**Management,      Audit, Finance and Risk Committee, and Auditor**
**Reports**

**MANAGEMENT**
**'S      RESPONSIBILITY FOR THE FINANCIAL STATEMENTS**
** AND REPORT ON      INTERNAL CONTROL OVER FINANCIAL REPORTING**

|                                                   |                                                                                 |
|--------------------------------------------------------|--------------------------------------------------------------------------------------|
| Ron                A. Brenneman                        | E.F.H.                Roberts                                                        |
| *President                and Chief Executive Officer* | *Executive                Vice-President                and Chief Financial Officer* |
| February                12,                2007   | February                12, 2007                                                |

----

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

*Chairman      of the Audit, Finance and Risk Committee*

----

**REPORT      OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**

*To      the Board of Directors and Shareholders of Petro*
*-Canada:*

----

**REPORT      OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**

*To      the Board of Directors and Shareholders of Petro*
*-Canada:*

**COMMENTS      BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS ON      CANADA**
**-UNITED STATES OF AMERICA REPORTING      DIFFERENCE**

----

**CONSOLIDATED      STATEMENT OF EARNINGS**

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

|  *For              the years ended December 31,*                                                          |   | **2006** |       | 2005   |   | 2004   |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------|------------|--------|--------|--------|--------|
| **REVENUE**                                                                                                    |   |     |       |   |   |   |   |
| Operating                                                                                                      |   | **$**    | **18,911** |   | $      | 17,585 |   | $ | 14,270 |   |
| Investment                and other income (expense) *(Note                5)*                                 |   |     | **(242**   | **)**  |   | (806   | )      |   | (312 | ) |
|                                                                                                           |   |     | **18,669** |   |   | 16,779 |   |   | 13,958 |   |
| **EXPENSES**                                                                                                   |   |     |       |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                                 |   |     | **9,649**  |   |   | 8,846  |   |   | 6,740 |   |
| Operating,                marketing and general *(Note                6)*                                      |   |     | **3,180**  |   |   | 2,962  |   |   | 2,572 |   |
| Exploration                *(Note                15)*                                                          |   |     | **339**    |   |   | 271    |   |   | 235 |   |
| Depreciation,                depletion and amortization  *(Notes                6 and 15)*                |   |     | **1,365**  |   |   | 1,222  |   |   | 1,256 |   |
| Unrealized                gain on translation of foreign currency denominated long-term debt                   |   |     | **(1**     | **)**  |   | (88    | )      |   | (77 | ) |
| Interest                                                                                                       |   |     | **165**    |   |   | 164    |   |   | 142 |   |
|                                                                                                           |   |     | **14,697** |   |   | 13,377 |   |   | 10,868 |   |
|  **EARNINGS                FROM CONTINUING OPERATIONS****BEFORE                INCOME TAXES**             |   |     | **3,972**  |   |   | 3,402  |   |   | 3,090 |   |
|  **PROVISION                FOR INCOME TAXES** *(Note                7)*                             |   |     |       |   |   |   |   |   |   |   |
| Current                                                                                                        |   |     | **2,073**  |   |   | 1,794  |   |   | 1,365 |   |
| Future                                                                                                         |   |     | **311**    |   |   | (85    | )      |   | 27 |   |
|                                                                                                           |   |     | **2,384**  |   |   | 1,709  |   |   | 1,392 |   |
|  **NET                EARNINGS FROM CONTINUING OPERATIONS**                                          |   |     | **1,588**  |   |   | 1,693  |   |   | 1,698 |   |
|  **NET                EARNINGS FROM DISCONTINUED****OPERATIONS**** ***(Note                4)*       |   |     | **152**    |   |   | 98     |   |   | 59 |   |
|  **NET                EARNINGS**                                                                     |   | **$**    | **1,740**  |   | $      | 1,791  |   | $ | 1,757 |   |
|  **EARNINGS                PER SHARE FROM CONTINUING** **OPERATIONS** *(Note                8)* |   |     |       |   |   |   |   |   |   |   |
| Basic                                                                                                          |   | **$**    | **3.15**   |   | $      | 3.27   |   | $ | 3.21 |   |
| Diluted                                                                                                        |   | **$**    | **3.11**   |   | $      | 3.22   |   | $ | 3.17 |   |
|  **EARNINGS                PER SHARE**** ***(Note                8)*                                 |   |     |       |   |   |   |   |   |   |   |
| Basic                                                                                                          |   | **$**    | **3.45**   |   | $      | 3.45   |   | $ | 3.32 |   |
| Diluted                                                                                                        |   | **$**    | **3.41**   |   | $      | 3.41   |   | $ | 3.28 |   |

**CONSOLIDATED      STATEMENT OF RETAINED EARNINGS**

*(stated      in millions of Canadian dollars)*

| *For              the years ended December 31,*           |   | **2006** |      | 2005   |   | 2004  |   |
|-----------------------------------------------------------|--------|----------|-----------|--------|--------|-------|--------|
| **RETAINED                EARNINGS AT BEGINNING OF YEAR** |   | **$**    | **7,018** |   | $      | 5,408 |   | $ | 3,810 |   |
| Net                earnings                               |   |     | **1,740** |   |   | 1,791 |   |   | 1,757 |   |
| Dividends                on common shares                 |   |     | **(201**  | **)**  |   | (181  | )      |   | (159 | ) |
| **RETAINED                EARNINGS AT END OF YEAR**       |   | **$**    | **8,557** |   | $      | 7,018 |   | $ | 5,408 |   |

----

**CONSOLIDATED      STATEMENT OF CASH FLOWS**

*(stated      in millions of Canadian dollars)*

|  *For              the years ended December 31,*                                                                                              |   | **2006** |       | 2005   |   | 2004   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|--------|--------|--------|--------|
| **OPERATING                ACTIVITIES**                                                                                                            |   |     |       |   |   |   |   |
| Net                earnings                                                                                                                        |   | **$**    | **1,740**  |   | $      | 1,791  |   | $ | 1,757 |   |
| Less:                Net earnings from discontinued operations                                                                                     |   |     | **152**    |   |   | 98     |   |   | 59 |   |
| Net                earnings from continuing operations                                                                                             |   |     | **1,588**  |   |   | 1,693  |   |   | 1,698 |   |
| Items                not affecting cash flow from continuing operating                activities:                                                  |   |     |       |   |   |   |   |   |   |   |
| Depreciation,                depletion and amortization                                                                                            |   |     | **1,365**  |   |   | 1,222  |   |   | 1,256 |   |
| Future                income taxes                                                                                                                 |   |     | **311**    |   |   | (85    | )      |   | 27 |   |
| Accretion                of asset retirement obligations *(Note                20)*                                                                |   |     | **54**     |   |   | 50     |   |   | 50 |   |
| Unrealized                gain on translation of foreign currency denominated                long-term debt                                        |   |     | **(1**     | **)**  |   | (88    | )      |   | (77 | ) |
| Gain                on disposal of assets *(Note                5)*                                                                                |   |     | **(30**    | **)**  |   | (48    | )      |   | (12 | ) |
| Unrealized                loss associated with the Buzzard derivative contracts                *(Note                24)*                          |   |     | **259**    |   |   | 889    |   |   | 333 |   |
| Other                                                                                                                                              |   |     | **18**     |   |   | 14     |   |   | 33 |   |
| Exploration                expenses *(Note                15)*                                                                                     |   |     | **123**    |   |   | 140    |   |   | 117 |   |
| Proceeds                from sale of accounts receivable *(Note                10)*                                                                |   |     | **-**      |   |   | 80     |   |   | 399 |   |
| (Increase)                decrease in non-cash working capital related to continuing operating                activities *(Note                9)* |   |     | **(79**    | **)**  |   | (84    | )      |   | 104 |   |
| Cash                flow from continuing operating activities                                                                                      |   |     | **3,608**  |   |   | 3,783  |   |   | 3,928 |   |
| Cash                flow from discontinued operating activities *(Note                4)*                                                          |   |     | **15**     |   |   | 204    |   |   | 233 |   |
| Cash                flow from operating activities                                                                                                 |   |     | **3,623**  |   |   | 3,987  |   |   | 4,161 |   |
|  **INVESTING                ACTIVITIES**                                                                                                      |   |     |       |   |   |   |   |   |   |   |
| Expenditures                on property, plant and equipment and exploration                *(Note                15)*                             |   |     | **(3,435** | **)**  |   | (3,606 | )      |   | (3,955 | ) |
| Proceeds                from sale of assets *(Note                4)*                                                                              |   |     | **688**    |   |   | 81     |   |   | 44 |   |
| Increase                in deferred charges and other assets                                                                                       |   |     | **(50**    | **)**  |   | (70    | )      |   | (36 | ) |
| Acquisition                of Prima Energy Corporation *(Note                12)*                                                                  |   |     | **-**      |   |   | -      |   |   | (644 | ) |
| Decrease                in non-cash working capital related to investing activities                *(Note                9)*                       |   |     | **59**     |   |   | 237    |   |   | 10 |   |
| Cash                flow used in investing activities                                                                                              |   |     | **(2,738** | **)**  |   | (3,358 | )      |   | (4,581 | ) |
|  **FINANCING                ACTIVITIES**                                                                                                      |   |     |       |   |   |   |   |   |   |   |
| Increase                (decrease) in short-term notes payable                                                                                     |   |     | **-**      |   |   | (303   | )      |   | 314 |   |
| Proceeds                from issue of long-term debt *(Note                18**)*                                                                  |   |     | **-**      |   |   | 762    |   |   | 533 |   |
| Repayment                of long-term debt                                                                                                         |   |     | **(7**     | **)**  |   | (6     | )      |   | (299 | ) |
| Proceeds                from issue of common shares *(Note                21)*                                                                     |   |     | **44**     |   |   | 64     |   |   | 39 |   |
| Purchase                of common shares *(Note                21)*                                                                                |   |     | **(1,011** | **)**  |   | (346   | )      |   | (447 | ) |
| Dividends                on common shares                                                                                                          |   |     | **(201**   | **)**  |   | (181   | )      |   | (159 | ) |
| Increase                in non-cash working capital related to financing activities                *(Note                9)*                       |   |     | **-**      |   |   | -      |   |   | (26 | ) |
| Cash                flow used in financing activities                                                                                              |   |     | **(1,175** | **)**  |   | (10    | )      |   | (45 | ) |
|  **(DECREASE)                INCREASE IN CASH AND CASH EQUIVALENTS**                                                                          |   |     | **(290**   | **)**  |   | 619    |   |   | (465 | ) |
|  **CASH                AND CASH EQUIVALENTS AT BEGINNING OF YEAR**                                                                            |   |     | **789**    |   |   | 170    |   |   | 635 |   |
|  **CASH                AND CASH EQUIVALENTS AT END OF YEAR**** ***(Note                13)*                                              |   | **$**    | **499**    |   | $      | 789    |   | $ | 170 |   |
|  **CASH                AND CASH EQUIVALENTS - DISCONTINUED OPERATIONS**** ***(Note                4)*                                    |   | **$**    | **-**      |   | $      | 68     |   | $ | 206 |   |
|  **CASH                AND CASH EQUIVALENTS - CONTINUING OPERATIONS**                                                                         |   | **$**    | **499**    |   | $      | 721    |   | $ | (36 | ) |

----

**CONSOLIDATED      BALANCE SHEET**

*(stated      in millions of Canadian dollars)*

|  *As              at December 31,*                                                   |   | **2006** |       | 2005   |   |
|-------------------------------------------------------------------------------------------|--------|----------|------------|--------|--------|
| **ASSETS**                                                                                |   |     |       |   |   |
| **CURRENT                ASSETS**                                                         |   |     |       |   |   |
| Cash                and cash equivalents *(Note                13)*                       |   | **$**    | **499**    |   | $      | 721 |   |
| Accounts                receivable *(Note                10)*                             |   |     | **1,600**  |   |   | 1,617 |   |
| Inventories                *(Note                14)*                                     |   |     | **632**    |   |   | 596 |   |
| Future                income taxes *(Note                7)*                              |   |     | **95**     |   |   | - |   |
| Assets                of discontinued operations *(Note                4)*                |   |     | **-**      |   |   | 237 |   |
|                                                                                      |   |     | **2,826**  |   |   | 3,171 |   |
|                                                                                      |   |     |       |   |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT, NET** *(Note                15)*     |   |     | **18,577** |   |   | 15,921 |   |
| **GOODWILL**** ***(Note                16)*                                          |   |     | **801**    |   |   | 737 |   |
| **DEFERRED                CHARGES AND OTHER ASSETS** *(Note                17)*      |   |     | **442**    |   |   | 415 |   |
| **ASSETS                OF DISCONTINUED OPERATIONS** *(Note                4)*       |   |     | **-**      |   |   | 411 |   |
|                                                                                      |   | **$**    | **22,646** |   | $      | 20,655 |   |
|                                                                                      |   |     |       |   |   |   |   |
| **LIABILITIES                AND SHAREHOLDERS' EQUITY**                                   |   |     |       |   |   |   |   |
| **CURRENT                LIABILITIES**                                                    |   |     |       |   |   |   |   |
| Accounts                payable and accrued liabilities                                   |   | **$**    | **3,319**  |   | $      | 2,895 |   |
| Income                taxes payable                                                       |   |     | **22**     |   |   | 82 |   |
| Liabilities                of discontinued operations *(Note                4)*           |   |     | **-**      |   |   | 102 |   |
| Current                portion of long-term debt                                          |   |     | **7**      |   |   | 7 |   |
|                                                                                      |   |     | **3,348**  |   |   | 3,086 |   |
|                                                                                      |   |     |       |   |   |   |   |
| **LONG-TERM                DEBT** *(Note                18)*                         |   |     | **2,887**  |   |   | 2,906 |   |
| **OTHER                LIABILITIES** *(Note                19)*                      |   |     | **1,826**  |   |   | 1,888 |   |
| **ASSET                RETIREMENT OBLIGATIONS** *(Note                20)*           |   |     | **1,170**  |   |   | 882 |   |
| **FUTURE                INCOME TAXES**** ***(Note                7)*                 |   |     | **2,974**  |   |   | 2,405 |   |
|                                                                                      |   |     |       |   |   |   |   |
| **COMMITMENTS                AND CONTINGENT LIABILITIES** *(Note                25)* |   |     |       |   |   |   |   |
|                                                                                      |   |     |       |   |   |   |   |
| **SHAREHOLDERS'                EQUITY**                                                   |   |     |       |   |   |   |   |
| Common                shares *(Note                21)*                                   |   |     | **1,366**  |   |   | 1,362 |   |
| Contributed                surplus *(Note                21)*                             |   |     | **469**    |   |   | 1,422 |   |
| Retained                earnings                                                          |   |     | **8,557**  |   |   | 7,018 |   |
| Foreign                currency translation adjustment                                    |   |     | **49**     |   |   | (314 | ) |
|                                                                                      |   |     | **10,441** |   |   | 9,488 |   |
|                                                                                      |   |     |       |   |   |   |   |
|                                                                                      |   | **$**    | **22,646** |   | $      | 20,655 |   |

|   |   |
|--------|--------|

*Director*
*     *
*Director*

----

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*(stated      in millions of Canadian dollars, unless otherwise stated)*

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

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

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

| **(c)  ** | **Transportation                Costs** |
|---------------------|-----------------------------------------|

----

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

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

| **(e)  ** | **Income                Taxes** |
|---------------------|---------------------------------|

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

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

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

----

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

| **(i)  ** | **Inventories** |
|---------------------|-----------------|

| **(j)  ** | **Investments** |
|---------------------|-----------------|

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

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

----

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

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

| **(n)  ** | **Goodwill** |
|---------------------|--------------|

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

----

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

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

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

**Note      2**
**CHANGES      IN ACCOUNTING POLICIES**

***Stock-Based      Compensation for Employees Eligible to Retire Before the Vesting Date***

*Stock-based      compensation for employees eligible to retire before the vesting      date*

----

**Note      3**
**SEGMENTED      INFORMATION FROM CONTINUING OPERATIONS**

*in      situ*

|                                                                                                        |   | **UPSTREAM**                                        |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
|                                                                                                        |   |  **NORTH                AMERICAN NATURAL GAS** |   |                **EAST                COAST OIL** |   |
|                                                                                                        |   | **2006**                                            |   | 2005 |   | 2004 |   |  **2006** |   | 2005 |   | 2004 |   |
| **Revenue**1                                                                                                |   |                                                |   |   |   |   |    |   |   |   |   |   |
| Sales                to customers                                                                           |   | **$**                                               | **1,504** |   | $ | 2,073 |   | $ | 1,770 |   | **$** | **2,004** |   | $ | 1,284 |   | $ | 914 |   |
| Investment                and other income (expense)2                                                       |   |                                                | **6** |   |   | 21 |   |   | 3 |   |   | - |   |   | (2 | ) |   | (3 | ) |
| Inter-segment                sales                                                                          |   |                                                | **349** |   |   | 345 |   |   | 215 |   |   | **298** |   |   | 346 |   |   | 527 |   |
| Segmented                revenue                                                                            |   |                                                | **1,859** |   |   | 2,439 |   |   | 1,988 |   |   | **2,302** |   |   | 1,628 |   |   | 1,438 |   |
| **Expenses**                                                                                                |   |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |                                                | **256** |   |   | 466 |   |   | 359 |   |   | **452** |   |   | 48 |   |   | - |   |
| Inter-segment                transactions                                                                   |   |                                                | **5** |   |   | 7 |   |   | 9 |   |   | **9** |   |   | 6 |   |   | 5 |   |
| Operating,                marketing and general                                                             |   |                                                | **462** |   |   | 426 |   |   | 379 |   |   | **245** |   |   | 158 |   |   | 120 |   |
| Exploration                                                                                                 |   |                                                | **150** |   |   | 118 |   |   | 119 |   |   | **12** |   |   | 4 |   |   | 2 |   |
| Depreciation,                depletion and amortization                                                     |   |                                                | **402** |   |   | 364 |   |   | 321 |   |   | **237** |   |   | 259 |   |   | 268 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |                                                | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Interest                                                                                                    |   |                                                | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                                                                        |   |                                                | **1,275** |   |   | 1,381 |   |   | 1,187 |   |   | **955** |   |   | 475 |   |   | 395 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |                                                | **584** |   |   | 1,058 |   |   | 801 |   |   | **1,347** |   |   | 1,153 |   |   | 1,043 |   |
| **Provision                for income taxes**                                                               |   |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                                                                     |   |                                                | **351** |   |   | 311 |   |   | 330 |   |   | **434** |   |   | 361 |   |   | 323 |   |
| Future                *(Note                7)*                                                             |   |                                                | **(172** | **)** |   | 73 |   |   | (29 | ) |   | **(21** | **)** |   | 17 |   |   | 9 |   |
|                                                                                                        |   |                                                | **179** |   |   | 384 |   |   | 301 |   |   | **413** |   |   | 378 |   |   | 332 |   |
| **Net                earnings (loss) from continuing operations**                                           |   | **$**                                               | **405** |   | $ | 674 |   | $ | 500 |   | **$** | **934** |   | $ | 775 |   | $ | 711 |   |
|  **Capital                and exploration expenditures from continuing                operations**     |   |                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   | **$**                                               | **788** |   | $ | 713 |   | $ | 666 |   | **$** | **256** |   | $ | 314 |   | $ | 275 |   |
| Deferred                charges and other assets                                                            |   |                                                | **5** |   |   | 7 |   |   | 6 |   |   | - |   |   | 1 |   |   | 1 |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |                                                | - |   |   | - |   |   | 644 |   |   | - |   |   | - |   |   | - |   |
|                                                                                                        |   | **$**                                               | **793** |   | $ | 720 |   | $ | 1,316 |   | **$** | **256** |   | $ | 315 |   | $ | 276 |   |
|  **Cash                flow from continuing operating activities**                                     |   | **$**                                               | **651** |   | $ | 1,219 |   | $ | 899 |   | **$** | **1,129** |   | $ | 1,002 |   | $ | 1,018 |   |
|  **Total                assets from continuing operations**                                            |   | **$**                                               | **4,151** |   | $ | 3,763 |   | $ | 3,477 |   | **$** | **2,465** |   | $ | 2,442 |   | $ | 2,265 |   |

----

|   |   | **UPSTREAM**                   |
|--------|--------|--------------------------------|
|   |   | **OIL                  SANDS** |  **INTERNATIONAL** |

|                                                                                                        |   | **2006** |      | 2005   |   | 2004   |   |  **2006** |   | 2005   |   | 2004      |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|-----------|--------|--------|--------|--------|----------------|--------|--------|--------|-----------|--------|
|                                                                                                        |   |     |      |   |   |   |   |      |   |   |   |      |   |
| **Revenue**1                                                                                                |   |     |      |   |   |   |   |      |   |   |   |      |   |
| Sales                to customers                                                                           |   | **$**    | **592**   |   | $      | 749    |   | $              | 412    |   | **$**  | **2,464** |   | $ | 2,183 |   | $ | 1,767 |   |
| Investment                and other income (expense)2                                                       |   |     | -         |   |   | 4      |   |           | -      |   |   | **(283**  | **)**  |   | (851 | ) |   | (335 | ) |
| Inter-segment                sales                                                                          |   |     | **822**   |   |   | 660    |   |           | 548    |   |   | -         |   |   | - |   |   | - |   |
| Segmented                revenue                                                                            |   |     | **1,414** |   |   | 1,413  |   |           | 960    |   |   | **2,181** |   |   | 1,332 |   |   | 1,432 |   |
| **Expenses**                                                                                                |   |     |      |   |   |   |   |           |   |   |   |      |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |     | **425**   |   |   | 571    |   |           | 291    |   |   | -         |   |   | - |   |   | - |   |
| Inter-segment                transactions                                                                   |   |     | **31**    |   |   | 80     |   |           | 49     |   |   | -         |   |   | - |   |   | - |   |
| Operating,                marketing and general                                                             |   |     | **508**   |   |   | 423    |   |           | 362    |   |   | **350**   |   |   | 364 |   |   | 319 |   |
| Exploration                                                                                                 |   |     | **21**    |   |   | 32     |   |           | 16     |   |   | **156**   |   |   | 117 |   |   | 98 |   |
| Depreciation,                depletion and amortization                                                     |   |     | **128**   |   |   | 133    |   |           | 69     |   |   | **323**   |   |   | 249 |   |   | 320 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |     | -         |   |   | -      |   |           | -      |   |   | -         |   |   | - |   |   | - |   |
| Interest                                                                                                    |   |     | -         |   |   | -      |   |           | -      |   |   | -         |   |   | - |   |   | - |   |
|                                                                                                        |   |     | **1,113** |   |   | 1,239  |   |           | 787    |   |   | **829**   |   |   | 730 |   |   | 737 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |     | **301**   |   |   | 174    |   |           | 173    |   |   | **1,352** |   |   | 602 |   |   | 695 |   |
| **Provision                for income taxes**                                                               |   |     |      |   |   |   |   |           |   |   |   |      |   |   |   |   |   |   |   |
| Current                                                                                                     |   |     | **(53**   | **)**  |   | (45    | )      |           | (71    | )      |   | **1,248** |   |   | 1,015 |   |   | 631 |   |
| Future                *(Note                7)*                                                             |   |     | **109**   |   |   | 104    |   |           | 124    |   |   | **310**   |   |   | (304 | ) |   | (52 |                ) |
|                                                                                                        |   |     | **56**    |   |   | 59     |   |           | 53     |   |   | **1,558** |   |   | 711 |   |   | 579 |   |
| **Net                earnings (loss) from continuing operations**                                           |   | **$**    | **245**   |   | $      | 115    |   | $              | 120    |   | **$**  | **(206**  | **)**  | $ | (109 | ) | $ | 116 |   |
|  **Capital                and exploration expenditures from continuing                operations**     |   |     |      |   |   |   |   |           |   |   |   |      |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   | **$**    | **377**   |   | $      | 772    |   | $              | 397    |   | **$**  | **760**   |   | $ | 696 |   | $ | 1,707 |   |
| Deferred                charges and other assets                                                            |   |     | **1**     |   |   | 1      |   |           | -      |   |   | -         |   |   | - |   |   | - |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |     | -         |   |   | -      |   |           | -      |   |   | -         |   |   | - |   |   | - |   |
|                                                                                                        |   | **$**    | **378**   |   | $      | 773    |   | $              | 397    |   | **$**  | **760**   |   | $ | 696 |   | $ | 1,707 |   |
|  **Cash                flow from continuing operating activities**                                     |   | **$**    | **499**   |   | $      | 340    |   | $              | 384    |   | **$**  | **840**   |   | $ | 722 |   | $ | 789 |   |
|  **Total                assets from continuing operations**                                            |   | **$**    | **2,885** |   | $      | 2,623  |   | $              | 1,883  |   | **$**  | **6,031** |   | $ | 4,856 |   | $ | 4,969 |   |

----

**Note 3****SEGMENTED      INFORMATION FROM CONTINUING OPERATIONS **
*continued*

|                                                                                                        |   |  **DOWNSTREAM** |  **SHARED                SERVICES** |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------|------------------------------------------|
|                                                                                                        |   |                 | **2006**                                 |   | 2005 |   | 2004 |   |  **2006** |   | 2005 |   | 2004 |
| **Revenue**1                                                                                                |   |                 |                                     |   |   |   |   |   |    |   |   |   |   |
| Sales                to customers                                                                           |   | **$**                | **12,347**                               |   | $ | 11,296 |   | $ | 9,407 |   | **$** | - |   | $ | - |   | $ | - |   |
| Investment                and other income (expense)2                                                       |   |                 | **19**                                   |   |   | 43 |   |   | 13 |   |   | **16** |   |   | (21 | ) |   | 10 |   |
| Inter-segment                sales                                                                          |   |                 | **15**                                   |   |   | 13 |   |   | 14 |   |   | - |   |   | - |   |   | - |   |
| Segmented                revenue                                                                            |   |                 | **12,381**                               |   |   | 11,352 |   |   | 9,434 |   |   | **16** |   |   | (21 | ) |   | 10 |   |
| **Expenses**                                                                                                |   |                 |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |   |                 | **8,517**                                |   |   | 7,762 |   |   | 6,093 |   |   | **(1** | **)** |   | (1 | ) |   | (3 | ) |
| Inter-segment                transactions                                                                   |   |                 | **1,439**                                |   |   | 1,271 |   |   | 1,241 |   |   | - |   |   | - |   |   | - |   |
| Operating,                marketing and general                                                             |   |                 | **1,495**                                |   |   | 1,436 |   |   | 1,328 |   |   | **120** |   |   | 155 |   |   | 64 |   |
| Exploration                                                                                                 |   |                 | -                                        |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Depreciation,                depletion and amortization                                                     |   |                 | **262**                                  |   |   | 216 |   |   | 277 |   |   | **13** |   |   | 1 |   |   | 1 |   |
| Unrealized                gain on translation of foreign currency denominated long-term                debt |   |                 | -                                        |   |   | - |   |   | - |   |   | **(1** | **)** |   | (88 | ) |   | (77 | ) |
| Interest                                                                                                    |   |                 | -                                        |   |   | - |   |   | - |   |   | **165** |   |   | 164 |   |   | 142 |   |
|                                                                                                        |   |                 | **11,713**                               |   |   | 10,685 |   |   | 8,939 |   |   | **296** |   |   | 231 |   |   | 127 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |   |                 | **668**                                  |   |   | 667 |   |   | 495 |   |   | **(280** | **)** |   | (252 | ) |   | (117 | ) |
| **Provision                for income taxes**                                                               |   |                 |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                                                                                                     |   |                 | **141**                                  |   |   | 264 |   |   | 226 |   |   | **(48** | **)** |   | (112 | ) |   | (74 | ) |
| Future                *(Note                7)*                                                             |   |                 | **54**                                   |   |   | (12 | ) |   | (45 | ) |   | **31** |   |   | 37 |   |   | 20 |   |
|                                                                                                        |   |                 | **195**                                  |   |   | 252 |   |   | 181 |   |   | **(17** | **)** |   | (75 | ) |   | (54 | ) |
| **Net                earnings (loss) from continuing operations**                                           |   | **$**                | **473**                                  |   | $ | 415 |   | $ | 314 |   | **$** | **(263** | **)** | $ | (177 | ) | $ | (63 | ) |
|  **Capital                and exploration expenditures from continuing                operations**     |   |                 |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration expenditures                                   |   | **$**                | **1,229**                                |   | $ | 1,053 |   | $ | 839 |   | **$** | **24** |   | $ | 12 |   | $ | 9 |   |
| Deferred                charges and other assets                                                            |   |                 | **22**                                   |   |   | 33 |   |   | 26 |   |   | **22** |   |   | 28 |   |   | 3 |   |
| Acquisition                of Prima Energy Corporation, including goodwill                                  |   |                 | -                                        |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                                                                        |   | **$**                | **1,251**                                |   | $ | 1,086 |   | $ | 865 |   | **$** | **46** |   | $ | 40 |   | $ | 12 |   |
|  **Cash                flow from continuing operating activities**                                     |   | **$**                | **835**                                  |   | $ | 663 |   | $ | 879 |   | **$** | **(346** | **)** | $ | (163 | ) | $ | (41 | ) |
|  **Total                assets from continuing operations**                                            |   | **$**                | **6,649**                                |   | $ | 5,609 |   | $ | 4,462 |   | **$** | **465** |   | $ | 714 |   | $ | 95 |   |

|                                                                                                        |        |  **CONSOLIDATED** |   |
|-------------------------------------------------------------------------------------------------------------|-------------|------------------------|--------|
|                                                                                                        |        |  **2006**         |   | 2005 |   | 2004 |   |
| **Revenue**1                                                                                                |        |              |   |   |   |   |   |
| Sales                to customers                                                                           | **$**       | **18,911**             |   | $ | 17,585 |   | $ | 14,270 |   |
| Investment                and other income (expense)2                                                       |        | **(242**               | **)**  |   | (806 | ) |   | (312 | ) |
| Inter-segment                sales                                                                          |        |                   |   |   |   |   |   |   |   |
| Segmented                revenue                                                                            |        | **18,669**             |   |   | 16,779 |   |   | 13,958 |   |
| **Expenses**                                                                                                |        |                   |   |   |   |   |   |   |   |
| Crude                oil and product purchases                                                              |        | **9,649**              |   |   | 8,846 |   |   | 6,740 |   |
| Inter-segment                transactions                                                                   |        |                   |   |   |   |   |   |   |   |
| Operating,                marketing and general                                                             |        | **3,180**              |   |   | 2,962 |   |   | 2,572 |   |
| Exploration                                                                                                 |        | **339**                |   |   | 271 |   |   | 235 |   |
| Depreciation,                depletion and amortization                                                     |        | **1,365**              |   |   | 1,222 |   |   | 1,256 |   |
| Unrealized                gain on translation of foreign currency                denominated long-term debt |        | **(1**                 | **)**  |   | (88 | ) |   | (77 | ) |
| Interest                                                                                                    |        | **165**                |   |   | 164 |   |   | 142 |   |
|                                                                                                        |        | **14,697**             |   |   | 13,377 |   |   | 10,868 |   |
| **Earnings                (loss) from continuing operations before income                taxes**            |        | **3,972**              |   |   | 3,402 |   |   | 3,090 |   |
| **Provision                for income taxes**                                                               |        |                   |   |   |   |   |   |   |   |
| Current                                                                                                     |        | **2,073**              |   |   | 1,794 |   |   | 1,365 |   |
| Future                *(Note                7)*                                                             |        | **311**                |   |   | (85 | ) |   | 27 |   |
|                                                                                                        |        | **2,384**              |   |   | 1,709 |   |   | 1,392 |   |
| **Net                earnings (loss) from continuing operations**                                           | **$**       | **1,588**              |   | $ | 1,693 |   | $ | 1,698 |   |
|  **Capital                and exploration expenditures from continuing                operations**     |        |                   |   |   |   |   |   |   |   |
| Property,                plant and equipment and exploration                expenditures                    | **$**       | **3,434**              |   | $ | 3,560 |   | $ | 3,893 |   |
| Deferred                charges and other assets                                                            |        | **50**                 |   |   | 70 |   |   | 36 |   |
| Acquisition                of Prima Energy Corporation, including                goodwill                   |        | -                      |   |   | - |   |   | 644 |   |
|                                                                                                        | **$**       | **3,484**              |   | $ | 3,630 |   | $ | 4,573 |   |
| **Cash                flow from continuing operating activities**                                           |  **$** | **3,608**              |   | $ | 3,783 |   | $ | 3,928 |   |
|  **Total                assets from continuing operations**                                            | **$**       | **22,646**             |   | $ | 20,007 |   | $ | 17,151 |   |

----

**Note      3**

**SEGMENTED      INFORMATION FROM CONTINUING OPERATIONS**
*continued*

**Geographic      Information from Continuing Operations**

|     |   |  **2006** |       |  2005                      |   |  2004     |   |
|----------|--------|----------------|------------|---------------------------------|--------|----------------|--------|
|     |   | **Revenues**   |       | **Total                Assets** |   |  Revenues |   | TotalAssets |   |  Revenues |   | TotalAssets |   |
| Canada   |   | **$**          | **16,295** | ** **                      | **$**  | **14,736**     |   | $ | 15,302 |   | $ | 14,261 |   | $ | 12,472 |   | $ | 11,263 |   |
| Foreign1 |   |           | **2,374**  |                            |   | **7,910**      |   |   | 1,477 |   |   | 5,746 |   |   | 1,486 |   |   | 5,888 |   |
|     |   | **$**          | **18,669** | ** **                      | **$**  | **22,646**     |   | $ | 16,779 |   | $ | 20,007 |   | $ | 13,958 |   | $ | 17,151 |   |

**Note      4**
**DISCONTINUED      OPERATIONS **

|                                                                     |   | **2006** |    | 2005    |   | 2004   |   |
|--------------------------------------------------------------------------|--------|----------|---------|---------|--------|--------|--------|
| **Revenue**                                                              |   | **$**    | **168** |  1 | $      | 464    |   | $ | 419 |   |
| **Expenses**                                                             |   |     |    |    |   |   |   |   |   |   |
| Operating,                marketing and general                          |   |     | **6**   |    |   | 104    |   |   | 118 |   |
| Depreciation,                depletion and amortization                  |   |     | **-**   |    |   | 145    |   |   | 146 |   |
|                                                                     |   |     | **6**   |    |   | 249    |   |   | 264 |   |
| Earnings                from discontinued operations before income taxes |   |     | **162** |    |   | 215    |   |   | 155 |   |
| Provision                for income taxes                                |   |     | **10**  |    |   | 117    |   |   | 96 |   |
| Net                earnings from discontinued operations                 |   | **$**    | **152** |    | $      | 98     |   | $ | 59 |   |

|                                                 |   | **2006** |   | 2005   |   |
|------------------------------------------------------|--------|----------|--------|--------|--------|
| **Assets**                                           |   |     |   |   |   |
| Current                assets                        |   | **$**    | **-**  |   | $      | 237 |  2 |
| Property,                plant and equipment, net    |   |     | **-**  |   |   | 300 |   |
| Goodwill                                             |   |     | **-**  |   |   | 111 |   |
| Total                assets                          |   | **$**    | **-**  |   | $      | 648 |   |
| **Liabilities**                                      |   |     |   |   |   |   |   |
| Current                liabilities                   |   | **$**    | **-**  |   | $      | 102 |   |
| Net                assets of discontinued operations |   | **$**    | **-**  |   | $      | 546 |   |

**Note      5**
**INVESTMENT      AND OTHER INCOME (EXPENSE)**

----

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

**Oakville      Refining Operations **

|                                                                                                                      |   |  **2006**    |  2005 |  2004          |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|---------------------|--------|
|                                                                                                                      |   |  **Pre-Tax** |       |  **After-Tax** |   |  Pre-Tax |  After-Tax |   |  Pre-Tax |   |  After-Tax |   |
| Operating,                  marketing and general expenses (de-commissioning and employee-related                  costs) |   | **$**             | **-**      | ** **          | **$**  | **-** |   | $ | (4 | ) | $ | (2 | ) | $ | 3 |   | $ | 2 |   |
| Depreciation                  and amortization expenses (asset write-downs and increased                  depreciation)   |   |              | **-**      |                |   | **-** |   |   | 1 |   |   | - |   |   | 71 |   |   | 44 |   |
|                                                                                                                      |   | **$**             | **-**      | ** **          | **$**  | **-** |   | $ | (3 | ) | $ | (2 | ) | $ | 74 |   | $ | 46 |   |

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

|                                                                                                                                           |   | **2006** |      | 2005   |   | 2004   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|--------|--------|--------|--------|
| Earnings                from continuing operations before income taxes                                                                         |   | **$**    | **3,972** |   | $      | 3,402  |   | $ | 3,090 |   |
| Add                (deduct):                                                                                                                   |   |     |      |   |   |   |   |   |   |   |
| Non-deductible                royalties and other payments to provincial governments,                net                                       |   |     | **61**    |   |   | 393    |   |   | 352 |   |
| Resource                allowance                                                                                                              |   |     | **(158**  | **)**  |   | (413   | )      |   | (512 | ) |
| Non-taxable                foreign exchange                                                                                                    |   |     | **(1**    | **)**  |   | (45    | )      |   | (40 | ) |
| Other                                                                                                                                          |   |     | **(24**   | **)**  |   | 5      |   |   | (10 | ) |
| Earnings                from continuing operations as adjusted before income taxes                                                             |   | **$**    | **3,850** |   | $      | 3,342  |   | $ | 2,880 |   |
| Canadian                federal income tax rate                                                                                                |   |     | **38.0**  | **%**  |   | 38.0   | %      |   | 38.0 | % |
| Income                tax on earnings from continuing operations as adjusted at Canadian                federal                income tax rate |   | **$**    | **1,463** |   | $      | 1,270  |   | $ | 1,094 |   |
| Provincial                income taxes                                                                                                         |   |     | **295**   |   |   | 325    |   |   | 271 |   |
| Federal                - abatement and other credits                                                                                           |   |     | **(262**  | **)**  |   | (378   | )      |   | (274 | ) |
| Current                income tax increase due to provincial reassessments                                                                     |   |     | **70**    |   |   | -      |   |   | - |   |
| Future                income tax increase (decrease) due to Canadian federal and provincial                rate                changes         |   |     | **(63**   | **)**  |   | 6      |   |   | (13 | ) |
| Future                income tax increase due to foreign rate changes                                                                          |   |     | **242**   |   |   | -      |   |   | - |   |
| Higher                foreign income tax rates                                                                                                 |   |     | **627**   |   |   | 482    |   |   | 320 |   |
| Income                tax credits and other                                                                                                    |   |     | **12**    |   |   | 4      |   |   | (6 | ) |
| Provision                for income taxes                                                                                                      |   | **$**    | **2,384** |   | $      | 1,709  |   | $ | 1,392 |   |
| Effective                income tax rate on earnings from continuing operations before income                taxes                             |   |     | **60.0**  | **%**  |   | 50.2   | %      |   | 45.0 | % |

|                                            |   | **2006** |      | 2005   |   | 2004   |   |
|-------------------------------------------------|--------|----------|-----------|--------|--------|--------|--------|
| Current                                         |   |     |      |   |   |   |   |
| Canadian                                        |   | **$**    | **801**   |   | $      | 769    |   | $ | 734 |   |
| Foreign                                         |   |     | **1,272** |   |   | 1,025  |   |   | 631 |   |
| Future                                          |   |     |      |   |   |   |   |   |   |   |
| Canadian                                        |   |     | **62**    |   |   | (113   | )      |   | (54 | ) |
| Foreign                                         |   |     | **249**   |   |   | 28     |   |   | 81 |   |
| Total                provision for income taxes |   | **$**    | **2,384** |   | $      | 1,709  |   | $ | 1,392 |   |

----

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

** **

*continued*

|                                                              |   | **2006** |       | 2005   |   |
|-------------------------------------------------------------------|--------|----------|------------|--------|--------|
| Future                income tax liabilities                      |   |     |       |   |   |
| Property,                plant and equipment                      |   | **$**    | **3,919**  |   | $      | 3,114 |   |
| Partnership                income 1                               |   |     | **367**    |   |   | 532 |   |
| Deferred                charges and other assets                  |   |     | **75**     |   |   | 58 |   |
| Future                income tax assets                           |   |     |       |   |   |   |   |
| Asset                retirement obligations and other liabilities |   |     | **(1,010** | **)**  |   | (906 | ) |
| Inventories                                                       |   |     | **(212**   | **)**  |   | (230 | ) |
| Other                                                             |   |     | **(260**   | **)**  |   | (163 | ) |
| Future                income tax liability                        |   |     | **2,879**  |   |   | 2,405 |   |
| Less:                Current future income tax asset              |   |     | **(95**    | **)**  |   | - |   |
| Net                future income tax liability                    |   | **$**    | **2,974**  |   | $      | 2,405 |   |

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

| *(millions)*                                                                                                |   | **2006** |      | 2005   |   | 2004  |   |
|-------------------------------------------------------------------------------------------------------------|--------|----------|-----------|--------|--------|-------|--------|
| Weighted-average                number of common shares outstanding   -                basic |   |     | **503.9** |   |   | 518.4 |   |   | 529.3 |   |
| Effect                of dilutive stock options                                                             |   |     | **6.0**   |   |   | 7.0   |   |   | 6.9 |   |
| Weighted-average                number of common shares outstanding  -                diluted     |   |     | **509.9** |   |   | 525.4 |   |   | 536.2 |   |

----

**Note      9**
**CASH      FLOW INFORMATION**

**Changes      in Non-Cash Working Capital**

|                                                               |   | **2006** |     | 2005   |   | 2004   |   |
|--------------------------------------------------------------------|--------|----------|----------|--------|--------|--------|--------|
| **Operating                activities from continuing operations** |   |     |     |   |   |   |   |
| Accounts                receivable                                 |   | **$**    | **17**   |   | $      | (563   | )      | $ | (131 | ) |
| Inventories                                                        |   |     | **(36**  | **)**  |   | (18    | )      |   | 4 |   |
| Accounts                payable and accrued liabilities            |   |     | **365**  |   |   | 662    |   |   | 266 |   |
| Income                taxes payable                                |   |     | **(60**  | **)**  |   | (190   | )      |   | 96 |   |
| Current                portion of long-term liabilities and other  |   |     | **(365** | **)**  |   | 25     |   |   | (131 | ) |
|                                                               |   | **$**    | **(79**  | **)**  | $      | (84    | )      | $ | 104 |   |
| **Investing                activities**                            |   |     |     |   |   |   |   |   |   |   |
| Accounts                payable and accrued liabilities            |   | **$**    | **59**   |   | $      | (12    | )      | $ | 10 |   |
| Other                liabilities                                   |   |     | **-**    |   |   | 249    |   |   | - |   |
|                                                               |   | **$**    | **59**   |   | $      | 237    |   | $ | 10 |   |
| **Financing                activities**                            |   |     |     |   |   |   |   |   |   |   |
| Accounts                payable and accrued liabilities            |   | **$**    | **-**    |   | $      | -      |   | $ | (26 | ) |

**Cash      Payments**

|                        |   | **2006** |      | 2005   |   | 2004  |   |
|-----------------------------|--------|----------|-----------|--------|--------|-------|--------|
| Interest                    |   | **$**    | **194**   |   | $      | 186   |   | $ | 165 |   |
| Income                taxes |   | **$**    | **2,149** |   | $      | 1,972 |   | $ | 1,353 |   |

**Note      10**
**SECURITIZATION      PROGRAM**

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

----

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

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

**Note      13**
**CASH      AND CASH EQUIVALENTS**

|                                                                   |   | **2006** |    | 2005   |   |
|------------------------------------------------------------------------|--------|----------|---------|--------|--------|
| Cash                                                                   |   | **$**    | **42**  |   | $      | 48 |   |
| Short-term                investments                                  |   |     | **457** |   |   | 741 |   |
|                                                                   |   |     | **499** |   |   | 789 |   |
| Less:                discontinued operations *(Note                4)* |   |     | **-**   |   |   | 68 |   |
|                                                                   |   | **$**    | **499** |   | $      | 721 |   |

**Note      14**
**INVENTORIES**

|                                                       |   | **2006** |    | 2005   |   |
|------------------------------------------------------------|--------|----------|---------|--------|--------|
| Crude                oil, refined products and merchandise |   | **$**    | **455** |   | $      | 431 |   |
| Materials                and supplies                      |   |     | **177** |   |   | 165 |   |
|                                                       |   | **$**    | **632** |   | $      | 596 |   |

----

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

|                                                   |   | **2006**  |       | 2005                                                                              |   | **2006**  | 2005       |       |
|--------------------------------------------------------|--------|----------------|------------|----------------------------------------------------------------------------------------|--------|----------------|------------|------------|
|                                                   |   | **Cost**  |       | **Accumulated****Depreciation,****Depletion                and****Amortization**  |   | **Net**   |       | Cost  |   | AccumulatedDepreciation,Depletion                andAmortization |   | Net  |   | Expenditures                on Property, Plant and Equipment1,2  |   |
| **Upstream**                                           |   |           |       |                                                                                   |   |           |       |       |   |   |   |   |   |   |   |   |   |
|                  North American Natural Gas       |   | **$**          | **6,942**  | ** **                                                                             | **$**  | **3,189**      | ** ** | **$**      | **3,753** |   | $ | 6,161 |   | $ | 2,828 |   | $ | 3,333 |   | **$** | **707** |   | $ | 635 |   |
|                  East Coast Oil                   |   |           | **3,874**  |                                                                                   |   | **1,594**      |       |       | **2,280** |   |   | 3,577 |   |   | 1,359 |   |   | 2,218 |   |   | **248** |   |   | 310 |   |
|                  Oil Sands                        |   |           | **3,598**  |                                                                                   |   | **908**        |       |       | **2,690** |   |   | 3,217 |   |   | 759 |   |   | 2,458 |   |   | **370** |   |   | 745 |   |
|                  International                    |   |           | **5,863**  |                                                                                   |   | **1,123**      |       |       | **4,740** |   |   | 4,245 |   |   | 469 |   |   | 3,776 |   |   | **733** |   |   | 665 |   |
|                                                   |   |           | **20,277** |                                                                                   |   | **6,814**      |       |       | **13,463** |   |   | 17,200 |   |   | 5,415 |   |   | 11,785 |   |   | **2,058** |   |   | 2,355 |   |
| **Downstream**                                         |   |           |       |                                                                                   |   |           |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                  Refining                         |   |           | **5,333**  |                                                                                   |   | **1,469**      |       |       | **3,864** |   |   | 4,254 |   |   | 1,318 |   |   | 2,936 |   |   | **1,083** |   |   | 936 |   |
|                  Marketing and other              |   |           | **2,517**  |                                                                                   |   | **1,301**      |       |       | **1,216** |   |   | 2,419 |   |   | 1,252 |   |   | 1,167 |   |   | **146** |   |   | 117 |   |
|                                                   |   |           | **7,850**  |                                                                                   |   | **2,770**      |       |       | **5,080** |   |   | 6,673 |   |   | 2,570 |   |   | 4,103 |   |   | **1,229** |   |   | 1,053 |   |
| **Other                property, plant and equipment** |   |           | **495**    |                                                                                   |   | **461**        |       |       | **34** |   |   | 470 |   |   | 437 |   |   | 33 |   |   | **24** |   |   | 12 |   |
|                                                   |   | **$**          | **28,622** | ** **                                                                             | **$**  | **10,045**     | ** ** | **$**      | **18,577** |   | $ | 24,343 |   | $ | 8,422 |   | $ | 15,921 |   | **$** | **3,311** |   | $ | 3,420 |   |

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

|                                                             |  **2006** |  2005                                    |    |
|------------------------------------------------------------------|----------------|-----------------------------------------------|---------|
|                                                             |           | **North                American Natural Gas** |    |                **International** |   |                **Total** |   | North                American Natural Gas |   |                International |   |                Total |   |
| Goodwill                at beginning of year                     |           | **$**                                         | **170** | ** ** | **$** | **567** | ** ** | **$** | **737** |   | $ | 175 |   | $ | 811 |   | $ | 986 |   |
| Foreign                exchange                                  |           |                                          | **(1**  | **)** |   | **65** |   |   | **64** |   |   | (5 | ) |   | (133 | ) |   | (138 | ) |
| Discontinued                operations *(Note                4)* |           |                                          | **-**   |   |   | **-** |   |   | **-** |   |   | - |   |   | (111 | ) |   | (111 | ) |
| Goodwill                at end of year                           |           | **$**                                         | **169** | ** ** | **$** | **632** | ** ** | **$** | **801** |   | $ | 170 |   | $ | 567 |   | $ | 737 |   |

----

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

|                                                            |   | **2006** |    | 2005   |   |
|-----------------------------------------------------------------|--------|----------|---------|--------|--------|
| Investments                                                     |   | **$**    | **82**  |   | $      | 87 |   |
| Accrued                pension asset *(Note                23)* |   |     | **128** |   |   | 105 |   |
| Deferred                financing costs                         |   |     | **101** |   |   | 108 |   |
| Other                long-term assets                           |   |     | **131** |   |   | 115 |   |
|                                                            |   | **$**    | **442** |   | $      | 415 |   |

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

|                                                           |   | Maturity |      | **2006** |   | 2005      |   |
|----------------------------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
| Debentures                and notes                            |   |     |      |     |   |      |   |
| 5.95%                unsecured senior notes ($600 million US)1 |   |     | 2035      |     | **$**  | **699**   |   | $ | 700 |   |
| 5.35%                unsecured senior notes ($300 million US)2 |   |     | 2033      |     |   | **349**   |   |   | 350 |   |
| 7.00%                unsecured debentures ($250 million US)    |   |     | 2028      |     |   | **291**   |   |   | 292 |   |
| 7.875%                unsecured debentures ($275 million US)   |   |     | 2026      |     |   | **321**   |   |   | 321 |   |
| 9.25%                unsecured debentures ($300 million US)    |   |     | 2021      |     |   | **349**   |   |   | 350 |   |
| 5.00%                unsecured senior notes ($400 million US)  |   |     | 2014      |     |   | **466**   |   |   | 466 |   |
| 4.00%                unsecured senior notes ($300 million US)2 |   |     | 2013      |     |   | **349**   |   |   | 350 |   |
| Capital                leases *(Note                15)*3      |   |     | 2007-2017 |     |   | **70**    |   |   | 77 |   |
| Retail                licensee trust loans                     |   |     |      |     |   | -         |   |   | 7 |   |
|                                                           |   |     |      |     |   | **2,894** |   |   | 2,913 |   |
| Current                portion                                 |   |     |      |     |   | **(7**    | **)**  |   | (7 | ) |
|                                                           |   |     |      |     | **$**  | **2,887** |   | $ | 2,906 |   |

----

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

|                                                                                      |   | **2006** |      | 2005   |   |
|-------------------------------------------------------------------------------------------|--------|----------|-----------|--------|--------|
| Post-retirement                benefits *(Note                23)*                        |   | **$**    | **182**   |   | $      | 173 |   |
| Unrealized                loss on Buzzard derivative contracts *(Note                24)* |   |     | **1,252** |   |   | 1,222 |   |
| Fort                Hills purchase obligation *(Note                11)*                  |   |     | **170**   |   |   | 247 |   |
| Other                long-term liabilities                                                |   |     | **222**   |   |   | 246 |   |
|                                                                                      |   | **$**    | **1,826** |   | $      | 1,888 |   |

**Note      20**
**ASSET      RETIREMENT OBLIGATIONS**

|                                                             |   | **2006** |      | 2005   |   |
|------------------------------------------------------------------|--------|----------|-----------|--------|--------|
| Asset                retirement obligations at beginning of year |   | **$**    | **962**   |   | $      | 873 |   |
| Obligations                incurred                              |   |     | **95**    |   |   | 92 |   |
| Changes                in estimates                              |   |     | **138**   |   |   | 104 |   |
| Abandonment                expenditures                          |   |     | **(55**   | **)**  |   | (98 | ) |
| Accretion                expense                                 |   |     | **54**    |   |   | 50 |   |
| Foreign                exchange                                  |   |     | **43**    |   |   | (59 | ) |
| Asset                retirement obligations at end of year       |   |     | **1,237** |   |   | 962 |   |
| Less:                Current portion                             |   |     | **(67**   | **)**  |   | (80 | ) |
|                                                             |   | **$**    | **1,170** |   | $      | 882 |   |

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

**Authorized**

**Issued      and Outstanding**

|                                                                       |   | **2006**   |            | 2005       |   |
|----------------------------------------------------------------------------|--------|------------|-----------------|------------|--------|
|                                                                       |   | **Shares** |            | **Amount** |   | **Contributed                Surplus** |   | Shares |   | Amount |   | Contributed                Surplus |   |
| Balance                at beginning of year                                |   |       | **515,138,904** |       | **$**  | **1,362** | ** ** | **$** | **1,422** |   |   | 519,928,022 |   | $ | 1,314 |   | $ | 1,743 |   |
| Issued                under employee stock-option and share purchase plans |   |       | **2,177,881**   |       |   | **57** |   |   | **5** |   |   | 3,544,282 |   |   | 70 |   |   | 3 |   |
| Repurchased                under normal course issuer bid                  |   |       | **(19,778,400** | **)**      |   | **(53** | **)** |   | **(958** | **)** |   | (8,333,400 | ) |   | (22 | ) |   | (324 | ) |
| Balance                at end of year                                      |   |       | **497,538,385** |       | $      | **1,366** | ** ** | **$** | **469** |   |   | 515,138,904 |   | $ | 1,362 |   | $ | 1,422 |   |

----

**Note      21**
**SHAREHOLDERS'      EQUITY **
*continued*

**Note      22**
**STOCK-BASED      COMPENSATION**

**Stock      Options**

|                                          |   | **2006**    |  2005 |                                                                   |  2004 |
|-----------------------------------------------|--------|------------------|------------|------------------------------------------------------------------------|------------|
|                                          |   | **Number**  |       | **Weighted-Average****Exercise                  Price*****(dollars)*** |       | Number  | Weighted-Average                  Exercise                  Price *(dollars)* |   |   | Number  |   | Weighted-Average                  Exercise                  Price *(dollars)* |
| Balance                  at beginning of year |   | **18,361,617**   |       | **$**                                                                  | **24**     |   | 18,074,698 |   | $ | 21 |   |   | 17,241,186 |   | $ | 19 |   |
| Granted                                       |   | **4,911,600**    |       |                                                                   | **52**     |   | 4,185,800 |   |   | 35 |   |   | 3,673,400 |   |   | 29 |   |
| Exercised                  for common shares  |   | **(2,177,881**   | **)**      |                                                                   | **20**     |   | (3,544,282 | ) |   | 18 |   |   | (2,492,000 | ) |   | 16 |   |
| Surrendered                  for cash payment |   | **(119,710**     | **)**      |                                                                   | **31**     |   | (47,551 | ) |   | 29 |   |   | **-** |   |   | **-** |   |
| Cancelled                                     |   | **(260,893**     | **)**      |                                                                   | **41**     |   | (307,048 | ) |   | 29 |   |   | (347,888 | ) |   | 22 |   |
| Balance                  at end of year       |   | **20,714,733**   |       | **$**                                                                  | **31**     |   | 18,361,617 |   | $ | 24 |   |   | 18,074,698 |   | $ | 21 |   |

|  Options                Outstanding                                                                                               |   |  Options                Exercisable |       |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|
| Range                of Exercise Prices*(dollars)*                                                                                     |   | Number                                   |       | Weighted-Average                Life*(years)* |   | Weighted-Average                Exercise Price*(dollars)* |   | Number |   |  Weighted-Average                Exercise Price*(dollars)* |   |
| $                              8                to 17            |   |                                     | 3,729,484  |   |   | 3.8 |   | $ | 14 |   |   | 3,729,484 |   | $ | 14 |   |
|   18                to 23                                                                                                    |   |                                     | 2,117,975  |   |   | 4.2 |   |   | 19 |   |   | 2,117,975 |   |   | 19 |   |
|  24                to 27                                                                                                          |   |                                     | 3,222,529  |   |   | 5.9 |   |   | 26 |   |   | 2,239,203 |   |   | 26 |   |
|  28                to 32                                                                                                          |   |                                     | 3,001,770  |   |   | 4.1 |   |   | 29 |   |   | 1,392,070 |   |   | 29 |   |
|  33                to 42                                                                                                          |   |                                     | 3,868,575  |   |   | 5.1 |   |   | 35 |   |   | 954,050 |   |   | 35 |   |
|  43                to 55                                                                                                          |   |                                     | 4,774,400  |   |   | 6.1 |   |   | 52 |   |   | 81,900 |   |   | 52 |   |
| $                8                to                55 |   |                                     | 20,714,733 |   |   | 5.0 |   | $ | 31 |   |   | 10,514,682 |   | $ | 22 |   |

----

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

**Performance      Share Units**

|                                        |   | **2006                Number** |          | 2005                Number |   |
|---------------------------------------------|--------|--------------------------------|---------------|----------------------------|--------|
| Balance                at beginning of year |   |                           | **1,158,967** |                       |   | 565,860 |   |
| Granted                                     |   |                           | **385,632**   |                       |   | 642,940 |   |
| Exercised                                   |   |                           | -             |                       |   | - |   |
| Cancelled                                   |   |                           | **(61,613**   | **)**                      |   | (49,833 | ) |
| Balance                at end of year       |   |                           | **1,482,986** |                       |   | 1,158,967 |   |

**Deferred      Share Units**

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

----

**Note      23**
**EMPLOYEE      FUTURE BENEFITS **
*continued*

**Benefit      Plan Expense**

|                                                                                                                                                                                       |   |  Pension                Plans |  Other                Post-Retirement Plans |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------------------------------------------------|--------|
|                                                                                                                                                                                       |   | **2006**                           |                                             | 2005   |   | 2004 |   |  **2006** |   | 2005 |   | 2004 |   |
| (a) Defined                benefit plans                                                                                                                                              |   |                               |                                             |   |   |   |   |    |   |   |   |   |   |
| Employer                current service cost                                                                                                                                               |   | **$**                              | **40**                                           |   | $ | 36 |   | $ | 31 |   | **$** | **4** |   | $ | 4 |   | $ | 4 |   |
| Interest                cost                                                                                                                                                               |   |                               | **86**                                           |   |   | 86 |   |   | 81 |   |   | **11** |   |   | 12 |   |   | 13 |   |
| Actual                return on plan assets                                                                                                                                                |   |                               | **(154**                                         | **)**  |   | (133 | ) |   | (91 | ) |   | - |   |   | - |   |   | - |   |
| Actuarial                losses (gains)                                                                                                                                                    |   |                               | **43**                                           |   |   | 155 |   |   | 97 |   |   | - |   |   | 19 |   |   | (15 | ) |
| Elements                of employee future benefit plan expense before adjustments to recognize                the long-term nature of employee future benefit plan                expense |   |                               | **15**                                           |   |   | 144 |   |   | 118 |   |   | **15** |   |   | 35 |   |   | 2 |   |
| Difference                between actual and expected return on plan assets                                                                                                                |   |                               | **55**                                           |   |   | 45 |   |   | 12 |   |   | - |   |   | - |   |   | - |   |
| Difference                between actual and recognized actuarial losses in year                                                                                                           |   |                               | **8**                                            |   |   | (121 | ) |   | (67 | ) |   | **2** |   |   | (19 | ) |   | 16 |   |
| Amortization                of transitional (asset) obligation                                                                                                                             |   |                               | **(5**                                           | **)**  |   | (6 | ) |   | (5 | ) |   | **2** |   |   | 2 |   |   | 2 |   |
|                                                                                                                                                                                       |   |                               | **73**                                           |   |   | 62 |   |   | 58 |   |   | **19** |   |   | 18 |   |   | 20 |   |
| (b) Defined                contribution plans                                                                                                                                         |   |                               | **18**                                           |   |   | 16 |   |   | 13 |   |   |   |   |   |   |   |   |   |   |
| Total                expense                                                                                                                                                               |   | **$**                              | **91**                                           |   | $ | 78 |   | $ | 71 |   | **$** | **19** |   | $ | 18 |   | $ | 20 |   |

**Benefit      Plan Funding**

| Defined                contribution |   | **$** | **18** |   | $ | 16 |   | $ | 13 |   |        |   |   |   |   |   |   |   |   |
|-------------------------------------|--------|-------|--------|--------|---|----|--------|---|----|--------|-------------|--------|--------|--------|--------|--------|--------|--------|--------|
| Defined                benefit      |   | **$** | **96** |   | $ | 96 |   | $ | 80 |   |  **$** | **10** |   | $      | 9      |   | $      | 9      |   |

**Financial      Status of Defined Benefit Plans**

|                                                       | Pension                Plans | Other                Post-Retirement Plans |      |
|------------------------------------------------------------|------------------------------|--------------------------------------------|-----------|
|                                                       |                         |  **2006**                             |      |  2005 |   |  **2006** |   |  2005 |   |
| Fair                value of plan assets                   |                         | **$**                                      | **1,486** |   | $ | 1,303 |   | **$** | - |   | $ | - |   |
| Accrued                benefit obligation                  |                         |                                       | **1,786** |   |   | 1,681 |   |   | **235** |   |   | 230 |   |
| Funded                status - plan deficit1               |                         |                                       | **(300**  | **)** |   | (378 | ) |   | **(235** | **)** |   | (230 | ) |
| Unamortized                transitional (asset) obligation |                         |                                       | **(18**   | **)** |   | (23 | ) |   | **13** |   |   | 15 |   |
| Unamortized                net actuarial losses            |                         |                                       | **446**   |   |   | 506 |   |   | **40** |   |   | 42 |   |
| Accrued                benefit asset (liability)           |                         | **$**                                      | **128**   |   | $ | 105 |   | **$** | **(182** | **)** | $ | (173 | ) |

**Reconciliation      of Plan Assets**

| Fair                value of plan assets at beginning of year |   | **$**  | **1,303** |   | $      | 1,157 |   | **$**  | -       |   | $      | -  |   |
|---------------------------------------------------------------|--------|--------|-----------|--------|--------|-------|--------|--------|---------|--------|--------|----|--------|
| Contributions                                                 |   |   | **96**    |   |   | 96    |   |   | **10**  |   |   | 9  |   |
| Benefits                paid                                  |   |   | **(77**   | **)**  |   | (83   | )      |   | **(10** | **)**  |   | (9 | )      |
| Actual                gain (loss) on plan assets              |   |   | **154**   |   |   | 133   |   |   | -       |   |   | -  |   |
| Other                                                         |   |   | **10**    |   |   | -     |   |   | -       |   |   | -  |   |
| Fair                value of plan assets at end of year       |   | **$**  | **1,486** |   | $      | 1,303 |   | **$**  | -       |   | $      | -  |   |

**Reconciliation      of Accrued Benefit Obligation**

| Accrued                benefit obligation at beginning of year |   | **$**  | **1,681** |   | $      | 1,487 |   | **$**  | **230** |   | $      | 204 |   |
|----------------------------------------------------------------|--------|--------|-----------|--------|--------|-------|--------|--------|---------|--------|--------|-----|--------|
| Current                service cost                            |   |   | **40**    |   |   | 36    |   |   | **4**   |   |   | 4   |   |
| Interest                cost                                   |   |   | **86**    |   |   | 86    |   |   | **11**  |   |   | 12  |   |
| Benefits                paid                                   |   |   | **(77**   | **)**  |   | (83   | )      |   | **(10** | **)**  |   | (9  | )      |
| Actuarial                losses (gains)                        |   |   | **43**    |   |   | 155   |   |   | -       |   |   | 19  |   |
| Other                                                          |   |   | **13**    |   |   | -     |   |   | -       |   |   | -   |   |
| Accrued                benefit obligation at end of year       |   | **$**  | **1,786** |   | $      | 1,681 |   | **$**  | **235** |   | $      | 230 |   |

----

**Note      23**
**EMPLOYEE      FUTURE BENEFITS **
*continued*

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

|                                                                    | **2006** | 2005 | 2004 |
|-------------------------------------------------------------------------|----------|------|------|
| Year-end                obligation discount rate1                       | **5.0%** | 5.0% | 5.7% |
| Accrued                benefit obligation discount rate1                | **5.0%** | 5.7% | 6.0% |
| Long-term                rate of return on plan assets                  | **7.5%** | 7.5% | 7.5% |
| Rate                of compensation increase, excluding merit increases | **3.0%** | 3.1% | 3.0% |

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

|                                                                                                                                  | **2006** | 2005 |
|---------------------------------------------------------------------------------------------------------------------------------------|----------|------|
| Dental                care cost trend rate1                                                                                           | **3.5%** | 3.5% |
| Health                care cost trend rate                                                                                            | **8.0%** | 8.5% |
| Health                care cost trend rate declines to                                                                                | **4.5%** | 4.5% |
| Year                that health care cost trend rate reaches the rate which it is expected                to                remain at | **2014** | 2014 |

**Sensitivity      Analysis**

|                                              |   | Increase |   | Decrease |   |
|---------------------------------------------------|--------|----------|--------|----------|--------|
| Total                of service and interest cost |   | $        | 2      |     | $      | (2 | ) |
| Accrued                benefit obligation         |   | $        | 28     |     | $      | (26 | ) |

**The      Plan Assets consist of**

|                            | Percentage                of Plan Assets at December 31, |
|---------------------------------|----------------------------------------------------------|
| *Asset                Category* |                                                     | **2006** |   | 2005 |
|                            |                                                     |   |   |   |
| Equity                          |                                                     | **62%** |   | 61% |
| Bonds                           |                                                     | **38%** |   | 39% |
|                            |                                                     | **100%** |   | 100% |

----

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

**Crude      Oil and Products**

** **

|                                                    |   | **December                31,****2006** |      | December                31,2005  |
|---------------------------------------------------------|--------|-----------------------------------------|-----------|---------------------------------------|
| Accounts                receivable                      |   | **$**                                   | **-**     |                                  | $ | 5 |
| Accounts                payable and accrued liabilities |   |                                    | **233**   |                                  |   | 1 |
| Other                liabilities                        |   |                                    | **1,252** |                                  |   | 1,222 |

|                                                                            |   |   | Quantity  |   |   | Maturity  |   |   | Average                PriceUS$/bbl  |   |   | Fair              Value  |   |
|---------------------------------------------------------------------------------|--------|--------|----------------|--------|--------|----------------|--------|--------|-------------------------------------------|--------|--------|-------------------------------|--------|
| **Crude                Oil and Products***(millions                of barrels)* |   |   |           |   |   |           |   |   |                                      |   |   |                          |   |
| Crude                oil purchases                                              |   |   | 2.7            |   |   | 2007           |   | $      | 63.42                                     |   | $      | (8                            | )      |
| Crude                oil sales                                                  |   |   | 2.0            |   |   | 2007           |   | $      | 61.99                                     |   | $      | 6                             |   |
| Buzzard                crude oil sales                                          |   |   | 35.8           |   |   | 2007-2010      |   | $      | 25.98                                     |   | $      | (1,481                        | )      |
|                                                                            |   |   |           |   |   |           |   |   |                                      |   | $      | (1,483                        | )      |

|                                                                     |   |                Quantity |   |                Maturity |   | Average                  PriceCdn$/GJ |   |  Fair                Value |   |
|--------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|---------------------------------------|--------|---------------------------------|--------|
| **Natural              Gas***(millions of gigajoules -              GJ)* |   |                         |   |                         |   |                                  |   |                            |   |   |   |   |   |
| Natural                gas purchases                                     |   |                         | 1.1    |                         |   | 2007                                  |   | $                               | 7.72   |   | $ | (2 | ) |
|                                                                     |   |                         |   |                         |   |                                  |   |                            |   |   | $ | (2 | ) |
|                                                                     |   |                         |   |                         |   |                                  |   |                            |   |   | $ | (1,485 | ) |

----

**Note      24**
**FINANCIAL**

**      INSTRUMENTS AND DERIVATIVES **
*continued*

|                                                                                                                                                   |  **2006** |  2005                               |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|------------------------------------------|------------|
|                                                                                                                                                   |           |  **Carrying                Amount** |       |  **Fair                Value** |   |  Carrying                Amount |  Fair                Value |   |
| Financial                instruments included in current assets and current liabilities related                to                continuing operations |           | **$**                                    | **(1,220** | **)** | **$** | **(1,220** | **)** | $ | (557 | ) | $ | (557 | ) |
| Long-term                debt                                                                                                                          |           | **$**                                    | **(2,894** | **)** | **$** | **(2,959** | **)** | $ | (2,913 | ) | $ | (3,134 | ) |

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

**Commitments**

|                                        |   | 2007   |   | 2008   |   | 2009 |   | 2010   |   | 2011   |   | Thereafter |   | Total  |   |
|---------------------------------------------|--------|--------|--------|--------|--------|------|--------|--------|--------|--------|--------|------------|--------|--------|--------|
| Transportation                agreements    |   | $      | 215    |   | $      | 213  |   | $      | 145    |   | $      | 129        |   | $      | 109    |   | $ | 930 |   | $ | 1,741 |   |
| Exploration                work commitments |   |   | 88     |   |   | 18   |   |   | 18     |   |   | 7          |   |   | 1      |   |   | - |   |   | 132 |   |
| Operating                leases             |   |   | 492    |   |   | 140  |   |   | 106    |   |   | 99         |   |   | 75     |   |   | 237 |   |   | 1,149 |   |
|                                        |   | $      | 795    |   | $      | 371  |   | $      | 269    |   | $      | 235        |   | $      | 185    |   | $ | 1,167 |   | $ | 3,022 |   |

**Contingent      Liabilities**

**Note      26**
**VARIABLE      INTEREST ENTITIES**

*Consolidation      of Variable Interest Entities *

----

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

|                                                                                                                                                            |   | Notes  |                 | **2006** |   | 2005      |   | 2004   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------|----------|--------|-----------|--------|--------|--------|
| Net                earnings from continuing operations, as reported in the Consolidated                Statement of Earnings                                    |   |   |                 |     | **$**  | **1,588** |   | $      | 1,693  |   | $ | 1,698 |   |
| Adjustments,                before income taxes                                                                                                                 |   |   |                 |     |   |      |   |   |   |   |   |   |   |
| Accounting                for income taxes                                                                                                                      |   |   | (a                   | )        |   | **8**     |   |   | 117    |   |   | (27 | ) |
| Capitalization                of interest and related amortization                                                                                              |   |   | (b                   | )        |   | **47**    |   |   | 46     |   |   | 8 |   |
| Stock-based                compensation                                                                                                                         |   |   | (g                   | )        |   | **(24**   | **)**  |   | -      |   |   | - |   |
| Other                                                                                                                                                           |   |   |                 |     |   | -         |   |   | 1      |   |   | 1 |   |
| Income                taxes on above items                                                                                                                      |   |   |                 |     |   | **(10**   | **)**  |   | (15    | ) |   | 9 |   |
| Net                earnings from continuing operations, as adjusted before cumulative                effect                of change in accounting policy       |   |   |                 |     |   | **1,609** |   |   | 1,842  |   |   | 1,689 |   |
| Net                earnings from discontinued operations                                                                                                        |   |   |                 |     |   | **152**   |   |   | 98     |   |   | 59 |   |
| Net                earnings, as adjusted before cumulative effect of change in accounting                policy                                                 |   |   |                 |     |   | **1,761** |   |   | 1,940  |   |   | 1,748 |   |
| Cumulative                effect of change in accounting policy, net of income taxes                                                                            |   |   | (g                   | )        |   | **(14**   | **)**  |   | -      |   |   | - |   |
| Net                earnings, as adjusted                                                                                                                        |   |   |                 |     | **$**  | **1,747** |   | $      | 1,940  |   | $ | 1,748 |   |
|                                                                                                                                                            |   |   |                 |     |   |      |   |   |   |   |   |   |   |
| Earnings                from continuing operations, as adjusted before cumulative effect                of change                in accounting policy per share |   |   |                 |     |   |      |   |   |   |   |   |   |   |
| Basic                                                                                                                                                           |   |   |                 |     | **$**  | **3.19**  |   | $      | 3.55   |   | $ | 3.19 |   |
| Diluted                                                                                                                                                         |   |   |                 |     | **$**  | **3.16**  |   | $      | 3.51   |   | $ | 3.15 |   |
| Earnings,                as adjusted before cumulative effect of change in accounting policy                per                share                            |   |   |                 |     |   |      |   |   |   |   |   |   |   |
| Basic                                                                                                                                                           |   |   |                 |     | **$**  | **3.49**  |   | $      | 3.74   |   | $ | 3.30 |   |
| Diluted                                                                                                                                                         |   |   |                 |     | **$**  | **3.45**  |   | $      | 3.69   |   | $ | 3.26 |   |
| Earnings,                as adjusted per share                                                                                                                  |   |   |                 |     |   |      |   |   |   |   |   |   |   |
| Basic                                                                                                                                                           |   |   |                 |     | **$**  | **3.47**  |   | $      | 3.74   |   | $ | 3.30 |   |
| Diluted                                                                                                                                                         |   |   |                 |     | **$**  | **3.43**  |   | $      | 3.69   |   | $ | 3.26 |   |
| Comprehensive                income, net of tax                                                                                                                 |   |   |                 |     |   |      |   |   |   |   |   |   |   |
| Net                earnings, as adjusted                                                                                                                        |   |   |                 |     | **$**  | **1,747** |   | $      | 1,940  |   | $ | 1,748 |   |
| Unrealized                gain (loss) on financial derivatives                                                                                                  |   |   | (d,                f | )        |   | -         |   |   | -      |   |   | (5 | ) |
| Change                in minimum pension liability                                                                                                              |   |   | (e,                f | )        |   | **42**    |   |   | (65    | ) |   | (36 | ) |
| Change                in foreign currency translation adjustment                                                                                                |   |   | (f                   | )        |   | **369**   |   |   | (588   | ) |   | (49 | ) |
|                                                                                                                                                            |   |   |                 |     | **$**  | **2,158** |   | $      | 1,287  |   | $ | 1,658 |   |

----

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

|                                                           |   |   |                      |  **December                  31, 2006** |   |  December                  31, 2005 |       |
|----------------------------------------------------------------|--------|--------|---------------------------|----------------------------------------------|--------|------------------------------------------|------------|
|                                                           |   |   | Notes                |                                         |   | **As                  Reported**    |       |   | **United                  States GAAP**  |   |   | As                  Reported  |   |   | United                  States GAAP  |   |
| Current                  assets                                |   |   |                      |                                         | **$**  | **2,826**                                | ** ** | **$** | **2,826** |   | $ | 2,934 |   | $ | 2,934 |   |
| Current                  assets - discontinued operations      |   |   |                      |                                         |   | -                                        |       |   | - |   |   | 237 |   |   | 237 |   |
| Property,                  plant and equipment, net            |   |   | (a,                  b    | )                                            |   | **18,577**                               |       |   | **19,209** |   |   | 15,921 |   |   | 16,513 |   |
| Goodwill                                                       |   |   | (a                        | )                                            |   | **801**                                  |       |   | **780** |   |   | 737 |   |   | 716 |   |
| Deferred                  charges and other assets             |   |   | (e                        | )                                            |   | **442**                                  |       |   | **314** |   |   | 415 |   |   | 415 |   |
| Assets                  of discontinued operations             |   |   |                      |                                         |   | -                                        |       |   | - |   |   | 411 |   |   | 411 |   |
| Current                  liabilities                           |   |   | (g                        | )                                            |   | **3,348**                                |       |   | **3,375** |   |   | 2,984 |   |   | 2,984 |   |
| Current                  liabilities - discontinued operations |   |   |                      |                                         |   | -                                        |       |   | - |   |   | 102 |   |   | 102 |   |
| Long-term                  debt                                |   |   |                      |                                         |   | **2,887**                                |       |   | **2,887** |   |   | 2,906 |   |   | 2,906 |   |
| Other                  liabilities                             |   |   | (e,                  g    | )                                            |   | **1,826**                                |       |   | **2,200** |   |   | 1,888 |   |   | 2,229 |   |
| Asset                  retirement obligations                  |   |   |                      |                                         |   | **1,170**                                |       |   | **1,170** |   |   | 882 |   |   | 882 |   |
| Future                  income taxes                           |   |   | (b,                  e, g | )                                            |   | **2,974**                                |       |   | **2,977** |   |   | 2,405 |   |   | 2,469 |   |
| Common                  shares                                 |   |   |                      |                                         |   | **1,366**                                |       |   | **1,366** |   |   | 1,362 |   |   | 1,362 |   |
| Contributed                  surplus                           |   |   | (c                        | )                                            |   | **469**                                  |       |   | **1,591** |   |   | 1,422 |   |   | 2,544 |   |
| Retained                  earnings                             |   |   |                      |                                         |   | **8,557**                                |       |   | **7,831** |   |   | 7,018 |   |   | 6,285 |   |
| Foreign                  currency translation adjustment       |   |   | (f                        | )                                            |   | **49**                                   |       |   | - |   |   | (314 | ) |   | - |   |
| Accumulated                  other comprehensive income (loss) |   |   | (e,                  f    | )                                            | **$**  | -                                        | ** ** | **$** | **(268** | **)** | $ | - |   | $ | (537 | ) |

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

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

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

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

----

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

| **(e)  ** | **Pensions                and Other Post-Retirement                Benefits** |
|---------------------|-------------------------------------------------------------------------------|

*Employers'      Accounting for Defined Benefit Pension and Other Postretirement      Plans*
*-      an      amendment to SFAS 87, 88, 106, 132(R)*

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

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

*Share-Based      Payment*

**Note      28**
**RECENT      ACCOUNTING PRONOUNCEMENTS**

**Canadian**

***Convergence      of Canadian GAAP with International Financial Reporting      Standards***

----

**Note      28**
**RECENT      ACCOUNTING PRONOUNCEMENTS **
*continued*

***Financial      Instruments, Comprehensive Income and Hedges***

**CICA      Section 3855 - **
***Financial      Instruments***
** **
***-      Recognition and Measurement***

**CICA      Section 3865 - **
***Hedges***

*Hedging      Relationships*
*Foreign      Currency Translation*

**CICA      Section 1530 - **
***Comprehensive      Income***
** **

**CICA      Section 3862 - **
***Financial      Instruments - Disclosures***

the      significance of financial instruments to the entity's financial position and      performance. It also requires that entities disclose the      nature and extent of risks arising from financial instruments and how the entity      manages those risks.

**CICA      Section 3863 - **
***Financial      Instruments - Presentation***

----

**Note      28**
**RECENT      ACCOUNTING PRONOUNCEMENTS **
*continued*

***Accounting      Changes***

*Accounting      Changes*

***Variable      Interest Entities***

*Determining      the Variability to be Considered in Applying AcG 15*
*Determining      the Variability to be Considered in Applying FASB Interpretation No.      46(R)*
*AcG      15 - Consolidation of Variable Interest Entities*

***Stripping      Costs Incurred During Production***

*Stripping      Costs Incurred in the Production Phase of a Mining Operation*

**United      States**

***Fair      Value Measurements***

*Fair      Value Measurements*

***Accounting      for Servicing of Financial Assets***

*Accounting      for Servicing of Financial Assets - an amendment of FASB Statement No. 140.      *

***Accounting      for Certain Hybrid Financial Instruments***

*Accounting      for Certain Hybrid Financial Instruments*

----

**Note      28**
**RECENT      ACCOUNTING PRONOUNCEMENTS **
*continued*

***Accounting      for Uncertainty in Income Taxes***

*Accounting      for Uncertainty in Income Taxes *
*an      interpretation of FASB Statement No. 109. *

***Sales      Taxes***

*06-3      - How Taxes Collected from Customers and Remitted to Governmental Authorities      Should be Presented in the Income Statement (That is Gross versus Net      Presentation)*
* *

----