EX-99.1 2 exhibit99_1.htm EXHIBIT 99.1: NEWS RELEASE DATED OCTOER 25, 2006 Exhibit 99.1: News Release dated Octoer 25, 2006
 
FOR IMMEDIATE RELEASE
WEDNESDAY, OCTOBER 25, 2006
 
Shell Canada Announces Quarterly Earnings
 
Calgary, Alberta - Shell Canada Limited announces earnings of $581 million or $0.70 per common share in the third quarter of 2006 compared with $457 million or $0.55 per common share for the corresponding period in 2005. Higher crude oil prices and refining margins were offset by lower natural gas prices. The impact of the Company’s Long Term Incentive Plan resulted in a $102 million increase to third-quarter 2006 earnings compared with an $83 million charge for the corresponding quarter in 2005. Earnings for the first nine months of 2006 were $1,503 million compared with $1,400 million for the same period in 2005.
 
Cash flow from operations was $906 million for the quarter and $2,155 million for the first nine months of 2006, up $220 million and $29 million respectively from the same periods in 2005.
 
 
Capital and predevelopment expenditures amounted to $592 million in the third quarter and $1,488 million for the first nine months of 2006, excluding the BlackRock acquisition, compared with $410 million and $1,006 million respectively for 2005.
 
"Strong earnings reflect our drive for operational performance in an environment of falling commodity prices," said Clive Mather, President and Chief Executive Officer, Shell Canada Limited. "Production at the Athabasca Oil Sands Project is back above design rates following its first major turnaround in the second quarter. While we focus on operational excellence at our
 
*Excludes BlackRock purchase price
existing operations, we continue to lay the foundation for growth in our Oil Sands and unconventional gas businesses. In addition, the Company launched a new venture in the road transport sector, which further strengthens our Oil Products business."
 

 
Investor Inquiries:                             Media Inquiries:
Ken Lawrence                Jan Rowley
Investor Relations              Public Affairs
(403) 691-2175             (403) 691-3899
 
Visit Shell Canada’s Internet website: www.shell.ca
 
 

SHELL CANADA LIMITED
 
MANAGEMENT’S DISCUSSION AND ANALYSIS
 
Total Company
 
Shell Canada Limited earnings for the third quarter of 2006 were $581 million, up from $457 million for the corresponding quarter of 2005. Higher crude oil prices and refining light oil margins were offset by lower natural gas prices. The impact of the Company’s Long Term Incentive Plan (LTIP) resulted in a $102 million increase to third-quarter 2006 earnings compared with an $83 million charge for the corresponding quarter in 2005. Prior year results included benefits totalling $41 million related to tax adjustments. Total hydrocarbon production for the quarter was 234,000 barrels of oil equivalent per day (BOE/d), level with production for the same quarter in 2005.
 
Earnings for the first nine months of 2006 were $1,503 million compared with $1,400 million for the corresponding period in 2005. The increase was mainly due to higher crude oil prices, refining light oil margins, a favourable adjustment resulting from changes to federal and Alberta corporate tax rates, and the LTIP. These were offset by reduced production and upgrading associated with the Athabasca Oil Sands Project (AOSP) turnaround.
 
Exploration & Production
 
Exploration & Production (E&P) earnings in the third quarter of 2006 were $113 million compared with earnings of $149 million reported for the same period in 2005. Earnings were down due to lower natural gas prices, partially offset by an LTIP uplift of $26 million and lower dry hole expenses. Previous year earnings included a $17 million favourable tax adjustment and a $12 million insurance settlement, offset by a charge of $24 million for the LTIP. Natural gas production grew as a result of increases in production from Tay River and basin-centred gas (BCG). Effective January 1, 2006, the Peace River business was transferred from E&P to the Oil Sands business unit. Prior period E&P earnings have been adjusted to exclude Peace River operations.
 
E&P earnings for the first nine months of 2006 increased to $443 million from $404 million for the same period in 2005. This increase was due to higher natural gas volumes, the impact of the LTIP, and a favourable adjustment resulting from changes to the federal and Alberta corporate tax rates.
 
The BCG program continues to grow, achieving natural gas sales volumes of 23 million cubic feet per day (mmcf/d) for the quarter. Significant discovered volumes remain constrained by the lack of infrastructure. BCG is expected to deliver 100 mmcf/d by the end of 2007, with the previously announced gas plant expansion and requisite regulatory approvals. Drilling operations continue on the large land holdings, with six rigs currently deployed.
 
In northeast British Columbia, the Foothills business successfully completed two new wells, which will be tied into new facilities under construction at Wolverine River. However, limitations in the main gathering system and processing facility will restrict gas sales from this region in the near term.
 
Progress continued on the Sable Offshore Energy Project compression project, and planned outages were taken in the third quarter to facilitate tie-in of the new compression facilities. Startup of these facilities is expected late in the fourth quarter.
 
Page 2
 

SHELL CANADA LIMITED
Management’s Discussion and Analysis (continued)
 

Offshore Newfoundland, the first deepwater exploration well in the Orphan Basin was spudded in the third quarter and completion is expected in the fourth quarter. Shell Canada has a 20 per cent interest in eight exploration licenses in the Orphan Basin.
 
Oil Sands
 
Oil Sands earnings in the third quarter of 2006 were $262 million, up from $235 million for the corresponding period of 2005. The improvement was mainly due to higher prices and an LTIP uplift of $22 million. Third-quarter earnings in 2005 included a charge of $14 million for the LTIP. The Company’s share of AOSP bitumen production for the third quarter averaged 98,700 barrels per day (bbls/d) compared with 99,100 bbls/d for the same period in 2005.
 
Oil Sands earnings for the first nine months of 2006 were $493 million, compared with $592 million for the same period in 2005. The reduction in earnings is mainly due to the major scheduled turnaround of both the AOSP mine and upgrader in the second quarter. Effective January 1, 2006, earnings from the Peace River in situ operations are included in both current and prior period earnings.
 
Unit cash operating costs for the AOSP in the third quarter were $18.93 per barrel. This was $5.32 per barrel lower than the corresponding period last year. The improvement was mainly due to lower natural gas prices and a recovery related to LTIP. The Company realized an average synthetic crude price for the quarter of $68.37.
 
The Company will make a final investment decision for the AOSP Expansion 1 in the fourth quarter of 2006. Expansion 1 is a fully integrated expansion of the existing AOSP facilities, with both new oil sands mining operations on Lease 13 and associated additional bitumen upgrading at Scotford. As previously disclosed, Shell Canada received conditional approval from the Alberta Energy and Utilities Board for the proposed expansion of the Scotford Upgrader. A regulatory hearing was also completed in September for the expansion of the Muskeg River Mine and a decision is anticipated in the fourth quarter of 2006. On July 28, 2006, Shell Canada issued the formal expansion notice to the other AOSP joint venture owners, to which they have 90 days to respond.
 
In the third quarter, the Company decided to defer the upstream portion of the Production Optimization Project (POP), in light of the planned AOSP Expansion 1. A write-down of $15 million is included in earnings for the quarter. The timing and scope of the downstream components of POP, which are a mix of asset integrity and reliability projects at the upgrader, are currently being evaluated.
 
The Company decided to exercise its right to acquire a 20 per cent working interest in Chevron Canada's Ells River in situ leases, which are located about 50 kilometres northwest of Fort McMurray. This right to participate in the Ells River in situ leases results from the AOSP agreements.
 
Page 3
SHELL CANADA LIMITED
Management’s Discussion and Analysis (continued)
 

In situ production for the third quarter was 15,300 bbls/d, of which approximately 6,600 bbls/d was due to new volumes from the assets acquired with the purchase of BlackRock Ventures Inc. (BlackRock). New thermal production from two additional well pads at Peace River came on stream in the third quarter of 2006 under budget and ahead of schedule.
 
The Company plans to file an application for its Carmon Creek project at Peace River later this year. In addition, construction work is progressing on the 10,000 bbls/d first phase of the Orion steam-assisted gravity drainage (SAGD) project at Hilda Lake, acquired in the BlackRock transaction. Building on the BlackRock experience, plans to further increase in situ cold production in the Peace River area are progressing, with the construction of two new cold production well pads and the filing of a regulatory application for a 100-well, cold production program. The Company has decided to divest the assets and properties in the Lloydminster area that were acquired with BlackRock.
 
Oil Products
 
Oil Products earnings in the third quarter of 2006 were $201 million, up from $81 million for the third quarter of 2005 due to improved refining margins and better refinery utilization, lower operating expenses and an LTIP uplift of $27 million. Stronger distillate, benzene and black oil margins were offset by weaker liquid petroleum gas margins. Refinery yield was lower in the third quarter of 2006 mainly due to some feedstock limitations at both the Scotford and Montreal East refineries as well as unplanned maintenance at the Sarnia Refinery. Refinery utilization improved as the third quarter 2005 was marked by a planned turnaround at the Scotford Refinery. Third-quarter 2005 earnings were also affected by high spot price purchases of gasoline to meet supply disruptions caused by Hurricanes Katrina and Rita, a charge of $25 million for the LTIP, and a favourable prior year tax adjustment of $25 million.
 
Oil Products earnings for the first nine months of 2006 were a record $560 million compared with $332 million in 2005. Improved refining light oil margins and an LTIP uplift offset reduced refinery yield.
 
The previously announced joint venture between Shell Canada's national cardlock network and Flying J's Canadian travel plazas is expected to contribute to increased network efficiency beginning in the fourth quarter. The company is now formed and working on an ambitious site development program, which will feature Shell fuels.
 
A major turnaround is scheduled to take place at the Sarnia Refinery between mid-October and mid-November.
 
Corporate
 
Corporate earnings for the third quarter of 2006 were $5 million compared with negative $8 million for the corresponding period in 2005. The change was due to an LTIP uplift of $27 million offset by higher debt charges, while the corresponding quarter in 2005 had an LTIP charge of $20 million. Corporate earnings for the first nine months of 2006 were $7 million compared with $72 million for the corresponding period in 2005. The change was mainly due to a favourable adjustment in 2005 related to the use of non-capital losses available to the Company resulting from the acquisition of an affiliated company, Coral Resources Canada ULC.
 
Page 4
SHELL CANADA LIMITED
Management’s Discussion and Analysis (continued)
 
 
Cash Flow and Financing
 
In the third quarter, cash flow from operations increased by $220 million to $906 million from $686 million for the same period last year. The increase is largely attributable to higher earnings and an increase in non-cash items. Cash flow from operations for the first nine months of 2006 was $2,155 million, an increase of $29 million from the same period in 2005.
 
Capital and predevelopment expenditures amounted to $592 million in the third quarter and $1,488 million for the first nine months of 2006, excluding the acquisition of BlackRock, compared with $410 million and $1,006 million respectively for 2005. The increase reflects an increased level of investment in growth projects including predevelopment work at the AOSP. Total capital and predevelopment expenditures for the year, excluding the BlackRock purchase price of $2.4 billion net of cash acquired, are expected to be in line with the announced investment plan of $2.7 billion for 2006.
 
Total debt outstanding at the end of the third quarter of 2006 was $1,459 million, which includes $954 million of commercial paper issued under the Company's $1.5 billion program, borrowings of $299 million against a $1 billion syndicated facility established in the second quarter of this year and $206 million for the mobile equipment lease. This compares with debt on the balance sheet of $211 million, mainly comprised of the mobile equipment lease, as at December 31, 2005.
 
Dividends paid in the third quarter of 2006 were $0.11 per common share totalling $90 million. This same level of dividend was paid in the first and second quarters of 2006 and reflects a 22 per cent increase in the dividend paid in the third quarter of 2005.
 
Share Information
 
At October 15, 2006, the Company had 825,541,514 common shares outstanding (July 15, 2006 - 825,464,564 common shares and 100 preference shares) and there were 22,333,630 employee stock options outstanding, of which 11,256,400 were exercisable or could be surrendered to exercise an attached share appreciation right (July 15, 2006 - 22,557,058 outstanding and 11,474,136 exercisable).
 
Effective September 30, 2006, the previously outstanding 100 preference shares were redeemed by the Company for cash consideration in accordance with their terms.
 
Page 5
SHELL CANADA LIMITED
Management’s Discussion and Analysis (continued)
 
 
 
Additional Information
 
Additional information relating to Shell Canada Limited filed with Canadian and U.S. securities regulatory authorities, including the Annual Information Form and Form 40-F, can be found online under the Company’s profile at www.sedar.com and www.sec.gov.
 
 
Cautionary Note
 
This document contains “forward-looking statements” based upon management’s assessment of the Company’s future plans and operations. These forward-looking statements include references to the Company’s plans for growth, future capital and other expenditures, drilling, development and expansion plans, construction activities, increased network efficiency, maintenance turnaround schedules, the submission of regulatory applications, the timing of investment decisions, project costs and schedules and oil and gas production levels.
 
Readers are cautioned not to place undue reliance on forward-looking statements. Although the Company believes that the expectations represented by such forward-looking statements are reasonable based on the information available to it on the date of this document, there can be no assurance that such expectations will prove to be correct. Forward-looking statements involve numerous known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company. These risks and uncertainties include, but are not limited to, the risks of the oil and gas industry (including operating conditions and costs), market competition, demand for oil, gas and related products, disruptions in supply, project schedules and execution, labour availability, material and equipment shortages, constraints on infrastructure, the uncertainties involving geology of oil and gas deposits, the uncertainty of reserves estimates, the receipt of regulatory approvals, fluctuations in oil and gas prices and foreign currency exchange rates, general economic conditions, changes in law or government policy, and other factors, many of which are beyond the control of the Company.
 
The forward-looking statements contained in this document are made as of the date of this document and the Company does not undertake any obligation to update publicly or revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained in this document are expressly qualified by this cautionary note.
 
Page 6
SHELL CANADA LIMITED
Management’s Discussion and Analysis (continued)
 
 
Certain financial measures are not prescribed by Canadian generally accepted accounting principles (GAAP). These non-GAAP financial measures do not have any standardized meaning and, therefore, may not be comparable with the calculation of similar measures of other companies. The Company includes as non-GAAP measures return on average capital employed (ROACE), cash flow from operations and unit cash operating cost because they are key internal and external financial measures used to evaluate the performance of the Company.
 
Certain volumes have been converted to barrels of oil equivalent (BOE). BOEs may be misleading, particularly if used in isolation. A conversion of six thousand cubic feet of natural gas to one barrel of oil, as used in this document, is based on the energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
 
Page 7
 

SHELL CANADA LIMITED
        
Financial Highlights
        
($ millions, except as noted)
        
(unaudited)
        
 
Third Quarter
Nine Months
 
2006
2005
2006
2005
         
         
Earnings
581
457
1 503
1 400
Revenues
4 028
3 956
11 225
10 351
Cash flow from operations1 
906
686
2 155
2 126
Return on average common shareholders' equity (%)
-
-
24.7
22.4
Per common share (dollars) (Note 6)
        
    Earnings - basic
0.70
0.55
1.82
1.70
    Earnings - diluted
0.70
0.55
1.80
1.68
    Dividends paid
0.110
0.090
0.330
0.257
         
Results by Segment (Note 2)
        
         
Earnings
        
    Exploration & Production
113
149
443
404
    Oil Sands
262
235
493
592
    Oil Products
201
81
560
332
    Corporate
5
( 8)
7
72
Total
581
457
1 503
1 400
Revenues
        
    Exploration & Production
487
642
1 669
1 740
    Oil Sands
1 034
953
2 339
2 447
    Oil Products
3 156
2 952
8 726
7 794
    Corporate
4
30
74
61
    Inter-segment sales
( 653)
( 621)
( 1 583)
( 1 691)
Total
4 028
3 956
11 225
10 351
Cash flow from operations1 
        
    Exploration & Production
235
236
769
668
    Oil Sands
341
421
600
1 051
    Oil Products
315
50
748
315
    Corporate
15
( 21)
38
92
Total
906
686
2 155
2 126
Capital and predevelopment expenditures
     
 
    Exploration & Production
183
134
558
477
    Oil Sands
315
134
677
230
    Oil Products
88
139
216
293
    Corporate
6
3
37
6
Total
592
410
1 488
1 006
Return on average capital employed (%)2
      
 
    Exploration & Production
-
-
33.9
27.8
    Oil Sands
-
-
16.3
20.8
    Oil Products
-
-
26.9
19.6
Total
-
-
22.7
21.6
 
Page 8

SHELL CANADA LIMITED
        
Operating Highlights
        
(unaudited)
        
         
 
Third Quarter
Nine Months
 
2006
2005
2006
2005
         
EXPLORATION & PRODUCTION (Note 2)
        
         
Production  
        
Natural gas (mmcf/d)
        
    Western Canada natural gas
414
393
417
389
    Sable natural gas
116
124
107
118
Total natural gas - gross
530
517
524
507
Total natural gas - net
429
412
423
408
       
 
Ethane, propane and butane (bbls/d) - gross
18 700
21 900
20 200
23 200
Ethane, propane and butane (bbls/d) - net
15 100
17 300
16 200
18 600
       
 
Condensate (bbls/d) - gross
12 700
15 400
13 100
15 100
Condensate (bbls/d) - net
9 900
12 200
10 300
11 700
       
 
Sulphur (tons/d) - gross
5 100
5 300
5 300
5 200
Sulphur (tons/d) - net
5 100
4 600
5 100
4 700
       
 
Sales3 - gross  
      
 
Natural gas (mmcf/d)
517
523
516
506
Ethane, propane and butane (bbls/d)
27 500
34 500
33 600
37 100
Condensate (bbls/d)
18 000
10 900
20 800
18 100
Sulphur (tons/d)
10 400
11 300
11 400
11 500
         
         
OIL SANDS (Note 2)
        
         
Production  
        
Bitumen (bbls/d) - gross
        
    Minable
98 700
99 100
74 400
92 300
    In situ
15 300
11 400
9 700
9 000
Total
114 000
110 500
84 100
101 300
         
Bitumen (bbls/d) - net
        
    Minable
97 700
98 100
73 600
91 400
    In situ
14 200
11 200
9 300
8 800
Total
111 900
109 300
82 900
100 200
         
Sales3   
        
    Synthetic crude sales excluding blend stocks (bbls/d)
98 500
101 100
76 700
95 000
    Purchased upgrader blend stocks (bbls/d)
39 300
34 300
34 100
35 100
Total synthetic crude sales (bbls/d)
137 800
135 400
110 800
130 100
         
    Bitumen product excluding diluent (bbls/d)
15 800
13 100
9 900
9 700
    Purchased diluent (bbls/d)
2 900
2 100
2 000
1 900
Total bitumen products (bbls/d)
18 700
15 200
11 900
11 600
         
In situ condensate (bbls/d)
2 200
2 000
2 600
2 200
         
Unit Costs4
        
         
Mining and upgrading operations
        
         
    Cash operating cost - excluding natural gas ($/bbl)
14.61
17.79
25.82
17.23
    Cash operating cost - natural gas ($/bbl)
4.32
6.46
5.45
5.65
Total cash operating cost ($/bbl)
18.93
24.25
31.27
22.88
    Depreciation, depletion and amortization ($/bbl)
6.43
5.69
5.87
6.02
Total unit cost ($/bbl)
25.36
29.94
37.14
28.90
 
Page 9

SHELL CANADA LIMITED
        
Operating Highlights (continued)
        
(unaudited)
        
 
Third Quarter
Nine Months
 
2006
2005
2006
2005
         
OIL SANDS (continued)
        
         
Unit Costs4
        
         
In situ operations
        
         
    Cash operating cost - excluding natural gas ($/bbl)
13.50
13.81
16.20
14.22
    Cash operating cost - natural gas ($/bbl)
5.09
6.47
8.10
10.91
Total cash operating cost ($/bbl)
18.59
20.28
24.30
25.13
    Depreciation, depletion and amortization ($/bbl)
5.31
4.82
8.03
4.63
Total unit cost ($/bbl)
23.90
25.10
32.33
29.76
         
         
OIL PRODUCTS
        
         
Sales3   
        
    Gasolines (m3/d)
21 100
21 500
20 800
21 100
    Middle distillates (m3/d)
20 300
20 400
19 900
20 400
    Other products (m3/d)
6 900
7 800
6 500
7 000
Total Oil Products sales (m3/d)
48 300
49 700
47 200
48 500
         
Crude oil processed by Shell refineries (m3/d)5
47 100
45 100
44 700
46 100
Refinery utilization (per cent)6
90
87
87
89
Earnings per litre (cents)7
4.5
1.8
4.4
2.5
         
Prices
        
Natural gas average plant gate netback price ($/mcf)
5.81
7.98
6.88
7.09
Ethane, propane and butane average field gate price ($/bbl)
34.79
33.63
35.20
31.15
Condensate average field gate price ($/bbl)
76.69
72.98
74.81
66.22
Synthetic crude average plant gate price ($/bbl)
68.37
66.37
63.98
57.77
 
Page 10

SHELL CANADA LIMITED
        
Financial and Operating Highlights
       
(unaudited)
        
         
         
Non-GAAP Measures
        
         
Certain financial measures are not prescribed by Canadian generally accepted accounting principles (GAAP). These
non-GAAP financial measures do not have any standardized meaning and, therefore, may not be comparable with
the calculation of similar measures for other companies. The Corporation includes as non-GAAP measures return on
average capital employed (ROACE), cash flow from operations and unit cash operating cost because they are key
internal and external financial measures used to evaluate the performance of the Corporation.
         
Definitions
        
         
1 Cash flow from operations is a non-GAAP measure and is defined as cash flow from operating activities
before movement in working capital and operating activities.
         
2 ROACE is a non-GAAP measure and is defined as the last four quarters’ earnings plus after-tax
interest expense on debt divided by the average of opening and closing common shareholders’ equity plus
preferred shares, long-term debt and short-term borrowings.
        
         
3 Exploration & Production and Oil Products sales volumes include sales to third parties only. Oil Sands sales
volumes include third-party and inter-segment sales.
       
         
4 Total unit cost for Oil Sands, including unit cash operating and unit depreciation, depletion and amortization
(DD&A) costs, is a non-GAAP measure. Unit cash operating cost for Oil Sands mining and upgrading is defined as:
operating, selling and general expenses plus cash cost items included in cost of goods sold (COGS), divided by synthetic
crude sales excluding blend stocks. Operating, selling and general expenses associated with mining and upgrading
were $531 million in the first nine months of 2006 and $134 million in the third quarter of 2006. Cash cost items included
in COGS were $123 million in the first nine months of 2006 and $39 million in the third quarter of 2006.
         
Unit cash operating cost for in situ operations is defined as: operating, selling and general expenses plus inter-segment
purchases of natural gas, divided by bitumen product sales excluding diluent. Operating, selling and general expenses
associated with in situ operations were $42 million in the first nine months of 2006 and $18 million in the third quarter of 2006.
Inter-segment purchases of natural gas were $22 million in the first nine months of 2006 and $7 million in the third quarter of 2006.
         
Unit DD&A cost for Oil Sands mining and upgrading is defined as: DD&A cost divided by synthetic crude sales excluding
blend stocks. Unit DD&A cost includes preproduction costs, which were written off over the first three years
of the project life (2003-2005).
 
 
 
 
 
 
 
 
 
Unit DD&A cost for in situ operations is defined as: DD&A cost divided by bitumen product sales excluding diluent.
         
5 Crude oil processed by Shell refineries includes upgrader feedstock supplied to Scotford Refinery.
         
6 Refinery utilization equals crude oil processed by Shell refineries divided by total capacity of Shell refineries,
including capacity uplifts at Scotford Refinery due to processing of various streams from the upgrader.
         
7 Oil Products earnings per litre equals Oil Products earnings after-tax divided by total Oil Products sales volumes.
 
Page 11

SHELL CANADA LIMITED
        
Consolidated Statement of Earnings and Retained Earnings
        
($ millions, except as noted)
        
(unaudited)
        
 
Third Quarter
Nine Months
 
2006
2005
2006
2005
         
Revenues
        
Sales and other operating revenues
4 012
3 925
11 145
10 146
Dividends, interest and other income
16
31
80
205
Total revenues
4 028
3 956
11 225
10 351
Expenses
      
 
Cost of goods sold
2 371
2 269
6 657
5 703
Operating, selling and general
424
694
1 634
1 756
Transportation
72
82
221
247
Exploration
25
42
86
98
Predevelopment
40
17
100
49
Depreciation, depletion, amortization and retirements
230
203
590
566
Interest on long-term debt
3
2
7
6
Other interest and financing charges
13
1
17
3
Total expenses
3 178
3 310
9 312
8 428
Earnings
      
 
Earnings before income tax
850
646
1 913
1 923
Current income tax
175
190
430
441
Future income tax
94
( 1)
( 20)
82
Total income tax
269
189
410
523
Earnings
581
457
1 503
1 400
Per common share (dollars) (Note 6)
      
 
    Earnings - basic
0.70
0.55
1.82
1.70
    Earnings - diluted
0.70
0.55
1.80
1.68
Common shares outstanding (millions - weighted average)
826
825
825
825
Retained Earnings
      
 
Balance at beginning of period
8 430
6 784
7 690
6 011
Earnings
581
457
1 503
1 400
 
9 011
7 241
9 193
7 411
Common shares buy-back
-
-
-
33
Dividends
90
74
272
211
Balance at end of period
8 921
7 167
8 921
7 167
 
Page 12

SHELL CANADA LIMITED
        
Consolidated Statement of Cash Flows
        
($ millions)
        
(unaudited)
        
 
Third Quarter
Nine Months
 
2006
2005
2006
2005
         
Cash from Operating Activities
        
Earnings
581
457
1 503
1 400
Exploration and predevelopment
-
29
80
80
Non-cash items
      
 
    Depreciation, depletion, amortization and retirements
230
203
590
566
    Future income tax
94
( 1)
( 20)
82
    Other items
1
( 2)
2
( 2)
Cash flow from operations
906
686
2 155
2 126
Movement in working capital and operating activities
      
 
    Accounts receivable securitization program
-
( 150)
-
( 150)
    Other working capital and operating items
( 219)
95
( 444)
( 260)
 
687
631
1 711
1 716
Cash Invested
      
 
Capital and predevelopment expenditures
( 592)
( 410)
( 1 488)
( 1 006)
Acquisition of BlackRock Ventures Inc. (Note 3)
-
-
( 2 428)
-
Movement in working capital from investing activities
62
40
162
16
Capital expenditures and movement in working capital
( 530)
( 370)
( 3 754)
( 990)
Proceeds on disposal of properties, plant and equipment
1
-
1
5
Investments and other
( 26)
-
( 26)
-
 
( 555)
( 370)
( 3 779)
( 985)
Cash from Financing Activities
      
 
Common shares buy-back
-
-
-
( 34)
Proceeds from exercise of common share stock options
1
2
5
6
Preferred stock redemption (Note 8)
( 1)
-
( 1)
-
Dividends paid
( 90)
( 74)
( 272)
( 211)
Long-term debt and other
-
( 1)
-
( 135)
Short-term financing
( 42)
-
1 253
-
 
( 132)
( 73)
985
( 374)
(Decrease) Increase in cash
-
188
( 1 083)
357
Cash at beginning of period
-
296
1 083
127
Cash at September 301   
-
484
-
484
         
Supplemental disclosure of cash flow information
        
    Dividends received
2
3
9
10
    Interest received
3
4
53
34
    Interest paid
18
3
26
10
    Income tax paid
138
124
601
560
         
         
1 Cash comprises cash and highly liquid short-term investments.
        
 
Page 13

SHELL CANADA LIMITED
      
Consolidated Balance Sheet
      
($ millions)
      
(unaudited)
      
       
 
Sep. 30, 2006
  
Dec. 31, 2005
       
Assets
      
Current assets
      
    Cash and short-term investments
-
 
1 083
    Accounts receivable
1 718
 
1 821
    Inventories
     
        Crude oil, products and merchandise
696
 
535
        Materials and supplies
100
 
92
    Prepaid expenses
104
 
71
    Future income tax
270
 
316
 
2 888
 
3 918
Investments, long-term receivables and other
726
 
671
Properties, plant and equipment
13 031
 
9 066
Goodwill (Notes 3 and 4)
234
 
-
Total assets
16 879
 
13 655
Liabilities
    
 
Current liabilities
      
    Short-term borrowings (Note 5)
1 253
 
-
    Accounts payable, accrued liabilities and other
2 276
 
2 242
    Income and other taxes payable
546
 
687
    Current portion of asset retirement and other long-term obligations
26
 
26
    Current portion of long-term debt
5
 
11
 
4 106
 
2 966
Asset retirement and other long-term obligations
600
 
545
Long-term debt
201
 
200
Future income tax
2 523
 
1 730
Total liabilities
7 430
 
5 441
       
Shareholders' Equity
      
Capital stock
      
    100 4% preference shares (Note 8)
-
 
1
    825 541 514 common shares (2005 - 825 102 612)
528
 
523
Retained earnings
8 921
 
7 690
Total shareholders' equity
9 449
 
8 214
Total liabilities and shareholders' equity
16 879
 
13 655
       
       
       
___________________________
      
Clive Mather, Director
      
       
       
___________________________
      
Kerry L. Hawkins, Director
      
 
Page 14

SHELL CANADA LIMITED
                      
Segmented Information
                      
($ millions)
                      
(unaudited)
                      
                       
 
Third Quarter
                       
       
 
              
 
  
 
Total
Exploration & Production
 
Oil Sands
 
Oil Products
 
Corporate
   
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
       
(Note 2)
  
(Note 2)
          
Revenues
                      
Sales and other operating revenues
  
4 012
3 925
447
535
557
520
3 007
2 844
1
26
Inter-segment sales
  
-
-
38
85
471
433
144
103
-
-
Dividends, interest and other income
  
16
31
2
22
6
-
5
5
3
4
Total revenues
  
4 028
3 956
487
642
1 034
953
3 156
2 952
4
30
Expenses
                    
 
Cost of goods sold
  
2 371
2 269
-
-
283
216
2 086
2 060
2
( 7)
Inter-segment purchases
  
-
-
57
63
128
118
468
440
-
-
Operating, selling and general
  
424
694
64
135
152
194
229
318
( 21)
47
Transportation
  
72
82
72
82
-
-
-
-
-
-
Exploration
 
25
42
25
42
-
-
-
-
-
-
Predevelopment
  
40
17
10
9
25
8
5
-
-
-
Depreciation, depletion,
                   
 
    amortization and retirements
  
230
203
94
90
66
59
70
54
-
-
Interest on long-term debt
  
3
2
-
-
-
-
-
-
3
2
Other interest and financing charges
  
13
1
-
-
-
-
-
-
13
1
Total expenses
  
3 178
3 310
322
421
654
595
2 858
2 872
( 3)
43
Earnings (loss)
                    
 
Earnings (loss) before income tax
  
850
646
165
221
380
358
298
80
7
( 13)
Current income tax
  
175
190
28
97
104
2
52
82
( 9)
9
Future income tax
 
94
( 1)
24
( 25)
14
121
45
( 83)
11
( 14)
Total income tax
  
269
189
52
72
118
123
97
( 1)
2
( 5)
Earnings (loss)
  
581
457
113
149
262
235
201
81
5
( 8)
 
Page 15

SHELL CANADA LIMITED
                      
Segmented Information (continued)
                      
($ millions)
                      
(unaudited)
                      
                       
 
 Nine Months
                       
       
 
              
 
  
 
Total
Exploration & Production
 
Oil Sands
 
Oil Products
 
Corporate
   
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
       
(Note 2)
  
(Note 2)
          
Revenues
                      
Sales and other operating revenues
  
11 145
10 146
1 518
1 513
1 237
1 118
8 368
7 486
22
29
Inter-segment sales
  
-
-
146
202
1 096
1 197
341
292
-
-
Dividends, interest and other income
  
80
205
5
25
6
132
17
16
52
32
Total revenues
  
11 225
10 351
1 669
1 740
2 339
2 447
8 726
7 794
74
61
Expenses
                    
 
Cost of goods sold
  
6 657
5 703
-
-
757
547
5 893
5 151
7
5
Inter-segment purchases
  
-
-
175
179
297
300
1 111
1 212
-
-
Operating, selling and general
  
1 634
1 756
281
335
573
499
768
829
12
93
Transportation
  
221
247
221
247
-
-
-
-
-
-
Exploration
 
86
98
86
98
-
-
-
-
-
-
Predevelopment
  
100
49
29
30
60
19
11
-
-
-
Depreciation, depletion,
                   
 
    amortization and retirements
  
590
566
271
255
145
169
171
141
3
1
Interest on long-term debt
  
7
6
-
-
-
-
-
-
7
6
Other interest and financing charges
  
17
3
-
-
-
-
-
-
17
3
Total expenses
  
9 312
8 428
1 063
1 144
1 832
1 534
7 954
7 333
46
108
Earnings (loss)
                      
Earnings (loss) before income tax
  
1 913
1 923
606
596
507
913
772
461
28
( 47)
Current income tax
  
430
441
158
248
83
45
196
285
( 7)
( 137)
Future income tax
 
( 20)
82
5
( 56)
( 69)
276
16
( 156)
28
18
Total income tax
  
410
523
163
192
14
321
212
129
21
( 119)
Earnings
  
1 503
1 400
443
404
493
592
560
332
7
72
                       
                       
Total assets
  
16 879
12 610
3 366
2 971
8 296
4 169
4 914
4 627
303
843
                       
Capital employed 1
  
10 908
7 908
2 251
1 912
5 676
2 744
2 657
2 299
324
953
                       
                       
                       
1 Capital employed is the total of equity, long-term debt and short-term borrowings.
          
 
Page 16
SHELL CANADA LIMITED
                      
Notes to Consolidated Financial Statements
              
(unaudited)

 
1. Accounting Policies
 
These financial statements follow the same accounting policies and methods of computation as, and should be read in conjunction with, the Consolidated Financial Statements for the year ended December 31, 2005, except as described in notes 2, 3 and 4.

Certain other information provided for prior periods has been reclassified to conform to the current presentation.

2. Segmented Information

Effective January 1, 2006, the Peace River business was transferred from Exploration & Production to the Oil Sands business unit. Segmented information for the relevant business units has been reclassified for the prior periods.

3. Acquisition of BlackRock Ventures Inc.

On June 21, 2006, the Corporation acquired more than 92 per cent of the outstanding common shares of BlackRock Ventures Inc. (BlackRock). The original offer was extended to June 27, 2006, and again to July 10, 2006, and additional common shares were acquired. The Corporation completed its acquisition of BlackRock and acquired all of the remaining common shares by way of compulsory acquisition on July 11, 2006. BlackRock was engaged in the development and production of heavy oil in Western Canada.
 
The Corporation's total consideration for the transaction was $2,570 million ($2,428 million net of cash acquired) including acquisition costs of $12 million and working capital of $108 million. Of the consideration paid, $3,092 million was allocated to oil and natural gas properties and $234 million was allocated to goodwill.

The Corporation's total consideration for the transaction was $2,570 million ($2,428 million net of cash acquired) including acquisition costs of $12 million and working capital of $108 million. Of the consideration paid, $3,092 million was allocated to oil and natural gas properties and $234 million was allocated to goodwill.

The acquisition was accounted for based on the purchase method and the allocation was supported by a third-party valuation. A summary of the purchase equation is presented as follows:

Net assets acquired ($ millions)
        
 
Oil and natural gas properties
3 092
   
 
Goodwill1
  
234
 
  
 
Working capital2
  
108
   
 
Other assets
  
1
   
 
Asset retirement obligations
  
( 11)
    
 
Future income tax liability
  
( 854)
    
     
2 570
   
           
1The $234 million of goodwill has no tax basis and was allocated to the Oil Sands business unit.
           
2Working capital acquired includes cash of $142 million.
 
Page 17
SHELL CANADA LIMITED
                      
Notes to Consolidated Financial Statements
              
(unaudited)

4. Goodwill

The goodwill is entirely due to the timing difference created between the tax basis of the assets compared to the fair value. Goodwill is not subject to amortization, but is tested for impairment on an annual basis, or more frequently if events occur that could result in impairment, by applying a fair value-based test.

5. Short-term borrowings

The Corporation entered into a $1 billion revolving credit facility ("the facility") during the second quarter of 2006. The facility was arranged with a syndicate of banks and matures on June 15, 2008.

This facility, along with the already established $1.5 billion commercial paper program, provided the Corporation with $2.5 billion of borrowing capacity. At September 30, 2006, the outstanding balance on the revolving credit facility was $299 million in the form of short-term borrowings that had an effective interest rate of 4.43 per cent. At September 30, 2006, the outstanding balance on the commercial paper program was $954 million at an effective interest rate of 4.40 per cent.

6. Earnings Per Share
             
     
Third Quarter
Nine Months
     
2006
2005
2006
2005
             
Earnings ($ millions)
  
581
457
1 503
1 400
             
Weighted average number of common shares (millions)
826
825
825
825
             
Dilutive securities (millions)
        
    Options under Long Term Incentive Plan
8
11
9
9
             
Basic earnings per share ($ per share)
0.70
0.55
1.82
1.70
Diluted earnings per share ($ per share)
0.70
0.55
1.80
1.68
 
Page 18

SHELL CANADA LIMITED
        
Notes to Consolidated Financial Statements (Continued)
        
(unaudited)
            
             
             
7. Employee Future Benefits
          
             
The Corporation's pension plans are described in the notes to the Consolidated Financial Statements
for the year ended December 31, 2005. The components of the pension expense in the Consolidated
Statement of Earnings are as follows:
             
             
     
Third Quarter
($ millions)
    
Pension Benefits
Other Benefits
     
2006
2005
2006
2005
Current service cost
  
12
9
1
1
Employee contributions
  
( 1)
( 1)
-
-
Interest cost
  
32
32
3
2
Expected return on plan assets
  
( 37)
( 34)
-
-
Amortization of transitional (asset) obligation
( 9)
( 9)
-
-
Amortization of net actuarial loss
  
22
18
1
-
Net expense
    
19
15
5
3
Defined contribution segment
  
7
4
-
-
Total
   
26
19
5
3
             
     
Nine Months
($ millions)
    
Pension Benefits
Other Benefits
     
2006
2005
2006
2005
Current service cost
  
34
27
2
2
Employee contributions
  
( 3)
( 3)
-
-
Interest cost
    
96
96
8
7
Expected return on plan assets
  
( 110)
( 102)
-
-
Amortization of transitional (asset) obligation
( 27)
( 27)
1
1
Amortization of net actuarial loss
  
66
54
3
-
Net expense
    
56
45
14
10
Defined contribution segment
  
20
10
-
-
Total
   
76
55
14
10
             
             
8. Preferred Stock Redemption
        
             
Effective September 30, 2006, the Corporation redeemed the previously outstanding 100 preference shares
for cash consideration in accordance with their terms.
Page 19