non-cash working                capital |   | **$**    | **790**   |       | $      | 607     |       | $ | 556 |   |
| Expenditures                on property, plant and equipment                                                 |   | **$**    | **1,229** |       | $      | 1,053   |       | $ | 839 |   |
| Total                assets                                                                                  |   | **$**    | **6,649** |       | $      | 5,609   |       | $ | 4,462 |   |

**2006      COMPARED WITH 2005**

*Downstream      contributed $430 million of operating earnings adjusted for unusual items,      up 2%      from $421 million in 2005. Strong reliability at the Edmonton and Montreal      refineries allowed Petro-Canada to maximize the benefits of favourable refining      margins and a wider light/heavy crude price differential. These benefits were      partially offset by the impact of higher operating costs associated with the      planned refinery turnarounds in the second quarter, higher energy prices and      one-time expenses *
*incurred      due to a fire at the Mississauga lubricants plant. *

----

**2006      OPERATING REVIEW AND STRATEGIC INITIATIVES**

**Refining      and Supply**

**Marketing**

----

**Lubricants**

**OUTLOOK**

**Growth      plans**

| -   | drive                for first quartile refinery safety and                reliability |
|---------------|----------------------------------------------------------------------------------------|

| -   | advance                Edmonton refinery conversion project to process bitumen-based feedstock                by                2008 |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------|

| -   | make                investment decision for a coker at the Montreal                refinery |
|---------------|---------------------------------------------------------------------------------------------|

| -   | increase                service station network effectiveness, with a focus on increasing                non-petroleum revenue |
|---------------|--------------------------------------------------------------------------------------------------------------------------------|

| -   | build                wholesale volumes primarily through our commercial road transport                and bulk                fuels sales channels |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | increase                sales of high quality, higher margin                lubricants |
|---------------|----------------------------------------------------------------------------------------|

**Capital      spending plans in 2007**

| -   | approximately                $1,075 million focused on new growth projects, such as the Edmonton                refinery conversion and the possible Montreal                coker |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | approximately                $125 million to enhance existing                operations |
|---------------|-----------------------------------------------------------------------------------------|

| -   | approximately                $120 million to improve profitability in the base                business |
|---------------|--------------------------------------------------------------------------------------------------------|

| -   | approximately                $70 million for regulatory compliance                projects |
|---------------|--------------------------------------------------------------------------------------------|

----

*Link      to Petro-Canada's Corporate and Strategic Priorities*

|                                                                                                      | **2006                RESULTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **2007                GOALS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Delivering                Profitable Growth with a Focus on Operated, Long-Life                Assets** | § completed                lubricant plant 25% expansion § completed                detailed engineering and 18% of the Edmonton refinery conversion                project                                                                                                                                                                                                                                                                                                                                                                                                        | § continue                the Edmonton refinery conversion project to enable the planned startup                in                2008§ complete                Montreal coker feasibility study for investment decision in 2007                § continue                to invest in smaller scale refinery yield and reliability improvement                projects§ continue                to integrate the Montreal refinery and the ParaChem Chemicals L.P.                plant |
| **Driving                for First Quartile Operation of Our Assets**                                     | § achieved                a combined reliability index of 95 at the Company's two refineries,                above                90 for a second year in a row§ completed                multi-year project to produce cleaner burning fuels at                refineries§ maintained                leading share of major retail urban market§ grew                convenience store sales by 8% and same-store sales by 5%, compared                with                2005§ achieved                75% high margin lubricant sales volume mix | § continue                to focus on safety and refinery reliability§ increase                retail non-petroleum revenue § grow                high margin lubricants sales volume                                                                                                                                                                                                                                                                                                              |
| **Continuing                to Work at Being A Responsible Comany**                                  | § reduced                TRIF by 3%, compared with 2005§ reduced                regulatory compliance exceedances by 17%, compared with                2005                                                                                                                                                                                                                                                                                                                                                                                                                        | § maintain                focus on TRIF and regulatory compliance exceedances§ meet                provincial ethanol regulations§ continue                focus on community relations, including establishment of Community                Liaison                Committee in Montreal§ continue                to look for partnerships with Aboriginal communities on retail                opportunities                                                                           |

**Shared      Services**

**Shared      Services Financial Results**

| *(millions                of Canadian dollars)*                                                              |   | **2006** |     | 2005   |   | 2004     |   |
|--------------------------------------------------------------------------------------------------------------|--------|----------|----------|--------|--------|----------|--------|
| **Net                loss**                                                                                  |   | **$**    | **(263** | **)**  | **$**  | **(177** | **)**  | **$** | **(63** | **)** |
| Loss                on sale of assets                                                                        |   |     | **-**    |   |   | -        |   |   | (1 | ) |
| Foreign                currency translation gain                                                             |   |     | **1**    |   |   | 73       |   |   | 63 |   |
| **Operating                loss**                                                                            |   | **$**    | **(264** | **)**  | **$**  | **(250** | **)**  | **$** | **(125** | **)** |
| Stock-based                compensation                                                                      |   |     | **(31**  | **)**  |   | (66      | )      |   | (11 | ) |
| Income                tax adjustments                                                                        |   |     | **(71**  | **)**  |   | (31      | )      |   | (1 | ) |
| **Operating                loss adjusted for unusual items**                                                 |   | **$**    | **(162** | **)**  | **$**  | **(153** | **)**  | **$** | **(113** | **)** |
| Cash                flow from operating activities before changes in non-cash working                capital |   | **$**    | **(218** | **)**  | $      | (225     | )      | $ | (106 | ) |

**2006      COMPARED WITH 2005**

*Shared      Services recorded an operating loss adjusted for unusual items of $162      million      in 2006,      compared with a loss of $153 million in 2005. *

----

**Financial      Reporting**

**Critical      Accounting Estimates**

**Property,      Plant and Equipment/Depreciation, Depletion and      Amortization**

**Asset      Retirement Obligations**

**Asset      Impairment**

----

**Purchase      Price Allocation**

**Goodw**
**ill      Impairment**

**Estimated      Oil and Gas Reserves**

----

**Employee      Future Benefits**

**Income      Taxes**

**Contingencies**

**SHARE      DATA**

**ADDITIONAL      INFORMATION**

----