EXHIBIT 2
                                                                     ---------

--------------------------------------------------------------------------------




WESTERN OIL SANDS INC.


CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
(in thousands of dollars)




--------------------------------------------------------------------------------
<PAGE>

<TABLE>
<CAPTION>
WESTERN OIL SANDS INC.
Consolidated Balance Sheets

-----------------------------------------------------------------------------------------------------
DECEMBER 31 ($ THOUSANDS)                                              2005                   2004
-----------------------------------------------------------------------------------------------------
<S>                                                               <C>                    <C>
ASSETS

Current Assets
      Cash                                                             5,590                 3,715
      Accounts Receivable                                             87,398                62,564
      Inventory (NOTE 4)                                              21,083                14,186
      Prepaid Expense                                                  9,355                 5,771
                                                             ----------------------------------------
                                                                     123,426                86,236
                                                             ----------------------------------------
Property, Plant and Equipment (NOTE 5)                             1,352,605             1,351,745
Risk Management (NOTE 18)                                             98,426                     -
Deferred Charges (NOTE 6)                                             16,063                18,378
Future Income Taxes (NOTE 12)                                              -                14,511
                                                             ----------------------------------------
                                                                   1,467,094             1,384,634
                                                             ----------------------------------------
                                                                   1,590,520             1,470,870
                                                             ========================================

LIABILITIES

Current Liabilities
      Accounts Payable and Accrued Liabilities                       101,303                87,679
      Current Portion of Long-term Debt (NOTE 7)                           -                95,000
      Current Portion of Lease Obligations (NOTE 8 )                   3,396                 5,230
                                                             ----------------------------------------
                                                                     104,699               187,909
Long-term Liabilities
      Long-term Debt (NOTE 7)                                        565,655               662,620
      Lease Obligations (NOTE 8)                                      55,809                53,474
      Option Premium Liability (NOTE 9)                               85,416                     -
      Asset Retirement Obligation (NOTE 10)                            9,094                 8,191
      Future Income Taxes (NOTE 12)                                   56,445                     -
                                                             ----------------------------------------
                                                                     772,419               724,285
                                                             ----------------------------------------
                                                                     877,118               912,194
                                                             ----------------------------------------
SHAREHOLDERS' EQUITY

Share Capital (NOTE 13)                                              548,747               545,699
Contributed Surplus (NOTE 14)                                          3,474                 1,245
Retained Earnings                                                    161,181                11,732
                                                             ----------------------------------------
                                                                     713,402               558,676
                                                             ----------------------------------------
                                                                   1,590,520             1,470,870
                                                             ========================================
</TABLE>

Commitments and Contingencies (NOTE 19)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


APPROVED BY THE BOARD OF DIRECTORS

/s/ Robert G. Puchniak                                  /s/ Mac Van Wielingen
ROBERT G. PUCHNIAK                                          MAC VAN WIELINGEN
Direcotr                                                             Director

<PAGE>

<TABLE>
<CAPTION>
WESTERN OIL SANDS INC.
Consolidated Statements of Operations and Retained Earnings (Deficit)

--------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 ($ THOUSANDS, EXCEPT AMOUNTS PER SHARE)            2005                   2004
--------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                    <C>
REVENUES (NOTE 18)                                                      910,330               636,911
LESS: PURCHASED FEEDSTOCKS AND TRANSPORTATION                          (318,934)             (315,926)
                                                                  --------------------------------------
                                                                        591,396               320,985

EXPENSES
      Operating                                                         250,389               212,993
      Research and Business Development                                  10,657                 4,733
      Royalties                                                           4,005                 2,954
      General and Administrative                                         11,342                 8,101
      Insurance                                                           7,995                 9,350
      Interest (NOTE 11)                                                 58,165                61,154
      Stock-based Compensation (NOTE 15)                                  3,149                   967
      Accretion on Asset Retirement Obligation (NOTE 10)                    562                   471
      Depreciation, Depletion and Amortization                           50,738                44,515
                                                                  --------------------------------------
                                                                        397,002               345,238
                                                                  --------------------------------------
NET EARNINGS (LOSS) BEFORE OTHER INCOME AND INCOME TAXES                194,394               (24,253)
OTHER INCOME
      Foreign Exchange Gain                                              15,561                38,350
      Risk Management Gain (NOTE 18)                                     13,450                     -
                                                                  --------------------------------------
NET EARNINGS BEFORE INCOME TAX                                          223,405                14,097
Income Tax Expense (Recovery) (NOTE 12)                                  73,956                (5,355)
                                                                  --------------------------------------

NET EARNINGS                                                            149,449                19,452

Retained Earnings (Deficit) at Beginning of Year                         11,732                (7,720)
                                                                  --------------------------------------

Retained Earnings at End of Year                                        161,181                11,732
                                                                  ======================================

NET EARNINGS PER SHARE (NOTE 13)
Basic                                                                      0.93                  0.12
Diluted                                                                    0.92                  0.12
                                                                  --------------------------------------
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>

<TABLE>
<CAPTION>
WESTERN OIL SANDS INC.
Consolidated Statements of Cash Flows

-------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 ($ THOUSANDS)                                           2005                   2004
-------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                    <C>

CASH PROVIDED BY (USED IN)

CASH FROM OPERATING ACTIVITIES
      Net Earnings                                                           149,449                19,452
Non-cash Items:
      Stock-based Compensation (NOTE 15)                                       3,149                   967
      Accretion on Asset Retirement Obligations (NOTE 10)                        562                   471
      Depreciation, Depletion and Amortization                                50,738                44,515
      Impairment of Long-lived Assets (NOTE 5)                                     -                 4,733
      Interest Expense on Option Premium Liability (NOTE 9)                    1,278                     -
      Unrealized Gain on Risk Management (NOTE 18)                           (13,450)                    -
      Unrealized Foreign Exchange Gain (NOTE 7 AND NOTE 9)                   (17,803)              (39,960)
      Future Income Tax Expense (Recovery) (NOTE 12)                          70,956                (7,104)
Cash Items:
      Cash Settlement of Asset Retirement Obligation (NOTE 10)                   (52)                  (30)
      Cash Settlement of Performance Share Unit Plan (NOTE 14)                  (596)                    -
                                                                       --------------------------------------
Cash Flow from Operations                                                    244,231                23,044
(Increase) Decrease in Non-Cash Working Capital (NOTE 20)                    (32,489)               16,393
                                                                       --------------------------------------

                                                                             211,742                39,437
                                                                       --------------------------------------

CASH FROM (USED IN) FINANCING ACTIVITIES
      Issue of Share Capital (NOTE 13)                                         2,724                70,866
      Share Issue Expenses (NOTE 13)                                               -                (2,934)
      Repayment of Long-term Debt, Net                                      (175,000)              (63,000)
      Deferred Charges                                                          (216)                  (56)
      Repayment of Obligations Under Capital Lease                            (1,340)               (1,343)
                                                                       --------------------------------------

                                                                            (173,832)                3,533
                                                                       --------------------------------------

CASH INVESTED
      Capital Expenditures                                                   (69,350)              (46,399)
      Insurance Proceeds (NOTE 19)                                            22,517                 6,431
      Decrease (Increase) in Non-Cash Working Capital (NOTE 20)               10,798                (3,057)
                                                                       --------------------------------------

                                                                             (36,035)              (43,025)
                                                                       --------------------------------------

INCREASE (DECREASE) IN CASH                                                    1,875                   (55)

CASH AT BEGINNING OF YEAR                                                      3,715                 3,770
                                                                       --------------------------------------

CASH AT END OF YEAR                                                            5,590                 3,715
                                                                       ======================================
</TABLE>


SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


1     BUSINESS OF THE CORPORATION

      Western Oil Sands Inc. (the  "Corporation") was incorporated on June 18,
      1999 under the laws of the Province of Alberta. The Corporation holds an
      undivided  20 per cent working  interest in an oil sands  project in the
      Athabasca region of northeast Alberta (the "Athabasca Oil Sands Project"
      or "AOSP").  Shell Canada  Limited and Chevron  Canada  Limited hold the
      remaining 60 per cent and 20 per cent interests,  respectively. The AOSP
      consists of direct or indirect participation in the design, construction
      and operation of mining,  extracting,  transporting and upgrading of oil
      sands deposits. The Corporation is pursuing other oil activities related
      to technology,  development, downstream initiatives and large, long-life
      resource capture.

2     SUMMARY OF ACCOUNTING POLICIES

      a)    PRINCIPLES OF CONSOLIDATION

            The Consolidated  Financial Statements include the accounts of the
            Corporation  and  its  wholly-owned  subsidiary  corporations  and
            limited  partnership.  The  Corporation's oil sands activities are
            conducted jointly with others.  These financial statements reflect
            only the Corporation's proportionate interest in such activities.

      b)    MEASUREMENT UNCERTAINTY

            The  preparation  of  the  Consolidated  Financial  Statements  in
            conformity with Canadian Generally Accepted Accounting  Principles
            requires  management to make estimates and assumptions that affect
            the reported  amounts of assets and  liabilities and disclosure of
            contingent  assets and liabilities at the date of the Consolidated
            Financial  Statements,  and the  reported  amounts of revenues and
            expenses  during the reporting  period.  Such estimates  relate to
            unsettled   transactions   and  events  as  of  the  date  of  the
            Consolidated Financial Statements. Accordingly, actual results may
            differ from these estimated  amounts as future  confirming  events
            occur.  Significant  estimates  used  in  the  preparation  of the
            Consolidated Financial Statements include, but are not limited to,
            the estimates of crude oil reserves, asset retirement obligations,
            income taxes and employee future benefits.

      c)    FOREIGN CURRENCY TRANSLATION

            Accounts in foreign currencies and operations in foreign countries
            that are integrated are translated into Canadian dollars using the
            temporal   method.   Under  this  method,   monetary   assets  and
            liabilities  denominated in foreign currencies are translated into
            Canadian  dollars at rates of exchange in effect at the end of the
            period.  Non-monetary  assets and  liabilities are translated into
            Canadian  dollars at exchange rates  prevailing at the transaction
            dates.  Revenues and expenses are translated into Canadian dollars
            at  the   monthly   average   exchange   rates.   Provisions   for
            depreciation,  depletion and  amortization  are  translated at the
            same rate as the related  items.  The resulting  exchange gains or
            losses are included in the  Consolidated  Statements of Operations
            and Retained Earnings.

      d)    CASH

            Cash  presented  in  the  Consolidated   Financial  Statements  is
            comprised of cash and cash  equivalents  and  includes  short-term
            investments   with  a  maturity  of  three  months  or  less  when
            purchased.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      e)    INVENTORY

            Product and Parts,  Supplies and Other  inventories  are stated at
            the lower of average cost and net realizable value.

      f)    PROPERTY, PLANT AND EQUIPMENT

            Property, plant and equipment ("PP&E") assets are recorded at cost
            less  accumulated  provisions  for  depreciation,   depletion  and
            amortization. Capitalized costs include costs specifically related
            to the acquisition,  exploration,  development and construction of
            the  AOSP  and  other  projects.  Prior  to  the  commencement  of
            commercial  operations,  interest  costs of debt  attributable  to
            major  development  projects  are  capitalized.  PP&E  assets  are
            reviewed for  impairment  whenever  events or conditions  indicate
            that  their  net  carrying  amount  may  not be  recoverable  from
            estimated  future cash flows. If an impairment is determined,  the
            assets are written down to the fair market value.

            Depletion  on crude oil  properties  is provided  over the life of
            proved  and  probable  reserves  on a unit  of  production  basis,
            commencing  when the  facilities  are  substantially  complete and
            after  commercial  production  has begun.  Other  PP&E  assets are
            depreciated  on a  straight-line  basis over their  useful  lives,
            except for lease acquisition costs and certain mine assets,  which
            are amortized and depreciated over the life of proved and probable
            reserves.

      g)    DERIVATIVE FINANCIAL INSTRUMENTS

            The  Corporation  utilizes  financial  instruments  to manage  its
            exposure to  fluctuations in foreign  currency  exchange rates and
            commodity prices. These derivative  financial  instruments are not
            used for  speculative  purposes.  The Corporation has policies and
            procedures in place with respect to the required documentation and
            approvals for the use of financial  instruments  and  specifically
            ties their use, in the case of  commodities,  to the mitigation of
            market  price  risk  associated  with cash  flows  expected  to be
            generated.    Where   applicable,   the   Corporation   identifies
            relationships   between  financial   instruments  and  anticipated
            transactions,  as well as its risk  management  objectives and the
            strategy for  undertaking  the  economic  hedge  transaction.  The
            Corporation  assesses,  both at inception and on an ongoing basis,
            whether  the   financial   instrument   used  in  the   particular
            transaction  is effective in offsetting  changes in fair values or
            cash flows of the transaction.

            The fair  values of these  financial  instruments  are based on an
            estimate of the amounts  that would have been  received or paid to
            settle  these  instruments  prior  to  maturity.  The  Corporation
            considers  all of  these  financial  instruments  to be  effective
            economic hedges.  However,  certain of the Corporation's financial
            instruments  do not qualify or have not been  designated as hedges
            for accounting  purposes in accordance with  Accounting  Guideline
            13.

            In  accordance  with  Emerging  Issues   Committee   Abstract  128
            ("EIC-128")  "Accounting  for Trading,  Speculative or Non-Hedging
            Derivative Financial  Instruments",  financial instruments that do
            not  qualify as hedges or have not been  designated  as hedges are
            recorded using the  mark-to-market  method of accounting,  whereby
            instruments  are  recorded in the  Consolidated  Balance  Sheet as
            either  an  asset  or a  liability  with  changes  in  fair  value
            recognized in net earnings.  Financial instruments that do qualify
            as hedges  under  Accounting  Guideline 13 and are  designated  as
            hedges are not  recognized on the  Consolidated  Balance Sheet and
            gains  and  losses on the hedge are  deferred  and  recognized  in
            revenues in the period the hedge sale transaction occurs.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      h)    ASSET RETIREMENT OBLIGATION

            The  Corporation  recognizes  an asset and a  liability  for asset
            retirement obligations in the period in which they are incurred by
            estimating  the fair  value of the  obligation.  The fair value is
            determined by the  Corporation  by first  estimating  the expected
            timing and amount of cash flows,  using  third-party  costs,  that
            will be required for future  dismantlement  and site  restoration,
            and  then   calculating   the  present   value  of  these   future
            expenditures  using a  credit-adjusted-risk-free-rate  appropriate
            for the  Corporation.  Any  change in timing or amount of the cash
            flows subsequent to initial recognition results in a change in the
            asset  and  liability.   The  Corporation  recognizes,   over  the
            estimated life of the asset and liability,  depletion on the asset
            and accretion on the liability.  Actual expenditures  incurred are
            charged against the accumulated obligation.

      i)    STOCK-BASED COMPENSATION PLANS

            The  Corporation  has a stock-based  compensation  plan,  which is
            described  in  note  15(a).   Effective   January  1,  2002,   the
            Corporation adopted CICA Section 3870,  "Stock-based  Compensation
            and Other  Stock-based  Payments".  This Section is applied to all
            stock-based  payments to non-employees and to employee awards that
            are direct awards of stock, stock appreciation  rights and similar
            awards to be  settled  in cash.  This  Section  is  applied to all
            grants of stock options on or after January 1, 2002.

            During the fourth quarter of 2003,  effective for January 1, 2003,
            the  Corporation  began  prospectively   recognizing  compensation
            expense for options  granted under the plan in accordance with the
            fair  value  method.  Under the  transitional  provisions  in this
            Section the  Corporation  is required only to apply the fair value
            based  method  and record  compensation  expense  and  Contributed
            Surplus  to awards  granted,  modified  or settled on or after the
            beginning of the fiscal year in which the  Corporation  adopts the
            fair  value  method for those  awards.  Accordingly,  only  awards
            issued on or after January 1, 2003 require compensation expense to
            be  recognized  in  accordance  with  this  Section.  Compensation
            expense for options granted subsequent to 2003 is determined based
            on the fair  values at the time of grant and are  recognized  over
            the  estimated  vesting  periods of the  respective  options.  For
            options   granted  prior  to  January  1,  2003,  the  Corporation
            continues  to disclose  the pro forma net  earnings  impact of the
            related  compensation  expense.  Pro  forma   compensation-related
            earnings  impacts  are  determined  on the same  basis as the 2003
            options.

            Consideration received on the exercise of stock options granted is
            credited  to share  capital,  and if related to any stock  options
            that were granted  subsequent to December 31, 2002, then an amount
            equal  to the  compensation  expense  recognized  to that  date is
            reclassified from Contributed Surplus to Common Shares.

            The Corporation  has a Performance  Share Unit Plan ("PSUP") which
            is   described   in  note  15(b).   The   Corporation   recognizes
            compensation  expense,  and contributed  surplus,  related to this
            plan in accordance with the fair value method.

            The  Corporation  has a Deferred Share Unit Plan ("DSUP") which is
            described in note 15(c). The Corporation  recognizes  compensation
            expense and a liability  relating to this plan in accordance  with
            the fair value method.

            The  Corporation,  as an owner in the AOSP,  shares in any related
            costs associated with the AOSP's stock-based  compensation  plans.
            The AOSP's plans  involve Stock  Appreciation  Rights (SARs) which
            are described in note 15(e) which may require settlement with cash
            payments.  During  the  vesting  period,  compensation  expense is
            recognized using the graded vesting approach when the value of the
            SARs  exceeds  the award  value.  The  Corporation's  share of the
            change in value of the SARs is recognized in operating  expense in
            the year the change occurs.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      j)    REVENUE RECOGNITION

            The  revenue  associated  with the sale of crude oil  products  is
            recorded  when title and other  significant  risks and  rewards of
            ownership are passed to the customer and delivery has occurred.

      k)    INCOME TAXES

            The  Corporation  follows the liability  method of accounting  for
            income  taxes.   Under  this  method,   future  income  taxes  are
            recognized  based  on  the  estimated  tax  effects  of  temporary
            differences in the carrying value of assets and liabilities in the
            Consolidated  Financial Statements and their respective tax bases,
            using income tax rates  substantively  enacted on the Consolidated
            Balance Sheet date.  The effect of a change in income tax rates on
            future income tax assets and liabilities is recognized in earnings
            in the period the change occurs.

      l)    NET EARNINGS PER SHARE

            Basic net  earnings per share are  calculated  by dividing the net
            earnings available to common shareholders by the  weighted-average
            number of common shares outstanding during the period. Diluted net
            earnings per share reflect the potential dilution that would occur
            if stock options or warrants were exercised.  The Corporation uses
            the  treasury  stock method to  determine  the dilutive  effect of
            stock options and other dilutive  instruments.  The treasury stock
            method  assumes  that  proceeds  received  from  the  exercise  of
            in-the-money stock options are used to repurchase common shares at
            the average market price for the period.

      m)    EMPLOYEE FUTURE BENEFITS

            The  Corporation has a defined  contribution  pension plan for its
            direct  employees and, as a result of the 20 per cent ownership in
            the AOSP, has a defined  benefit pension plan for employees of the
            AOSP.  For the defined  contribution  pension plan, the expense is
            recognized as payments are made or entitlements are earned.

            For the defined  benefit  pension plan,  the costs are  determined
            using the projected  benefit method  prorated on length of service
            and reflects the AOSP's best estimate of expected plan  investment
            performance,  salary  escalation,  retirement  ages of  employees,
            withdrawal  rates and mortality rates. The expected return on plan
            assets  is  based  on the  fair  value  of  those  assets  and the
            obligation  is  discounted  using a  market  interest  rate at the
            beginning  of the  year  based  on  high  quality  corporate  debt
            instruments. Pension expense includes the cost of pension benefits
            earned  during the  current  year,  the  interest  cost on pension
            obligations,  the  expected  return on pension  plan  assets,  the
            amortization  of adjustments  arising from pension plan amendments
            and the excess of the net actuarial gain or loss over ten per cent
            of the greater of the  benefits  obligation  and the fair value of
            plan assets.  The amortization  period covers the expected average
            remaining service lifetime of employees covered by the plans.

      n)    COMPARATIVE AMOUNTS

            Certain  comparative  amounts have been reclassified to conform to
            the current year's presentation.

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


3     CHANGES IN ACCOUNTING POLICIES

      a)    VARIABLE INTEREST ENTITIES

            On January 1, 2005, the Corporation  adopted  Canadian  Accounting
            Guideline  15  (AcG  15),   "Consolidation  of  Variable  Interest
            Entities"  (VIE)  without  restatement  of prior  periods.  AcG 15
            requires  consolidation  of a VIE  where a company  will  absorb a
            majority of a VIE's losses,  receive a majority of its returns, or
            both.  The  Corporation  has entered  into  operating  leases,  as
            described in note 19(a),  with a VIE. These operating  leases,  as
            currently  structured,  do  not  meet  the  AcG  15  criteria  for
            consolidation  by the Corporation  and therefore,  the adoption of
            this  accounting   policy  had  no  impact  on  the  Corporation's
            Consolidated Financial Statements.

      b)    ARRANGEMENTS CONTAINING A LEASE

            On  January 1,  2005,  the  Corporation  adopted  Emerging  Issues
            Committee   Abstract  150   ("EIC-150").   EIC-150   requires  the
            Corporation  to  determine  whether  any  arrangements  agreed to,
            committed  to or modified  after  January 1, 2005  contain a lease
            that is within the scope of CICA Section 3065, "Leases".  There is
            no  impact  on  the  Consolidated   Financial  Statements  as  the
            Corporation does not have any arrangements agreed to, committed to
            or modified  after  January 1, 2005 that  contains a lease that is
            within the scope of CICA Section 3065.


4     INVENTORY

<TABLE>
<CAPTION>
                                                                            2005                   2004
      ---------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
      Product Inventory                                                   11,262                  8,314
      Parts, Supplies and Other                                            9,821                  5,872
      ---------------------------------------------------------------------------------------------------
                                                                          21,083                 14,186
      ===================================================================================================
</TABLE>


5     PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
      2005                                           COST           ACCUM. DD&A*                    NET
      ---------------------------------------------------------------------------------------------------
<S>                                             <C>                     <C>                   <C>
      Athabasca Oil Sands Project
            Producing Assets                    1,350,436               (105,010)             1,245,426
            Capital Leases                         52,705                 (4,294)                48,411
            Expansion                              38,235                      -                 38,235
      ---------------------------------------------------------------------------------------------------
                                                1,441,376               (109,304)             1,332,072

      ---------------------------------------------------------------------------------------------------
      Corporate and Other                          21,895                 (1,362)                20,533
      ---------------------------------------------------------------------------------------------------
                                                1,463,271               (110,666)             1,352,605
      ===================================================================================================
</TABLE>

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


<TABLE>
<CAPTION>
      2004                                            COST           ACCUM. DD&A*                    NET
      ----------------------------------------------------------------------------------------------------
<S>                                             <C>                      <C>                  <C>
      Athabasca Oil Sands Project
            Producing Assets                     1,341,395                (58,955)             1,282,440
            Capital Leases                          52,705                 (2,439)                50,266
            Expansion                               11,560                                        11,560
      ----------------------------------------------------------------------------------------------------
                                                 1,405,660                (61,394)             1,344,266
      ----------------------------------------------------------------------------------------------------
      Corporate and Other                            8,545                 (1,066)                 7,479
      ----------------------------------------------------------------------------------------------------
                                                 1,414,205                (62,460)             1,351,745
      ====================================================================================================
</TABLE>

      * ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION

      The  Producing  Assets  in the  Athabasca  Oil  Sands  Project  net cost
      includes asset  retirement  costs of $7.2 million ($7.0 million - 2004).
      Costs of $38.2 million ($11.6 million - 2004) relating to Major Projects
      in  Progress  and  $15.5  million  ($2.9  million  - 2004)  relating  to
      Corporate and Other are currently not subject to depreciation, depletion
      and amortization as these projects were not  substantially  complete and
      commercial production has not begun.

      During 2004, an asset with an aggregate cost of $4.7 million was written
      off and included in Research and Business Development expenses after the
      Corporation  determined it to be impaired.  The asset related to certain
      activities the Corporation was pursuing  regarding  hydrogen  production
      technology.   The  asset  was   determined  to  be  impaired  after  the
      Corporation  received a negative  preliminary  technical analysis of the
      technology.


6     DEFERRED CHARGES

<TABLE>
<CAPTION>
                                                                          2005                   2004
      --------------------------------------------------------------------------------------------------
<S>                                                                    <C>                    <C>
      Deferred Charges                                                   28,712                 28,496
      Less: Amortization                                                (12,649)               (10,118)
      --------------------------------------------------------------------------------------------------
                                                                         16,063                 18,378
      ==================================================================================================
</TABLE>

      Deferred  charges include  primarily debt financing costs that have been
      incurred in  establishing  the  Corporation's  various debt  facilities.
      These  amounts are being  amortized  over the term of the  related  debt
      facilities.

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


7     LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                                 2005                   2004
      -------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>                    <C>
      US$450 million Senior Secured Notes                                        (a)           524,655                541,620
      Senior Credit Facility                                                     (b)                 -                 95,000
      Revolving Credit Facility                                                  (c)            41,000                121,000
      -------------------------------------------------------------------------------------------------------------------------
                                                                                               565,655                757,620
      Less: Current Portion of Long-term Debt                                    (b)                 -                (95,000)
      -------------------------------------------------------------------------------------------------------------------------
                                                                                               565,655                662,620
      =========================================================================================================================
</TABLE>

      a)    The Senior  Secured Notes (the "Notes") bear interest at 8.375 per
            cent and have a maturity  of May 1, 2012.  The Notes  provide  the
            holders  with  security  over all the  assets of the  Corporation,
            subordinated  to  the  $340  million   Revolving  Credit  Facility
            ("Revolving  Credit  Facility")  described in note 7(c), until the
            Corporation  achieves an investment grade corporate credit rating,
            at which time the Senior Secured Notes become unsecured.

            The Senior  Secured Notes are recorded in Canadian  dollars at the
            exchange  rate in effect at the balance  sheet date. An unrealized
            foreign exchange gain totalling $17 million was recognized for the
            year ended  December 31, 2005 (December 31, 2004 - $40 million) as
            a result of changes in the foreign  exchange  rate  between the US
            and Canadian  dollars.  As at December 31, 2005, a total of $184.2
            million of unrealized foreign exchange gains were recognized since
            the inception of the Notes, approximately $92 million of which has
            been  capitalized  as  the  unrealized  gains  occurred  prior  to
            commercial operations.

      b)    The Corporation refinanced the $100 million Senior Credit Facility
            ("Senior  Credit  Facility")  during the first  quarter of 2005 by
            utilizing  a clause  that was  included  in the  Revolving  Credit
            Facility   described  in  note  7(c).   The  clause   enabled  the
            Corporation  to increase  the  Revolving  Credit  Facility by $100
            million.  The terms of the  increase  were  consistent  with those
            included in the original $240 million  Revolving  Credit Facility.
            The Senior Credit Facility, bearing interest at the lenders' prime
            lending rate, the bankers'  acceptance rate or the LIBOR rate plus
            applicable  margins  ranging  from 100 to 200 basis  points was to
            mature and be repayable on April 23, 2005.

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      c)    The Revolving Credit Facility bears interest at the lenders' prime
            lending rate, the bankers'  acceptance rate or the LIBOR rate plus
            applicable  margins  ranging  from nil to 225  basis  points.  The
            Revolving  Credit  Facility  provides the banks with security over
            all of the  assets  of the  Corporation,  with  the  exception  of
            certain  intercompany notes and note guarantees in connection with
            the  Notes  detailed  in note  7(a),  and have  certain  financial
            covenants, including a limit on the amount available for drawdown.
            At December 31, 2005,  the limit  available  for drawdown was $299
            million ($281 million - 2004),  of which $41 million ($121 million
            - 2004) had been drawn and $8.9 million  ($8.1 million - 2004) had
            been issued in letters of credit.

            Certain terms of the Revolving Credit Facility were amended during
            the fourth quarter of 2005.  The 364 day revolving  feature with a
            two year term-out for  non-revolving  allocations was amended to a
            three year revolving maturity,  extendible annually at the lending
            institutions' discretion. Secondly, the spreads added to the prime
            lending  rate and the banker's  acceptance  rate or the Libor rate
            were  adjusted.  Initially,  these  margins  were 100 to 200 basis
            points and after the amendment, these margins are nil to 225 basis
            points.


8     LEASE OBLIGATIONS

<TABLE>
<CAPTION>
                                                                                                 2005                   2004
      -------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>                    <C>
      Obligations Under Capital Lease                                            (a)            50,266                 51,609
      Operating Lease Guarantee Obligation                                       (b)             8,939                  7,095
      -------------------------------------------------------------------------------------------------------------------------
                                                                                                59,205                 58,704
      Less: Current Portion                                                                     (3,396)                (5,230)
      -------------------------------------------------------------------------------------------------------------------------
                                                                                                55,809                 53,474
      =========================================================================================================================
</TABLE>

      a)    The capital lease obligation relates to the Corporation's share of
            capital  costs  for the  hydrogen-manufacturing  unit  within  the
            Project. Repayment of the principal obligation was $1.3 million in
            2005 and is scheduled to remain at that level until fully repaid.

      b)    Under the Mobile  Equipment  Lease,  described in note 19(a),  the
            Corporation is committed to pay its 20 per cent share of an amount
            equal to 85 per cent of the original  cost of the equipment to the
            lessor  at the end of the  terms of the  lease.  Accordingly,  the
            Corporation  recognizes,  as a liability, a portion of this future
            payment as it relates to the service  life of the  equipment  that
            has passed.  For the year ended December 31, 2005, the Corporation
            paid $2.3  million  (December  31,  2004 - nil) in regards to this
            obligation.


9     OPTION PREMIUM LIABILITY

      The Corporation  deferred payment and receipt of the premiums associated
      with the options described in note 18(a)(ii) until the settlement of the
      option  contracts  between 2007 and 2009. The total net premiums payable
      by the  Corporation  are US$21.9  million for 2007,  US$32.4 million for
      2008 and  US$27.8  million  for  2009.  On the  dates  that  the  option
      contracts   were  entered,   a  net  liability  was  recognized  on  the
      Consolidated  Balance  Sheet at the  estimated  present value of the net
      premiums  payable.  Subsequent  to the  inception  dates  of the  option
      contracts, interest expense is recognized, with a corresponding increase
      to the liability, at annual rates ranging from 4.25 per cent to 4.50 per
      cent.  For the year ended  December 31,  2005,  $1.3 million of interest
      expense was recognized (December 31, 2004 - nil).

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      The  option  premium  liability  is  denominated  in US  dollars  and is
      translated  into Canadian  dollars at the period end exchange  rate. The
      unrealized foreign exchange gain arising on the option premium liability
      for the year ended December 31, 2005 was $0.8 million (December 31, 2004
      - nil).

      The  following  table  reconciles  the change in the net option  premium
      liability:

<TABLE>
<CAPTION>
                                                                      2005                   2004
      ---------------------------------------------------------------------------------------------
<S>                                                                <C>                      <C>
      Option Premium Liability at Beginning of Year                      -                      -
      Net Premiums                                                  84,976                      -
      Interest Expense                                               1,278                      -
      Unrealized Foreign Exchange Gain                                (838)                     -
      ---------------------------------------------------------------------------------------------
      Option Premium Liability at End of Year                       85,416                      -
      =============================================================================================
</TABLE>


10    ASSET RETIREMENT OBLIGATION

      The Corporation, in association with its 20 per cent working interest in
      the AOSP,  is also  responsible  for its  share of future  dismantlement
      costs and site restoration costs in the mining, extracting and upgrading
      activities.  The AOSP currently  estimates the total undiscounted amount
      of these costs to be  approximately  $195.9  million  ($192.5  million -
      2004),  with the  majority  of that  amount to be paid at the end of the
      current  reserves  for the AOSP.  In  determining  the fair value of the
      Asset  Retirement  Obligation,   the  estimated  cash  flows  have  been
      discounted using  credit-adjusted  risk-free rates between 5.93 per cent
      and 7.0 per cent. The following table presents the reconciliation of the
      Asset Retirement Obligation from the beginning of each respective period
      until the end of that period:

<TABLE>
<CAPTION>
                                                                       2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                 <C>                    <C>
      Asset Retirement Obligations at Beginning of Year               8,191                  7,137
      Liabilities Incurred                                              393                    613
      Liabilities Settled                                               (52)                   (30)
      Accretion on Asset Retirement Obligation                          562                    471
      ----------------------------------------------------------------------------------------------
      Asset Retirement Obligations at End of Year                     9,094                  8,191
      ==============================================================================================
</TABLE>

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


11    INTEREST EXPENSE

<TABLE>
<CAPTION>
                                                                      2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                <C>                    <C>
      Interest on Long-term Debt                                     54,325                 59,118
      Interest on Obligations Under Capital Lease                     2,562                  2,036
      Interest on Option Premium Liability                            1,278                      -
      ----------------------------------------------------------------------------------------------
                                                                     58,165                 61,154
      ==============================================================================================
</TABLE>

      Cash  interest  paid for the year  ended  December  31,  2005 was  $57.4
      million (December 31, 2004 - $61.0 million).  Cash interest received for
      the year ended  December 31, 2005 was $0.2 million  (December 31, 2004 -
      $0.1 million).


12    INCOME TAXES

<TABLE>
<CAPTION>
                                                                       2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                 <C>                    <C>
      Large Corporations Tax                                          3,000                  1,749
      Future Income Tax Expense (Recovery)                           70,956                 (7,104)
      ----------------------------------------------------------------------------------------------
      INCOME TAX EXPENSE (RECOVERY)                                  73,956                 (5,355)
      ==============================================================================================
</TABLE>

      Cash  taxes  paid  during the year  ended  December  31,  2005 were $2.5
      million  (December  31, 2004 - $1.7  million) and related  solely to the
      Large Corporations Tax.

      At December 31, the future income tax liability consists of:

<TABLE>
<CAPTION>
                                                                       2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                <C>                    <C>
      Future Income Tax Assets
                 Net Losses Carried Forward                           4,707                 61,697
                 Share Issue Costs                                      973                  1,355
                 Impairment of Long-lived Assets                        796                    796

      Future Income Tax Liabilities
                 Capital Assets in Excess of Tax Values             (39,924)               (34,242)
                 Unrealized Foreign Exchange Gain                   (15,500)               (12,648)
                 Unrealized Gain on Risk Management                  (4,374)                     -
                 Debt Issue Costs                                    (3,123)                (2,447)
      ----------------------------------------------------------------------------------------------
      NET FUTURE INCOME TAX (LIABILITY) ASSET                       (56,445)                14,511
      ==============================================================================================
</TABLE>

      The following table  reconciles  income taxes calculated at the Canadian
      statutory  rate of 37.62 per cent  (2004 - 38.87 per cent)  with  actual
      income taxes:

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                                 2005                   2004
      -------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>                     <C>
      Net Earnings Before Income Taxes                                                         223,405                 14,097

      Income Tax Expense at Statutory rate                                                      84,045                  5,480
      Effect of Tax Rate Changes and Timing of Use                                                (267)                (4,826)
      Non-taxable Portion of Foreign Exchange Gain                                              (3,530)                (8,815)
      Non-taxable Portion of Impairment of Long-lived Assets                                         -                  1,044
      Resource Allowance                                                                       (10,792)                (5,012)
      Provision to Actual                                                                          642                  5,025
      Stock-based Compensation                                                                     858                      -
      Large Corporations Tax                                                                     3,000                  1,749
      -------------------------------------------------------------------------------------------------------------------------
      INCOME TAX EXPENSE (RECOVERY)                                                             73,956                 (5,355)
      =========================================================================================================================
</TABLE>

      At December 31, 2005, the Corporation had approximately  $1.4 billion of
      tax pools  available.  Included  in the tax pools are $14.0  million  of
      non-capital tax loss carry forward balances as estimated at December 31,
      2005, with expiry dates ranging from 2007 to 2014.


13    SHARE CAPITAL

      a)    AUTHORIZED

            The  Corporation  is  authorized  to issue an unlimited  number of
            Class  A  shares  ("Common   Shares"),   an  unlimited  number  of
            non-voting  Convertible  Class B Equity Shares ("Class B Shares"),
            an unlimited  number of non-voting Class C Preferred Shares and an
            unlimited number of Class D Preferred Shares, issuable in series.

            The Common  Shares are without  nominal or par value.  The Class D
            Preferred Shares, Series A, which have been issued, were converted
            into Common Shares at the holders'  options prior to redemption on
            a one-for-one basis.

      b)    SHARE SPLIT

            The  Corporation's  shareholders  approved a subdivision  or share
            split  of  its  issued  and   outstanding   Common   Shares  on  a
            three-for-one  basis  at  the  Corporation's  Annual  and  Special
            Meeting  held on May 11,  2005.  All  Common  Share and per Common
            Share  amounts  have been  restated to  retroactively  reflect the
            share split.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      c)    ISSUED AND OUTSTANDING

<TABLE>
<CAPTION>
                                                                                            NUMBER OF
                                                                                               SHARES                 AMOUNT
           --------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                        <C>
           COMMON SHARES
           Balance at December 31, 2003                                                    149,868,813                464,704
           Issued for Cash                                                                   6,000,000                 68,000
           Issued on Exercise of Employee Stock Options                                        484,800                  1,630
           Issued on Exercise of Warrants                                                    1,482,672                  1,236
           Conversion of Class D Preferred Shares                                            2,000,001                 11,963
           Share Issue Costs, Net of Tax                                                             -                 (1,834)
           --------------------------------------------------------------------------------------------------------------------
           Balance at December 31, 2004                                                    159,836,286                545,699
           Issued on Exercise of Employee Stock Options                                        681,755                  2,724
           Exercise of Stock Options Previously Recognized                                           -                    324
           --------------------------------------------------------------------------------------------------------------------
           Balance at December 31, 2005                                                    160,518,041                548,747
           --------------------------------------------------------------------------------------------------------------------
           CLASS D PREFERRED SHARES
           Balance at December 31, 2003                                                      2,000,001                 11,963
           Conversion of Class D Preferred Shares                                           (2,000,001)               (11,963)
           --------------------------------------------------------------------------------------------------------------------
           Balance at December 31, 2004 and 2005                                                     -                      -
           --------------------------------------------------------------------------------------------------------------------
           TOTAL SHARE CAPITAL                                                             160,518,041                548,747
           ====================================================================================================================
</TABLE>

      d)    ISSUANCES

            On April 8, 2004, the Corporation  completed a public offering for
            the  issuance  of  6,000,000   Common   Shares   (reflecting   the
            three-for-one  split on May 30, 2005) for total  proceeds of $68.0
            million,  before  consideration  of the share  issue costs of $2.9
            million ($1.8 million net of tax).  The offering was  underwritten
            by a syndicate of Canadian underwriters and undertaken through the
            filing of a short form prospectus.  The Common Shares were offered
            to the  public  on a  bought-deal  basis  through a  syndicate  of
            Canadian underwriters.  Proceeds of this offering were used to pay
            down  certain  amounts  that had been drawn on the bank debt,  for
            general corporate purposes and for expansion opportunities.

      e)    WARRANTS

            During the year ended December 31, 2004, 1,482,672 (reflecting the
            three-for-one  split  on May  30,  2005)  Class  A  Warrants  were
            exercised for total proceeds of $1.2 million.

      f)    CLASS D PREFERRED SHARES

            During the year ended  December  31,  2004,  the Class D Preferred
            Shares were  converted  into Common Shares at the holders'  option
            prior to redemption on a one-for-one  basis. After considering the
            three-for-one  split on May 30, 2005,  the total shares  issued on
            the conversion were 2,000,001.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      g)    NET EARNINGS PER SHARE

            The  following   table   summarizes  the  Common  Shares  used  in
            calculating Net Earnings per Common Share:

<TABLE>
<CAPTION>
                                                                                                 2005                   2004
           --------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                    <C>
           Weighted Average Common Shares Outstanding - Basic                              160,169,887            156,926,514
           Effect of Stock Options and Warrants                                              2,739,179              2,829,882
           --------------------------------------------------------------------------------------------------------------------
           Weighted Average Common Shares Outstanding - Diluted                            162,909,066            159,756,396
           ====================================================================================================================
</TABLE>


14    CONTRIBUTED SURPLUS

      The following table presents the  reconciliation of Contributed  Surplus
      for the year ended December 31:

<TABLE>
<CAPTION>
                                                                      2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                 <C>                      <C>
      Contributed Surplus Beginning of Period                         1,245                    278
      Stock-based Compensation Expense                                3,149                    967
      Cash Settlement of Performance Share Unit Plan                   (596)                     -
      Exercise of Stock Options Previously Recognized                  (324)                     -
      ----------------------------------------------------------------------------------------------
      Contributed Surplus End of Period                               3,474                  1,245
      ==============================================================================================
</TABLE>

<PAGE>

15    STOCK-BASED COMPENSATION

      The number of Common Share options outstanding  reflects the share split
      of the Corporation's Common Shares as described in note 13(b).

      a)    STOCK OPTION PLAN

            The  Corporation  has  established  a Stock  Option  Plan  for the
            issuance  of  options  to  purchase  Common  Shares to  directors,
            officers and employees of the  Corporation  and its  subsidiaries.
            Options  granted under the Stock Option Plan  generally vest on an
            annual basis over four years.  The stock options expire five years
            from each vesting date.

<TABLE>
<CAPTION>
                                                                              2005                                      2004
      -------------------------------------------------------------------------------------------------------------------------
                                                                          WEIGHTED                                  WEIGHTED
                                                                           AVERAGE                                   AVERAGE
                                                    NUMBER OF       EXERCISE PRICE            NUMBER OF       EXERCISE PRICE
                                                      OPTIONS                    $              OPTIONS                    $
      -------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>                      <C>              <C>
      Outstanding at Beginning of Year               3,766,938                6.51             4,034,100                 5.75
      Granted                                          443,670               20.23               318,549                11.61
      Exercised                                       (681,755)               4.00              (484,800)                3.36
      Cancelled                                           (921)               9.07              (100,911)                7.18
      -------------------------------------------------------------------------------------------------------------------------
      Outstanding at End of year                     3,527,932                8.72             3,766,938                 6.51
      -------------------------------------------------------------------------------------------------------------------------
      Options Exercisable at End of Year             2,212,647                6.24             2,220,975                 5.02
      =========================================================================================================================
</TABLE>


      The following table summarizes Stock Options outstanding and exercisable
      under the Stock Option Plan at December 31, 2005:

<TABLE>
<CAPTION>
                                                                   OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
      --------------------------------------------------------------------------------------------------------------------------
                                                           WEIGHTED           WEIGHTED                               WEIGHTED
                                                            AVERAGE            AVERAGE                       AVERAGE EXERCISE
                                      NUMBER OF           REMAINING           EXERCISE         NUMBER OF                PRICE
             EXERCISE PRICE             OPTIONS        LIFE (YEARS)              PRICE           OPTIONS                    $
      --------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>                  <C>               <C>             <C>
             $2.89 - $5.00              813,200                3.3                3.24            813,200                3.24
            $5.01 - $10.00            1,982,500                5.6                7.96          1,340,275                7.81
           $10.01 - $15.00              288,562                7.4               11.69             59,172               11.88
           $15.01 - $20.00              353,670                8.2               18.71                  -                   -
           $20.01 - $27.75               90,000                8.8               26.18                  -                   -
      --------------------------------------------------------------------------------------------------------------------------

                                      3,527,932                5.5                8.72          2,212,647                6.24
      --------------------------------------------------------------------------------------------------------------------------
</TABLE>

      The number of Common Shares reserved for issuance under the Stock Option
      Plan was  6,656,545  at December  31, 2005  (7,338,300  at December  31,
      2004).

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


b)    PERFORMANCE SHARE UNIT PLAN

      In February 2004,  the  Corporation  initiated a Performance  Share Unit
      Plan  ("PSUP").  Awards  under  PSUP will be in the form of  performance
      share units  ("PSU"),  with each PSU entitling the holder to receive one
      Common Share of the  Corporation  for no  additional  consideration  and
      subject to certain  restrictions.  Each PSU award will vest at a rate of
      one third of the PSUs  awarded  thereunder  annually  over a  three-year
      period,  conditional on the  Corporation  achieving an acceptable  total
      shareholder  return against a peer group. If total shareholder return at
      a  particular  vesting  date is in the  bottom  25 per  cent of the peer
      group, none of the PSUs otherwise  eligible to vest with respect to such
      PSU will vest. If total shareholder  return at a particular vesting date
      is in the top 25 per  cent of the peer  group,  150 per cent of the PSUs
      eligible to vest on such date will vest. If total shareholder  return at
      a  particular  vesting  date is in the  middle  50 per  cent of the peer
      group, all of the PSUs eligible to vest on such date will vest.

      The following  table presents the  reconciliation  of the number of PSUs
      for the year ended December 31:

<TABLE>
<CAPTION>
                                                                   2005                         2004
      ------------------------------------------------------------------------------------------------
<S>                                                        <C>                          <C>
      Outstanding at Beginning of Year                       99,291                            -
      Granted                                               113,880                      116,037
      Exercised                                             (33,093)                           -
      Cancelled                                             (19,950)                     (16,746)
      ------------------------------------------------------------------------------------------------
      Outstanding at End of Year                            160,128                       99,291
      ================================================================================================
</TABLE>

      During the year ended December 31, 2005, the Corporation  settled 33,093
      PSUs for cash of $0.6 million (December 31, 2004 - nil).

c)    DEFERRED SHARE UNIT PLAN

      In October 2005,  the  Corporation  initiated a Deferred Share Unit Plan
      ("DSUP"),  whereby directors,  officers, senior management and employees
      of the Corporation can elect to receive all or a portion of their annual
      cash compensation in the form of Deferred Stock Units ("DSU"). Under the
      DSUP,  notional  share units are issued for the elected  amount which is
      based on the then  current  market  price  of the  Corporation's  common
      shares.  Upon  ceasing   directorship,   termination  of  employment  or
      retirement,  the  units  are  settled  in cash or  common  shares of the
      Corporation  as  determined  by the  Corporation.  Final DSU  redemption
      amounts  are subject to change,  depending  on the  Corporation's  share
      price at the time of exercise. Accordingly, the Corporation revalues the
      DSUs on each  reporting  date with any  changes in value  recorded as an
      adjustment  to  compensation  expense in the period.  For the year ended
      December 31, 2005, $0.1 million in compensation  expense relating to the
      DSUs  was   recorded   (December   31,   2004  -  nil)  in  General  and
      Administrative  Expenses and no DSUs were redeemed for cash or shares of
      the Corporation.  The Corporation had 2,261 DSUs outstanding at December
      31, 2005.

d)    STOCK-BASED COMPENSATION

      For the year ended December 31, 2005, the  Corporation  recognized  $3.1
      million  (December  31,  2004 - $1.0  million) in  compensation  expense
      related to  stock-based  compensation  issued  subsequent  to January 1,
      2003. This is the portion of stock-based compensation that is related to
      2005 services  rendered and is comprised of $1.4 million ($0.7 million -
      2004) in respect to the Corporation's stock option plan and $1.7 million
      ($0.3 million - 2004) in respect to the Corporation's  Performance Share
      Unit Plan.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      The weighted  average fair value of the 443,670  options  granted during
      2005 was $8.22 using the  Black-Scholes  option pricing model.  In 2004,
      there were 318,549 options  granted at a weighted  average fair value of
      $4.30. The following table sets out the assumptions used in applying the
      Black-Scholes model:

<TABLE>
<CAPTION>
                                                                       2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                               <C>                    <C>
      Risk Free Interest Rate, Average For Year                       3.89%                  4.34%
      Expected Life (In Years)                                            6                      6
      Expected Volatility                                          26 - 44%               26 - 30%
      Dividend Per Share                                                  -                      -
      ==============================================================================================
</TABLE>

      No  compensation  expense has been  recognized for stock options granted
      before January 1, 2003, in accordance  with note 2(i). Had  compensation
      expense been  determined  based on the fair value method for awards made
      after December 31, 2001,  but before January 1, 2003, the  Corporation's
      net earnings  attributable to common shareholders and earnings per share
      would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                       2005                   2004
       ---------------------------------------------------------------------------------------------
<S>                                                               <C>                     <C>
       Net  Earnings - As reported                                  149,449                 19,452
       Compensation expense                                             891                    894
       ---------------------------------------------------------------------------------------------
       Net Earnings - Pro Forma                                     148,558                 18,558
       ---------------------------------------------------------------------------------------------
       Basic Earnings Per Share
             As Reported                                               0.93                   0.12
             Pro Forma                                                 0.93                   0.12

       Diluted Earnings Per Share
             As Reported                                               0.92                   0.12
             Pro Forma                                                 0.91                   0.12
       =============================================================================================
</TABLE>

      e)    OIL SANDS PROJECT STOCK APPRECIATION RIGHTS PLANS

            During 2004, the AOSP implemented  stock-based  compensation plans
            that  awarded   Stock   Appreciation   Rights  (SARs)  to  certain
            employees. Accordingly, the Corporation, as a 20 per cent owner in
            the AOSP, shares in the costs of these SARs. Under the first plan,
            SARs  were  granted  to  employees  of the AOSP that  entitle  the
            holders to a cash payment once  exercised,  if the composite value
            of the  weighted-average  stock  price of  certain  Joint  Venture
            owners' shares at the time of exercise  exceeds the issue price of
            the SARs.  The SARs vest  evenly  over three  years and expire ten
            years after grant. As at December 31, 2005, a total of 85,810 SARs
            were  outstanding  in respect of this plan.  During the year ended
            December 31, 2004, a total of 51,100 SARs were granted. During the
            year ended  December 31, 2005, a total of 43,530 SARs were granted
            and 8,820 were cancelled in respect to this plan.

            Under the second plan,  SARs were granted to employees of the AOSP
            that  entitle  the  holders  to a cash  payment  at  the  end of a
            three-year  period if the composite value of the  weighted-average
            stock price of certain Joint Venture owners' shares at the time of
            exercise  exceeds  the  issue  price of the  SARs  and if  certain
            performance  measures are met. As at December 31, 2005, a total of
            38,950 SARs were  outstanding in respect of this plan.  During the
            year ended  December 31, 2004 a total of 21,679 SARs were granted.
            During the year ended  December  31,  2005 a total of 18,450  SARs
            were granted and 1,179 were cancelled in respect to this plan.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


            For the year ended December 31, 2005, $0.7 million in compensation
            expense  was  recorded  in  operating  expense for these two plans
            (December  31, 2004 - nil).  No SARs vested  during the year ended
            December 31, 2005 with respect to either of these plans.

16    SHAREHOLDERS' RIGHTS PLAN

      The Corporation has a shareholders' rights plan (the "Plan").  Under the
      Plan, one right will be issued with each Common Share issued. The rights
      remain attached to the Common Share and are not exercisable or separable
      unless one or more of certain  specified  events  occur.  If a person or
      group  acting  in  concert  acquires  20 per cent or more of the  Common
      Shares of the  Corporation,  the rights will entitle the holders thereof
      (other than the acquiring  person or group) to purchase Common Shares of
      the  Corporation  at a 50 per cent  discount from the then market price.
      The rights are not  triggered  by a "Permitted  Bid",  as defined in the
      Plan.

17    EMPLOYEE FUTURE BENEFITS

      The Corporation has a defined  contribution  pension plan for its direct
      employees and as a result of the 20 per cent  ownership in the AOSP, has
      a defined  benefit  pension plan for  employees of the AOSP.  All of the
      information  pertaining to the defined benefit pension plan in this note
      represents  the  Corporation's  20 per cent  ownership in the AOSP.  The
      Corporation uses its fiscal year-end as the measurement date for both of
      these pension plans.

      a)    DEFINED CONTRIBUTION PENSION PLAN

            For the year ended December 31, 2005, the total expense recognized
            for the Corporation's  defined  contribution pension plan was $0.3
            million (December 31, 2004 - $0.3 million).


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      b)    DEFINED BENEFIT PENSION PLAN

            For the year ended December 31, 2005, the total expense recognized
            for the Corporation's 20 per cent ownership interest in the AOSP's
            defined benefit pension plan was $0.8 million (December 31, 2004 -
            $0.6 million). As at December 31, 2005, the Corporation's share of
            the funded  status of the defined  benefit  pension  plan was in a
            deficit  position  of  $0.7  million  (December  31,  2004 - $0.01
            million   funded   surplus).   Additional   information   for  the
            Corporation's 20 per cent ownership interest in the AOSP's defined
            benefit pension pension plan is as follows:

<TABLE>
<CAPTION>
                                                                                                  2005                   2004
           --------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>                    <C>
           Accrued Benefit Obligation, Beginning of year                                         1,860                  1,084
                 Current Service Cost                                                              821                    638
                 Interest Cost                                                                     161                    110
                 Actuarial Loss                                                                    821                     96
                 Plan Amendments                                                                  (115)                     -
                 Benefits Paid                                                                     (70)                   (68)
           --------------------------------------------------------------------------------------------------------------------
           Accrued Benefit Obligation, End of year                                               3,478                  1,860
           --------------------------------------------------------------------------------------------------------------------
           Fair Value of Plan Assets,  Beginning of year                                         1,866                  1,131
                 Employer Contributions                                                            810                    732
                 Actual Return on Plan Assets                                                      124                     71
                 Benefits Paid                                                                     (70)                   (68)
           --------------------------------------------------------------------------------------------------------------------
           Fair Value of Plan Assets, End of year                                                2,730                  1,866
           --------------------------------------------------------------------------------------------------------------------
           Funded Status - Plan Surplus (Deficit)                                                 (747)                     6
           Unamortized Past Service Costs                                                         (115)                     -
           Unamortized Net Actuarial Loss                                                        1,145                    301
           Unamortized Transitional Obligation                                                     (11)                   (12)
           --------------------------------------------------------------------------------------------------------------------
           Accrued Benefit Asset                                                                   272                    295
           --------------------------------------------------------------------------------------------------------------------
           Components of Net Periodic Pension Cost
                 Current Service Cost                                                              821                    638
                 Interest Cost                                                                     161                    110
                 Actual Return on Plan Assets                                                     (124)                   (71)
                 Actuarial Loss on Accrued Benefit Obligation                                      821                     96
           --------------------------------------------------------------------------------------------------------------------
           Costs Arising in the Period                                                           1,679                    773

           Differences in Costs Arising and Costs
                 Recognized in the Period in Respect of:
                      Return on Plan Assets                                                        (32)                   (32)
                      Actuarial Loss                                                              (812)                   (91)
                      Transitional Asset                                                            (1)                    (1)
           --------------------------------------------------------------------------------------------------------------------
           Net Periodic Pension Cost Recognized                                                    834                    649
           ====================================================================================================================
</TABLE>


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


            The  significant  actuarial  assumptions  used  to  determine  the
            periodic expense and accrued benefit obligations are as follows:

<TABLE>
<CAPTION>
                                                                       2005                  2004
           -----------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>
           Discount Rate - Expense                                     6.10%                 6.50%
           Discount Rate - Year-end Disclosure                         5.10%                 6.10%
           Expected Long-term Rate of Return on Plan Assets            7.00%                 7.00%
           Rate of Compensation Increase                               4.25%                 4.25%
           =========================================================================================
</TABLE>

            The  investment  strategy  for the defined  benefit  pension  plan
            assets  is to  utilize a  diversified  mix of  global  public  and
            private equity portfolios,  together with public and private fixed
            income  portfolios,  to earn  long-term  investment  returns  that
            enable  the  plan  to  meet  its  obligations.  Active  management
            strategies  are  utilized  within the plan in an effort to realize
            investment   returns   in   excess   of   market   indices.    The
            weighted-average  asset allocation for our defined benefit pension
            plan at December 31, 2005 was as follows:

<TABLE>
<CAPTION>
                                                                      ACTUAL                TARGET
           ------------------------------------------------------------------------------------------
<S>                                                                   <C>                   <C>
           Domestic Equities                                             32%                   33%
           Foreign Equities                                              28%                   25%
           Fixed Income Securities                                       34%                   37%
           Money Market                                                   6%                    5%
           ------------------------------------------------------------------------------------------
                                                                        100%                  100%
           ==========================================================================================
</TABLE>


18    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

      The  Corporation's  financial  instruments  that  are  included  in  the
      Consolidated  Balance Sheets are comprised of cash and cash equivalents,
      accounts receivable,  risk management  activities,  accounts payable and
      accrued liabilities, option premium liability and long-term borrowings.

      a)    COMMODITY PRICE RISK

            The  Corporation  has  entered  into  various   commodity  pricing
            agreements  designed to mitigate the exposure to the volatility of
            crude  oil  prices  in  US  dollars,   thereby  providing  greater
            certainty  of future cash flow from the sale of the  Corporation's
            synthetic  crude oil products.  This risk  management  strategy is
            intended  to protect  the  Corporation's  base and future  capital
            programs  and ensure the funding of debt  obligations.  Certain of
            these commodity pricing agreements are accounted for as hedges, as
            they qualify for hedge accounting  under  Accounting  Guideline 13
            and were  designated  as hedges,  while  other  commodity  pricing
            agreements  are accounted for under fair value  accounting as they
            did  not  qualify  or have  not  been  designated  as  hedges  for
            accounting purposes.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


            (i)   Hedge Accounting

            For the year ended December 31, 2005, the  Corporation's  revenues
            were  reduced  by  $110.4  million  (December  31,  2004 -  $131.4
            million) from crude oil price hedging  losses.  As at December 31,
            2005, there were no crude oil swap positions in place.

            (ii)  Fair Value Accounting

            During the third quarter of 2005,  the  Corporation  purchased put
            options at strike  prices  ranging  from  US$50.00 to US$55.00 per
            barrel,  averaging  US$52.42  per barrel for the three year period
            beginning  January 1, 2007.  The  premiums for the  purchased  put
            options were partially  offset through the sale of call options at
            strike  prices  ranging  from  US$90.00  to  US$95.00  per barrel,
            averaging  US$92.41 per barrel for the three-year period beginning
            January 1, 2007, resulting in a net premium liability.  Payment of
            the net premium  liability is deferred until the settlement of the
            option  contracts  between 2007 and 2009. As at December 31, 2005,
            the   Corporation   had  the   following   put  and  call  options
            outstanding:

<TABLE>
<CAPTION>
                                                                  2007                    2008                 2009
           ---------------------------------------------------------------------------------------------------------
<S>                                                         <C>                     <C>                    <C>
           Barrels Per Day
                 Put Options Purchased                          20,000                  20,000               20,000
                 Call Options Sold                              10,000                  15,000               15,000

           US$ Per Barrel
                 Average Put Strike Price                     US$52.50                US$54.25             US$50.50
                 Average Call Strike Price                    US$92.50                US$94.25             US$90.50
           =========================================================================================================
</TABLE>

            The fair  value of the  option  contracts  was  recognized  on the
            Consolidated  Balance  Sheet on the dates they were entered  into.
            During  the  year  ended  December  31,  2005,   the   Corporation
            recognized  an  unrealized  gain  of  $13.8  million  on the  Risk
            Management  Asset,  marking it to the fair value at the end of the
            period  (December 31, 2004 - nil). The following table  reconciles
            the movement in the fair value of these option contracts that have
            not been designated as hedges:

<TABLE>
<CAPTION>
                                                                                         2005                   2004
           ------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                       <C>
           Risk Management Asset at Beginning of Year                                       -                      -
           Net Premium                                                                  84,976                     -
           Increase in Fair Value                                                       13,450                     -
           ------------------------------------------------------------------------------------------------------------
           RISK MANAGEMENT ASSET AT END OF YEAR                                         98,426                     -
           ============================================================================================================
</TABLE>

      b)    CREDIT RISK

            A significant portion of the Corporation's  accounts receivable is
            with  customers  in the oil and gas  industry,  and is  subject to
            normal industry credit risks. The Corporation  minimizes this risk
            by entering into sales contracts with highly rated counterparties.
            Risk is also minimized through regular management review of credit
            ratings and potential exposure to such counterparties.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


            The  counterparties  of all  of the  Corporation's  put  and  call
            options are major financial  institutions in Canada and the United
            States,   all  with  investment  grade  credit  ratings,   thereby
            partially   mitigating  the  credit  risk  associated  with  these
            financial instruments.

      c)    INTEREST RATE RISK

            At December 31, 2005, the increase or decrease in net earnings for
            each one per cent change in the  interest  rates on floating  debt
            amounts to $0.4 million (2004 - $2.2 million).

      d)    FOREIGN CURRENCY RISK

            Foreign  currency  risk is the risk that a  variation  in exchange
            rates  between the  Canadian  dollar and foreign  currencies  will
            affect the  Corporation's  operating  and financial  results.  The
            Corporation has revenue and expenses transacted in US dollars, and
            has US dollar denominated Risk Management  Assets,  Senior Secured
            Notes and Option Premium Liabilities,  as described in note 18(a),
            note 7(a) and note 9, respectively.

      e)    FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

            The fair values of financial  instruments that are included in the
            Consolidated  Balance  Sheets,  other than  long-term  borrowings,
            approximate  their  carrying  amount due to the  relatively  short
            period to maturity of these  instruments  or have  interest  rates
            that approximate their fair value.

            The  estimated  fair  values  of  long-term  borrowings  have been
            determined  based  upon  market  prices at  December  31 for other
            similar  liabilities  with  similar  terms and  conditions,  or by
            discounting future payments of interest and principal at estimated
            interest  rates  that would be  available  to the  Corporation  at
            year-end.

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                               2005                                     2004
      -------------------------------------------------------------------------------------------------------------------------
                                                  BALANCE SHEET                            BALANCE SHEET
                                                         AMOUNT          FAIR VALUE               AMOUNT          FAIR VALUE
      -------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                    <C>               <C>                    <C>
      Floating Rate Debt
            Revolving Credit and Term Loan
            Borrowings                                   41,000              41,000              216,000             216,000
            Lease Obligation                             59,205              59,205               58,704              58,704
      Fixed Rate Debt
            US Senior Secured Notes                     524,655             591,549              541,620             628,979
      -------------------------------------------------------------------------------------------------------------------------
      Long-term Borrowings                              624,860             691,754              816,324             903,683
      =========================================================================================================================
</TABLE>


19    COMMITMENTS AND CONTINGENCIES

      a)    COMMITMENTS

            The  Corporation  and the  other  owners  of the oil  sands  Joint
            Venture have  entered into  long-term  third party  agreements  to
            purchase  certain   feedstocks  on  a  take-or-pay   basis.   This
            commitment  has been  measured  based on December  31, 2005 market
            prices.  The  Corporation  and the  other  owners of the oil sands
            Joint Venture have executed  long-term  third party  agreements to
            provide  for  pipeline  transportation  of  bitumen  and  upgraded
            products,  electrical and thermal energy, production and supply of
            hydrogen and  transportation  of natural  gas.  Under the terms of
            certain of these  agreements,  the Corporation is committed to pay
            for these utilities and services on a long-term basis,  regardless
            of the extent that such services and utilities are actually  used.
            If due to project delay, suspension, shutdown or other reason, the
            Corporation  fails to meet its commitment under these  agreements,
            the  Corporation  may incur  substantial  costs  and may,  in some
            circumstances, be obligated to purchase the facilities constructed
            by the third  parties  for a purchase  price in excess of the fair
            market value of the facilities.

            The  Corporation  and the  other  owners  of the oil  sands  Joint
            Venture have entered into long-term  operating  lease  obligations
            for certain  equipment  related to the AOSP. The term of the lease
            obligations is between three and seven years. A guarantee has been
            provided to the lessor in order to secure attractive leasing terms
            and is payable when the  equipment  is returned to the lessor.  At
            December 31, 2005, the Corporation's  share of the maximum payable
            under the  guarantee  was $35.7  million.  However,  any  proceeds
            received  from the sale of the  equipment  would be used to offset
            the payment  required under the  guarantee.  At December 31, 2005,
            the  Corporation's  share of committed lease payments  amounted to
            $42.3  million.  The  estimate  of  lease  interest   obligations,
            excluding any committed  payments,  is $1.9 million for 2006, $1.8
            million for 2007, $1.8 million for 2008, $0.9 million for 2009 and
            $0.2 million for 2010.

            The  Corporation  has  future  commitments  related  to its Option
            Premium Liability as described in note 9.


<PAGE>


(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


            The  following  table  summarizes  the   Corporation's   operating
            commitments at December 31, 2005:

<TABLE>
<CAPTION>
                                                                        PIPELINES AND             MOBILE
                                                    FEEDSTOCKS             UTILITIES     EQUIPMENT LEASE              TOTAL
      -----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>              <C>                      <C>
      2006                                            106,423                 39,715               3,647           149,785
      2007                                            100,771                 33,463               2,358           136,592
      2008                                             27,987                 34,874               9,583            72,444
      2009                                              9,121                 34,899              18,377            62,397
      2010                                              9,121                 34,991               8,363            52,475
      Thereafter                                       64,138                556,036                   -           620,174
      -----------------------------------------------------------------------------------------------------------------------
      Total                                           317,561                733,978              42,328         1,093,867
      =======================================================================================================================
</TABLE>

      b)    CONTINGENCIES

            (i)   INSURANCE CLAIMS

            The Corporation has various outstanding claims under the insurance
            coverage  provided  in our Joint  Venture  construction  policies.
            These claims  include a loss of profits  claim  stemming  from the
            fire at the  Muskeg  River  Mine (the  "Mine") on January 6, 2003,
            commonly  referred to as Section III; a physical  property  damage
            claim stemming from the same fire at the Mine,  commonly  referred
            to as Section  I; and a cost  overrun  and  project  delay  claim,
            commonly referred to as Section IV. During the year ended December
            31,  2005,  the  AOSP  reached  a  settlement  in  respect  of the
            insurance  coverage  provided  under Section III. The  Corporation
            received  $19.4  million as part of this  settlement  and has also
            finalized the terms of a contingent  settlement  for its remaining
            share of the  settlement  proceeds in the amount of $24.6  million
            from those  insurance  underwriters  that also  subscribed  to the
            Section IV. The Corporation had previously received $16.1 million,
            including $6.4 million during the year ended December 31, 2004, in
            respect to the coverage  provided under Section I. However,  those
            insurance  underwriters that were involved in the Section IV claim
            again withheld their portion of the Section I claim totaling $19.4
            million. The remaining settlement that has not been received under
            either Section I or III would become payable to the Corporation in
            the event that it is  successful  in the  arbitration  proceedings
            that are  presently  ongoing  against  these  Section IV insurance
            underwriters.  Arbitration  proceedings  under  Section  IV of the
            Policy have been  initiated to resolve the disputes  with insurers
            surrounding  this claim for payment.  Following these  arbitration
            hearings,  the  Corporation  would  expect  to  receive  a binding
            decision   from  the  panel  with   respect  to  the  claim.   The
            Corporation,  in order to  preserve  its rights  under the Policy,
            also filed a Statement  of Claim in the Court of Queen's  Bench of
            Alberta  against  the  defendant  insurance  underwriters  and the
            broker  in  an  amount  exceeding  $200  million.  Aggravated  and
            punitive  damages  totalling  $650  million have also been claimed
            against the  insurers.  The Statement of Claim remains in abeyance
            pending the conclusion of the Settlement Arbitration.

            During the year ended December 31, 2005, the Corporation  received
            $3.1  million  in  respect  of an errors  and  omission  insurance
            settlement  that was  negotiated  by the  AOSP.  This  errors  and
            omission  insurance policy related to initial  construction and as
            such these  proceeds  have been  applied  against  the cost of the
            AOSP.  The related  settlements of both the Section I, Section III
            and the errors and omission insurance policy have been credited to
            capital,  as these claims relate to costs that were capitalized as
            part of the  construction  of the  AOSP,  or to  costs  that  were
            capitalized  in  association  with repairing the assets damaged by
            the fire or those capitalized prior to the commercial operations.

            No amounts,  other than those collected at December 31, 2005, have
            been recognized in these statements relating to insurance policies
            nor will an amount be recognized until the proceeds are received.

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


            (ii)  FLOW THROUGH SHARES

            In connection with the issuance of flow through shares in 2001 and
            2002, the Corporation  renounced Canadian  exploration expenses in
            the  aggregate   amount  of  $29.2  million  and  $19.5   million,
            respectively.  Under  the  subscription  agreements  for such flow
            through   shares,   the   Corporation   has  agreed  to  indemnify
            subscribers  for an  amount  equal  to the  tax  payable  and  any
            associated  interest by the subscribers if such  renunciations are
            reduced under the INCOME TAX ACT (Canada). Discussions between the
            AOSP and the Canada Revenue Agency are ongoing with respect to the
            proper  characterizations of certain expenditures  included in the
            Canadian  exploration  expenses  in  those  years.  If the  Canada
            Revenue   Agency   successfully    asserts   a   change   in   the
            characterization of these expenditures, any resulting reduction in
            the renunciations could impact the Corporation's obligations under
            the indemnity provisions in these subscription agreements.


            (iii) OTHER

            The Corporation,  in association with its 20 per cent ownership of
            the AOSP, is a joint  defendant and plaintiff in a number of legal
            actions  that  arise  in  the  normal  course  of  business.   The
            Corporation   believes  that  any  liabilities  that  might  arise
            pertaining to such matters would not have a material effect on its
            consolidated financial position.


20    NET CHANGE IN NON-CASH WORKING CAPITAL

<TABLE>
<CAPTION>
      SOURCE/(USE)                                                                     2005                   2004

      ---------------------------------------------------------------------------------------------------------------
      OPERATING ACTIVITIES
<S>                                                                                <C>                     <C>
            Accounts Receivable                                                      (24,834)                (5,184)
            Inventory                                                                 (6,897)                (5,086)
            Prepaid Expense                                                           (3,584)                 1,262
            Accounts Payable and Accrued Liabilities                                   2,826                 25,401
      ---------------------------------------------------------------------------------------------------------------
                                                                                     (32,489)                16,393
      ---------------------------------------------------------------------------------------------------------------
      INVESTING ACTIVITIES
            Accounts Receivable                                                            -                    614
            Accounts Payable and Accrued liabilities                                  10,798                 (3,671)
      ---------------------------------------------------------------------------------------------------------------
                                                                                      10,798                 (3,057)
      ===============================================================================================================
</TABLE>


21    UNITED STATES ACCOUNTING PRINCIPLES AND REPORTING

      The  Consolidated  Financial  Statements  have been prepared in Canadian
      dollars in accordance with accounting  principles  generally accepted in
      Canada  (Canadian  GAAP).  The  application  of  accounting   principles
      generally  accepted  in the  United  States  (US  GAAP)  would  have the
      following  effects on the  Consolidated  Financial  Statements and Other
      Comprehensive Income:


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


<TABLE>
<CAPTION>
      RECONCILIATION OF NET EARNINGS UNDER CANADIAN GAAP TO US GAAP

      YEAR ENDED DECEMBER 31                                        NOTES               2005                   2004
      ---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>                    <C>
      Net Earnings - Canadian GAAP                                                   149,449                 19,452
            Impact of US GAAP
                 Pre-operating Items and Borrowing Costs              iii                 23                    (71)
                 Gain (Loss) on Crude Oil Swaps                       iv              10,202                 (8,815)
                 Pre-feasibility Costs                                vi             (34,503)               (13,546)
                 Deferred Income Tax                                  ii               7,125                  3,195
      ---------------------------------------------------------------------------------------------------------------
      Net Earnings - US GAAP                                                         132,296                    215
      ---------------------------------------------------------------------------------------------------------------
      Net Earnings Per Share - US GAAP
            Basic                                                                       0.83                      -
      ---------------------------------------------------------------------------------------------------------------
            Diluted                                                                     0.81                      -
      ===============================================================================================================

<CAPTION>

      CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

      YEAR ENDED DECEMBER 31                                         NOTES             2005                   2004
      ---------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>                    <C>
      Net Earnings - US GAAP                                                         132,296                    215
      Change in Realized and Unrealized Losses                         v              31,756                (14,607)
      ---------------------------------------------------------------------------------------------------------------
      Other Comprehensive Income                                                     164,052                (14,392)
      ===============================================================================================================
</TABLE>


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


<TABLE>
<CAPTION>
      CONSOLIDATED STATEMENT OF CASH FLOWS - US GAAP

      YEAR ENDED DECEMBER 31                                         NOTES             2005                   2004
      ---------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>                    <C>
      CASH PROVIDED BY (USED IN)

      Operating Activities - Canadian GAAP                                           211,742                 39,437
            Pre-feasibility Costs                                     vi             (34,503)               (13,546)
      ---------------------------------------------------------------------------------------------------------------
      Operating Activities - US GAAP                                                 177,239                 25,891
      ---------------------------------------------------------------------------------------------------------------
      Financing Activities - Canadian and US GAAP                                   (173,832)                 3,533
      ---------------------------------------------------------------------------------------------------------------
      Investing Activities - Canadian GAAP                                           (36,035)               (43,025)
            Pre-feasibility Costs                                     vi              34,503                 13,546
      ---------------------------------------------------------------------------------------------------------------
      Investing Activities - US GAAP                                                  (1,532)               (29,479)
      ---------------------------------------------------------------------------------------------------------------
      Increase (Decrease) in Cash                                                      1,875                    (55)
      ===============================================================================================================
</TABLE>


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


<TABLE>
<CAPTION>
      CONSOLIDATED BALANCE SHEET

      AS AT DECEMBER 31                                                         2005                                    2004
      ------------------------------------------------------------------------------------------------------------------------
                                        NOTES         AS REPORTED            US GAAP         AS REPORTED             US GAAP
      ------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>                 <C>                <C>                  <C>
      ASSETS
      Current Assets                                      123,426            123,426              86,236              86,236
      Property, Plant and Equipment   iii, vi           1,352,605          1,309,080           1,351,745           1,342,876
      Risk Management                                      98,426             98,426                   -                   -
      Deferred Charges                  iii                16,063             15,282              18,378              17,421
      Future Income Taxes                ii                     -                  -              14,511              56,898
      ------------------------------------------------------------------------------------------------------------------------
                                                        1,590,520          1,546,214           1,470,870           1,503,431
      ========================================================================================================================

      LIABILITIES
      Current Liabilities                                 104,699            104,699             187,909             187,909
      Financial Liabilities              iv                     -                  -                   -              61,110
      Long-term Debt                                      565,655            565,655             662,620             662,620
      Lease Obligations                                    55,809             55,809              53,474              53,474
      Option Premium Liability                             85,416             85,416                   -                   -
      Asset Retirement Obligations                          9,094              9,094               8,191               8,191
      Future Income Taxes                ii                56,445             26,085                   -                   -
      ------------------------------------------------------------------------------------------------------------------------
                                                          877,118            846,758             912,194             973,304
      ------------------------------------------------------------------------------------------------------------------------

      SHAREHOLDERS' EQUITY
      Share Capital                     vii               548,747            568,052             545,699             565,004
      Contributed Surplus                                   3,474              3,474               1,245               1,245
                                       iii, iv,
      Retained Earnings (Deficit)      vi, vii            161,181            127,930              11,732              (4,366)
      Accumulated Other
            Comprehensive Income         iv                     -                  -                   -             (31,756)
      ------------------------------------------------------------------------------------------------------------------------
                                                        1,590,520          1,546,214           1,470,870           1,503,431
      ========================================================================================================================
</TABLE>

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      i)    STOCK-BASED COMPENSATION

      The Corporation  accounts for its stock-based  compensation  plans under
      CICA 3870,  under which no  compensation  expense was  recognized in the
      Consolidated  Financial  Statements  for stock options  granted  between
      January 1, 2002 and December 31, 2002. If compensation  expense had been
      recorded in accordance with Statement of Financial  Accounting  Standard
      ("SFAS") No. 123, the Corporation's net earnings (loss) and net earnings
      (loss) per share would approximate the following pro forma amounts:

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31                                           2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                               <C>                        <C>
      Compensation Expense                                              891                    894
      Net Earnings (Loss)
            As Reported - US GAAP                                   132,296                    215
      ----------------------------------------------------------------------------------------------
            Pro Forma                                               131,405                   (679)
      ----------------------------------------------------------------------------------------------

      Basic Earnings Per Share
            As Reported - US GAAP                                      0.83                     -
                                                                          2
            Pro Forma                                                   0.8                     -

      Diluted Earnings Per Share
            As Reported - US GAAP                                      0.81                     -
            Pro Forma                                                  0.81                     -
      ==============================================================================================
</TABLE>

      ii)   INCOME TAXES

      Under US GAAP,  the net deferred  income tax liability as at December 31
      consists of:

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31                                          2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C>
      Future Income Tax Assets
            Net Losses Carried Forward                                4,707                 61,697
            Share Issue Costs                                           973                  1,355
            Impairment of Long-lived Assets                             796                    796
            Financial Liabilities in Excess of Tax Values                 -                 22,990
            Tax Values in Excess of Book Capital Assets               5,634                    294

      Future Income Tax Liabilities
            Unrealized Foreign Exchange Gain                        (30,961)               (28,109)
            Unrealized Gain on Risk Management                       (4,374)
            Debt Issue Costs                                         (2,860)                (2,125)
      ----------------------------------------------------------------------------------------------
      Net Future Income Tax (Liability) Asset - US GAAP             (26,085)                56,898
      ==============================================================================================
</TABLE>


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      The following table  reconciles  income taxes calculated at the Canadian
      statutory  rate of 37.62 per cent  (2004 - 38.87 per cent)  with  actual
      income taxes:

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31                                           2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                               <C>                     <C>
      Net Earnings Before Income Taxes - Canadian GAAP              223,405                 14,097
      US GAAP Adjustments                                           (24,278)               (22,432)
      ----------------------------------------------------------------------------------------------
      Net Earnings (Loss) Before Income Taxes - US GAAP             199,127                 (8,335)
      ----------------------------------------------------------------------------------------------
      Expected Income Tax                                            74,912                 (3,240)
      Effect of Tax Rate Changes                                      1,741                    699
      Non-taxable Portion of Foreign Exchange Gain                   (3,530)                (8,815)
      Non-taxable Portion of Impairment of Long-lived Asset               -                  1,044
      Resource Allowance                                            (10,792)                (5,012)
      Provision to Actual                                               642                  5,025
      Stock-based Compensation                                          858                      -
      Large Corporations Tax                                          3,000                  1,749
      ----------------------------------------------------------------------------------------------
      Income Tax Expense (Recovery) - US GAAP                        66,831                 (8,550)
      ==============================================================================================
</TABLE>

      iii)  BORROWING COSTS AND THE END OF PRE-OPERATING PERIOD

      Under  Canadian  GAAP,  the  Corporation  is  deemed  to have  ended its
      pre-operating period upon commencement of commercial  production,  which
      occurred  on June 1,  2003.  Until  that time,  revenues,  training  and
      start-up costs,  interest and foreign exchange gains associated with the
      Project during the pre-operating period were deferred and capitalized as
      part of the Project.  Under US GAAP,  the  Corporation is deemed to have
      ended  its  pre-operating  period  upon  mechanical  completion  of  the
      Project,   which   occurred  on  December  1,  2002,   such  that  these
      pre-operating items are expensed thereafter. Under Canadian GAAP, during
      the  pre-operating  period,  standby fees and foreign  exchange gains or
      losses  associated with borrowing  facilities can be deferred.  Under US
      GAAP, during the pre-operating  period, these costs would be expensed as
      incurred.  Consistent with the December 1, 2002 end of the pre-operating
      period,  depreciation,  depletion and amortization of the  Corporation's
      Property,  Plant and  Equipment  and Deferred  Charges  should have also
      commenced.

      The following table illustrates each of these differences:

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31                                           2005                   2004
      ----------------------------------------------------------------------------------------------
<S>                                                                  <C>                    <C>
      Pre-operating Items
            Depreciation, Depletion and Amortization                     23                    (71)
      ----------------------------------------------------------------------------------------------
            Impact on Net Earnings (Loss) Before Income Tax              23                    (71)
            US GAAP Adjustments -Prior Years                          3,197                  3,268
      ----------------------------------------------------------------------------------------------
                                                                      3,220                  3,197
      ----------------------------------------------------------------------------------------------
      Adjustment to Assets
            Adjustment to Capital Assets                              4,001                  4,154
            Adjustment to Deferred Charges                             (781)                  (957)
      ----------------------------------------------------------------------------------------------
                                                                      3,220                  3,197
      ==============================================================================================
</TABLE>


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      iv)   CRUDE OIL SWAPS

      Under Canadian  GAAP,  the crude oil swaps qualify for hedge  accounting
      and the  payments or  receipts  on these  contracts  are  recognized  in
      earnings  concurrently  with the hedged  transaction  and changes in the
      fair  values of the  contracts  are not  reflected  in the  Consolidated
      Financial  Statements.  US GAAP requires that all  derivative  financial
      instruments  be  recorded  on the  balance  sheet as  either  assets  or
      liabilities  at their fair values and that  changes in the  derivative's
      fair  value  be  recorded  in  other  comprehensive   income,  with  any
      ineffective  portion of the hedge  recorded in earnings  for the period.
      Under US GAAP the  derivative  financial  instruments  described in note
      18(a)(i) as hedges would be  recognized  as a liability.  The  following
      table illustrates each of these differences:

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31                                                         2005                   2004
      ------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                   <C>
      ASSETS
      Increase in Future Income Tax Assets and Total Assets                             -                 22,990
      ------------------------------------------------------------------------------------------------------------

      LIABILITIES
             Increase in Financial Liabilities                                          -                 61,110

      SHAREHOLDERS' EQUITY
             Decrease in Opening Deficit - US GAAP                                 (6,364)                  (831)
             Decrease in Accumulated Other Comprehensive Income (1)                     -                (31,756)

      NET EARNINGS AND ENDING DEFICIT - US GAAP
             Increase (Decrease) in Revenues                                       10,202                 (8,815)
             (Decrease) Increase in Future Income Tax Recovery/Expense             (3,838)                 3,282
      ------------------------------------------------------------------------------------------------------------

      INCREASE IN TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                            -                 22,990
      ============================================================================================================
</TABLE>

           (1)   Net of income tax of $19.2 million for the year ended
                 December 31, 2004.

      v)    OTHER COMPREHENSIVE INCOME

      Comprehensive  income is measured in accordance with SFAS 130 "Reporting
      Comprehensive Income". This Standard defines comprehensive income as all
      changes in equity other than those resulting from  investments by owners
      and  distributions  to owners.  The Corporation had other  comprehensive
      income  arising  due  to  unrealized  losses  on  derivative   financial
      instruments designated as hedge transactions. At December 31, 2005, this
      other  comprehensive  income  amounted  to a gain  net  of tax of  $31.8
      million ($14.6 million loss net of tax - 2004).

<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      vi)   PRE-FEASIBILITY COSTS

      Under Canadian GAAP,  costs associated with projects that have yet to be
      determined  to be  technically  feasible can be  capitalized  as part of
      Capital  Assets  if  certain  criteria  are met.  Under  US GAAP,  costs
      associated  with  projects  that  have  not yet  been  determined  to be
      technically feasible must be expensed.  During 2005, the Corporation had
      expenditures  of  $34.5  million  ($13.5  million  - 2004)  relating  to
      projects that have not yet been  determined to be technically  feasible.
      The cumulative  effect of this difference is to reduce capital assets by
      $48.9  million  ($14.4  million - 2004),  decrease net earnings by $34.5
      million  ($13.5  million - 2004) and reduce  Retained  Earnings by $14.4
      million ($0.9 million - 2004).

      vii)  FLOW-THROUGH SHARES

      Under Canadian GAAP flow-through shares are recorded at their face value
      within share capital.  When the  expenditures  are renounced and the tax
      deductions   transferred   to  the   shareholders,   future  income  tax
      liabilities  will increase and the share capital will be reduced.  Under
      US GAAP,  when the shares are issued the proceeds are allocated  between
      the offering of the shares and the sale of tax benefits.  The allocation
      is made based on the difference between the quoted price of the existing
      shares and the  amount the  investor  pays for the  flow-through  shares
      (given no other  differences  between the  securities).  A liability  is
      recognized  for this  difference.  The  liability  is reversed  when tax
      benefits are  renounced  and a deferred tax  liability is  recognized at
      that time.  Income tax expense is the  difference  between the amount of
      the deferred tax liability and the liability recognized on issuance.  At
      December 31, 2002, the Corporation had recognized all  renouncements  of
      the tax deductions to the investors. The effect of this difference is to
      increase share capital by $19.3 million and increase deferred income tax
      expense by $19.3 million.

22.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      CANADIAN

      FINANCIAL INSTRUMENTS

      The CICA issued Section 3855,  "Financial  Instruments - Recognition and
      Measurement",  which  prescribes  when a financial  instrument  is to be
      recognized  on the balance  sheet and at what  amount - sometimes  using
      fair value,  other times using  cost-based  measures.  This Section also
      specifies how financial instrument gains and losses are to be presented.
      A financial  instrument  is any contract  that gives rise to a financial
      asset of one party and a financial  liability  or equity  instrument  of
      another party. These may include loans and notes receivable and payable,
      investments in debt and equity securities and derivative  contracts such
      as  forwards,  swaps and options.  This  Section  applies to interim and
      annual  financial  statements  relating to fiscal years  beginning on or
      after  October 31, 2006.  Earlier  adoption is permitted  only as at the
      beginning of a fiscal year ending on or after  December  31,  2004.  The
      Corporation  plans to  adopt  this  Section  on  January  1,  2007.  The
      Corporation  does not  expect  there to be any  material  impact  on the
      Consolidated  Financial  Statements  upon  adoption  of the  standard on
      January 1, 2007.

      HEDGES

      The CICA issued  Section  3865,  "Hedges",  which  replaces the guidance
      formerly in Section 1650, "Foreign Currency  Translation" and Accounting
      Guideline 13, "Hedging Relationships" by specifying how hedge accounting
      is applied and what  disclosures are necessary when it is applied.  This
      Section applies to interim and annual financial  statements  relating to
      fiscal  years  beginning  on or  after  October  31,  2006.  Retroactive
      application is not permitted.  Earlier  adoption is permitted only as at
      the beginning of a fiscal year ending on or after December 31, 2004. The
      Corporation  plans to  adopt  this  Section  on  January  1,  2007.  The
      Corporation  does not  expect  there to be any  material  impact  on the
      Consolidated  Financial  Statements  upon  adoption  of the  standard on
      January 1, 2007.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      COMPREHENSIVE INCOME

      The CICA issued Section 1530,  "Comprehensive Income", which established
      new  standards  for  reporting  the  display  of  comprehensive  income.
      Comprehensive  income  is  the  change  in  equity  (net  assets)  of an
      enterprise  during a reporting period from transactions and other events
      and  circumstances  from non-owner  sources.  It includes all changes in
      equity  during the period except those  resulting  from  investments  by
      owners and distributions to owners.  This Section applies to interim and
      annual  financial  statements  relating to fiscal years  beginning on or
      after  October 31, 2006.  Earlier  adoption is permitted  only as at the
      beginning of a fiscal year ending on or after  December  31,  2004.  The
      Corporation  plans to adopt this  Section on January 1, 2007.  Financial
      statements  for prior  periods are  required to be restated  for certain
      comprehensive income items, which at this time are not applicable to the
      Corporation.  The  Corporation  does not expect there to be any material
      impact on the  Consolidated  Financial  Statements  upon adoption of the
      standard on January 1, 2007.

      EQUITY

      The CICA issued Section 3251,  "Equity",  which  replaces  Section 3250,
      "Surplus".  It establishes  standards for the presentation of equity and
      changes in equity  during a reporting  period.  This Section  applies to
      interim  and  annual  financial  statements  relating  to  fiscal  years
      beginning on or after  October 31, 2006.  Earlier  adoption is permitted
      only as at the  beginning  of a fiscal year ending on or after  December
      31,  2004.  The  Corporation  plans to adopt this  Section on January 1,
      2007.  Financial statements of prior periods are required to be restated
      for specific items which are not  applicable to the  Corporation at this
      time. The Corporation does not expect there to be any material impact on
      the Consolidated  Financial  Statements upon adoption of the standard on
      January 1, 2007.

      NON-MONETARY TRANSACTIONS

      The CICA issued Section 3831, "Non-Monetary Transactions" which replaces
      Section 3830, "Non-Monetary  Transactions" and establishes standards for
      the  measurement and disclosure of  non-monetary  transactions.  Section
      3831 prescribes that exchanges of  non-monetary  transactions  should be
      measured  based  on the  fair  value  of  the  assets  exchanged,  while
      providing an exception for non-monetary  exchanges in transactions which
      do not result in the culmination of the earnings  process.  Section 3831
      eliminates this exception  provided in Section 3830 and replaces it with
      an  exception  for  exchanges  of  non-monetary  assets that do not have
      commercial  substance.  A transaction has commercial  substance when the
      entity's  future cash flows are  expected to change  significantly  as a
      result of the  transaction.  This  Section  applies to all  non-monetary
      transactions initiated in periods beginning on or after January 1, 2006.
      Earlier adoption is permitted for non-monetary transactions initiated in
      periods beginning on or after July 1, 2005.  Retroactive  application is
      not permitted.  The Corporation does not expect there to be any material
      impact on the  Consolidated  Financial  Statements  upon adoption of the
      standard on January 1, 2006.

      UNITED STATES

      SHARE-BASED PAYMENT

      FASB issued Statement of Financial Accounting Standards No. 123(R) (SFAS
      123(R)),  "Share-Based Payment", a revision to SFAS 123, "Accounting for
      Stock-Based   Compensation."   This   standard  is  effective   for  the
      Corporation  as of the beginning of the first  interim  period or annual
      reporting  period  that  begins  after June 15,  2005 and may be applied
      under the modified  prospective  approach or the modified  retrospective
      approach.  This  standard  requires  the  recognition  of an expense for
      employee   services   received  in  exchange  for  an  award  of  equity
      instruments  based  on the  grant  date  fair  value of the  award.  The
      compensation  cost is to be  recognized  over the  period  for  which an
      employee is  required to provide the service in exchange  for the award,
      being the requisite service period.  For liability awards,  entities are
      required  to  re-measure  the fair value of the award at each  reporting
      date up until the  settlement  date.  Changes in fair value of liability
      awards during the requisite service period are required to be recognized
      as compensation  cost over the vesting period.  Compensation cost is not
      recognized for equity  instruments for which employees do not render the
      requisite  service.  The Corporation  currently records an expense under
      Canadian GAAP for all common share options issued on or after January 1,
      2003, with a corresponding increase recorded as contributed surplus. The
      Corporation  does not  expect  there to be any  material  impact  on the
      Consolidated  Financial  Statements  upon  adoption  of the  standard on
      January 1, 2006.


<PAGE>

(TABULAR AMOUNTS IN $ THOUSANDS, EXCEPT FOR SHARE AMOUNTS)


      EXCHANGES OF NON-MONETARY ASSETS

      FASB issued SFAS 153, "Exchange of Non-Monetary  Assets" as an amendment
      to Accounting  Principles Board Opinion No. 29 (APB 29), "Accounting for
      Non-Monetary   Transactions."   APB  29  prescribes  that  exchanges  of
      non-monetary  transactions should be measured based on the fair value of
      the assets  exchanged,  while  providing an exception  for  non-monetary
      exchanges  of  similar  productive  assets.   SFAS  153  eliminates  the
      exception  provided in APB 29 and  replaces it with a general  exception
      for  exchanges  of  non-monetary  assets  that  do not  have  commercial
      substance.  For purposes of this standard,  a  non-monetary  exchange is
      defined as having commercial  substance when the future cash flows of an
      entity are expected to change significantly as a result of the exchange.
      SFAS  153 is to be  applied  prospectively  and  is  effective  for  all
      non-monetary asset exchanges occurring in fiscal periods beginning after
      June 15, 2005. The Corporation  does not expect there to be any material
      impact on the  Consolidated  Financial  Statements  upon adoption of the
      standard on January 1, 2006.

      INVENTORY COSTS

      FASB issued SFAS 151,  "Inventory  Costs" that  clarifies the accounting
      for abnormal amounts of idle facility expense,  freight,  handling costs
      and wasted  materials  (spoilage)  as they relate to inventory  costing.
      SFAS 151  requires  these items to be  recognized  as current  expenses.
      Additionally, the allocation of fixed production overhead to the cost of
      inventory   should  be  based  on  normal  capacity  of  the  production
      facilities. SFAS 151 is to be applied prospectively and is effective for
      inventory  costs incurred  during fiscal years  beginning after June 15,
      2005. The Corporation does not expect there to be any material impact on
      the Consolidated  Financial  Statements upon adoption of the standard on
      January 1, 2006.

      ACCOUNTING CHANGES AND ERROR CORRECTIONS

      FASB issued SFAS 154, "Accounting Changes and Error Corrections",  which
      replaces APB 20, "Accounting Changes" and SFAS 3, "Reporting  Accounting
      Changes in Interim  Financial  Statements" and changes the  requirements
      for  the  accounting  for  and  reporting  of  a  change  in  accounting
      principle.  SFAS 154 establishes,  unless  impracticable,  retrospective
      application as the required  method for reporting a change in accounting
      principle in the absence of explicit transition requirements specific to
      the newly adopted accounting principle.  This statement is effective for
      accounting  changes  and  corrections  of errors  made in  fiscal  years
      beginning after December 15, 2005. The Corporation does not expect there
      to be any material impact on the Consolidated  Financial Statements upon
      adoption of the standard on January 1, 2006.